paper work 1

BUSINESS IN

ETHICAL FOCUS nd edition2

A n A n t hol o g y

Fritz Allhoff, Alexander Sager, and Anand J. Vaidya

EDITED BY

broadview press

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Unit 1

PRELIMINARIES Introduction: Why Study Business Ethics?

Anand J. Vaidya and Fritz Allhoff

THE WHAT AND WHY OF

BUSINESS ETHICS

What is business ethics, and why study it? One good way to get an answer to this question is by taking note of what business is, what ethics is, and then tying the two together.

Business as will be understood here is the sum total of the relationships and activities that surround the trading of goods or services. In most cases, businesses seek to profit from their activities, though it is increasingly common for businesses such as social enterprises to operate as non-profits. As a category, business includes everything from the selling of handmade products between two neighboring villages in India to large-scale multi- national corporations such as Nike and Microsoft engaged in global trade. Both the relationships between individuals involved in any aspect of business and the relationships between groups— corporations, divisions of them, unions, etc.—are important to understanding business as a whole.

Business ethics is important because it is involved centrally in most people’s lives. Almost all people are consumers of commercial goods. Businesses also employ many people, giving them not only a wage, but in many cases an identity and an opportunity to express creativity.

Ethics, in its broadest sense, is an investigation into how humans should live. Ethics is distinct from law since laws themselves can be objects of ethical criticism. Within the confines of a moral investigation, one can inquire as to whether a legal statute is consistent with morality.¹ For

example, slavery was once considered to be both morally permissible and legally permissible. Later many people disputed its morality even though it remained legally permissible.

Many ethicists divide their discipline into three branches: meta-ethics, normative ethics, and applied ethics. Meta-ethics explores conceptual and foundational questions in morality. Some of the questions are the following: Are there moral facts? Is morality objective? How do we come to know moral truths? Are moral claims the kinds of things that can be true or false, or are they sim- ply expressions of emotion? What is the primary object of moral evaluation?

Normative ethics is the study of which prin- ciples determine the moral permissibility and impermissibility of an action, or, more simply, what constitutes right and wrong. One approach to this, deontology, holds that morality is consti- tuted by rights and duties, and that those features take priority over the consequences of actions. An alternative approach, consequentialism, maintains that it is only the consequences of actions (often measured in terms of happiness and unhappiness) that determine the moral rightness of an action. Yet other theories, such as virtue theory, argue that actions are not the central objects of moral evaluation; rather, a person as a whole (and per- haps their character in particular) is the object of moral evaluation.

Applied ethics is the area which investigates specific problems and questions. Applied ethics includes such areas as biomedical ethics, computer ethics, environmental ethics, and, of course,

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business ethics. In applied ethics, for example, one may ask, “Is it just for companies to pursue profit within the confines of the law without con- sidering if their actions further the public good?” or “Is it morally permissible to bribe government officials abroad when this practice is widespread?” In applied ethics, one is concerned with the specific ethical issues that arise from the area being investigated.

Philosophers dispute the precise relation- ship between meta-ethics, normative ethics, and applied ethics. Some philosophers hold that one’s meta-ethical views and position in normative ethics have important implications for what one should claim when investigating specific ethical issues. Nonetheless, it is often possible to reach reasoned conclusions in applied ethics without settling contentious questions about the nature of morality or the content and justification of funda- mental moral principles.

Putting together this understanding of business and ethics we arrive at the following conception of business ethics. Business ethics is the area of inquiry into issues that arise out of the relationships and activities surrounding the production, distribution, marketing, and sale of goods and services. We can further divide business ethics into micro, meso, and macro issues. Micro issues concern the behavior of individual workers and employers. Some of the questions revolve around the rights, responsibili- ties, and obligations that employees bear to each other and to their employers. Likewise there are questions about what rights, responsibilities, and obligations employers bear to employees. Does an employer have, for example, a right to infor- mation about the employee that is irrelevant to job performance? If not, how is the concept of job relevance to be defined? What set of rights, in general, do employees have when they sell their labor? Does this include a safe work environment? If so, is it the employer’s obligation to provide it? What moral considerations help us understand why this is the case?

The meso level focuses on how businesses ought to be structured if they are to justly fulfill their role in society. The central debate has been over whether the sole responsibility of business is to maximize profit for shareholders or whether businesses also have significant moral respon- sibilities to stakeholders that go beyond profit maximization. This debate enquires into the immediate physical and social environment in which businesses are embedded, and to the future physical and social environment they will create. As a consequence, there are a host of ethical questions about the permissibility of polluting in the physical environment, and promoting socially important causes in the social environment.

A final set of questions for business ethics concerns macro level questions of political econ- omy and distributive justice. Businesses operate in economic, legal, and social environments that both facilitate and constrain their actions and impact. Questions of corporate social respon- sibility and obligations to individual employees depend in part on our conclusions about a just society. What are the advantages and drawbacks of capitalism as an economic system? What constitutes a fair distribution of wealth? How do we understand democracy and to what extent should economic actors be subject to democratic control? In many cases, our conclusions about the macro, meso, and micro levels will inform each other, giving a more thorough ethical understand- ing of key issues faced by businesses, employees, and the public.

Finally we are left with the following question: Why study business ethics? The simple answer is that, if you are like most people, you will at some point enter some sector of the business world. And, if you are like most people, you will discover very quickly that there are significant questions about right and wrong that arise in this walk of life. The issues that this volume discusses can at least provide you with the following: an under- standing of the issues one faces in the business world; some theoretical and practical tools one

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Vaidya & Allhoff | Introduction | 3

can use for analyzing ethical issues; and a frame- work for helping one construct an overall moral point of view. It is the hope of the editors of this book that everyone who takes to a serious study of this volume will come away with an appreciation for the role of morality within the world of business.

NOTE

1 We follow many philosophers in using “ethics” and “morality” synonymously in this introduction since within the discipline there is not an agreed upon distinction between the two terms.

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Foundational Issues

– 1 – ILL-FOUNDED CRITICISMS

OF BUSINESS ETHICS Anand J. Vaidya

In the wake of corporate scandals such as Enron and WorldCom at the turn of the millen- nium, corporate executives and business schools were compelled to reflect on how to incorporate ethics into their organizations and curricula (Association to Advance Collegiate Schools of Business 2004). Nonetheless, one still finds a ten- dency amongst people to look at business ethics as not that relevant to doing good business. Insofar as the importance of business ethics is acknowledged, it is treated as a laundry list of codes that one must obey in order to avoid penalties, and that to a cer- tain degree can be broken if one is careful. Cynical comments about business ethics as a contradiction in terms are common. Often people have in the back of their mind a conception of corporations ruthlessly seeking profit without regard to legal niceties or human cost.

The underlying assumption of this line of thought is that the concept of ethical conduct cannot be appropriately conjoined to the concept of business, that the concept of business transac- tion and negotiation is in tension with the concept of ethical conduct. At root the idea may be as simple as the claim that ethics is about a concern for the other at a possible cost to oneself, while business transactions are motivated by self-interest. Business, they say, involves wheeling and dealing, getting the better of your opponent; and, so they continue, business leaves ethics at the door. Ideas

like this are found in business literature starting as far back as the 1950s. Albert Z. Carr’s “Is Business Bluffing Ethical?” (1958) argues that business is a lot like playing poker, and so one should adopt the ethics of poker, which is at odds with ethical codes prescribed by Christianity and other tradi- tional religions.

Others point out that even when businesses adopt a “socially responsible” persona they do so out of the profit motive. Being socially responsi- ble is profitable; if it weren’t companies could not afford it. In order to survive in the marketplace one needs to make a profit; if being socially responsible requires sacrificing profits, then one could expect that their competitors will eventually force them out of the marketplace. The logic of competition puts socially responsible companies at a disadvan- tage. Competitors who decided not to be socially responsible would be able to displace socially responsible ones.

In order to clear the ground for the study of business ethics and to open the door to the fruits that may come from studying it, and from actually employing an ethical perspective in business, an end needs to be put to the idea that “business eth- ics” is an oxymoron, a somehow confused idea. In this essay I hope to exonerate business ethics of a couple of different criticisms that go together with the claim that it is an oxymoron. In section one, I will present the most common complaints about

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business ethics, and offer rebuttals. In section two, I will offer a diagnosis of the source of the view that business and ethics are incompatible, and show that it rests on a false understanding of what it takes for business to flourish.

1. COMMON COMPLAINTS

ABOUT BUSINESS ETHICS

The four most common complaints about business ethics are that it is

∙ Useless because individuals upon reaching a certain age are incapable of changing the way in which they determine whether an action is morally permissible (i.e., good or bad).

∙ Unfeasible because the demands of market competition do not permit a sincere commit- ment to ethical considerations.

∙ Indeterminate because ethicists disagree over normative theories (e.g., consequentialism, deontology, virtue ethics) and principles (e.g., maximize happiness, distribute goods to the worst off, respect rights to private property, privacy, etc.) rendering decisive answers impossible, which consequently takes the value out of business ethics.

∙ Beside the point because ethical inquiry is not what is needed; rather individuals behaving ethically is what is needed.

Each of these complaints serves as a reason for avoiding business ethics discussions in the corpo- rate world. And each of these can easily be shown to be unfounded.

The claim that business ethics is useless because by the time people enter the business world, roughly in their mid 20s to late 20s, their moral character has been, for the most part, formed for bad or good, rests on bad psychology, as well as bad reasoning.

First, consider the psychological assumption that a person’s moral character is static rather than revisable. It may be true that it is harder for people to change how they morally evaluate a situation at

an older age than at a younger age, because certain moral habits or evaluative behaviors are more ingrained. And, it is probably true that most of us enter the work force at an age at which we have lots of opinions about what is morally right and wrong. However, it is false to say that it is impossi- ble for one to change their moral viewpoint. More importantly, the attitude expressed by the “useless” argument is exactly the attitude that bars one from learning as a result of participation in community discussion about what is right and wrong. The fact is that we can change our moral point of view, and that listening and discussing things with others can have this result. Thus business ethics is important.

Second, critics of business ethics have argued that the nature of business, especially in a capitalist economy, makes ethical behavior impossible over the long run. On this account, business is commit- ted to the logic of competition and profit maximi- zation in the market place. In a capitalist econ- omy, businesses that allow ethical considerations to impede focusing on the bottom line will not survive. Business leaders may want to act ethically, but those who allow corporate social responsibility or a commitment to sustainability as something more than a façade to attract consumers will find themselves replaced by boards looking after the interests of shareholders. One problem with this line of reasoning is that corporate social respon- sibility seems to have a neutral or slightly positive effect on the bottom line (Economist Intelligence Unit 2008). The claim that people in businesses must act unethically if they want to compete is probably false.

While some complain that business ethics is useless or impossible, a third complaint is that the real problem is that business ethics is indetermi- nate, and therefore valueless. The position they offer is not without initial plausibility. Anyone who has taken a freshman level course in ethics is aware that there are different schools of thought in ethics such as consequentialism, deontology, and virtue ethics. Each of these major schools of thought has its own criterion as to what constitutes right action or right living.

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One brand of consequentialism, act- utilitarianism, says that the right action is that action from the set of available actions that maxi- mizes aggregate happiness. One brand of deontol- ogy, Kantianism, says that the right action is that action whose maxim can be universalized without contradiction. Depending on which ethical school I subscribe to, I may give different answers as to the morality of any action I may have to take in the busi- ness world. So the critic of business ethics can argue:

“What I wanted in the first place was to decide what to do based on what was morally permissible, but it is not possible for me to determine what is morally permissible until I know which school of moral thought is correct, and the ethicists have not settled that. Consequently, discussions of ethics in business will be indeterminate.” And what is ultimately inde- terminate, the critic of business ethics will argue, is without value. In order to understand this argument and locate the weakness in it, consider it in the following formal presentation.

1. Business ethicists disagree over first principles. 2. If theorists in a field disagree over first

principles, then determinate answers cannot be reached.

3. If determinate answers cannot be reached in a field of inquiry, then that field of inquiry is without value.

4. Therefore, business ethics is without value.

Interestingly enough, we can formulate this argu- ment with respect to any realm of inquiry where scholars of the discipline disagree over first princi- ples and/or methodology. Consider the following argument about economics.

1. Economists disagree over first principles. 2. If theorists within a field of inquiry disagree

over first principles, then determinate answers cannot be reached.

3. If determinate answers cannot be reached in a field of inquiry, then that field of inquiry is without value.

4. Therefore, economics is without value.

By looking at the mirror argument with respect to economics we can see the flaw in the critic’s position. Before analyzing the premises we can note that while many in the business world feel comfortable offering the argument about business ethics, they would not feel as comfortable offering the corresponding argument for economics. Those that find themselves comfortable with the former argument, but not the latter put themselves in the following logical dilemma: accept the conclusion to both arguments, reject both arguments, or find the disanalogy between the two cases. In this case, we should reject both arguments as unsound because premises (2) and (3) are false.

First, regarding (2), it should be noted that the critic’s use of “indeterminate” betrays an ambiguity. It does not follow from the claim that there are dis- putes over first principles within a discipline that all areas within the discipline are indeterminate. Economists, for example, may disagree in funda- mental ways about human rationality, the tendency of markets to settle into equilibria, or government intervention, but nonetheless converge on specific issues. For example, almost all economists agree that international trade is beneficial on a whole, though specific segments of society may suffer when confronted with international competition. In some cases, there may not be major disputes about which tools from economics are useful for resolving an issue: for example, in public policy, few people deny that a cost-benefit-risk analysis is relevant for many decisions, even if they disagree about how this analysis is best conducted or about its weight compared to other considerations such as public support or civil rights.

This holds in the case of ethics as well. Though ethicists may disagree about ethical theory, their judgments may converge in many cases. For exam- ple, utilitarians, who base ethics on the promotion of happiness, will often call for the respect of rights and obligations. The reason is that societies in which most people’s rights and obligations are honored tend to be happier. Indeed, a good deal of applied ethics occurs without explicit discussion of moral theory, since most ethical theorists agree

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that we should avoid harms and promote wellbeing, that we need to justify coercion, that under most circumstances discrimination and deception are wrong, and much else.

Regarding (3), it is hard to maintain that the indeterminacy within a discipline over first principles and methodology renders the discipline valueless. The main reason for this is the fact that debates about principles and methodologies are themselves valuable insofar as they can lead to clarification, resolution, and innovation.

Unlike the critic above who thinks that the indeterminacy of ethics renders it valueless, the frustrated critic of business ethics has recourse to a fourth complaint: business ethics is beside the point because we already know how people should act. The problem is getting them to act in that way. The members of Enron knew what they were doing was wrong when they committed fraudulent accounting practices to inflate their share price and engaged in insider trading, and they created a culture in which certain goals led to breaking the rules. What was needed was not more insight into what is wrong, but rather putting into play mecha- nisms that lead to people behaving morally.

While it is true that in general we would all benefit from everyone behaving morally, it is just false that we already, in general, know how to behave. Ethics is an on-going project; as technol- ogy advances and business takes on a new face, new ethical questions arise; and the answers to an ethical dilemma presented by new technology and business practice are not always answered by just looking at what we said in the past in the most relevantly similar cases.

But even if it were true that for the most part we know what the morally correct thing to do is in a given situation, it still would not be true that business ethics is beside the point. The underly- ing assumption required to make that inference is that studying business ethics has no effect on our motivations.

However, studying business ethics is not necessarily motivationally inefficacious. What is important is how we unpack the idea of “studying.”

If studying business ethics just amounts to memo- rizing a bunch of codes and passing an exam, it is fair to say that studying it is likely to only provide one with knowledge of what codes and principles to obey. While this project might be worthy in itself, it does not come close to motivating one to be ethical. But there is another way of under- standing the idea of “studying” business ethics. Being part of a business community where one can openly discuss how business should be conducted, and where one’s contributions are taken seriously and reflected upon by others can often open one’s mind to the possibility of change in light of the criticism of others.

Those who find that the pressure of the real world corporate environment pushes them away from the moral principles they believed in prior to entering the corporate world may discover that these principles are reactivated when they read case histories and debate what to do in particular and common situations. One of the best ways to learn about the consequences of cruelty is to read and discuss the great novels that portray it. Likewise, reading case histories representing com- mon ethically relevant business situations, and dis- cussing them, can reinforce values and bring clarity.

Secondly, ethics in general requires healthy debate and exchange of ideas. When a person offers an ethical position on a topic, and another disagrees, both parties have a prima facie obliga- tion to offer reasons and justifications for their positions. Unlike disputes about what is the best flavor of ice cream, where opponents may disagree with one another with no other reason than that they like the particular flavor that they do, the nature of moral discussion requires that reasons be offered. Moral discussions are often about the pos- sibility of harm to others, and most people in most cultures see the actions which have potential to harm others as requiring reasons and justifications. Consequently, and as a result of moral engagement, individuals can come to be motivated to act one way rather than another by acquiring new desires and beliefs through moral debate. It is often times noted that people feel most comfortable with

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an action they are about to take when they feel confident in the reasons they have for taking that action. Moral discussions can provide reasons, and confidence in those reasons.

Third, all of us at one time were new to the corporate environment and the pressures that arise in it, and most of us looked for guidance, not just from our colleagues and our bosses, but also from a source beyond them. One reason we searched for this was that we weren’t always sure that our bosses and colleagues were doing the morally right thing, or, for that matter, that they were even con- cerned with the morally right thing to do. Clearly, business ethics can provide guidance here. The study of ethics can provide us with a firm grasp of principles that can be applied in new situations to help us determine for ourselves what the morally right action is. The ability to reason about ethics can provide us with that sense of independence in thought that allows us to judge for ourselves whether our actions are morally right, and to criti- cize others.

2. THE BAKER AND THE

BUTCHER REVISITED

Let’s go back to the beginning. Where does the idea that business and ethics do not fit together come from? One promising place to look would be at the role of self-interest in economics. There is a famous passage quoted from Adam Smith’s 1778 Wealth of Nations:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love ...

The standard story based on this passage is that the sellers want our money, we want their prod- ucts, and the exchange benefits us all. As a result, there doesn’t seem to be any need for ethics in the exchange matrix. Rational individuals pursuing their own self-interest are all it takes for day-to-day

business dealings. Any imposition of ethical prin- ciples would be redundant.

While it is true that Smith paid tribute to self-interest in the passage above, it is a mis reading of the passage, pointed out by Amartya Sen, to take it that it excludes ethics from the matrix of exchange. By locating the specific sense in which self-interest is being celebrated by Smith, Sen claims we can bring out the sense in which ethics is an essential component of a system of exchange. What Smith was saying is that our motivation for exchange is self-interest. We are motivated to come to the marketplace to exchange our goods, not out of love for the other, but out of the neces- sity of self-preservation. The butcher sells his meat, the brewer his beer, and the baker his bread out of the obvious desire to procure money in order to purchase the goods they desire. Smith is not saying that business can function without ethical princi- ples to guide the exchange. By making a distinc- tion between the motivation for exchange and the features necessary for the flourishing of business we can see the appropriate roles of self-interest and how business ethics makes sense.

Ethical principles and codes of conduct are what allow for a system of exchange to flour- ish over long periods of time. In order to see the necessity of ethical principles and codes of conduct in the marketplace it will be instructive to look at a point made by Socrates in Book 1 of The Republic.

In discussion with Thrasymachus, Socrates points out that if a group has a common goal and every member of the group acts unjustly, then the attainment of the common goal will be frustrated. His point is made in an attempt to praise justice against Thrasymachus’ diatribe. Thrasymachus has praised the life of injustice and thievery because he understands justice to be a weakness, and injustice to be the power to take advantage of others with impunity. Socrates has pointed out that even though it is correct that thieves take advantage of others, and at times with impunity, it is not true that they live wholly unjust lives. In fact, Socrates points out, in their dealings with

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other thieves they obey rules, and have a code of conduct, that allows for their thievery in groups to prosper. Even in modern times Socrates’ point is common knowledge. The mafia has their own code of conduct, and individuals within their circle obey a code of conduct out of fear of punishment. If you are convinced that “the ethics of the mafia” is not an oxymoron, then you should equally be con- vinced that “business ethics” is not an oxymoron.

Socrates’ point connects well with the dis- tinction between the motivation for exchange and those features of a system necessary for its flourishing. Codes of conduct, rules, and guide- lines—ethical principles—are all required in order for business to flourish over time. Without ethical principles and rules the common goal of business— the exchange of goods for the benefit of all—would be frustrated, and less successful.

So, business and ethics do go together; and business ethics is not useless, valueless because indeterminate, or beside the point. Rather, ethics and business are connected in a way that is essen- tial for the very flourishing of business.

BIBLIOGRAPHY

Association to Advance Collegiate Schools of Business, “Ethics Education in Business Schools: Report of the Ethics Education Task Force to AACSB International’s Board of Directors.” 2004. http:// www.aacsb.edu/publications/researchreports/ archives/ethics-education.pdf

Albert Z. Carr, “Is Business Bluffing Ethical?” Harvard Business Review (January/February 1968). See below, 526–34.

Economist Intelligence Unit, “Corporate Citizenship: Profiting from a Sustainable Business.” (London: Economist Intelligence Unit, Ltd., 2008).

Plato, “Book 1,” Republic, translated by G.M.A. Grube and revised by C.D.C. Reeve (Indianapolis, Indiana: Hackett Publishing Company, 1992).

Amartya Sen, “Does Business Ethics Make Economic Sense?” Business Ethics Quarterly 3.1 (January 1993). See below, 1–17.

Clarence C. Walton, “The State of Business Ethics,” Enriching Business Ethics (New York: Plenum Press, 1990).

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– 2 – DOES BUSINESS ETHICS

MAKE ECONOMIC SENSE? Amartya Sen

1. INTRODUCTION

I begin not with the need for business ethics, but at the other end—the idea that many people have that there is no need for such ethics. That conviction is quite widespread among practitioners of economics, though it is more often taken for granted implicitly rather than asserted explicitly. We have to understand better what that conviction rests on, to be able to see its inadequacies. Here, as in many other areas of knowledge, the importance of a claim depends to a great extent on what it denies.

How did this idea of the redundancy of ethics get launched in economics? The early authors on economic matters, from Aristotle and Kautilya (in ancient Greece and ancient India respectively—the two were contemporaries, as it happens) to medi- eval practitioners (including Aquinas, Ockham, Maimonides, and others), to the economists of the early modern age (William Petty, Gregory King, François Quesnay, and others) were all much con- cerned, in varying degrees, with ethical analysis. In one way or another, they saw economics as a branch of “practical reason,” in which concepts of the good, the right and the obligatory were quite central.

What happened then? As the “official” story goes, all this changed with Adam Smith, who can certainly be described—rightly—as the father of modern economics. He made, so it is said, eco- nomics scientific and hard-headed, and the new

economics that emerged, in the nineteenth and twentieth centuries, was all ready to do busi- ness, with no ethics to keep it tied to “morals and moralizing.” That view of what happened—with Smith doing the decisive shooting of business and economic ethics—is not only reflected in volumes of professional economic writings, but has even reached the status of getting into the English liter- ature via a limerick by Stephen Leacock, who was both a literary writer and an economist:

Adam, Adam, Adam Smith Listen what I charge you with! Didn’t you say In a class one day That selfishness was bound to pay? Of all doctrines that was the Pith.

Wasn’t it, wasn’t it, wasn’t it, Smith?¹

The interest in going over this bit of history—or alleged history—does not lie, at least for this conference, in scholastic curiosity. I believe it is important to see how that ethics-less view of economics and business emerged in order to understand what it is that is being missed out. As it happens, that bit of potted history of “who killed business ethics” is altogether wrong, and it is particularly instructive to understand how that erroneous identification has come about.

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2. EXCHANGE, PRODUCTION

AND DISTRIBUTION

I get back, then, to Adam Smith. Indeed, he did try to make economics scientific, and to a great extent was successful in this task, within the limits of what was possible then. While that part of the alleged history is right (Smith certainly did much to enhance the scientific status of economics), what is altogether mistaken is the idea that Smith demonstrated—or believed that he had demonstrated—the redundancy of ethics in economic and business affairs. Indeed, quite the contrary. The Professor of Moral Philosophy at the University of Glasgow—for that is what Smith was—was as interested in the importance of ethics in behavior as anyone could have been. It is instructive to see how the odd reading of Smith—as a “no-nonsense” skeptic of economic and business ethics—has come about.

Perhaps the most widely quoted remark of Adam Smith is the one about the butcher, the brewer and the baker in The Wealth of Nations:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love....”² The butcher, the brewer and the baker want our money, and we want their products, and the exchange benefits us all. There would seem to be no need for any ethics—busi- ness or otherwise—in bringing about this better- ment of all the parties involved. All that is needed is regard for our own respective interests, and the market is meant to do the rest in bringing about the mutually gainful exchanges.

In modern economics this Smithian tribute to self-interest is cited again and again—indeed with such exclusivity that one is inclined to wonder whether this is the only passage of Smith that is read these days. What did Smith really suggest? Smith did argue in this passage that the pursuit of self-interest would do fine to motivate the exchange of commodities. But that is a very limited claim, even though it is full of wonderful

insights in explaining why it is that we seek exchange and how come exchange can be such a beneficial thing for all. But to understand the lim- its of what is being claimed here, we have to ask, first: Did Smith think that economic operations and business activities consist only of exchanges of this kind? Second, even in the context of exchange, we have to question: Did Smith think that the result would be just as good if the busi- nesses involved, driven by self-interest, were to try to defraud the consumers, or the consumers in question were to attempt to swindle the sellers?

The answers to both these questions are clearly in the negative. The butcher-brewer-baker simplicity does not carry over to problems of pro- duction and distribution (and Smith never said that it did), nor to the problem as to how a system of exchange can flourish institutionally. This is exactly where we begin to see why Smith could have been right in his claim about the motivation for exchange without establishing or trying to establish the redundancy of business or ethics in general (or even in exchange). And this is central to the subject of this conference.

The importance of self-interest pursuit is a helpful part of understanding many practical problems, for example, the supply problems in the Soviet Union and East Europe. But it is quite unhelpful in explaining the success of, say, Japanese economic performance vis-à-vis West Europe or North America (since behavior modes in Japan are often deeply influenced by other conventions and pressures). Elsewhere in The Wealth of Nations, Adam Smith considers other problems which call for a more complex motiva- tional structure. And in his The Theory of Moral Sentiments, Smith goes extensively into the need to go beyond profit maximization, arguing that

“humanity, justice, generosity, and public spirit, are the qualities most useful to others.”³ Adam Smith was very far from trying to deny the impor- tance of ethics in behavior in general and business behavior in particular.

Through overlooking everything else that Smith said in his wide-ranging writings and

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concentrating only on this one butcher- brewer- baker passage, the father of modern economics is too often made to look like an ideologue. He is transformed into a partisan exponent of an ethics-free view of life which would have horrified Smith. To adapt a Shakespearian aphorism, while some men are born small and some achieve small- ness, the unfortunate Adam Smith has had much smallness thrust upon him.

It is important to see how Smith’s whole- ness tribute to self-interest as a motivation for exchange (best illustrated in the butcher- brewer- baker passage) can co-exist peacefully with Smith’s advocacy of ethical behavior elsewhere. Smith’s concern with ethics was, of course, extremely extensive and by no means confined to economic and business matters. But since this is not the occasion to review Smith’s ethical beliefs, but only to get insights from his combination of economic and ethical expertise to understand better the exact role of business ethics, we have to point our inquiries in that particular direction.

The butcher-brewer-baker discussion is all about motivation for exchange, but Smith was—as any good economist should be—deeply concerned also with production as well as distri- bution. And to understand how exchange might itself actually work in practice, it is not adequate to concentrate only on the motivation that makes people seek exchange. It is necessary to look at the behavior patterns that could sustain a flourishing system of mutually profitable exchanges. The pos- itive role of intelligent self-seeking in motivating exchange has to be supplemented by the motiva- tional demands of production and distribution, and the systemic demands on the organization of the economy.

These issues are taken up now, linking the general discussion with practical problems faced in the contemporary world. In the next three sections I discuss in turn (1) the problem of organization (especially that of exchange), (2) the arrangement and performance of production, and (3) the challenge of distribution.

3. ORGANIZATION AND

EXCHANGE: RULES AND TRUST

I come back to the butcher-brewer-baker exam- ple. The concern of the different parties with their own interests certainly can adequately motivate all of them to take part in the exchange from which each benefits. But whether the exchange would operate well would depend also on organizational conditions. This requires institutional development which can take quite some time to work—a lesson that is currently being learned rather painfully in East Europe and the former Soviet Union. That point is now being recognized, even though it was comprehensively ignored in the first flush of enthu- siasm in seeking the magic of allegedly automatic market processes.

But what must also be considered now is the extent to which the economic institutions operate on the basis of common behavior patterns, shared trusts, and a mutual confidence in the ethics of the different parties. When Adam Smith pointed to the motivational importance of “regard to their own interest,” he did not suggest that this motivation is all that is needed to have a flourishing system of exchange. If he cannot trust the householder, the baker may have difficulty in proceeding to produce bread to meet orders, or in delivering bread with- out prepayment. And the householder may not be certain whether he would be sensible in relying on the delivery of the ordered bread if the baker is not always altogether reliable. These problems of mutual confidence—discussed in a very simple form here—can be incomparably more complex and more critical in extended and multifarious business arrangements.

Mutual confidence in certain rules of behavior is typically implicit rather than explicit—indeed so implicit that its importance can be easily over- looked in situations in which such confidence is unproblematic. But in the context of economic development, across the Third World, and also of institutional reform, now sweeping across what used to be the Second World, these issues

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of behavioral norms and ethics can be alto- gether central.

In the Third World there is often also a deep- rooted skepticism of the reliability and moral quality of business behavior. This can be directed both at local businessmen and the commercial people from abroad. The latter may sometimes be particularly galling to well established business firms including well-known multinationals. But the record of some multinationals and their unequal power in dealing with the more vulnerable coun- tries have left grounds for much suspicion, even though such suspicion may be quite misplaced in many cases. Establishing high standards of business ethics is certainly one way of tackling this problem.

There is also, in many Third World countries, a traditional lack of confidence in the moral behavior of particular groups of traders, for example mer- chants of food grains. This is a subject on which— in the context of the-then Europe—Adam Smith himself commented substantially in The Wealth of Nations, though he thought these suspicions were by and large unjustified. In fact, the empirical record on this is quite diverse, and particular expe- riences of grain trade in conditions of scarcity and famine have left many questions to be answered.

This is an issue of extreme seriousness, since it is now becoming increasingly clear that typi- cally the best way of organizing famine prevention and relief is to create additional incomes for the destitute (possibly through employment schemes) and then to rely on normal trade to meet (through standard arrangements of transport and sales) the resulting food demand. The alternative of bureau- cratic distribution of food in hastily organized relief camps is often much slower, more waste- ful, seriously disruptive of family life and normal economic operations, and more conducive to the spread of epidemic diseases. However, giving a crucial role to the grain traders at times of fam- ine threats (as a complement to state-organized employment schemes to generate income) raises difficult issues of trust and trustworthiness, in particular, that the traders will not manipulate the

precarious situation in search of unusual profit. The issue of business ethics, thus, becomes an altogether vital part of the arrangement of famine prevention and relief.

The problem can be, to some extent, dealt with by skillful use of the threat of government inter- vention in the market. But the credibility of that threat depends greatly on the size of grain reserves the government itself has. It can work well in some cases (generally it has in India), but not always. Ultimately, much depends on the extent to which the relevant business people can establish exacting standards of behavior, rather than fly off in search of unusual profits to be rapidly extracted from manipulated situations.

I have been discussing problems of organiza- tion in exchange, and it would seem to be right to conclude this particular discussion by noting that the need for business ethics is quite strong even in the field of exchange (despite the near-universal presence of the butcher-brewer-baker motivation of “regard to their own interest”). If we now move on from exchange to production and distribution, the need for business ethics becomes even more forceful and perspicuous. The issue of trust is cen- tral to all economic operations. But we now have to consider other problems of interrelation in the process of production and distribution.

4. ORGANIZATION OF PRODUCTION:

FIRMS AND PUBLIC GOODS

Capitalism has been successful enough in gen- erating output and raising productivity. But the experiences of different countries are quite diverse. The recent experiences of East Asian econo- mies—most notably Japan—raise deep questions about the modelling of capitalism in traditional economic theory. Japan is often seen—rightly in a particular sense—as a great example of successful capitalism, but it is clear that the motivation pat- terns that dominate Japanese business have much more content than would be provided by pure profit maximization.

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Different commentators have emphasized distinct aspects of Japanese motivational features. Michio Morishima has outlined the special char- acteristics of “Japanese ethos” as emerging from its particular history of rule-based behavior pattern.4 Ronald Dore has seen the influence of “Confucian ethics.”5 Recently, Eiko Ikegami has pointed to the importance of the traditional concern with

“honor”—a kind of generalization of the Samurai code—as a crucial modifier of business and eco- nomic motivation.6

Indeed, there is some truth, oddly enough, even in the puzzlingly witty claim made by The Wall Street Journal that Japan is “the only commu- nist nation that works” (30 January 1989, 1). It is, as one would expect, mainly a remark about the non-profit motivations underlying many economic and business activities in Japan. We have to under- stand and interpret the peculiar fact that the most successful capitalist nation in the world flourishes economically with a motivation structure that departs firmly—and often explicitly—from the pursuit of self-interest, which is meant to be the bedrock of capitalism.

In fact, Japan does not, by any means, pro- vide the only example of a powerful role of busi- ness ethics in promoting capitalist success. The productive merits of selfless work and devotion to enterprise have been given much credit for economic achievements in many countries in the world. Indeed, the need of capitalism for a moti- vational structure more complex than pure profit maximization has been acknowledged in various forms, over a long time, by various social scien- tists (though typically not by many “mainstream” economists): I have in mind Marx, Weber, Tawney, and others.7 The basic point about the observed success of non-profit motives is neither unusual nor new, even though that wealth of historical and conceptual insights is often thoroughly ignored in professional economics today.

It is useful to try to bring the discussion in line with Adam Smith’s concerns, and also with the general analytical approaches successfully devel- oped in modern microeconomic theory. In order

to understand how motives other than self-seeking can have an important role, we have to see the lim- ited reach of the butcher-brewer-baker argument, especially in dealing with what modern econo- mists call “public good.” This becomes particularly relevant because the overall success of a modern enterprise is, in a very real sense, a public good.

But what is a public good? That idea can be best understood by contrasting it with a “private good,” such as a toothbrush or a shirt or an apple, which either you can use or I, but not both. Our respective uses would compete and be exclusive. This is not so with public goods, such as a livable environment or the absence of epidemics. All of us may benefit from breathing fresh air, living in an epidemic-free environment, and so on. When uses of commodities are non-competitive, as in the case of public goods, the rationale of the self- interest- based market mechanism comes under severe strain. The market system works by putting a price on a commodity and the allocation between con- sumers is done by the intensities of the respective willingness to buy it at the prevailing price. When

“equilibrium prices” emerge, they balance demand with supply for each commodity. In contrast, in the case of public goods, the uses are—largely or entirely—non-competitive, and the system of giving a good to the highest bidder does not have much merit, since one person’s consumption does not exclude that of another. Instead, optimum resource allocation would require that the com- bined benefits be compared with the costs of pro- duction, and here the market mechanism, based on profit maximization, functions badly.

A related problem concerns the allocation of private goods involving strong “externalities,” with interpersonal interdependences working outside the markets. If the smoke from a factory makes a neighbor’s home dirty and unpleasant, without the neighbor being able to charge the factory owner for the loss she suffers, then that is an “external” relation. The market does not help in this case, since it is not there to allocate the effects—good or bad—that work outside the market. Public goods and externalities are related phenomena,

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and they are both quite common in such fields as public health care, basic education, environmental protection, and so on.

There are two important issues to be addressed in this context, in analyzing the organization and performance of production. First, there would tend to be some failure in resource allocation when the commodities produced are public goods or involve strong externalities. This can be taken either (1) as an argument for having publicly owned enter- prises, which would be governed by principles other than profit maximization, or (2) as a case for public regulations governing private enterprise, or (3) as establishing a need for the use of non-profit values—particularly of social concern—in private decisions (perhaps because of the goodwill that it might generate). Since public enterprises have not exactly covered themselves with glory in the recent years, and public regulations—while useful—are sometimes quite hard to implement, the third option has become more important in public discussions. It is difficult, in this context, to escape the argument for encouraging business ethics, going well beyond the traditional values of honesty and reliability, and taking on social responsibility as well (for example, in matters of environmental degradation and pollution).

The second issue is more complex and less recognized in the literature, but also more interest- ing. Even in the production of private commodities, there can be an important “public good” aspect in the production process itself. This is because production itself is typically a joint activity, super- visions are costly and often unfeasible, and each participant contributes to the over-all success of the firm in a way that cannot be fully reflected in the private rewards that he or she gets.

The over-all success of the firm, thus, is really a public good, from which all benefit, to which all contribute, and which is not parcelled out in little boxes of person-specific rewards strictly linked with each person’s respective contribution. And this is precisely where the motives other than narrow self-seeking become productively important. Even though I do not have the opportunity to pursue the

point further here, I do believe that the successes of “Japanese ethos,” “Confucian ethics,” “Samurai codes of honor,” etc., can be fruitfully linked to this aspect of the organization of production.

5. THE CHALLENGE OF

DISTRIBUTION: VALUES

AND INCENTIVES

I turn now to distribution. It is not hard to see that non-self-seeking motivations can be extremely important for distributional problems in general. In dividing a cake, one person’s gain is another’s loss. At a very obvious level, the contributions that can be made by ethics—business ethics and oth- ers—include the amelioration of misery through policies explicitly aimed at such a result. There is an extensive literature on donations, charity, and philanthropy in general, and also on the willing- ness to join in communal activities geared to social improvement. The connection with ethics is obvi- ous enough in these cases.

What is perhaps more interesting to discuss is the fact that distributional and productional problems very often come mixed together, so that how the cake is divided influences the size of the cake itself. The so-called “incentive problem” is a part of this relationship. This too is a much discussed problem, but it is important to clarify in the present context that the extent of the conflict between size and distribution depends crucially on the motivational and behavioral assumptions. The incentive problem is not an immutable feature of production technology. For example, the more narrowly profit-oriented an enterprise is, the more it would, in general, tend to resist looking after the interests of others—workers, associates, consum- ers. This is an area in which ethics can make a big difference.

The relevance of all this to the question we have been asked to address (“Does business ethics make economic sense?”) does, of course, depend on how “economic sense” is defined. If economic sense includes the achievement of a good soci- ety in which one lives, then the distributional

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improvements can be counted in as parts of sensible outcomes even for business. Visionary industrialists and businesspersons have tended to encourage this line of reasoning.

On the other hand, if “economic sense” is interpreted to mean nothing other than achieve- ment of profits and business rewards, then the con- cerns for others and for distributional equity have to be judged entirely instrumentally—in terms of how they indirectly help to promote profits. That connection is not to be scoffed at, since firms that treat their workers well are often very richly rewarded for it. For one thing, the workers are then more reluctant to lose their jobs, since more would be sacrificed if dismissed from this (more lucrative) employment, compared with alternative opportu- nities. The contribution of goodwill to team spirit and thus to productivity can also be quite plentiful.

We have then an important contrast between two different ways in which good business behav- ior could make economic sense. One way is to see the improvement of the society in which one lives as a reward in itself; this works directly. The other is to use ultimately a business criterion for improvement, but to take note of the extent to which good business behavior could in its turn lead to favorable business performance; this enlight- ened self-interest involves an indirect reasoning.

It is often hard to disentangle the two features, but in understanding whether or how business eth- ics make economic sense, we have to take note of each feature. If, for example, a business firm pays inadequate attention to the safety of its workers, and this results accidentally in a disastrous tragedy, like the one that happened in Bhopal in India some years ago (though I am not commenting at present on the extent to which Union Carbide was in fact negligent there), that event would be harmful both for the firm’s profits and for the general objectives of social well-being in which the firm may be expected to take an interest. The two effects are distinct and separable and should act cumulatively in an overall consequential analysis. Business eth- ics has to relate to both.

6. A CONCLUDING REMARK

I end with a brief recapitulation of some of the points discussed, even though I shall not attempt a real summary. First, the importance of business ethics is not contradicted in any way by Adam Smith’s pointer to the fact that our “regards to our own interest” provide adequate motivation for exchange (section 2). Smith’s butcher-brewer-baker argument is concerned (1) directly with exchanges only (not production or distribution), and (2) only with the motivational aspect of exchange (not its organizational and behavioral aspects).

Second, business ethics can be crucially important in economic organization in general and in exchange operations in particular. This relationship is extensive and fairly ubiquitous, but it is particularly important, at this time, for the development efforts of the Third World and the reorganizational attempts in what used to be the Second World (section 3).

Third, the importance of business ethics in the arrangement and performance of production can be illustrated by the contrasting experiences of different economies, e.g., Japan’s unusual success. The advantages of going beyond the pure pursuit of profit can be understood in different ways. To some extent, this question relates to the failure of profit-based market allocation in dealing with

“public goods.” This is relevant in two different ways: (1) the presence of public goods (and of the related phenomenon of externalities) in the commodities produced (e.g., environmental con- nections), and (2) the fact that the success of the firm can itself be fruitfully seen as a public good (section 4).

Finally, distributional problems—broadly defined—are particularly related to behavioral ethics. The connections can be both direct and valuational, and also indirect and instrumental. The interrelations between the size of the cake and its distribution increase the reach and relevance of ethical behavior, e.g., through the incentive prob- lem (section 5).

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NOTES

1 Stephen Leacock, Hellements of Hickonomics (New York: Dodd, Mead & Co., 1936), p. 75.

2 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; republished, London: Dent, 1910), vol. I, p. 13.

3 Adam Smith, The Theory of Moral Sentiments (revised edition, 1790; reprinted, Oxford: Clarendon Press, 1976), p. 189.

4 Michio Morishima, Why Has Japan “Succeeded”? Western Technology and Japanese Ethos (Cambridge: Cambridge University Press, 1982).

5 Ronald Dore, “Goodwill and the Spirit of Market Capitalism,” British Journal of Sociology, 34

(1983), and Taking Japan Seriously: A Confucian Perspective on Leading Economic Issues (Stanford: Stanford University Press, 1987).

6 Eiko Ikegami, “The Logic of Cultural Change: Honor, State-Making, and the Samurai,” mimeographed, Department of Sociology, Yale University, 1991.

7 Karl Marx (with F. Engels), The German Ideology (1845–46, English translation, New York: International Publishers, 1947); Richard Henry Tawney, Religion and the Rise of Capitalism (London: Murray, 1926); Max Weber, The Protestant Ethic and the Spirit of Capitalism (London: Allen & Unwin, 1930).

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– 3 – MANAGING TO BE ETHICAL

Debunking Five Business Ethics Myths

Linda Klebe Treviño and Michael E. Brown

The twenty-first century has brought corporate ethics scandals that have harmed mil- lions of employees and investors, and sent shock waves throughout the business world. The scan- dals have produced “perp walks” and regulatory backlash, and business ethics is once again a hot topic. Academics and managers are asking: What caused the recent rash of corporate wrongdoing, and what can we do, if anything, to prevent similar transgressions in the future? Perhaps because everyone has opinions about ethics and personal reactions to the scandals, a number of pat answers have circulated that perpetuate a mythology of business ethics management. In this article, we identify several of these myths and respond to them based upon knowledge grounded in research and practice.

MYTH 1: IT ’S EASY TO BE ETHICAL

A 2002 newspaper article was entitled, “Corporate ethics is simple: If something stinks, don’t do it.” The article went on to suggest “the smell test” or “If you don’t want to tell your mom what you’re really doing ... or read about it in the press, don’t do it.” The obvious suggestion is that being ethical in business is easy if one wants to be ethical. A further implication is that if it’s easy, it doesn’t need to be managed. But that suggestion disregards the complexity surrounding ethical decision- making, especially in the context of busi- ness organizations.

Ethical Decisions Are Complex

First, ethical decisions aren’t simple. They’re complex by definition. As they have for centuries, philosophers argue about the best approaches to making the right ethical decision. Students of business ethics are taught to apply multiple normative frameworks to tough dilemmas where values conflict. These include consequentialist frameworks that consider the benefits and harms to society of a potential decision or action, deonto- logical frameworks that emphasize the application of ethical principles such as justice and rights, and virtue ethics with its emphasis on the integrity of the moral actor, among other approaches. But, in the most challenging ethical dilemma situations, the solutions provided by these approaches conflict with each other, and the decision maker is left with little clear guidance. For example, multinational businesses with manufacturing facilities in devel- oping countries struggle with employment practice issues. Most Americans believe that it is harmful and contrary to their rights to employ children. But children routinely contribute to family income in many cultures. If corporations simply refuse to hire them or fire those who are working, these children may resort to begging or even more dangerous employment such as prostitution. Or they and their families may risk starvation. What if respecting the rights of children in such situations produces the greater harm? Such business deci- sions are more complex than most media reports

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suggest, and deciding on the most ethical action is far from simple.

Moral Awareness Is Required

Second, the notion that “it’s easy to be ethical” assumes that individuals automatically know that they are facing an ethical dilemma and that they should simply choose to do the right thing. But decision makers may not always recognize that they are facing a moral issue. Rarely do decisions come with waving red flags that say, “Hey, I’m an ethical issue. Think about me in moral terms!” Dennis Gioia was recall coordinator at Ford Motor Company in the early 1970s when the company decided not to recall the Pinto despite dangerous fires that were killing the occupants of vehicles involved in low-impact rear-end collisions. In his information-overloaded recall coordinator role, Gioia saw thousands of accident reports, and he followed a cognitive “script” that helped him decide which situations represented strong recall candidates and which did not. The incoming information about the Pinto fires did not penetrate a script designed to surface other issues, and it did not initially raise ethical concerns. He and his colleagues in the recall office didn’t recognize the recall issue as an ethical issue. In other examples, students who download their favorite music from the Internet may not think about the ethical impli- cations of “stealing” someone else’s copyrighted work. Or, a worker asked to sign a document for her boss may not recognize this as a request to

“forge” legal documents. Researchers have begun to study this phe-

nomenon, and they refer to it as moral awareness, ethical recognition, or ethical sensitivity. The idea is that moral judgment processes are not initiated unless the decision-maker recognizes the ethical nature of an issue. So, recognition of an issue as an

“ethical” issue triggers the moral judgment process, and understanding this initial step is key to under- standing ethical decision-making more generally.

T.M. Jones proposed that the moral intensity of an issue influences moral issue recognition, and

this relationship has been supported in research. Two dimensions of moral intensity—magnitude of consequences and social consensus—have been found in multiple studies to influence moral aware- ness. An individual is more likely to identify an issue as an ethical issue to the extent that a particular decision or action is expected to produce harmful consequences and to the extent that relevant others in the social context view the issue as ethically prob- lematic. Further, the use of moral language has been found to influence moral awareness. For example, in the above cases, if the words “stealing” music (rather than downloading) or “forging” documents (rather than signing) were used, the individual would be more likely to think about these issues in ethi- cal terms.

Ethical Decision-Making Is a Complex, Multi-Stage Process

Moral awareness represents just the first stage in a complex, multiple-stage decision-making pro- cess that moves from moral awareness to moral judgment (deciding that a specific action is morally justifiable), to moral motivation (the commitment or intention to take the moral action), and finally to moral character (persistence or follow-through to take the action despite challenges).

The second stage, moral judgment, has been studied within and outside the management literature. Lawrence Kohlberg’s well-known theory of cognitive moral development has guided most of the empir- ical research in this area for the past thirty years. Kohlberg found that people develop from childhood to adulthood through a sequential and hierarchical series of cognitive stages that characterize the way they think about ethical dilemmas. Moral reasoning processes become more complex and sophisticated with development. Higher stages rely upon cogni- tive operations that are not available to individuals at lower stages, and higher stages are thought to be “morally better” because they are consistent with philosophical theories of justice and rights.

At the lowest levels, termed “preconven- tional,” individuals decide what is right based upon

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punishment avoidance (at stage 1) and getting a fair deal for oneself in exchange relationships (at stage 2). Next, the conventional level of cognitive moral development includes stages 3 and 4. At stage 3, the individual is concerned with conforming to the expectations of significant others, and at stage 4 the perspective broadens to include society’s rules and laws as a key influence in deciding what’s right. Finally, at the highest “principled” level, stage 5, individuals’ ethical decisions are guided by princi- ples of justice and rights.

Perhaps most important for our purposes is the fact that most adults in industrialized soci- eties are at the “conventional” level of cognitive moral development, and less than twenty per cent of adults ever reach the “principled” level where thinking is more autonomous and principle-based. In practical terms, this means that most adults are looking outside themselves for guidance in ethical dilemma situations, either to significant others in the relevant environment (e.g., peers, leaders) or to society’s rules and laws. It also means that most people need to be led when it comes to ethics.

The Organizational Context Creates Additional Pressures and Complexity

Moral judgment focuses on deciding what’s right— not necessarily doing what is right. Even when people make the right decision, they may find it difficult to follow through and do what is right because of pressures from the work environment. Research has found that principled individuals are more likely to behave in a manner consistent with their moral judgments, and they are more likely to resist pressures to behave unethically. However, most people never reach the principled level. So, the notion that being ethical is simple also ignores the pressures of the organizational context that influence the relationship between moral judgment and action.

Consider the following ethical-dilemma situ- ation. You find yourself in the parking lot, having just dented the car next to you. The ethical deci- sion is relatively simple. It’s about you and your

behavior. No one else is really involved. You have harmed someone else’s property, you’re respon- sible, and you or your insurance company should pay for the repairs. It’s pretty clear that you should leave a note identifying yourself and your insur- ance company. Certainly, there may be negative consequences if you leave that note. Your insur- ance rates may go up. But doing the right thing in this situation is fairly straightforward.

Contrast that to business-context situations. It is much harder to “just say no” to a boss who demands making the numbers at all costs. Or to go above the boss’s head to someone in senior man- agement with suspicions that “managing earnings” has somehow morphed into “cooking the books.” Or to walk away from millions of dollars in busi- ness because of concerns about crossing an ethical line. Or to tell colleagues that the way they do business seems to have crossed that line. In these situations, the individual is operating within the context of the organization’s authority structure and culture—and would likely be concerned about the consequences of disobeying a boss’s order, walking away from millions of dollars in business, or blowing the whistle on a peer or superior. What would peers think? How would the leadership react? Would management retaliate? Is one’s job at risk?

It may seem curious that people often worry about whether others will think of them as too ethical. But all of us recognize that “snitches” rarely fit in, on the playground or in life, and whistleblow- ers are frequently ostracized or worse. The reasons for their ostracism are not fully understood, but they may have to do with humans’ social nature and the importance of social group maintenance. Research suggests that people who take principled stands, such as those who are willing to report a peer for unethical behavior, are seen as highly ethical while, at the same time, they are thought to be highly unlikable. Nearly a third of respon- dents to the 2003 National Business Ethics Survey said “their coworkers condone questionable ethics practices by showing respect for those who achieve success using them.” Further, about forty per cent

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of respondents said that they would not report misconduct they observed because of fear of retal- iation from management. Almost a third said they would not report misconduct because they feared retaliation from coworkers.

If you think this applies only to the playground or the factory floor, ask yourself why we haven’t seen more CEOs proclaiming how appalled they are at the behavior of some of their peers after recent ethics scandals. Yes, we heard from a few retired CEOs. But very few active senior execu- tives have spoken up. Why not? They’re probably uncomfortable passing moral judgment on others or holding themselves up as somehow ethically better than their peers. So, social context is important because people, including senior execu- tives, look to others for approval of their thinking and behavior.

In sum, being ethical is not simple. Ethical decisions are ambiguous, and the ethical decision- making process involves multiple stages that are fraught with complications and contextual pressures. Individuals may not have the cognitive sophistication to make the right decision. And most people will be influenced by peers’ and leaders’ words and actions, and by concerns about the consequences of their behavior in the work environment.

MYTH 2: UNETHICAL BEHAVIOR

IN BUSINESS IS SIMPLY THE

RESULT OF “BAD APPLES”

A recent headline was “How to Spot Bad Apples in the Corporate Bushel.” The bad-apple theory is pervasive in the media and has been around a long time. In the 1980s, during a segment of the McNeil Lehrer Report on PBS television, the host was interviewing guests about insider trading scandals. The CEO of a major investment firm and a business school dean agreed that the problems with insider trading resulted from bad apples. They said that educational institutions and businesses could do little except to find and discard those bad apples after the fact. So, the first reaction to ethical

problems in organizations is generally to look for a culprit who can be punished and removed. The idea is that if we rid the organization of one or more bad apples, all will be well because the orga- nization will have been cleansed of the perpetrator.

Certainly there are bad actors who will hurt others or feather their own nests at others’ expense—and they do need to be identified and removed. But, as suggested above, most people are the product of the context they find themselves in. They tend to “look up and look around,” and they do what others around them do or expect them to do. They look outside themselves for guidance when thinking about what is right. What that means is that most unethical behavior in business is supported by the context in which it occurs— either through direct reinforcement of unethical behavior or through benign neglect.

An example of how much people are influ- enced by those around them was in the news- paper in November, 2002. Police in New Britain, Connecticut confiscated a 50-ft. long pile of stolen items, the result of a scavenger hunt held by the

“Canettes,” New Britain high school’s all-girl drill team. According to the Hartford Courant, police, parents, and school personnel were astonished that 42 normally law-abiding girls could steal so many items in a single evening. But the girls had a hard time believing that they had done any- thing wrong. One girl said: “I just thought it was a custom ... kind of like a camaraderie thing, [and] if the seniors said it was OK and they were in charge, then it was OK!” In another incident in May 2003, suburban Chicago high school girls engaged in an aggressive and brutal “hazing ritual” that landed five girls in the hospital. We might say that these are teenagers, and that adults are different. But many of these teenagers are about to start jobs, and there are only a few years between these high school students and young people graduating from college. Most adults are more like these teens than most of us think or would prefer. The influence of peers is powerful in both cases.

When asked why they engaged in unethical conduct, employees will often say, “I had no choice,”

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or “My boss told me to do it.” Stanley Milgram’s obedience-to-authority experiments, probably the most famous social psychology experiments ever conducted, support the notion that people obey authority figures even if that means harm- ing another person. Milgram, a Yale psychologist, conducted his obedience-to-authority experiments in the Hartford community on normal adults. These experiments demonstrated that nearly two-thirds of normal adults will harm another human being (give them alleged electric shocks of increasing inten- sity) if asked to do so by an authority figure as part of what was billed as a learning experiment. Were these people bad apples? We don’t think so. Most of them were not at all comfortable doing what they were being asked to do, and they expressed sincere concern for the victim’s fate. But in the end most of them continued to harm the learner because the authority figure in a lab coat told them to do so.

How does this apply to work settings? Consider the junior member of an audit team who discovers something problematic when sampling a firm’s financials and asks the senior person on the audit team for advice. When the leader suggests putting the problematic example back and pick- ing another one, the young auditor is likely to do just that. The leader may add words such as the following: “You don’t understand the big picture” or “Don’t worry, this is my responsibility.” In this auditing example, the harm being done is much less obvious than in the learning experiment and the junior auditor’s responsibility even less clear, so the unethical conduct is probably easier to carry out and more likely to occur.

The bottom line here is that most people, including most adults, are followers when it comes to ethics. When asked or told to do some- thing unethical, most will do so. This means that they must be led toward ethical behavior or be left to flounder. Bad behavior doesn’t always result from flawed individuals. Instead, it may result from a system that encourages or supports flawed behavior.

A corollary of the bad-apples argument is that ethics can’t be taught or even influenced

in adults because adults are autonomous moral agents whose ethics are fully formed by the time they join work organizations, and they can’t be changed. This is simply not true. We know from many empirical studies that the large majority of adults are not fully formed when it comes to ethics, and they are not autonomous moral agents. They look outside themselves for guidance in ethical- dilemma situations, and they behave based to a large extent upon what those around them—lead- ers and peers—expect of them. So, we have to look at the very powerful signals that are being sent about what is expected. We also know that the development of moral reasoning continues into adulthood. Those who are challenged to wrestle with ethical dilemmas in their work will develop more sophisticated ways of thinking about such issues, and their behavior will change as a result.

MYTH 3: ETHICS CAN BE MANAGED

THROUGH FORMAL ETHICS

CODES AND PROGRAMS

If people in organizations need ethical guidance and structural support, how can organizations best provide it? Most large organizations now have formal ethics or legal compliance programs. In 1991 the US Sentencing Commission created sen- tencing guidelines for organizations convicted of federal crimes (see www.ussc.gov for information). The guidelines removed judicial discretion and required convicted organizations to pay restitution and substantial fines depending upon whether the organization turns itself in, cooperates with authorities, and whether it has established a legal compliance program that meets seven require- ments for due diligence and effectiveness. These formal programs generally include the following key elements: written standards of conduct that are communicated and disseminated to all employees, ethics training, ethics advice lines and offices, and systems for anonymous reporting of misconduct. The Sarbanes-Oxley law, passed during the sum- mer of 2002, requires corporations to set up an anonymous system for employees to report fraud

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and other unethical activities. Therefore, compa- nies that did not previously have such reporting systems are busy establishing them.

Research suggests that formal ethics and legal compliance programs can have a positive impact.

For example, the Ethics Resource Center’s National Business Ethics Survey revealed that in organizations with all four program elements (standards, training, advice lines, and reporting systems) there was a greater likelihood (78 per cent) that employees would report observed misconduct to management. The likelihood of reporting declined with fewer program elements. Only half as many people in organizations with no formal program said that they would report misconduct to management.

Yet, creating a formal program, by itself, does not guarantee effective ethics management. Recall that Enron had an ethics code, and the board voted to bypass its conflict-of-interest policy. Not surprisingly, research suggests that actions speak louder than words. Employees must perceive that formal policies go beyond mere window dressing to represent the real ethical culture of the organi- zation. For example, the National Business Ethics Survey reports that when executives and supervi- sors emphasize ethics, keep promises, and model ethical conduct, misconduct is much lower than when employees perceive that the “ethics walk” is not consistent with the “ethics talk.” In another study formal program characteristics were found to be relatively unimportant compared with more informal cultural characteristics such as mes- sages from leadership at both the executive and supervisory levels. In addition, perceived ethics program follow-through was found to be essential. Organizations demonstrate follow-through by working hard to detect rule violators, by following up on ethical concerns raised by employees, and by demonstrating consistency between ethics and compliance policies and actual organizational prac- tices. Further, the perception that ethics is actually talked about in day-to-day organizational activities and incorporated into decision-making was found to be important.

So, for formal systems to influence behavior, they must be part of a larger, coordinated cultural system that supports ethical conduct every day. Ethical culture provides informal systems, along with formal systems, to support ethical conduct. For example, the research cited above found that ethics-related outcomes (e.g., employee awareness of ethical issues, amount of observed misconduct, willingness to report misconduct) were much more positive to the extent that employees perceived that ethical conduct was rewarded and unethical conduct was punished in the organization. Further, a culture that demands unquestioning obedience to authority was found to be particularly harm- ful while a culture in which employees feel fairly treated was especially helpful.

The Fall of Arthur Andersen

Barbara Toffler’s book Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen (2003) can help us understand this notion of ethical (or unethical) organizational culture. Andersen transformed over a number of years from having a solid ethical culture to having a strong unethical culture. The company’s complete demise is a rather dramatic example of the potential results of such a transformation.

In the mid-1990s, Arthur Andersen did not have a formal ethics office, but it did have formal ethical standards and ethics training. Ironically, it also established a consulting group whose practice was aimed at helping other businesses manage their ethics. Barbara Toffler was hired to run that practice in 1995 after spending time on the Harvard Business School faculty and in her own ethics consulting business. After joining Andersen, Toffler learned quickly that the firm’s own ethical culture was slipping badly, and she chronicles that slippage in her book.

The book opens with the following statement “The day Arthur Andersen loses the public’s trust is the day we are out of business.” Steve Samek, country managing partner, made that statement on a CD-ROM concerning the firm’s Independence

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and Ethical Standards in 1999. It was reminiscent of the old Arthur Andersen. Andersen’s traditional management approach had been a top-down, “one firm” concept. Arthur Andersen had built a strong ethical culture over the years where all of the pieces fit together into a seamless whole that supported ethical conduct. No matter where they were in the world, if customers were dealing with Andersen employees, they knew that they could count on the same high-quality work and the same integrity. Employees were trained in the “Andersen Way,” and that way included strong ethics. Training at their St. Charles, Illinois training facility was sacred. It cre- ated a cadre of professionals who spoke the same language and shared the same “Android” values.

Founders create culture and Arthur Andersen was no exception. Toffler says that in the firm’s early days, the messages from the top about ethical conduct were strong and clear. Andersen himself said, “My own mother told me, ‘Think straight—talk straight.’ ... This challenge will never fail anyone in a time of trial and temptation.”

“Think straight, talk straight” became a mantra for decades at Arthur Andersen. Partners said with pride that integrity mattered more than fees. And stories about the founder’s ethics became part of the firm’s lore. At the young age of 28, Andersen faced down a railway executive who demanded that his books be approved—or else. Andersen said,

“There’s not enough money in the city of Chicago to induce me to change that report.” Andersen lost the business, but later the railway company filed for bankruptcy, and Arthur Andersen became known as a firm one could trust. In the 1930s Andersen talked about the special responsibility of accountants to the public and the importance of their independence of judgment and action. Arthur Andersen died in 1947 but was followed by leaders with similar convictions who ran the firm in the 1950s and 1960s, and the ethical culture continued for many years. Pretty much through the 1980s, Andersen was considered a stable and prestigious place to work. People didn’t expect to get rich— rather they wanted “a good career at a firm with a good reputation.”

But, the ethical culture eventually began to unravel, and Toffler attributes much of this to the fact that the firm’s profits increasingly came from management consulting rather than auditing. The leadership’s earlier commitment to ethics came to be drowned out by the firm’s increasing laser- like focus on revenues. Auditing and consulting are very different, and the cultural standards that worked so well in auditing didn’t fit the needs of the consulting side of the business. But this mismatch was never addressed, and the resulting mixed signals helped precipitate a downward spiral into unethical practices. Serving the client began to be defined as keeping the client happy and get- ting return business. And tradition became trans- lated into unquestioning obedience to the partner, no matter what one was asked to do. For example, managers and partners were expected to pad their prices. Reasonable estimates for consulting work were simply doubled or more as consultants were told to back into the numbers.

The training also began falling apart when it came to hiring experienced people from outside the firm—something that happened more and more as consulting took over. New employees had always been required to attend a three-day session designed to indoctrinate them into the culture of the firm, but new consultants were told not to forego lucrative client work to attend. So, Toffler never made it to the training, and many other con- sultants didn’t either.

By the time Toffler arrived at Andersen, the firm still had a huge maroon ethics binder, but no one bothered to refer to it. Ethics was never talked about. And, she says, “when I brought up the subject of internal ethics, I was looked at as if I had teleported in from another world.” The assump- tion, left over from the old days in auditing, was that “we’re ethical people; we recruit people who are screened for good judgment and values. We don’t need to worry about this stuff.” But, as we all learned, their failure to worry about ethics led to the demise of the firm.

Could a formal ethics office have helped Arthur Andersen? Probably not, unless that office

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addressed the shift toward consulting, identified the unique ethical issues faced in the consulting side of the business, developed ethical guidelines for consulting, and so on. It is easy for formal eth- ics offices and their programs to be marginalized if they don’t have the complete support of the organi- zation’s leadership and if they are inconsistent with the broader culture. In fact, Andersen still had ethics policies and they still talked about ethics in formal documents. But the business had changed along with the culture that guided employee actions every day, while the approach to ethics management had not kept pace.

MYTH 4: ETHICAL LEADERSHIP IS

MOSTLY ABOUT LEADER INTEGRITY

In our discussion of Arthur Andersen, we sug- gested the importance of leadership. But what is executive ethical leadership? The mythology of ethical leadership focuses attention narrowly on individual character and qualities such as integrity, honesty, and fairness. The Wall Street Journal recently ran a story on its website entitled

“Plain Talk: CEOs Need to Restore Character in Companies.” It said, “The chief problem affecting corporate America right now is not the regulatory environment or snoozing board directors. It’s char- acter.” But as Arthur Andersen demonstrated, lead- ers must be more than individuals of high charac- ter. They must “lead” others to behave ethically.

Recent research has found that certain individ- ual characteristics are necessary but not sufficient for effective ethical leadership. Such leadership at the executive level is a reputational phenomenon. In most large organizations, employees have few face-to-face interactions with senior executives. So, most of what they know about a leader is gleaned from afar. In order to develop a reputation for eth- ical leadership, an executive must be perceived as both a “moral person” and a “moral manager.”

Being perceived as a “moral person” is related to good character. It depends upon employee perceptions of the leader’s traits, behaviors, and decision- making processes. Ethical leaders are

thought to be honest and trustworthy. They show concern for people and are open to employee input. Ethical leaders build relationships that are char- acterized by trust, respect and support for their employees. In terms of decision-making, ethical leaders are seen as fair. They take into account the ethical impact of their decisions, both short term and long term, on multiple stakeholders. They also make decisions based upon ethical values and decision rules, such as the golden rule.

But being perceived as a “moral person” is not enough. Being a “moral person” tells followers what the leader will do. It doesn’t tell them what the leader expects them to do. Therefore, a reputa- tion for ethical leadership also depends upon being perceived as a “moral manager,” one who leads oth- ers on the ethical dimension, lets them know what is expected, and holds them accountable. Moral managers set ethical standards, communicate eth- ics messages, role model ethical conduct, and use rewards and punishments to guide ethical behavior in the organization.

Combining the “moral person” and “moral manager” dimensions creates a two-by-two matrix (see Figure 1). A leader who is strong on both dimensions is perceived to be an ethical leader. We can point to Arthur Andersen as an exemplar of ethical leadership. He was known as a strong ethical person who also clearly led his organization on ethics and values. People knew what they could expect of him, and they knew what he expected of them from an ethics perspective. Another exam- ple of ethical leadership is James Burke, CEO of Johnson & Johnson during the early 1980s Tylenol crisis (when Tylenol was laced with cyanide in the Chicago area). Burke handled that crisis master- fully, recalling all Tylenol at a huge financial cost to the firm. But his ethical leadership had begun much earlier when he first took the CEO helm. He focused the organization’s attention on the company’s long-standing credo and its values. He demanded that senior executives either subscribe to the credo or remove it from the wall. He didn’t want to run a hypocritical organization. He also launched the credo survey, an annual survey that

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asks employees how the company is doing relative to each of the credo values. Bill George, recently retired CEO of Medtronic, is a more current example of an ethical leader. In his book Authentic Leadership, George calls for responsible ethical leadership in corporate America while recounting his own struggles to stay true to the company’s mission and to himself.

A leader who is neither a moral person nor a moral manager is an unethical leader. In our research, Al Dunlap was frequently identified as an unethical leader. Subject of a book entitled Chainsaw, Dunlap was known as an expert turn- around manager. But while at Sunbeam, he also became known for “emotional abuse” of employees. As a result of his demands to make the numbers at all costs, employees felt pressure to use ques- tionable accounting and sales techniques, and they did. Dunlap also lied to Wall Street, assuring them that the firm would reach its financial projections. In the end, Dunlap could no longer cover up the sorry state of affairs, and he left a crippled com- pany when the board fired him in 1998. In 2002, he paid a $500,000 fine for financial fraud and agreed never to serve as an officer or director of a public corporation. Unfortunately, there are many candidates for a more current example of unethical leadership: Dennis Kozlowski from Tyco, Bernie

Ebbers from WorldCom, and Richard Scrushy from Health-South are just a few executive names attached to recent business scandals.

Leaders who communicate a strong ethics/ values message (who are moral managers), but who are not perceived to be ethical themselves (they are not moral persons) can be thought of as hypocritical leaders. Nothing makes people more cynical than a leader who talks incessantly about integrity, but then engages in unethical conduct himself and encourages others to do so, either explicitly or implicitly. Hypocritical leadership is all about ethical pretense. The problem is that by spotlighting integrity, the leader raises expec- tations and awareness of ethical issues. At the same time, employees realize that they can’t trust the leader.

Jim Bakker, the founder of PTL Ministries, is our favorite example of a hypocritical leader. At its peak, his television ministry had 2000 employ- ees and reached more than ten million homes. Bakker preached about doing the Lord’s work while raising funds for his Heritage USA Christian theme park. The problem was that he sold more memberships than could ever be honored. He tapped millions of dollars donated by his follow- ers to support PTL operating expenses including huge salaries and bonuses for his family and high

Moral Person

Weak Strong

M or

al M

an ag

er St ro

ng

Hypothetical Leader Jim Bakker

Michael Sears

Ethical Leader Arthur Andersen

James Burke Bill George

W ea

k

Unethical Leader Al Dunlap

Bernie Ebbers? Ethically Silent Leader

Sandy Weill? ?

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ranking PTL officials. PTL filed for bankruptcy in 1987, and Bakker spent eight years in prison.

Michael Sears, recently fired from Boeing for offering a job to an Air Force procurement specialist while she was overseeing negotiations with Boeing, represents a more recent example of a hypocritical leader. Sears had played a signif- icant role at the Boeing Leadership Center which is known for its programs related to ethics. Also, shortly before his firing, Sears released advance copies of his book Soaring Through Turbulence which included a section on maintaining high ethical standards.

We call the final combination ethically silent leadership. It applies to executives who are neither strong ethical nor strong unethical leaders. They fall into what employees perceive to be an ethi- cally neutral leadership zone. They may be ethical persons, but they don’t provide leadership in the crucial area of ethics, and employees aren’t sure where the leaders stand on ethics or if they care. The ethically silent leader is not perceived to be unethical but is seen as focusing intently on the bottom line without setting complementary ethical goals. There is little or no ethics message coming from the top. But silence represents an important message. In the context of all the other messages being sent in a highly competitive business envi- ronment, employees are likely to interpret silence to mean that the top executive really doesn’t care how business goals are met, only that they are met, so employees act on that message. Business leaders don’t like to think that their employees perceive them as ethically silent. But given the current cli- mate of cynicism, unless leaders make an effort to stand out and lead on ethics, they are likely to be viewed that way.

Sandy Weill, CEO of Citigroup, may fit the ethically silent leader category. The company has been playing defense with the media, responding to ugly headlines about ethics scandals, especially at its Smith Barney unit where stock analysts were accused of essentially “selling” their stock recom- mendations for banking business. Weill’s man- agement style is to hire competent people to run

Citigroup’s units and to let them do their jobs. That may work well for other aspects of the business, but ethics must be managed from the top and center of the organization. According to Fortune magazine, Weill has now “gotten religion,” if a bit late. Weill has “told his board that he feels his most important job from now on is to be sure that Citigroup operates at the highest level of ethics and with the utmost integrity.” New procedures and business standards are being developed at corpo- rate headquarters, and a new CEO was appointed at Smith Barney. However, Fortune also cites cyni- cism about this recent turnabout, noting that Weill is often “tone deaf” on ethical issues.

So, developing a reputation for ethical leader- ship requires more than strong personal character. Employees must be “led” from the top on ethics just as they must be led on quality, competitive- ness, and a host of other expected behaviors. In order to be effective ethical leaders, executives must demonstrate that they are ethical themselves, they must make their expectations of others’ ethi- cal conduct explicit, and they must hold all of their followers accountable for ethical conduct every day.

MYTH 5: PEOPLE ARE LESS

ETHICAL THAN THEY USED TO BE

In the opening to this article, we said that busi- ness ethics has once again become a hot topic. The media have bombarded us with information about ethics scandals, feeding the perception that morals are declining in business and in society more generally.

According to a poll released by the PR Newswire in summer 2002, sixty-eight per cent of those surveyed believe that senior corporate exec- utives are less honest and trustworthy today than they were a decade ago. But unethical conduct has been with us as long as human beings have been on the earth, and business ethics scandals are as old as business itself. The Talmud, a 1500-year-old text, includes about 2 million words and 613 direct com- mandments designed to guide Jewish conduct and culture. More than one hundred of these concern

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business and economics. Why? Because “transact- ing business, more than any other human activity, tests our moral mettle and reveals our character” and because “working, money, and commerce offer ... the best opportunities to do good deeds such as ... providing employment and building prosperity for our communities and the world.”

So, unethical behavior is nothing new. It’s difficult to find solid empirical evidence of changes over time. But studies of student cheating have found that the percentage of college students who admit to cheating has not changed much during the last thirty years. Some types of cheating have increased (e.g., test cheating, collaboration on individual assignments). Other types of cheating have declined (e.g., plagiarism, turning in another student’s work). Certainly, given new technologies and learning approaches, students have discov- ered some clever new ways to cheat, and profes- sors have their work cut out for them keeping up with the new methods. But the amount of overall cheating hasn’t increased that much. Further, when employees were asked about their own work organizations, the 2003 National Business Ethics Survey found that employee perceptions of ethics are generally quite positive. Interestingly, key indi- cators have actually improved since the last survey conducted in 2000.

Alan Greenspan said it well on July 16, 2002: “It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed [have] grown so enormously.” So, unethical behavior is nothing new, and people are probably not less ethical than they used to be. But the environment has become quite complex and is rapidly changing, providing all sorts of ethical challenges and opportunities to express greed.

If ethical misconduct is an ongoing concern, then organizations must respond with lasting solutions that embed support for ethics into their cultures rather than short-term solutions that can easily be undone or dismissed as fads. The risk is that the current media focus on unethical conduct will result in “faddish” responses that offer overly simplistic solutions and that result inevitably in disillusionment and abandonment. Faddish solutions often result from external pressures to

“do something” or at least look like you’re doing something. The current focus on scandal certainly includes such pressures. But the recognition that unethical conduct is a continuing organizational problem may help to convince managers that solutions should be designed that will outlast the current intense media focus.

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Systems of Moral Evaluation

– 4 – A BRIEF GUIDE TO THINKING

ABOUT BUSINESS ETHICS Alexander Sager

Gravity Payments, a credit card processing company that serves small businesses, received national media coverage when founder and CEO Dan Price announced his plan to raise the salary of all employees to $70,000. Price claimed that his inspiration came from an article by Daniel Kahneman and Angus Deaton that reported emo- tional well-being does not increase over $75,000.¹ Price paid for the increase in wage for the compa- ny’s 70 employees by cutting his own salary from $1.1 million to $70,000 and by diverting most of the company’s anticipated profit to wages.² In an interview on the Today Show, Price said:

I see everything I do as a responsibility and seeing growing inequality and how it’s harder to just make ends meet and live the normal American dream. You know, things are getting more and more expensive, especially in a city like Seattle and the wages aren’t keeping up. And so for me, we’re here to serve our clients primarily and that’s how we’re going to be suc- cessful. It’s not about making money. It’s about making a difference.

Price’s decision drew widespread praise, but also controversy. Some employees quit, outraged by colleagues in less skilled and demanding positions receiving large pay raises. Several customers ended their business with the firm, objecting to what

they perceived as a political statement or fearing fee hikes despite reassurances that this would not occur.³ As a result of legal fees and the use of prof- its and executive salary to fund the salary increase, Price had to rent out his house to make ends meet.4

Gravity Payment’s story provides a helpful case for thinking about how to do business ethics. Business ethics courses ask students to analyze topics and cases from an ethical perspective. Many students wonder what this involves. Though eth- ical reasoning and decision-making plays a major role in our everyday lives, in many cases it is not explicit. Most of us make decisions about what to do, how to interact with others, and what values to endorse without considering ethics in detail. We take norms for granted, not devoting significant effort to asking if they are justified, how they fit with other norms, or how they should be applied. As a result, students taking an ethics class often wonder what it means to think philosophically about the ethical issues involved.

The first challenge that students face in busi- ness ethics is identifying when an ethical issue exists. Ethics is bound up with all aspects of social life. In our everyday interactions, ethics is embed- ded in our norms, customs, and habits. People are able to work together, to purchase what they need to live, or, for that matter, to walk down a busy street because they share ethical assumptions about promises, responsibility, fairness, rights, and

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much else. The challenge is that these are often not identified as ethical assumptions. In real life, ethical considerations are often implicit, bound up with other types of consideration such as efficiency, and embedded in largely unexamined rules, regu- lations, and habits. For example, in the infamous Ford Pinto case, Ford failed to recall cars that were prone to fires from low-level rear-end collisions. Though many people are outraged by what they perceive as Ford’s pursuit of profit heedless of the cost of human lives, Linda Klebe Treviño and Michael E. Brown (Chapter 3) point out that it did not occur to the recall coordinator Dennis Gioia that an ethical issue was at stake. The danger posed by the Pinto did not register in the mental script that Gioia used to identify when a recall was warranted. Similarly, until recently, employers considered sexual harassment a personal issue, not a matter of ethics that needed to be addressed by workplace policies (see Chapters 66–69).5 Some ethical wrongdoing occurs because the wrong- doers did not realize ethics was at stake.

How, then, do we identify when an ethical issue is present? Unfortunately, there is no straightfor- ward answer or test. We come to identify ethical issues through exposure to them and through reflection. Thinking ethically involves what Aristotle called phronesis or practical wisdom (for more on this topic, see Chapter 7) which we acquire over time by experiencing and by working through ethi- cal issues. It is hard to substitute for life experience, but we can prepare ourselves to confront ethical issues in the workplace by studying case studies that raise ethical issues. Moral cognition and imagina- tion surrounding business can also be developed by reading novels, non-fiction (including biographies), and watching movies and television programs that explore moral issues involving work.6

Though there is no formula for identifying ethical issues, we can use clues to help determine if an ethical issue is at stake. Applied ethics often deals with the impact of individual conduct and institutions on well-being and freedom. Does busi- ness as a social institution contribute to well-being and human flourishing? Does it have an obligation

to do so? This is related to the topic of distribution: what role should business and the market have in determining the distribution of goods? For exam- ple, debates surrounding corporate social respon- sibility concern businesses’ obligations—if any—to different stakeholders. Questions about freedom often address government regulations. When are governments morally justified in restricting what businesses can do? How much power ought democratic decision-making have over the private sector? Many other questions concern employees’ rights. What rights do employees have and what do these imply for employers’ obligations?

A reaction some people have to Gravity Payments’ wage raise is that it is an amoral action, i.e., an action that is neither right nor wrong. On this view, Price’s action is simply his choice and not one that can be criticized morally (though we might criticize its wisdom or view it as an action that we do not personally endorse). Though many of us would agree that Price had a right to raise his employees’ salaries and that nobody should have had the power to stop him from doing so, the ethics of his decision is more complicated. That an agent has a right to do or not do something does not necessarily settle whether it is a moral (or the morally best) action, only that the agent should be allowed to perform it.

We can think about the Gravity Payments case on a number of levels. First, we can ask about the moral issues at stake in the workplace, especially those that concern managers and employees. Many issues in business ethics concern how corpora- tions treat the people who work for them (and in some cases non-employees affected by their actions). Do businesses have a right to monitor their employees? Can they demand certain forms of behavior of their employees outside of working hours? What safety standards must they meet? How much do they have to compensate them? What control, if any, should employees have over company decisions?

In the case of Gravity Payments, many of the major ethical issues concern distributive jus- tice—who gets what for what reasons? We can ask

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whether it was just for Price to have paid himself a $1.1 million salary in the first place. Though Price has suggested that his salary was set by the market rate, it appears that he received significantly more than other CEOs working at companies simi- lar in size and profitability to Gravity Payments. Moreover, we can question if salaries should be set simply by what employees or CEOs can command on the market, as opposed to some other form of desert, need, equality, or other criteria. The view that Price received excessive compensation may also be at the heart of a lawsuit filed by his brother and major shareholder.7

Price’s shift to radically egalitarian compen- sation where everyone makes $70,000 also raises issues of fairness and desert. Is it just for employ- ees who contribute more with their education, skills, experience, and hours worked to receive the same compensation as employees who offer less? Even worker cooperatives such as Spain’s Mondragon Corporation allow for some inequality in wages.8 Morality may demand that workers be paid differently.

Beyond issues of compensation within the company, there are larger questions about the purpose of business and the nature of corporate social responsibility. Karen Weise from Bloomberg Business reports Price asking: “Is [the purpose of business] to maximize shareholder returns? Or is it to best serve the customers and provide for employees?”9 Price represents himself as advo- cating a new vision of business where one set of stakeholders—in this case employees—benefits more than is typically the case. As the readings on corporate social responsibility in this anthology attest, this is a controversial view.

To see how this extends beyond Gravity Payment’s shareholders (who may have a legitimate complaint at Price’s decision to divert profits to employee wages), we can ask what would occur if all or even many businesses followed his lead. Ignoring the issue that part of the reason that Price could take this measure is that Gravity Payments is a small, privately owned company,¹0 we can wonder how generalizing this policy would affect

recruitment, motivation, investment, and much else. It may be that Price’s ability to pay each worker significantly over the media wage is para- sitical on a larger economic system where wages are largely set by supply and demand. If this is true, Gravity Payments cannot serve as a general model for corporate social responsibility.

How we view distributive justice within Gravity Payments will also be influenced by our macro-level views about how goods ought to be distributed. If we think that distributive justice mostly involves allowing the free market to allo- cate resources through supply and demand, then we will likely be attracted to a view of corporate social responsibility where businesses should focus on competing in the market. If our view of distrib- utive justice instead emphasizes government redis- tribution to correct inequities caused by unbridled capitalism, then we may think corporations have broader obligations to diverse stakeholders.

MORAL THEORY AND

BUSINESS ETHICS

So far I have tried to show that the case of Gravity Payments raises many fundamental issues in business ethics related to distribution and also to our vision of businesses’ role in a just economy. Once we’ve identified ethical issues, the next step is analyzing them. How does one defend an ethi- cal position?

Many people new to applied ethics imagine that applied ethics involves taking an ethical theory such as utilitarianism, Kantianism, virtue ethics, or care ethics (see Chapters 5–8) and applying it to the matter at hand. In fact, many early textbooks in applied ethics, including business ethics, took this approach. Though this approach is initially appeal- ing and ethical theory is important, the role of ethical theory in the publications of most business ethicists is considerably more complex. There is no formula for determining how to use moral theory in applied ethics.

In order to see this, it is necessary to clarify what an ethical theory is. Ethical theories seek to

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provide a systematic account of ethical concepts and principles (or they explain why this isn’t pos- sible).¹¹ They advance some sort of test to guide actions such as asking if they maximize happiness or if proposed actions or principles would be assented to by an impartial observer. If successful, these tests would allow us to adjudicate between competing moral demands. A fully developed moral theory will provide guidance on how we should live and act.

Though applied ethicists sometimes work within an ethical theory when thinking through moral issues, this is rarely done through a straight- forward top-down application of their preferred theory to an issue. Even if we accept that moral issues should ideally be addressed within an ethical theory, judgment is needed to determine what the ethical theory tells us. For example, a consequen- tialist may believe that ethical theory tells us we should strive to maximize happiness. Even if we can reach agreement on what happiness is (a topic of considerable disagreement among philosophers and psychologists), we still need to ask how to maximize happiness, when intervention is war- ranted, and who is responsible for acting. It is far from clear whether Dan Price’s actions would be recommended by a consequentialist ethical theory.

A deeper concern with employing an ethical theory as the basis for ethical analysis in applied ethics is that philosophers have not reached an agreement about which ethical theory to endorse. Fundamental issues such as whether actions can be right or wrong independently of their conse- quences have not been resolved. This creates a problem: if we see applied ethics as the application of ethical theory, then it would seem that we need to resolve longstanding controversies about ethical theory first. This would be a bleak conclusion for anyone hoping that philosophical ethics can pro- vide guidance for how we should live and act.

Fortunately, applied ethicists are able to pro- ceed without relying on a developed ethical theory, drawing on widespread (though not universal) agreement about ethics. Often, moral issues can be analyzed based on factors that most people

and philosophers accept regardless of their ethical theory. Often moral theories are more controver- sial than many moral judgments. We do not need a moral theory to tell us that wanton cruelty is wrong or that causing harm is impermissible unless there are good reasons for it. In fact, if a moral theory implied that we should lie, cheat, steal, or murder, this would be evidence of the inadequacy of the theory, not of our moral judgments.

If it is possible to proceed in business ethics without explicit reference to an ethical theory, why learn about ethical theory? First, an aware- ness of ethical theory can sharpen our awareness of ethical issues and considerations. Asking ourselves what ethical theories say about a case can help alert us to morally salient information. Consequentialist theories based on maximizing happiness lead us to ask if policies and institutions promote the overall good. Theories that take their basis in the work of Immanuel Kant remind us of the importance of autonomy and of treating peo- ple as ends in themselves and not as mere means. Feminist theories alert us to the possibility of gender-based discrimination and oppression. The diversity of moral theories can help us recognize moral considerations that our preconceptions or prejudices may have led us to overlook.

For example, David Price claimed that his decision to raise wages was based on research suggesting about emotional well-being. Well-being is widely recognized as an important ethical value and consequentialist ethical theories tell us that in many cases we have a duty to promote well- being. Does Price’s decision in fact improve the well-being of his employees and other stakeholders associated with Gravity Payments? Is it likely to do so in the long run? Consequentialist theories also address questions of distribution, possibly drawing on theories of distributive justice in political phi- losophy. What principles should be used to deter- mine if a distribution is just? Few moral or political philosophers endorse Price’s crude egalitarian principle that gives no weight to individual differ- ence or merit. Knowledge of these theories helps us analyze and criticize Price’s moral reasoning.

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Knowledge of moral theory will also alert us to the possibility that well-being may not be all that matters. For instance, does Price’s decision to pay all employees the same regardless of differences in their skills, educations, or position treat his employees with respect or as ends in themselves? Sometimes equitable treatment demands that we recognize differences. What employers owe to their stakeholders may not be simply to act in ways that maximize their well-being, but also to fulfil obligations. For example, even if Price does not have a legal obligation to shareholders such as his brother, there may be an implicit agreement that he do so. This may hold even if diverting profits to wages creates more overall wellbeing.

The study of ethical theory introduces us to many conceptual resources developed by philoso- phers to navigate moral controversies. Ethical theo- rists seek to systematize our intuitions about ethics and to defend their accounts against rival theories. As a result, they have developed distinctions to better fit their theories to our moral convictions. Distinctions between actions that are obligatory (we must perform them) and actions that are superogatory (performing them goes beyond what is morally required), between negative freedom (freedom from interference) and positive freedom (freedom to be able to do something) help us clarify what is at stake. An understanding of these distinctions gained by studying moral theory pro- vides us with a toolkit for ethical analysis.

THE SOCIAL SCIENCES AND ETHICS

Knowledge of moral theory is important in busi- ness ethics, but it is also necessary to know a great deal about business, economics, law, psychology and other fields. People (including philosophers) who attempt to practice business ethics with little practical and theoretical knowledge of business often advance naïve and crude views. For example, the popular view that corporate leaders invariably seek to maximize profits or shareholder value regardless of the harm caused to stakeholders does not survive a cursory scrutiny of companies’

business practices. Some business leaders are ruthless and unscrupulous, but there are plenty of cases that indicate that businesses and their leaders can strive to meet moral ideals. Famous cases such as Aaron Feuerstein’s commitment to rebuilding Malden Mills (Chapter 16), the Grameen Bank (Chapter 24), or Café Feminino (Chapter 88) rebut the claim that businesses practice corporate social responsibility only for public relations or because it is more profitable in the long run. Indeed, the practice of business ethics is largely premised on evidence that businesses sometimes meet ethical standards and that if they increasingly do so, it will increase their value to society.

Another reason why empirical knowledge is necessary in business ethics is that many ethical disputes turn on matters of fact rather than on val- ues or moral principles. People often reach moral conclusions based on false, inaccurate, or one-side beliefs. For example, to effectively analyze Gravity Payments, it is important to understand that it is a private business. This is crucial for understand- ing Price’s obligations to shareholders. If Gravity Payments were a publically traded company, Price would have faced legal constraints and quite pos- sibly moral obligations to honor expectations and contracts.¹² Another fact to keep in mind is Gravity Payments is a small company, so a redistribution of executive compensation and profits made it possible to substantially raise wages. In firms that employ thousands or more workers, this would not substantially raise their salaries.¹³ These facts alert us to the possibility that if our concern is equality, we might be better looking at other redistributive practices such as taxation, rather than salaries.

Ethical disputes may also depend on what empirical theories tell us about the world. Parties may generally agree on morally desirable outcomes, but dispute which institutions or social arrange- ments are most likely to produce these outcomes. Many of the most fundamental controversies in business ethics concern how markets function— or do not function—in different contexts. For example, advocates of shareholder conceptions of corporate social responsibility do not believe that

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shareholders are all that matter morally. Rather, their conviction is that when business is structured around benefiting shareholders, society benefits: competition between firms aiming to increase shareholder value increases efficiency, leading to lower prices for higher quality consumer goods.

To assess these debates, business ethicists need to understand markets, where they succeed and, perhaps even more importantly, under which circumstances they fail.¹4 They need to under- stand firms and should acquire a working knowl- edge of areas such as institutional economics and theories such as agency theory (see Chapter 15). Business does not exist in a vacuum. Government regulation is also important. This brings in the study of law and policy and also of human psy- chology which is often relevant for business ethics. Learning these subjects can occupy a lifetime, but a basic knowledge of these subjects helps identify, understand, and assess authors’ theoret- ical convictions. Perhaps even more importantly, learning a little bit about these topics should teach us modesty about the complexity of the world and the limits of our understanding. Applied ethics demands moral reflection with an invitation to learn more about the world: we need to make an effort to understand how things are to think about how they should be.

NOTES

1 Kahneman, D., and A. Deaton. 2010. “High Income Improves Evaluation of Life but Not Emotional Well-Being.” Proceedings of the National Academy of Sciences 107 (38): 16489–93. doi:10.1073/ pnas.1011492107.

2 Cohen, Partricia. 2015. “One Company’s New Minimum Wage: $70,000 a Year.” New York Times, April 13. http://www.nytimes.com/2015/04/14/ business/owner-of-gravity-payments-a-credit-card- processor-is-setting-a-new-minimum-wage-70000- a-year.html.

3 Cohen, Partricia. 2015. “A Company Copes with Backlash Against the Raise That Roared,” July 31. http://www.nytimes.com/2015/08/02/

business/a-company-copes-with-backlash-against- the-raise-that-roared.html.

4 Howell, Kellan. 2015. “Dan Price, Seattle CEO Who Set Company Minimum Wage at $70K, Struggles to Make Ends Meet.” Washington Times, August 1. http://www.washingtontimes.com/ news/2015/aug/1/dan-price-seattle-ceo-who-set- company-minimum-wage/.

5 For an overview of the issue of sexual harassment in business ethics, see Dromm, Keith. 2012. Sexual Harassment: An Introduction to the Conceptual and Ethical Issues. Peterborough, Ontario: Broadview Press.

6 Kennedy, Ellen J., and Leigh Lawton. 1992. “Business Ethics in Fiction.” Journal of Business Ethics 11 (3): 187–95.

7 Weise, Karen. 2015. “The CEO Paying Everyone $70,000 Salaries Has Something to Hide.” Bloomberg Business, December 1. http://www.bloomberg.com/ features/2015-gravity-ceo-dan-price/.

8 For an exploration of distributive justice, see the first two sections of Unit 6.

9 Weise 2015. 10 MacDonald, Chris. 2015. “Why Gravity Payments’

$70,000 Minimum Salary, Sadly, Won’t Catch On.” The Business Ethics Bowl. April 16. http:// businessethicsblog.com/2015/04/16/why-gravity- payments-70000-minimum-salary-sadly-wont- catch-on/.

11 Readers looking for a systematic overview of ethical theory may find useful Kagan, Shelly. 1998. Normative Ethics. Dimensions of Philosophy Series. Boulder, Colo: Westview Press.

12 Chris MacDonald raises this point. 13 Yglesias, Matthew. 2015. “What We Can Learn

from the CEO Who Took a 93% Pay Cut to Give His Team a Raise.” Vox, April 15. http://www.vox. com/2015/4/15/8420203/dan-price.

14 Two useful overviews of economics for the gen- eral reader are Wheelan, Charles J. 2010. Naked Economics: Undressing the Dismal Science. Fully rev. and updated. New York: W.W. Norton, and Chang, Ha-Joon. 2014. Economics: The User’s Guide. New York: Bloomsbury Press.

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– 5 – UTILITARIANISM

David Meeler

In everyday life, we make a host of value judgments. Some of these have nothing to do with morality, such as which shoes are better for running or which restaurant has more tasty food. Other value judgments are obviously moral. For instance, many people think that murder is wrong or stealing violates basic human rights. Most of the ordinary claims we make can be tested for truth. If I say “The class average on the mid-term is 78,” we can verify this. But how are we to test value claims? Suppose I say “Espresso is good.” How can we determine if I am telling the truth? Maybe I just mean “I like espresso.” Suppose instead that I say

“Charity is good,” or “Rape is wrong.” Should the test be any different? Many people begin testing claims by checking for shared meaning of the terminology. If “espresso” is just my word for “mass murder” then we have a problem. Now, you and I probably won’t have radical confusion between words like “espresso” and “mass murder,” but terms like “good” and “bad” aren’t always straightforward. So, one important way that many philosophers begin addressing issues in ethics is to investigate the meaning of our value terms. One of the factors differentiating utilitarians from other ethicists is their definition of value-terms, and this is where we’ll start our look into utilitarianism.

To begin with, utilitarianism instructs us to do the greatest good we can for the greatest number of our ethical compatriots. Although some elements of utilitarian theory can be traced to Epicurus (341–270 BCE), its fullest form is that associated with Jeremy Bentham (1748–1832 CE) and John Stuart Mill (1806–73 CE). These two

philosophers developed many of the principles and approaches still used by utilitarians today. Like many philosophical theories, it is easy to provide a quick statement of the key themes in utilitarianism, though it can be difficult to master the subtleties inherent in a richer understanding of the view. Let me start with a simplistic version.

In its most basic form, utilitarian thinking is associated with hedonism. Hedonism is the view that good and bad go along with pleasure and pain. Bentham’s utilitarian foundations were hedonistic. In his investigation of how we use the word “good,” Bentham noticed that it’s usually when we are talking about things that bring us pleasure (or at least diminish our pain); and those things we call

“bad” are those that cause us pain (or take away our pleasure). For instance, I get pleasure from chocolate-chip cookies, while you may find apples to be a source of endless joy. Similarly, studying for math tests always brought me distress, while some people are perpetually vexed by writing philosophy papers. In terms of a utilitarian theory then, the hedonist version says we should gener- ate the most pleasure (or diminish as much pain) as we can for the relevant moral parties. This aspect of hedonism only describes how people use the terms, and as a result this is referred to as

“descriptive” hedonism. From this simple begin- ning based on the psychological preferences of people, Bentham goes on to suggest that we ought to promote pleasure and diminish pain in our daily choices and activities. Thus, Bentham shifts from speaking descriptively about the world to offering the guidance of a standard for behavior, which is

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called a “norm.” As a result, we say that this version is “normative” hedonism.

This view sounds simple enough, but almost immediately an interesting question emerges. Is it the cookie that is good? Or the pleasure the cookie causes? For hedonists, it is really the pleasure or pain, and not the cookie itself that is the root of our value terms. Cookies are good because they generate pleasure; of course, too many cookies are bad because that produces displeasure. But the pleasure or pain we feel is an effect of some other cause. The general approach that focuses on effects, or outcomes, is called consequentialism because the value of an action, or a thing, is found in the consequences that result. Consequentialism, in general, has a strong foothold in common sense. Most of us believe that we should endeavor to improve the world. At the least, most people try to make things better for themselves and their fam- ilies. When we strive to make the world a better place, we are trying to achieve certain outcomes, or consequences that we think are good; and we judge the value of our choices in part by the quality of the results. For example, we often trade today’s struggle for tomorrow’s gain, such as studying hard and making good grades in order to get better jobs that make it easier to provide well for our families. And when we assess our actions (as well as the actions of others) we generally look to see what good came from our choices, or whether any harm was done. The old adages “All’s well that ends well” and “No harm; no foul” nicely sum up this intu- ition. Hedonism is merely one kind of utilitarian theory. We can say that utilitarianism is the most famous consequentialist theory.

While the basic idea of hedonism has some intuitive appeal, several aspects remain unad- dressed. For example, critics say when we rest our morality on mere pleasure we debase humanity. Common sense tells us that consequences are important, but it also seems that not all conse- quences are equal. The distinction that arises here is between the mere amount of pleasure (quanti- tative consequentialism) and the kind of pleasure we get (qualitative consequentialism). Jeremy

Bentham clearly seems to have advocated quanti- tative consequentialism, for he famously said that playing a simple board-game has as much value as reading fine poetry, so long as equal amounts of pleasure are created. After all, different peo- ple get pleasure from different activities. John Stuart Mill, on the other hand, favored qualitative consequentialism. Mill suggests that, like dia- monds, pleasures can be divided into higher and lower grades. Higher pleasures include intellectual pleasures, such as working on mathematical proofs, while lower pleasures are more basic, like sen- sory experiences.

Having said that, Mill’s choice of what kinds of activities we include in the higher and lower plea- sures is not arbitrary. His strategy is quite interest- ing. Mill begins with the practical notion that we must ask people to judge whether pleasures of the intellect are qualitatively better than pleasures of the body. But there is a catch. We need only adhere to the opinions of competent judges. If someone can experience and appreciate both types of plea- sure, then they are competent judges of the relative values. This also rests firmly on common sense. If you were going to ask someone whether reggae music is better than country music would you ask someone who only liked one and hated the other? Would you ask someone who hated both? No. Any time we make a comparative value judgment between things, Mill thinks it is important to first be capable of enjoying each. Only then will you be in a position to make the call. As it turns out, Mill says, all competent judges agree that intellectual pleasures are of a higher quality than physical plea- sures. Mill’s move from quantitative consequential- ism to qualitative consequentialism is an important development in utilitarian ethical theories.

In addition to illustrating consequentialism, the example of pleasurable cookies highlights an important ethical distinction: that between intrinsic value and extrinsic value. Intrinsic value (which you can think of as “inside” value) is the value that a thing has in and of itself. Intrinsic value is also called “inherent” value. Extrinsic value (which you may think of as “outside” value) is when

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one thing is valuable because it leads to something else. Extrinsic value is also called “instrumental” value because one thing is valued as a tool, or an instrument, for getting something else. Money is often used as an example of something with only extrinsic value. When you think about it, money isn’t really worth much in and of itself; the great- est value found in money is that other people are willing to trade things for it. So having at least average amounts of money usually brings pleasure to people because money is a general device that can be used to get the specific things that make us happy. As a result, money is valuable for what it can get you. But not all things are like this. If you are reading this book, it is highly probable that you are a university student. As such, you may have heard the saying “Education is its own reward.” The meaning of this expression is built on the idea that education has intrinsic value. Of course, we all know education has extrinsic value as well. Studies indicate that college graduates have higher earning potential over the course of their lives. So your col- lege education will likely lead to more money over the long term. Since education has both intrinsic and extrinsic value, ethicists say that education’s value is “mixed.” Many things in the world have mixed value because they are valued both intrinsi- cally and extrinsically.

As well as making the switch from quantitative consequentialism to qualitative consequentialism, Mill made another important change to Bentham’s basic utilitarian idea. Where Bentham focused his analysis of value terms on pleasure and pain, Mill’s emphasis is on “happiness” more generally. Although Bentham speaks of happiness and Mill understood happiness (at least in part) as related to pleasure and pain, they each emphasized a differ- ent component. So Mill’s idea represents a shift in utilitarian thinking. We can paraphrase Mill’s understanding of utilitarianism as follows: produce the greatest balance of happiness over unhappiness for all members of our moral community. This focus on happiness rather than pleasure is one of the most fundamental changes Mill made to the utilitarian starting points elucidated by Bentham

in part because it includes the shift to qualita- tive consequentialism.

Moreover, Mill thinks that happiness holds a special place in the world: it is the only thing that we value only inherently. Mill’s argument for this claim has two primary points. First, Mill suggests that happiness is a universal goal; the greatest proof of the desirability of happiness is the simple fact that everyone desires to be happy. Obviously, we don’t all desire the same things because different things make each of us happy. But in the end, every person wants to be happy. So, one aspect of Mill’s argument for the inherent value of happiness is that happiness is the end result of our various chains of extrinsically valued achieve- ments. Perhaps you get good grades to get into a good law-school to get a high-paying job to make enough money to buy a Ferrari to make you happy. In short, we might say that all of our value-roads lead to happiness. The second important feature of Mill’s argument is that happiness just doesn’t work like money; we don’t want happiness because of other things that happiness can bring. Granted, it is probably true that if you are happy then you will have more positive relationships, or make more lucrative sales, etc. Mill’s point is that this is not the reason why we value happiness. We value hap- piness purely for its own sake, and not for the other things it gets us. As a general rule, we don’t seek to use our happiness to get something else more desirable. Even asking what we expect happiness to get us reveals a fundamental misunderstanding of the inherent value we place on happiness.

Another aspect of utilitarianism—or con- sequentialism more generally—that we haven’t addressed centers on the recipient of the outcome. Up to now I have spoken of generating good conse- quences for our “ethical compatriots,” “members of our moral community,” and for “all relevant parties,” but I have left these groups undefined. So we don’t know who belongs to these groups. As a result, one might readily ask some important questions of utilitarians: Should I generate good consequences for myself or my family? Should I generate good consequences for my community or for everyone?

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In its weakest form, utilitarianism requires me to consider the impact of my actions on all those parties who are affected. But this apparently simple idea can quickly become complicated. First, it seems that many people can be affected by a single act. Imagine that I throw a glass bottle out of my car window, which breaks in the road. Another car drives over the glass and pops a tire. Changing the tire makes the driver late to get home, which irritates his wife so much that she kicks the family dog, which then runs out of the house down to the park and bites a child. Does the child’s dog-bite count as part of the consequence of my littering? It is difficult to specify exactly how many extended consequences I should be held accountable for. In general, utilitarians suggest that the consequences I am responsible for are those relatively close to the action itself, so the dog-bite would not count. For most utilitarians, the driver’s upset wife would not count either since there is no way I could reason- ably foresee those events. However, the driver getting a flat tire does count because it is to be expected when you throw glass onto the road.

Secondly, I am probably much more inter- ested in the consequences for me than I am in the consequences for others, especially those who aren’t significant to me. Nevertheless, utilitarian ideals forbid me from giving more importance to my consequences over others who are affected by my actions. Traditional utilitarians like Bentham and Mill believed in strict equality among those affected by an action. In other words, when you assess the value of your actions, you must be impartial as to who gets the good or bad con- sequences. Benefits or burdens that fall on one person are just as important as those befalling another; even when the person is you. So I can’t count my pain as more important than your pain. In fact, this facet of neutrality in classical utili- tarianism requires me to treat the consequences for you as equally important as I treat the con- sequences for myself. From an impartial point of view, one person’s happiness is as valuable as another’s; and utilitarians think ethics should be done from an impartial point of view. This

impersonal accounting is meant to prevent per- sonal bias from entering our value judgments.

Third, even if we settle how many links in the consequence-chain are relevant, and I give no special weight to my own consequences, we might wonder whether the consequences for dogs, cows, chickens or fish should ever count. If the chain of consequences I am responsible for stops at the dog, then it couldn’t possibly include the child’s bite. According to utilitarianism, the pleasure or suffering of animals is relevant. For hedonists like Bentham the connection is straightforward since they focus on pleasure and pain, and many animals obviously feel both. When qualitative consequen- tialism like Mill’s is preferred, we give intellectual happiness more weight than bodily pleasures. However, we are still required to count physical pleasures and pains as comparable to other phys- ical effects. Intellectual pleasures might outweigh some physical suffering, but we must treat like pains alike; and since animals can feel physical pain, we must emphasize it as much as we do our own physical pain. Impartiality and universality are important features of all utilitarian thinking because utilitarians adhere to strict equality when counting the various consequences of our actions for all those affected. So the members of our moral community include all creatures capable of experiencing any kind of pleasure, pain, happiness or unhappiness we think is morally relevant for normal humans; and we must assess those conse- quences for all those closely affected by our actions.

In its most concise expression, utilitarianism instructs us to generate the greatest good for the greatest number. Perhaps many of our actions directly impact only a small number of people. However, if you are in a special role the scope of your actions might be enormous. Consider a state legislator. If you are one of the state-senators for your county, then you must consider the impact proposed laws will have on a vast number of peo- ple. Similarly, if you are a judge then your decisions will carry the weight of precedent for court cases that follow. Clearly, legislators must be concerned with the general welfare of the populace, and

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utilitarians say they should base their decisions on whether more overall happiness (or less overall unhappiness) will result for the largest number of people. Politicians are just as constrained by the limits of strict equality as the rest of us, which means they cannot work for special interests, for the benefit of themselves, for the benefit of their own class, or their own race, gender, etc. Strict egalitarianism requires government representa- tives to always work towards the maximum happi- ness for everyone equally.

Impartially generating happiness for as many sentient beings as you can might be all a utilitar- ian would need if we only assessed the value of actions after they occurred and the consequences could be readily determined. But when it comes to ethics, we often seek guidance on how we ought to act before we decide what to do. Thus another important distinction in utilitarian thinking is that between whether we are to focus our ethical eval- uations on actual consequences or merely foresee- able consequences. On first appearance, this hardly seems like a significant distinction. Wouldn’t we just use foreseeable consequences when deciding what to do ahead of time and use actual conse- quences when evaluating what has already been done? This is a good question, and the guidelines it suggests seem to work reasonably well much of the time. However, problem cases might emerge. Imagine that someone wants to generate sub- stantial happiness, thinks carefully and foresees positive results; but when the plan is put in place, disastrous results follow. The foreseeable conse- quences were good but the actual consequences were bad. How should we assess the merits of this person and the action? Even though the results were bad, should we soften our judgment because the intentions were good? Classical utilitarians would not favor such an approach. Bentham and Mill both advocated expected utility (which is a form of foreseeable consequences) when we make plans and choose actions; they advocated judging actions based only on actual consequences. Over time, we can be expected to get better at making more accurate predictions of expected utility.

One final aspect that bears consideration is how consequences are to be weighted. For both Bentham and Mill, we should assess the value of our actions by determining the best balance of utility over disutility, but even that is not obviously straightforward. For instance, should we balance the total amount of happiness over unhappiness, or should we balance the average amounts of happiness and unhappiness? Traditionally, utili- tarians like Bentham and Mill based their moral assessments on total happiness, rather than average happiness. Classical utilitarians said we should determine all the morally-relevant parties to the foreseeable consequences of an act, total the amount of happiness (remember, happiness is “good”) that each party should get, and subtract off the total amount of unhappiness (or “bad”), and we’ll have the net happiness for each person. Then we total all the net results (gains and losses) for each morally-relevant person to get a total net hap- piness for a proposed action. We do this for every option we are faced with, and then compare the expected total net results. We should choose to do whichever option yields the best total net outcome, regardless of who gets what allotment of happiness in each.

CRITICISM OF UTILITARIANISM

Traditionally, the philosophical criticism most often mounted against utilitarianism rests on the possibility that highly positive outcomes give good reasons for using horrendous measures to get them. The colloquial expression that captures this feature of utilitarian thinking is “the end justifies the means.” Imagine the vast majority of the class decided that only one student will be responsi- ble for doing all the assignments throughout the semester, for everyone; and they chose you. By heaping all the burdens on one person, everyone else benefits. Whenever those benefits outweigh the burdens, utilitarians say that nothing immoral has been done. On a larger scale, this means that some forms of slavery are permitted by utilitar- ian thinking. If enough happiness is generated

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for enough people to outweigh the unhappiness caused for the number of slaves, then the resulting happiness justifies the means of slavery. Critics point out that slavery is just plain wrong, regard- less of how much happiness results. The mere fact that we use one person to generate happiness for another violates basic principles of justice, which require us to respect the value of persons. Such criticisms are often associated with ideas from Immanuel Kant because they are based on the inherent value of human life. Recall that utilitari- ans think happiness itself is the only thing that has purely inherent value, so a person’s life is valuable only inasmuch as it is a source of happiness. It is this very rejection of inherent value of human life that makes utilitarianism seem so cold. You are not important to a utilitarian; only the happiness you experience is significant.

CASE EX AMPLE

A careful look at the mission statement from almost any large corporation operating in the twenty-first century will reveal a common idea. By and large, all corporations claim they seek to serve the long- term interests of their stakeholders. Stakeholders, generally, are understood as parties with a signif- icant “stake” in the company’s survival; so stake- holders tend to include such groups as investors (stockholders), employees (management and labor), customers, suppliers, and financiers (banks or other loan organizations). Naturally, the interests of the various stakeholder groups are frequently at odds with one another. For example, local communities want people employed, business taxes paid and their environment unpolluted, customers want lower priced goods while employees want higher wages, all of which compete with each other as well as cut into the higher profits desired by stock- holders. So managing the overall strategy of the company means finding the best way to balance all these competing interests. In short, it means maxi- mizing the overall long-term benefit for all.

Perhaps an example will help to illustrate both the positive and negative aspects of utilitarian

principles in action. Consider the impact the last decade has had on the textile industry in the United States. Because textile plants historically relied on agricultural products, they are most often located in rural communities; and since these communities are generally small, the textile companies tend to be significant employers in these areas. Textile plants are also often primary employers of minorities and women in their communities, which has advanced social and economic justice in America. Textile workers tend to earn more in their communities, so the jobs are coveted by local workers. Around 1997, the dollar began rising in value as many currencies throughout Southeast Asia declined rapidly. As a result, it became more expensive to produce goods in America and less expensive to import goods from Asia. Since that time an increasing number of textile jobs have been lost in America while textile imports from Asia have increased dramatically. When major employers, like textile plants, close in small communities, the effects are far reaching. Local businesses cannot sell goods and services to people who no longer earn a living; burdens on local government support agencies increase; and contributions to charities and churches drop off precipitously.

Of course, we all exacerbate this situation on a daily basis because we usually look for low prices when we shop, and we rarely consider where goods are made. Stores even advertise, and position themselves, as “low price leaders.” So consumers like you and me seem to prefer low prices and (perhaps inadvertently) choose to support the textile industries in other countries. Companies who supply goods to the retail market appreciate this, and therefore give us just what we demand: less expensive goods. So if manufacturers want to stay in business, they shift production to areas of the world where they can produce more goods at a lower cost. In short, our consumer demand for low-cost goods drives manufacturers to produce low-cost goods.

Naturally, corporate executives realize that individual people will lose their jobs during lay-offs

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or plant-closings; and they realize that in some cases entire communities will be very hard-hit. Of all the textile jobs lost in the US between 1997 and 2006, 88% were lost in North and South Carolina alone—where the bulk of the US textile manufac- turing is located. But corporate executives are not trying to make decisions that destroy communi- ties; rather they are trying to make decisions that ensure the long-term success of their companies as a whole, and this often means thinking about con- sequences on a global scale. Workers in the US may lose some jobs, while workers in another country gain jobs and a substantially improved lifestyle, and consumers in the US get cheaper goods, all while worldwide stockholder profits are maintained. Although one group’s utility is decreased, many others are increased. Unsurprisingly, this probably does not comfort the worker who loses her job, but overall the benefits are substantial.

This style of utilitarian thinking is not confined to the overarching challenges of managing a global business. Most school children in the United States memorize the preamble to the Constitution which avows a deep concern to “promote the general wel- fare, and sustain the blessing of liberty” for all its citizens, now and in the future. Yet, this frequently means that government officials must balance a host of complex and competing interests in their pursuit of general welfare. For instance, after the Persian Gulf War in 1991, Turkey received a 50% increase in its textile importing quota from the US as a reward for its assistance during the war. Policy initiatives pursued by George W. Bush’s admin- istration in the years immediately following the terrorist attacks of September 11, 2001 were analo- gous. Subsequent to 9/11 the United States initi- ated a “free-trade” agreement with Jordan, the first ever for an Arab nation. Similarly, after Pakistan provided assistance in searching for Osama bin Laden and unseating the Taliban regime in Afghanistan, the Bush administration wanted to reward the Pakistani government. The most obvious way to do this was to soften the tariffs on Pakistani textiles. Textile manufacturing consti- tutes a significant portion of Pakistan’s economy,

and disenchanted, unemployed Pakistanis are ripe recruits for extremist Islamic terrorist orga- nizations who attack Americans as well as seek to destabilize pro-American governments like the one in Pakistan. So, if we can assist Pakistan’s economy, then more Pakistanis will have a decent job, which in turn means there will be fewer pos- sible recruits for terrorist organizations. Moreover, the Bush administration reasoned that Pakistani citizens would see the increase in jobs as a direct result of US measures on their behalf, and there- fore they would feel affinity towards America. (The specific Bush plan to offer economic assistance to Pakistan’s textile industry was not approved by the US Congress.)

Thus, pursuing a solution to one set of eco- nomic or geo-political problems may create new troubles; but these too can be addressed with some utilitarian thinking. As a result of the devastating effects the shift in worldwide textile production has had on communities in the American South, a large amount of US tax-dollars are spent on support services and career retraining for dis- placed textile workers. Expenditures through the Worker Adjustment and Retraining Notification Act (WARN) and the Trade Adjustment Act (TAA) are the most notable. Spreading the costs out in this way prevents those citizens in one area from bearing a disproportionate burden to support our consumer desire for cheap goods and our political desires to prevent terrorism.

So the US textile industry was hit hard at the turn of the twenty-first century in part due to utilitarian thinking at three different levels. First, consumers generally try to get the most good they can while incurring the lowest burden possible, which means they usually satisfy their preference for lower-priced goods. This first level of utilitarian thinking was augmented when the relative values of global currencies shifted in a way that made pro- duction in Asia more cost-effective. Consequently, corporate managers made the second round of utilitarian-style decisions when they responded by shifting production to more cost-effective locales, thus securing more long-term benefit for their

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companies. Finally, political initiatives that com- prise part of America’s foreign policy sometimes sacrifice an impact at home for a benefit abroad. We can say that utilitarian thinking contributed to, if not generated, difficulties for the American textile industry at the turn of the twenty-first century. But it is also utilitarian-style thinking that offers a solution to those difficulties, and hope to

those displaced workers here in America. Our gov- ernment policy-makers realize that international gains must be paid for, but justice and impartiality demand that no one group bears a disproportion- ate share of the burden. So when one segment of our economy is hard-hit, all Americans contribute tax dollars to the support, retraining, and revital- ization of our workforce.

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– 6 – KANTIAN BUSINESS ETHICS

Heather Salazar

Imagine that you are the owner of a vitamin and supplement retail store. You must make many decisions about selling products that may be helpful, harmful, or ineffective. However, even ineffective and harmful supplements produce high profit-margins when they are in high-demand. For example, shark-cartilage has been touted as a cure for cancer based on the fact that sharks rarely contract cancer. Even though empirical studies on the impact of taking such supplements demon- strates no positive benefit apart from placebo effects, people who are in search for a cure for cancer often purchase large quantities of shark- cartilage, thus increasing the sales of vitamin and supplement retailers like you. The ethical ques- tion that you face is whether you should sell such products knowing that cancer patients are spend- ing their money and hope for a lost cause as far as shark-cartilage goes.

An even more serious case involves selling products that are actually harmful to people who take them. For example, Ephedra is an herbal weight-loss supplement that was banned in the US in Feb. 2004 due to a large number of poten- tially fatal side-effects associated with its misuse, including over 155 reported deaths. But it was re-released in April 2006 because there was no proof of its harmfulness when taken according to the instructions. You know that if you stock your shelves with Ephedra it will produce incredible profits since it is in extremely high demand by the millions who are looking desperately for a solution to their obesity. Should you allow the consumer to determine for herself whether the risk of taking

these supplements is worth it? If you do, are you allowing consumers their autonomy or are you using desperate people in order to make a profit for yourself? This is obviously a difficult question as are so many of the ethical. Ethical theories help to guide people in their search for the correct decision in such complex cases.

The Kantian answer to whether you should sell ineffective and harmful supplements emphasizes, first, allowing and helping people to make rational decisions and, second, having a motivation that comes from what Kant calls the “good will,” which means that your motivation is from duty and is not simply self-seeking. As the retailer, you can sell the supplements if you can do so while respect- ing people. One way you could respect people’s autonomy and refrain from being paternalistic is by empowering people to make rational decisions about the supplements that they take. This would include making information available on the effectiveness and dangers of the supplements that you sell and helping people to use the resources that you provide. However, in order to be acting morally, in addition to providing such information, you must be moti- vated to do so because you know that this is the right thing to do, and not, for example, because you are afraid of creating a bad reputation for yourself. The Kantian principles will allow you to sell ineffective and harmful supplements if you are not deceiving or harming people, or otherwise using them for your own personal gain. When you help people to make the right decisions, by providing them with the best information that you have, you are respecting people and their ability to make good decisions.

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The Kantian approach to business ethics, like Kantian ethics in general, emphasizes acting with respect toward all autonomous beings. It claims that we all have duties toward one another that depend on our relationships with one another, with the most basic and all-pervasive relationship between persons being that they are fellow mem- bers of humanity. As members of humanity, we each have value that stems from our rational and moral capacities, and we all ought to act in a way that shows appreciation for that value.

Kantian ethics differs from the other standard approaches, most notably rights-based theories and utilitarianism, in various significant ways. Unlike utilitarianism, it does not ask us to promote any particular value and it resists basing moral judg- ments on the quantification and/or aggregation of value. Like rights-based approaches, it proposes constraints on actions, giving us rules upon which to act. Duties are unlike rights, however, since although every right possessed by a person creates a respective duty for others to respect that right, some duties on a duty-based approach do not have correlate rights. That is: if I have a duty to do some- thing for you, you don’t necessarily have the right to demand it from me, or make me do it. For example, I have a duty to love my sister, but she does not have a right to my love. I have a duty to protect my country, perhaps, but my country does not have the right to use my labor and life in defense of itself.

Whether one has a duty to someone else depends not on the other’s rights, as it does on a rights-based theory, but on the rational assess- ment of what is the right thing to do based on the various types of relationship that you have with the person. Morality for Kantians is constituted by how we ought to treat each other as fellow members of humanity, although other duties can arise for other types of relationships. In addition to this, it differs from rights-based approaches and utilitarianism by claiming that it is not only what you do that mat- ters morally, but with what motivation you do it.

The crux of Kant’s ethics resides in his startling claim that the only thing that is intrinsically good,

or good-in-itself, is the good will. He says that “There is no possibility for thinking of anything at all in the world, or even out of it, which can be regarded as good without qualification, except a good will” (MM 393). The will is the rational part of each person, and the good will is rationality which chooses to do what is right for the reason that it is good. This is why all members of humanity, or all rational beings, have value, and this is also the reason why these beings are the only thing of true value. The argument for the claim that the only thing that is good-in-itself is the good will relies on a further claim that it is the only thing that is truly under our control. Our external circumstances, like where, when and to whom we are born, are not under our control; so although it may be unfortu- nate that some, through no fault of their own, are living in absolute poverty with no hope of living happy or long lives, we cannot control these fac- tors. Furthermore, although we can choose actions to better the situations of those who are less fortu- nate, the results of our actions are not fully under our control since they depend on external circum- stances and other people. For example, I might donate money to UNICEF, but the money might never get to the destination to produce the help that is needed, if, for instance, there was a terrible hurricane that prevented the truck from delivering it or someone robbed it. The money might get to the needy families but it might not actually help them if they buy food with it and become ill due to contaminants in the food. These things are not under our control; the only thing that is truly under our control is our choices or our motivation with which we intend to act. Rationality enables me to reflect on the circumstances of others who are in need, and decide on a method of helping them. It allows me to intend to do what is good, but the results of my intentions and actions are not entirely up to me. So according to the Kantian, both the choice of what to do and the motivation are integral to the moral worth of the action. I have enumerated four simple steps for determining the moral worth of a choice below:

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DETERMINING THE RIGHT

ACTION AND MOTIVATION:

1. Formulate a Maxim-for-Action, that is, a principle for whether and when a type of action should be done.

2. Evaluate it as coming from the good will or not, that is, whether in willing actions according to that maxim you would have the right motivation.

3. If it is motivated by the good will, it is good, and you are good in doing it.

4. If it isn’t motivated by the Good Will, but is consistent with it, then the action is good, but you are not doing it from the right motive and so you are not praiseworthy.

1. Maxims-for-Action

The first step in determining whether you should perform an action is to identify the action. Developing a maxim will allow you to determine whether the action is correct or not. Such maxims- for-action involve asserting what you will do and for what purpose you will do it. For example: I will take philosophy courses in order to learn how to reason well.

2.1. The Good Will: Right Actions

The second step asks you to evaluate the maxim- for-action as coming from the good will or not. The good will is the part of you that is motivated to do what is good for the right reasons so it involves evaluating (a) whether the action is the right action and (b) whether the action is rightly motivated.

For Kant, the right actions to take are those that are rational. This is because the will is the rational part of each of us, and so, if the maxim is rational, it is fit to be willed. Kant thinks that there are various tests that will allow us to see whether a maxim is rational or not, which we can call the Categorical Imperative Tests. The Categorical Imperative determines permissible, impermissible, and required actions.

Kant has three formulations of the Categorical Imperative, or what he takes to be the supreme law of pure rationality. These are often called

“The Formula of Universal Law,” “The Formula of Humanity,” and “The Formula of Autonomy.” According to Kant, all three of these formulations have the same results. In this explanation, I will focus on the first two formulations.

2.1.1. The Formula of Universal Law

In order to be rational, one must also be logical, and the most primary logical rule that should be observed is to be consistent; anything that is incon- sistent is illogical and thus irrational and immoral for Kant. Kant’s first formulation, the Formula of Universal Law, uses the rule of consistency to elim- inate those maxims that are internally inconsistent, or impossible to will if everyone willed them. It states that you ought to “Act only according to that maxim whereby you can at the same time will that it should become a universal law” (Kant, MM 421).

After you have created a maxim, you must uni- versalize it, which means that you must think of a law that everyone act according to the maxim that you have developed for yourself. A universalized maxim involves transforming my maxim “I will use my company’s funds in order to woo prospective clients and gain business for the company,” to a universalized maxim which states “Everyone will use their company’s funds in order to woo pro- spective clients and gain business for the company.”

Once it is universalized, you must check for inconsistencies. Ask yourself whether it is possi- ble for everyone to will the maxim and to achieve their goals. For example, is everyone doing the action consistent with your achieving the purpose of your original maxim? If everyone used their company’s funds to gain new clients, then com- panies would be investing in and obtaining new business by exerting their own resources. It would be possible for all companies to invest and gain new clients, including you. Therefore, the maxim is fit to be willed and it is a permissible action for you to perform.

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Some maxims are inconsistent when uni- versalized and thus irrational and impermissible to act on. For example, take the maxim, “I will embezzle my company’s funds in order to obtain extra money rather than invest extra resources into the company.” If universalized, everyone will be embezzling money from their companies and (1) the companies will not have enough money for people to embezzle and (2) the companies will know that everyone is embezzling money and they will stop people from embezzling money. If the companies do not have enough money for every- one to embezzle, then that defeats the purpose of your maxim, which is to gain money. It is therefore impermissible to act on that maxim. In addition, since the companies will know that you are trying to embezzle money, they will be able to stop you from doing so and punish you for it. This defeats the purpose of your maxim, as well, since they will stop you from embezzling the money. Since there is a contradiction in everyone willing this maxim, it is impermissible to act on it—i.e., it is required that you not act on it.

It is easy for people to misunderstand the Formula of Universal Law and think that the test requires that we see whether a good or a bad state of affairs results from the universalized version of the maxim. For example, someone might think that if the company knows that you are embezzling money you will be punished for it, and since you don’t want to be punished, it is not a good maxim to act upon. Although it might be true that you should not act on maxims that will create bad out- comes, this is not what the Formula of Universal Law tests. It tests whether it is possible for every- one to will it and still achieve the purposes of the maxims.

By testing the universalizability of the maxim under scrutiny, the Formula of Universal Law prohibits people from making exceptions of them- selves. It thus forbids, in general, all actions that rely on others not knowing what you are doing, which is a form of deceit. So stealing and lying are impermissible in any circumstance. And this has a tremendous impact on business as many of

business’s ethical issues concern just these sorts of problems. For example, fraud, stock-market schemes, piggyback trading, deception in adver- tising and accounting, honesty in contracting and in lawsuits, and stealing company resources such as office supplies, taking extra time off, spending extravagantly, and pumping funds towards one’s own investments.

2.1.2. The Formula of Humanity

The Formula of Humanity is a more intuitive ver- sion of the Categorical Imperative and it states to

“Act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means” (Kant, MM 429). This statement, too, relies on the logical rule of consistency, but its focus is different. Humanity, which is the rational power within individuals, is valuable in itself, and is the only thing, according to Kant, that is valuable in itself. Because it is of value, and it is something that not only you possess, but all beings with rationality possess, everyone must respect each others’ rationality. Respecting others’ and your own rationality entails, according to this formulation, never treating it as mere means and always treating it as an end in itself. An end is something that is valuable in itself, and a means is something that is valuable only as a way to get what you want or to achieve an end. So we ought to always treat peo- ple’s rationality as being valuable in itself. Therefore, we should allow people to use their rationality and we should use our own rationality, and we should never circumvent the use of rationality in order to get something that we desire, even something that we think of as rational and good.

This formulation, like the Formula of Universal Law, eliminates lying and deceit of any kind. Furthermore, it eliminates using ourselves without the consent of our rationality and it prohibits our use of other people without the consent of their rationality. This is not the same thing as getting someone’s consent, since a person can give his or her consent without giving her rational consent.

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Giving one’s rational consent to something means reflecting on the action and its consequences, and examining whether it is a good thing for one to perform it. So someone might sign a contract for a credit card that charges an exorbitant amount of interest, but being charged this amount of interest is not what a rational person, under most circum- stances, would choose. It is therefore impermissi- ble and immoral for the person to sign the contract and it is impermissible and immoral for anyone to ask a person to sign such a contract.

In the Formula of Humanity it can also be seen quite clearly that people ought never to be unfair or treat people poorly. So issues in business that deal with inequities among the sexes, genders, races, and ages, and topics that concern the subju- gation of individuals in unfair positions of bargain- ing power and sweatshop-like circumstances are also impermissible and immoral. All actions that are not impermissible, or do not involve the use of a person as a mere means, are permissible.

2.2. The Good Will: Right Motivations

After the maxim for action is evaluated as being permissible, impermissible, or required to act upon, and it passes the test, being either permis- sible or required to act upon, one must determine whether the motivation for acting on it is good. If the motivation is not good, then acting on it does not come from the Good Will. In order to distin- guish the different kinds of motives that one may have in doing an action, let us first examine three different maxims and then the different motiva- tions that accompany these maxims. Kant uses for this purpose an example that is relevant to busi- nesses of a shopkeeper who treats his customers honestly for three distinct purposes.

Three Maxims in Kant’s Shopkeeper:

1. I will be honest with my customers in order to gain their trust and get repeat-business.

2. I will be honest with my customers because I like them.

3. I will be honest with my customers because that’s the right thing to do.

According to the Formula of Universal Law, it is permissible to treat one’s customers honestly, no matter the purpose, because honesty never makes an exception of oneself. According to the Formula of Humanity, honesty is also good, because deceit involves using people by bypassing their rational consent. It may seem like the shopkeeper is using his customers in the first maxim that he devises since his purpose in being honest is to make money off of them, but this maxim is not elimi- nated by the Formula of Humanity as long as the shopkeeper respects the rationality of his custom- ers while he intends to make a profit.

However, there is a moral difference in these three maxims even though each of them is permis- sible to act upon. These differences are revealed in the purposes within these maxims which corre- spond to three general types of motivation:

Three Types of Motivation:

A. Self-Interest (corresponding to (1)) B. Character or Sympathy (corresponding to (2)) C. The Moral Law or Duty (corresponding to (3))

Of these three kinds of motivation, Kant claims that the only good motivation is that which comes from the moral law or duty.

The reason why self-interest is eliminated as being a good motivation, where good is under- stood as “moral” or “praiseworthy” is fairly clear. Self-interested motivation does not consider others, so it cannot be a moral motivation, or one which aims to benefit humanity in general. In fact, actions that are performed for a person’s self- interest and moral actions are frequently seen as opposed to one another since people can maximize their self-interest by harming other people.

The second type of motivation, which comes from character or sympathy, on the other hand, is not so obviously lacking goodness. Good people have good characters. They are kind, honest, and

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charitable. A good person will do good things, so the shopkeeper, if he is good, will be honest because that is the kind of person he is. Isn’t the fact that he is a good person of credit to him? And, furthermore, ought not we all to try to become good people such that we do good just because that is the way we are? Kant’s answer to this is that our characters at birth and throughout our lives are not wholly under our control and so we ought not to be credited for doing actions that naturally arise from our constitutions. Some people are born irritable and have difficulties in their families and environments that exacerbate these genetic tendencies. It is not these people’s fault that they were born with such disadvan- tages. Likewise, motivations that come from sympathy have no moral worth for Kant because whether we like or dislike someone can change from moment to moment, and morality has a more solid foundation than this; unshakeable by our fleeting feelings and desires. If the objection arises that a person with a good character will have sympathetic reactions to others reliably, then his objection to motivations arising from charac- ter will emerge again. Motivations from character and sympathy can help us to act in accordance with the moral law, if they come from a good character, but they are not good in- themselves. Kant concludes that the only motivation that is under our control (and thus capable of being morally praiseworthy) and that will provide an unshakeable ground for morality is that moti- vation issuing directly from the will to obey the

moral law. If we are motivated to do the right thing because it is the right thing, then we are per- forming actions that are not merely in accordance with morality, but are in fact moral.

3. CONCLUSION

Kantian ethics does not prohibit individuals from seeking their own happiness, which may include prosperity in business. However, it identifies con- straints on what we may do in the pursuit of our happiness or profits: we must give equal respect to all rational individuals by exercising our own ratio- nality and allowing others to do the same.

FOR FURTHER READING

Guyer, Paul. (1997). Kant’s Groundwork on the Metaphysics of Morals: Critical Essays. Lanham, MD: Rowman & Littlefield Publishers, Inc.

Guyer, Paul. (2007). Kant’s Groundwork for the Metaphysics of Morals: A Reader’s Guide. London: Continuum International Publishing Group.

Kant, Immanuel. (2008). Groundwork of the Metaphysics of Morals. Trans. Thomas Kingsmill Abbott. Radford, VA: Wilder Publications.

Sedgwick, Sally. (2008). Kant’s Groundwork of the Metaphysics of Morals: An Introduction. Cambridge: Cambridge University Press.

Sullivan, Roger J. (1994). An Introduction to Kant’s Ethics. Cambridge: Cambridge University Press.

Wood, Allen W. (2007). Kantian Ethics. Cambridge: Cambridge University Press.

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– 7 – ARISTOTELEAN VIRTUE ETHICS

AND THE RECOMMENDATIONS OF MORALITY

Richard M. Glatz

Virtue theories of ethics—notably, theories like those advanced by Aristotle and a number of other ancient philosophers—are mark- edly different from other, more “traditional” theo- ries of ethics. In the (translated) words of Socrates,

“ethics is no smaller matter than how one ought to live.” In the more traditional kinds of ethical the- ories—consequentialist theories like John Stuart Mill’s utilitarianism and deontological theories like that advanced by Immanuel Kant—the question of how one ought to live is answered on a case- by-case basis. Such traditional theories of ethics focus on individual actions and (in light of various factors including the circumstances under which the action is to be performed and the intentions or motives of the agent who is to perform the action) classify given actions as right, wrong, obligatory, permissible, impermissible, and the like. In this way, the non-virtue based theories of ethics offer a (often) formulaic and typically straightforwardly applicable procedure for determining which of the courses of action available to us at a given time is the course of action we ought to pursue.

Virtue theories of ethics are not like this, supplying neither a list of rules for conduct nor a procedure for picking the morally best course of action in a given situation. They issue neither uni- versal moral principles such as “it is wrong to lie”

nor procedures for deriving circumscribed moral judgments such as “it would be wrong for John to lie to his wife about the fact that he lost their mortgage payment last night betting against the Bears.” Virtue theories of ethics instead issue moral judgments such as “honesty is a virtue” and “John is vicious (viceful).”

The primary reason that virtue theories of eth- ics differ in this way from other approaches to eth- ics is that they take agents and their characters to be the primary objects of moral scrutiny. Whereas consequentialists and deontologists develop theories for morally evaluating particular actions (as performed in particular circumstances and for particular reasons), virtue theorists develop theo- ries for morally evaluating the character traits that underlie agents’ performances of those actions.

This aspect of the virtue theoretic approach to ethics is responsible not only for the fact that the judgments rendered by virtue theories differ so markedly from the judgments rendered by other kinds of theories of ethics; it is responsible also for a common objection to the virtue theo- retic approach. It is thought by some that virtue ethics is unappealing because it does not provide action-guiding principles. Although it might be dif- ficult to determine which action is the correct one on the basis of consequentialist or deontological

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principles, at least those principles provide some kind of basis for morally evaluating actions. Virtue theories of ethics, on the other hand, provide no basis for such an evaluation.

Even if this kind of objection does not show that virtue ethics is theoretically flawed, it does pose a particularly poignant problem for attempts (like those to be considered in this chapter) to employ a virtue theory of ethics to answer applied ethical questions. For this reason, the presentation of virtue ethics to follow is formulated with an eye on determining how virtue ethics can help us understand how to live our lives—our personal, as well as our professional, lives—and how that kind of understanding can help us make decisions when confronted by morally difficult situations.

1. ARISTOTLE’S VIRTUE

ETHICS, IN SKETCH

It is fairly commonplace for us to think of ethics in terms of questions like “which actions are right and which are wrong?” and “which actions am I morally obligated to perform?” For Aristotle, however, the fundamental questions of ethics are instead questions like “what is a good person?” and

“what is the best way to live?” In pursuing answers to these questions

Aristotle begins his principal ethical work—the Nicomachean Ethics—with a detailed discus- sion of “the good” for man. Through a variety of arguments that need not concern us here Aristotle reaches the conclusion that the highest good for man is happiness. Be warned, however, that the term Aristotle uses here, “eudaimonea,” does not mean what we typically mean by “happiness.” The English word “happiness” would be appropriate to describe the kind of feeling that I have when eating chocolate or the kind of mood into which most people are put by taking a walk on the beach with a lover. Aristotle’s notion of eudaimonea, on the other hand, is meant to capture the kind of endur- ing state that one is in when, through reasoned activity, one has accomplished a life filled with all of the things that make a life wonderful and

“choiceworthy.” It is often suggested that a more appropriate English translation of “eudaimonea” would be “(human) flourishing.”

The foregoing characterization of eudaimonea is by no means a definition. The important thing to remember is that, unlike John Stuart Mill’s notion of happiness as pleasure, eudaimonea is neither a feeling nor a mood. Rather, it is a state of being for which any reasonable person would strive. As such, Aristotle claims that eudaimonea is the chief good for man and the end to which all of our actions ultimately aim. It is also important to notice the role that is here played by the notion of reasoned activity. Eudaimonea is a state that is only attain- able for rational beings that use their reason to achieve ends. It is a kind of psychological happiness that cannot be attained by creatures that lack the kinds of mental lives required to engage in projects or plan their lives.

In part to determine how a person can achieve eudaimonea and in part to show that eudaimonea really is the chief good for man, Aristotle takes up the question of what a good person is. It is instruc- tive to look at this part of his investigation as a par- ticular instance of a general question form, namely:

(Q1) What is a good X?

Aristotle takes it, perhaps mysteriously, that in order to answer an instance of (Q1) we must first find an answer to a subsidiary question of the following form:

(Q2) What is the characteristic function of an X?

As an example to see what Aristotle has in mind here, consider an axe. On Aristotle’s view in order to find out what a good axe is we must first understand what the function of an axe is. Of course, axes may be put to various different uses— we might use an axe to split firewood, chop down a tree, drive a nail, slice a loaf of bread, kill an enemy, or even direct traffic. Some of these uses we regard as deviant (whether morally or merely socially) while others we regard as perfectly normal. The

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reason for this is that we understand that the char- acteristic function or purpose of an axe is to chop.

When it comes to artifacts—objects that have been created for a particular purpose—it is to be expected that the function of an artifact is the purpose for which it has been made. Aristotle’s notion of a function extends beyond this, how- ever. Indeed, the fact that artifacts have been constructed for a particular purpose only makes it easier to see what function they have. For Aristotle what the function of a thing is depends not upon how it is used or why it was made (if it was made) but on what activity that thing is best suited to do. Consider, for example, a person who has designed and uses a pair of tools—one for the slicing of bread and another for the chopping of firewood. Suppose that the tool created for the slicing of bread is exactly like what we call an “axe” and that the tool created for the chopping of firewood is exactly like what we call a “bread knife.” When this artisan slices bread for his dinner he takes out his bread-slicing tool—a heavy, wedged blade attached to a meter long stick—and proceeds to hack at the loaf. The result is, of course, “slices” of bread that are mauled, flattened, and irregular. When the arti- san chops wood for his fire, on the other hand, he takes out his wood-chopping tool—a lightweight, serrated blade attached to a hand-sized handle— and proceeds to saw, laboriously, at the logs. The process takes many hours and gives the artisan many splinters.

Holding aside judgment of the artisan regard- ing his rationality and intelligence, what is there to be said about his bread-slicer and wood- chopper? Although each has been made (and is used) for a particular purpose, it seems that the proper, characteristic function of the artisan’s bread-slicer is to chop wood and that of the artisan’s wood- chopper is to slice bread. If we approached the artisan as he swung his bread-slicer over his head, we would be correct to stop him, say “excuse me, but you are using that incorrectly,” and hand him his wood-chopper. The reason for this is that the particular qualities of each tool make those tools especially suited for certain uses.

Let this serve, then, as a general approach for answering questions of the form (Q2) above. If a thing, X, has particular qualities that make it best suited for a certain activity, then that activity is (part of ) the function of X. In light of this, what (if anything) might the function of a human be?¹

Aristotle considers and rejects the suggestion that the function of a human is nourishment and growth. Given that these activities are common to plants, and given that Aristotle is looking for a function that is peculiar to humans, Aristotle concludes that nourishment and growth are not the function of humans. Aristotle also considers and rejects the suggestion that the function of a human is a life of perception or sensation as these are common to animals. Aristotle concludes that a life of reasoned activity is distinctively human and a kind of activity for which we are particularly well suited—indeed, it seems to be the activity that we are best at doing not only in the sense that we are best at doing that activity (from among activities that we do) but also in the sense that we (among beings who can engage in that activity) are the best at it. As a result, (if humans have a function, then) the function of a human is to engage in reason- governed activity—making plans, solving problems, communicating, interacting socially with other people, etc.

Let us assume that Aristotle is correct that humans have a function and that engaging in reason-governed activity is that function. We now have an answer to the question of form (Q2) above, but what of (Q1)?

Consider, again, an axe. What is a good axe? To answer this question we must first answer the subsidiary question “what is the function of an axe?” As discussed above, the function of an axe seems obviously to be chopping. What, then, is a good axe? An obvious and apparently trivial answer to this question is that a good axe is an axe that chops well. On Aristotle’s view this is correct, but incomplete. In the direction of a complete answer, Aristotle would claim that a good axe is an axe that possesses the excellences of an axe, where the excellences of an axe are whatever characteristics

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an axe might have that contribute to the fulfillment or performance of the function of an axe. So the excellences of an axe are those characteristics that contribute to chopping—sharpness, weight (heavy but wieldable), balance (weighted near to head rather than the handle), sturdiness, etc. A good axe is one that possesses such characteristics.

A good person, similarly, is a person who possesses the excellences of a person, where the excellences of a person are whatever characteris- tics a person might possess that contribute to the fulfillment of the human function—engaging in reason-governed activity. These characteristics or excellences are the virtues.

Aristotle distinguishes between two kinds of virtues—intellectual virtues and moral virtues. Intellectual virtues are characteristics like practical wisdom (wisdom with respect to making plans and achieving one’s goals), philosophical wisdom, intuitive reason, etc. About these I will say no more than to note that lacking the intellectual virtues, one would face great difficulties in suc- cessfully engaging in the kind of life planning and social interaction that Aristotle understands by reason-governed activity.

Aristotle defines the moral virtues to be traits of character that consist in a disposition to choose the mean. In many circumstances—facing fear, managing money, pursuing pleasures, etc.—there are two extremes, one of excess and the other of deficit. There are people who, in the face of fright- ful things, feel too much fear and are brought by their fear to flee from dangers that are minor or to

“freeze up” and fail to accomplish important things. Such people are cowards and cowardice is their vice. On the other hand, there are people who, in the face of frightful things, feel too much confi- dence and are brought by their over-confidence to plunge into dangers that are beyond their abilities to handle. Such people are rash and rashness is their vice. A person is brave who, in the face of frightful things, feels the right amount of fear and the right amount of confidence and acts in accor- dance with these appropriate feelings.²

It is important to notice that Aristotle claims that it is virtuous to be disposed to choose the mean relative to us. What is excessive or deficient for one person might not be for another. A person trained in khav magha (the self-defence system used by the Israeli Defense Forces) might exhibit bravery by facing a mugger with a knife while a wimpy philosopher such as myself would almost certainly be exhibiting rashness by doing the same thing. As Aristotle says, “fear and confidence and appetite and anger and pity and in general pleasure and pain may be felt both too much and too little, and in both cases not well; but to feel them at the right times, with reference to the right objects, toward the right people, with the right motive, and in the right way, is what is both intermediate and best, and this is characteristic of virtue.”³ We must bear in mind, of course, that the right amount of an emotion to feel might depend upon the person who feels it.

According to Aristotle, then, possessing a virtue amounts to having the disposition to feel the right amount of a given emotion in the relevant circumstances and to act in accordance with that appropriately balanced emotion; possessing a vice amounts to having the disposition to feel either too much or too little of a given emotion in the relevant circumstances and to act in accordance with that inappropriately balanced emotion. Recall that Aristotle understands the virtues to be human excellences in the sense that they contribute to the well functioning of man—that is, to the successful engagement in reason-governed activity. When people engage in reason-governed activity they are bound to be confronted by situations that evoke some kind of emotional response—fear, anger, sympathy, and the like. When viceful people are confronted by such situations, their actions will be governed by inappropriate emotion responses— perhaps they will feel too much anger and behave wrathfully, or perhaps they will feel too little sympathy and behave callously. It is not Aristotle’s position that their behavior then transgresses some kind of moral edict or law and is therefore wrong. Rather, their behavior fails to contribute

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to their success in whatever reason-governed activity in which they are engaged—be it business dealings, familial relations, or political decision- making. As the ultimate goal of all such activities is eudaimonea, the viceful person will not achieve true happiness. Only by possessing and acting from the virtues can we succeed in our reason- governed lives and thereby achieve eudaimonea.

It is important to note here that Aristotle places primary moral significance on the character of an agent but places a kind of derivative or sec- ondary moral significance on the actions that the agent performs. Although it is, for Aristotle, some- thing of a misnomer to characterize a particular action as a brave one, such characterizations are commonplace for us and even present in Aristotle’s writing. Strictly speaking it is the agent who is brave when performing a particular action, not the action itself. We might be tempted to think of a brave action simply as whatever action a brave per- son would do, but it is very important for Aristotle that the action in question be performed because of the brave character of the agent. It is possible for an agent to exhibit cowardice when fleeing in the face of danger even if a brave agent would also flee in the same situation. If the agent in question flees as a result of overly pronounced fear, then the agent is not acting on the basis of feeling the right amount of fear given the situation. The fact that the situation calls for the agent to be afraid and flee does not change the fact that the agent in question actually did flee as a result of his cowardice.

There is another reason that actions them- selves are morally significant on Aristotle’s view. According to Aristotle, we develop and main- tain the virtues through reflective training and habituation. Indeed, the root of the term “ethics” is “ethos,” the Greek term for habit. People are neither virtuous nor vicious by nature. Rather, we become virtuous or vicious by repeatedly engaging in virtuous or vicious activity respectively. As a result, although virtue theories of ethics are not action-guiding in the same way that deontological and consequentialist theories are, virtue theories of

ethics do call for us to routinely engage in the right kind of behavior. By engaging in viceful activity we damage our character and become vicious; only by engaging in virtuous activity do we develop and preserve a virtuous character and ensure that we will be neither overrun by our emotions nor emo- tionally detached in our dealings with others.4

2. TOWARD APPLIED VIRTUE ETHICS

The foregoing sketch of Aristotle’s theory is meant to show how Aristotle approaches what he takes to be the fundamental questions of ethics—“what is a good person?” and “how ought one to live?” According to Aristotle, we ought to live in accor- dance with the virtues. As humans our function is to engage in reason-governed activity. The virtues are human excellences in the sense that they contribute to fulfilling this function; the vices are human defects in the sense that they detract from fulfilling this function. Good people develop and maintain the virtues through reflec- tive habituation and thereby enable themselves to achieve eudaimonea—the highest good for man, true happiness.

For many of us, our professional lives are lives of reasoned-activity. Business interactions—buying, selling, producing, serving—are social interactions. Social interactions generally require communica- tion, trust, agreements, etc., all of which require engaging one another in a reasoned way. No doubt, then, we are required to conduct ourselves in our professional lives in accordance with the virtues. In this way, virtue ethics applies to our profes- sional lives just as it applies to our personal lives. A truly virtuous person would not simply exhibit the virtues while dealing with family and friends and then go to work and deal with co-workers, suppliers, customers, and bosses in non-virtu- ous ways. People who exhibit this kind of moral two- facedness between their private and profes- sional lives really do not have the dispositions that embody the virtues—they are mere pretenders of virtue. Furthermore, those who leave virtue aside

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in their professional dealings would eventually habituate themselves contrary to the virtues and would become vicious.

There is another way in which to apply a virtue theory of ethics to the applied moral issues that face professionals. In what follows I will develop a certain Aristotelian view of what is often termed

“role-differentiated morality.” Discussions of role-differentiated morality are attempts to under- stand apparently different moral requirements that we face as a result of occupying certain roles. With respect to the welfare of a child, parents have different moral responsibilities than do teachers who have still different moral responsibilities than neighbors or strangers. By pursuing a career in law enforcement or medicine one chooses to place one’s self in a role that carries different moral responsibilities than other lines of work. Following Aristotle we may arrive at a certain understanding of the moral significance of different roles as they apply to businesspeople.

To begin with an example to illustrate how this is to work, consider what makes a computer a good one. The Aristotelian analysis would begin by identifying the function of a computer and then identifying as excellences for a computer those characteristics that a computer might possess that would contribute to its performing its functioning well. There are, however, many different kinds of computers with various different functions. My computer does little beyond word processing and spreadsheet managing. My parents recently bought a computer especially designed for managing the many pictures of grandchildren that they now have. So-called “gamers” have computers especially designed for playing video games, often networked for multi-player gaming. The computers in many business offices have specialized software for what- ever kind of computing is required for a business of that sort.

What all of these different kinds of computers have in common is that they all serve the function of running software, taking input from a user, and displaying output to that user. Excellences for computers considered simply as computers would

include characteristics that contribute to perform- ing those functions well—fast, reliable proces- sors, memory that can be written (and rewritten), user-friendly interfacing, etc. Such characteristics as these are analogous to the human virtues that Aristotle discusses—those being the excellences of a person considered simply as a person. Consider, however, a particular computer considered specifi- cally as a gaming computer. The function of a gam- ing computer (beyond the basic function of a com- puter) is to allow the user to play games. To be a good gaming computer, then, a computer will need to have characteristics that contribute to that func- tion—a high quality graphics card, suitable control- ler ports, hardware and software that enables fast, reliable networking, etc. While possessing such characteristics makes a gaming computer better, my glorified word-processor would not be improved by possessing those characteristics.

It is in this way that I suggest we handle the issue of role-differentiated morality from an Aristotelian perspective. Considering, for example, a corporate executive not simply as a person but as a corporate executive we might get some indica- tion of how corporate executives ought to conduct themselves professionally. To do this, of course, we must first consider what the function of a corpo- rate executive is.

This seems to be an easy question. The func- tion of a corporate executive is to run a corpo- ration or some aspect of its operation. Consider Melissa, the CEO of a pharmaceutical company. Melissa’s function (considering her as the CEO of the pharmaceutical company) is to run that phar- maceutical company. To see how Melissa ought to conduct herself in the course of her job and to see what sorts of characteristics would contribute to Melissa’s successful execution of her job we must first determine what successful running of the pharmaceutical company would amount to, and to determine this we must determine what the purpose of the pharmaceutical company is.

An overly cynical and simplistic answer that I would like to dismiss up front is that the purpose of the pharmaceutical company is to turn as large

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a profit as possible for the owners. Certainly part of the purpose or function of a corporation is to be profitable, but we must recognize that a pharma- ceutical company is part of a wider social network that includes chemical companies (as suppliers), hospitals and private individuals (as customers), employees (as employees), and even other phar- maceutical companies (as competitors). I am not suggesting that it is the purpose of a company to operate for the advantage of each of these groups, but it must be understood how these groups socially interact with the company in question in determining how an executive ought to engage in the reason-governed activity that is her job.

This being said, I think that we should con- sider the purpose of a company like the pharma- ceutical company imagined above in terms of the manufacture and distribution of pharmaceuticals. For a corporate executive like Melissa to fulfill her professional function well she must (at least) maintain trusting and mutually beneficial rela- tionships among the parties involved in accom- plishing these goals. In order to do this, Melissa should think of suppliers, employees, custom- ers, and others not simply as entities that satisfy some need of the company, but as entities whose interests actually matter. I suspect that such an attitude will be engendered by the general human virtues as discussed by Aristotle—for according to those we must choose the mean even in pur- suing such things as profit. Even so, there might be room here for some distinctively corporate

virtues. By following this kind of approach to role- differentiated morality we might be able to make some progress toward professional ethics in general and business ethics in particular.

NOTES

1 Aristotle offers no good argument for the conclu- sion that man has a function; he merely assumes it, and reasons on that basis.

2 Aristotle develops similar analyses regarding money, pleasure, honor, anger, social intercourse, etc.

3 Aristotle, Nicomachean Ethics, II: 6, 18–23 (W.D. Ross, transl.); from McKeon, Richard (ed.) Introduction to Aristotle, New York: Random House, 1947.

4 I have left out of this sketch of Aristotle’s view the role that is played by external goods—wealth, health, good looks, pleasures, and other goods that Aristotle sees as necessary for eudaimonea. According to Aristotle, such external goods are achieved quite often by luck, seldom things that we have much control over. What we do have control over is the state of our character—whether we habituate ourselves to have the virtues or whether we habituate ourselves to have the vices. It would be nice if we could achieve eudaimonea simply by attending to our characters in this way, but Aristotle thinks that virtue is insufficient for eudaimonea. To achieve eudaimonea we must not only have a good character, we must also have the good fortune to have a life with sufficient external goods.

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– 8 – CARING AS AN

ETHICAL PERSPECTIVE Rita C. Manning

An ethic of care has emerged as a new way to conceptualize some deeply held moral intuitions. It provides an important tool for analyzing, dis- cussing, and ultimately shaping moral practice. In what follows, I will briefly describe an ethic of care. I shall then have something to say about how this perspective emerged and about how it differs from other moral orientations.

CARE FOR OTHERS AND

FOSTERING RELATIONSHIPS

One characteristic of people with integrity is the ability to care for others and to foster good rela- tionships. Caring for others is more than having sympathetic feelings for them; it requires that one take concrete action to look after the needs of oth- ers. Caring for others and fostering good relation- ships go together for two reasons. First, humans are essentially social creatures—we live and work in groups and most of us would be absolutely mis- erable if we didn’t have meaningful relationships. So caring about persons means caring about their relationships. Second, we cannot accomplish many of the tasks we need to undertake unless we can foster good relationships. This includes the task of giving care to others.

Let’s start with an example and see how caring works. Doug is concerned with trying to salvage an account and wants to send someone to visit the client. Ken is the most likely candidate since he has

a good working relationship with the client, but he is scheduled to visit another client on a much big- ger account. Susan has some experience with this client and has been known to save accounts in sim- ilar situations, so she is Doug’s first choice. Carlos is a possibility, but he is not as familiar with the product as Susan. Doug recalls that Susan’s father is in the last stages of his battle with congestive heart failure and he wonders whether it would be fair to ask her to go. He calls her into his office and Susan says that her father would probably want her to go. Satisfied, Doug sends Susan on the trip, but the account is lost anyway. Did Doug do the right thing? We can now answer this question by asking whether Doug was sufficiently caring.

CARE

Though not all defenders of an ethic of care see care as a virtue, I think this is the most plausible way to understand it. Like other virtues, care is a general disposition to behave in a particular way. Unlike other virtues, care is what I call a meta- virtue—that is it provides an organizing principle for all the other virtues. If my overall orientation is to be a caring person, then I will be courageous when what I value is at risk; I will be honest because honesty is usually the best way to care for others; I will want to be prudent because I recognize that I must balance the needs of others and my own needs. So the traditional virtues of

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courage, honesty and prudence are organized under the meta-virtue of care.

When Carol Gilligan first described the care orientation,¹ she described it as a typically female moral orientation. However, there is nothing gendered about caring; if it is more prevalent in women than in men, it is because women are socially conditioned to do much of society’s caring work—they are more likely to be involved with caring for children and the sick, for exam- ple. Care is a basic human capacity and as such it is both possible and important for all of us to be caring persons. Developing one’s capacity in giving care requires that we commit to this ideal and that we have practice exercising care. When we truly care about someone or something, we have certain emotions and motivations. If I see someone in dire need, for example, I will feel compassion and be motivated to do something to respond to the need. Finally, it is not enough to merely have the appropriate emotion and motiva- tion; care involves an appropriate response.

Caring is a response to the variety of features of moral situations: need, harm, past promises, role relationships etc. In the case of need, our obligation to respond in an appropriately caring way arises when we are able to respond to need. We can roughly distinguish needs here from desires by describing needs as something that is basic to our survival and minimally decent life as opposed to something that we merely want. Humans need some things for their very sur- vival: food, clothing, shelter, and health care are examples. There are also other things that we need for a minimally decent life: Aristotle cites friendship; Mill cites liberty and Rawls offers self- esteem as a need in this sense. Still, there is no universal, cross-cultural understanding of need. Rather, need is mediated by a number of factors including family, culture, economic class, gender and sexuality, disability and illness. Finally, as we respond to needs, we should recognize the vast differences in power that exist. Sometimes, people are unwilling to express their needs freely because they fear that their needs will not be met.

They may even be in such a state of dependence or despair that they are no longer able to identify their needs.

Need is not the only feature of moral situ- ations. Harm, for example, is an important one to consider. Most people understand that being the cause of harming someone else creates an obligation to respond. But causation is a complex idea. We can be part of the causal story even when we don’t think of ourselves as the primary cause. Suppose, for example, that you see the person sitting next to you in an exam cheat- ing. Suppose further that this is an exam that is designed to demonstrate competence in a skill crucial for a health care practitioner. Suppose that you simply look the other way and later find out that a patient was seriously harmed because the practitioners really did not understand the procedure they should have followed, and that this procedure was the very one they were being tested on when you saw them cheating. Do you have a responsibility here? I would argue that you do, though it’s not always clear what you can do after the fact. At the very least, you now know that you shouldn’t look the other way when you see similar cheating in the future.

There are two other things that mark the moral dimension of a situation that are worth noting here—past promising and role respon- sibility. When we make a promise, we commit ourselves to a certain course of action. An ethic of care doesn’t say that you are always committed to keeping a promise because sometimes doing so can be harmful to all concerned, but it does impose a moral obligation to respond. Similarly, being in a particular role, e.g., teacher, comes with a set of general obligations.

We’ve now looked at some of the features of situations that suggest that we have an obli- gation. In order to see what our obligations are in a particular situation, we need to look at the features of an ethic of care. There are four central ideas here: moral attention, sympathetic under- standing, relationship awareness, and harmony and accommodation.

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MORAL ATTENTION

Moral attention is the attention to the situation in all its complexity. When one is morally attentive, one wishes to become aware of all the details that will allow a sympathetic response to the situation. It is not enough to know that this is a case of a particular kind, say a case about lying or cruelty. In order to understand what our obligations are, we have to know all the details that might make a difference in our understanding and response to the particular situation at hand.

SYMPATHETIC UNDERSTANDING

When I sympathetically understand the situation, I am open to sympathizing and even identifying with the persons in the situation. I try to be aware of what the others in the situation would want me to do, what would most likely be in their best interests, and how they would like me to carry out their wishes and interests and meet their needs. I call this attention to the best interests of others maternalism. It is done in the context of a special sensitivity to the wishes of the other and with an understanding of the other’s interest that is shaped by a deep sympathy and understanding. When it is hard to be sympathetic, one may try several strategies—perhaps imagining others as oneself in an earlier crisis. As one adopts this sympathetic attitude one often becomes aware of what others want and need. Finally, as we respond to others, we look to satisfy their needs in ways that will pre- serve their sense of competence and dignity while at the same time addressing their needs or even ameliorating their suffering.

RELATIONSHIP AWARENESS

There is a special kind of relationship awareness that characterizes caring. People recognize that others are in a relationship with them. First there is the most basic relationship, that of fellow creatures. Second there is the immediate relationship of need and ability to fill the need. Finally, one may be in

some role relationship with the other that calls for a particular response, such as teacher-student. One is aware of all these relationships as one surveys a situation from the perspective of care. But there is another kind of relationship awareness that is involved as well. One can be aware of the network of relationships that connect humans, and care about preserving and nurturing these relationships. As caring persons think about what to do, they try not to undermine these relationships but rather to nurture and extend the relationships that are supportive of human flourishing.

ACCOMMODATION AND HARMONY

Related to the notion of relationship awareness is accommodation. When a problematic situation involves several people, how best to help is not obvious. The desire to nurture networks of care requires that one tries to accommodate the needs of all, including oneself. It is not always possible, or wise, to do what everyone thinks they need, but it is often important to do what you think is best while at the same time giving everyone concerned a sense of being involved and considered in the process. When we do this, we have a better chance of preserving harmony. If you do what you think is right without consulting anyone, you risk upsetting the harmony of the group. Of course not all har- mony is worth preserving. The oppressive society may be stable and harmonious, but at the price of those at the bottom. An ethic of care would be opposed to this type of superficial harmony since it is dependent on treating some as though they do not deserve the same care as others. Ideally, we should aim for the harmonious society in which all are treated with care.

Let’s return to Doug and see how he might have thought about the situation if he’d been more skillful at caring. Doug did not really think about Susan’s situation very carefully. He should have realized that she was very upset about her father’s illness. Since we are all distracted when something this serious is going on in our lives, she was prob- ably also worried that her job performance might

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be affected. Doug should not have taken her words at face value because it’s hard to believe that her father really wanted her to go. Perhaps he was just being a good father and trying to put Susan’s needs above his own. Very likely, he was worried about how his illness was affecting her and might have told her to go to give her some time off or to pro- tect her job. Doug also did not give much thought to how well Susan would be able to interact with the client while her father was dying miles away. The result of his action was a lost account and con- siderable discomfort for Susan. This lack of care on his part probably will affect his relationship with Susan and her effectiveness in future negotiations. Whenever she has to go visit a client, she will be reminded of that very precious time she lost with her father. Doug should have given more thought to finding other alternatives to sending Susan on the trip during this very trying time.

THE CARE VOICE AND

THE JUSTICE VOICE

Now that we’ve seen how the care perspective works, let’s turn to a brief history. Carol Gilligan’s pioneering work, In a Different Voice, was the first systematic attempt to describe the voice of care and to distinguish it from what she called the voice of justice (Gilligan, 1982). Since then, psychologists and philosophers have been busy elucidating the central concepts and testing for various aspects of the two voices.

Gilligan began by responding to the views of Lawrence Kohlberg, who developed a theory about how people reason and develop morally.² His theory of moral reasoning posited that people reason morally by applying principles to cases, thus yielding judgments about what they ought to do. Moral development, in Kohlberg’s account, is cognitive and proceeds to progressively more general principles, with ideal moral development culminating in principles that are universal and binding on all persons.

Gilligan noted that Kohlberg’s subjects, though culturally diverse, were all male. She began to apply

his tests to female subjects of various ages. Her conclusion was that some people, notably females, often used a different reasoning strategy than that described by Kohlberg and that they developed by moving through a different set of stages.

Gilligan theorized that some of her sub- jects appealed to an ethic of care. This involves a thorough understanding of the context, and a willingness to balance the needs of self and other in a way that preserves both. For Gilligan, moral development was both cognitive and emotional— the growth in the ability to see the situation from the perspective of self and other and to care about one’s self as well as others.

She illustrated the differences in moral reason- ing with two eleven year olds, Jake and Amy. Jake and Amy are both given Kohlberg’s “Heinz dilemma” to solve. A druggist has invented a drug to combat cancer. Heinz’s wife needs the drug but Heinz does not have the money to buy it and the druggist will not give it to him. The children are asked whether Heinz should steal the drug. Jake quickly answers affirmatively and defends his answer by appealing to the relative importance of life over property. Amy begins by saying that it depends. She points out all the things that could go wrong if Heinz steals the drug—perhaps he will get caught and go to jail and his wife will be worse off. She suggests instead that Heinz and the druggist should sit down and work it out to everyone’s satisfaction.

Jake fits easily into Kohlberg’s schemata: he imagines himself in Heinz’s position and applies a principle that quickly yields an answer. He does not need any more information about Heinz, the druggist, Heinz’s wife, etc. Amy, on the other hand, is virtually impossible to analyze on Kohlberg’s scale because she never states or even implies a principle that will yield an answer. Instead, as she imagines herself in Heinz’s shoes, she sees the complexity of the situation and realizes that its solution requires that Heinz and the druggist and Heinz’s wife recognize their involvement in a relationship and that they honor this awareness by working out a solution that will enable them all to survive and, if possible, flourish.

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60 | Unit 1 : Preliminaries | Systems of Moral Evaluation

For Jake the solution is cognitive: he merely reasons about the situation and can take action on the basis of that reasoning. Amy sees a real solution as necessarily involving growth in moral sensitivity and commitment.

On the basis of such differences in her subjects’ responses, Gilligan posited a moral orientation, which she calls the voice of care, in addition to the justice orientation of Kohlberg. I propose an addi- tional way of assessing the usefulness of the two: How does each voice answer two questions: What are moral agents like? What is the moral standing of persons and communities?

The justice voice models moral choice by imagining ideal moral agents as 1) isolated, abstract individuals who 2) follow general rules 3) in a cool and impartial manner. Thus real people fall considerably short of this ideal; but what this ideal observer would choose is supposed to tell us what we should aim at, because real justice is determined from this standpoint. The ideal moral agents are isolated in the sense that they are both independent of others and free to choose what relationship to have with others. The model of interaction is contractual—an individual as a moral agent chooses to whom s/he will be related and the conditions of the relationship. These ideal agents are abstract in the sense that their moral obligations are specified independently of any of the particular facts about them or about the situations they find themselves in. Their moral obligations are spelled out in abstract rules, rules that are general enough to bind similar cases. In following these general rules, these ideal agents must be cool and impartial. This requires unemo- tionally applying the rules in the same fashion regardless of the ties of affection and/or enmity that might call on them to be partial.

The voice of care, on the other hand, thinks of moral choices as made by agents who 1) are embedded in particular social contexts, rela- tionships and personal narratives, 2) direct their moral attention to real others and 3) are open to sympathetic understanding and identification with those others.

In part because the justice voice conceives moral agency in the way it does, it gives the follow- ing answer to the question of the moral standing of persons and communities. 1) All persons are equally valuable—hence there are no special obligations to particular others. 2) Communities and relationships have no moral standing on their own account.

The care voice, on the other hand, believes that 1) though all persons are valuable, there are special obligations: those imposed by actual and potential relationships and those imposed by roles. Since it understands communities as more than mere aggregates of individuals and relationships as more than properties of individual persons, it is commit- ted to saying that communities and relationships have moral standing and that they need to be included in our thought and action.

CARE, JUSTICE

AND SELF-UNDERSTANDING

There is an additional way to sort out the differ- ences between the care and justice voice and that is in terms of self-understanding. This was suggested by Nona Lyons, who argued that a particular self-understanding, a “distinct way of seeing and being in relation to others,” explains the moral agent’s preference for a particular moral voice.³ Lyons identifies two different self-understandings: what she calls the separate/objective self and the connected self. Persons who fit the separate/objec- tive self model describe themselves in terms of personal characteristics rather than connections to others. Connected selves, on the other hand, describe themselves in terms of connections to others: granddaughter of, friend of, etc. This sug- gests that the separate/objective self sees oneself as distinct from others in a more profound sense than does the connected self. The separate/objective self might, for example, see oneself as connected to others only through voluntary agreements. The separate/objective self might value autonomy more highly than good relationships with others.

Lyons describes further differences. Separate/ objective selves recognize moral dilemmas as those

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Manning | Caring as an Ethical Perspective | 61

that involve a conflict between their principles and someone else’s desires, needs or demands. Connected selves, on the other hand, identify moral dilemmas as those that involve the break- down of relationships with others.

Separate/objective selves fear connection and dependence, and hence value autonomy and independence. Connected selves fear separation and abandonment, and hence value connection and responsiveness.

We can see then how these self- understandings support different moral orientations. Separate selves understand themselves as distinct from others. They conceive moral dilemmas as arising from the conflict between their moral principles and the needs, demands, desires and principles of others. As such, they must mediate their interaction with others in the voice of justice—in terms of ground rules and procedures that can be accepted by all. This is the only foundation for interaction at all, since ties of affection are not seen as strong enough to provide a basis for interaction, especially in persons who fear con- nection and dependence. This fear of dependence and attachment also explains why they value the objectivity and impartiality that can stand between them and intimates. At the same time, separate/objective selves recognize that interac- tion with others plays a role in one’s satisfaction, so they value community and relationship insofar as these play a role in individual satisfaction.

Connected selves see themselves in terms of others, so relationship is central to self-identity, rather than seen as voluntary and incidental. The problem of interaction is not then conceived of as how to get others to interact with oneself on terms that would be acceptable to all, but how to protect the ties of affection and connection that are central to one’s very self-identity. Moral dilemmas arise over how to preserve these ties when they are threatened, and these dilemmas are mediated by the voice of care. Since the primary fear is of separation and abandonment, a strong value is placed on community and relationships.

CONCLUSION

An ethic of care is a moral orientation that is sorely needed in our increasingly fractured society. Whether we are managers or teachers or health care providers, an ethic of care provides guid- ance about how to live our lives. But it is not just a moral philosophy; it has a political dimension as well. If we are to meet our fellow creatures as caring individuals, we must rethink and, when necessary, restructure our institutions to make this possible.

NOTES

1 Gilligan, Carol. (1982). In a Different Voice. Cambridge, MA: Harvard University Press, 1982.

2 Kohlberg, Lawrence. (1981). The Philosophy of Moral Development. New York: Harper & Row.

3 Lyons, Nona. (1983). “Two Perspectives on Self, Relationship, and Morality,” Harvard Educational Review 53 (1983): 125–45.

FOR FURTHER READING

Held, Virginia. (1993). Feminist Morality. Chicago: University of Chicago Press.

Holmes, Helen Bequaert, and Purdy, Laura (eds.). (1992). Feminist Perspectives in Medical Ethics. Bloomington and Indianapolis: Indiana University Press.

Kuhse, Helga. (1997). Caring: Nurses, Women and Ethics. Oxford: Blackwell Publishers Ltd.

Larrabee, Mary Jeanne (ed.). (1993). An Ethic of Care. New York and London: Routledge Press.

Manning, Rita. (1992). Speaking from the Heart: A Feminist Perspective on Ethics. Lanham, MD: Rowman and Littlefield.

Murdoch, Iris. (1971). The Sovereignty of Good. New York: Schocken Books.

Noddings, Nel. (1984). Caring: A Feminine Approach to Ethics and Moral Education. Berkeley: University of California Press.

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64 | Unit 2 : Corporate Social Responsibility

executive must take into consideration these com- peting interests.

These two views present themselves as distinct accounts of what a corporation is and what its moral obligations are. According to stockholder theory, it appears as if it could never be the case that a corporate executive permissibly chooses a socially responsible action over pure profit maxi- mization. For example, a corporate executive could not choose to spend some funds on building a school in the local community when that money could be used to fund research and development for a project that has a high probability of making profit for the stockholders. By contrast, it appears as if stakeholder theory allows for the possibility that a corporate executive may permissibly choose to fund the school project because his or her responsibility is not only to the stockholders, but also to the local community.

Although the two theories appear to be different, two things should be noted. First, the stockholder theory does not necessarily entail that a corporate executive cannot allocate funds for social projects. If the stockholders of a certain corporation voted to spend money on a public works project and not to pursue potential profits, then nothing in stockholder theory would block an executive from allocating funds and using them for that purpose. In recent years, the rise of B Corps and other companies that make corpo- rate social responsibility part of their mission suggests that some investors not only tolerate, but demand that executives look beyond narrow profit maximization.

Second, on the plausible assumption that taking into consideration the interests of stake- holders is a good guide to maximizing profits for stockholders, stakeholder theory can be seen as a kind of special case of stockholder theory. In fact, a plausible assumption is that failing to pay attention to stakeholder interests often leads to poor long- term growth for a corporation. For example, closing

down a car manufacturing facility in one town may, in the short term, increase profits by lowering costs; however it could lead to a loss in sales by boycotts prompted by the frustrated residents of the town. Overworking employees may lead to a strike. Failing to honor contracts with manufacturers and distributors because paying the cost of breaking the contract is less of a loss than living up to the con- tract may lead manufacturers and distributors to refrain from engaging in business with the corpo- ration. Each of these considerations shows that rec- ognizing and attempting to satisfy the interests of the various stakeholder groups may itself be a way of maximizing profit in the long term. Developing a more costly but environmentally sound product at a time where environmental soundness is in the eye of the consumer may actually lead consumers to buy the more expensive product over the less expensive and environmentally unsound product. The initial loss encumbered by research and devel- opment for the environmentally sound product is regained later by the future sustainability of the corporation as consumers’ spending habits reflect concern for their environment.

A recent development influenced by debates on corporate social responsibility is that businesses have increasingly endorsed versions of corpo- rate responsibility by stating that their mission is not simply to make profits, but also to do good. One concept that has had significant impact and requires conceptual and moral evaluation is “social entrepreneurship.” Also, business ethicists have begun to turn their attention to the non-profit sector and the special moral dilemmas that arise in organizations that do not rely primarily on market mechanisms to dictate their success.

Finally, business ethics also benefits from dia- logue with traditions that have developed sophisti- cated accounts of the moral obligations of business. As part of this dialogue, we have included articles on Islamic, Confucian, and Buddhist perspectives on corporate social responsibility.

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