Business ethics (without the misery!)

Note: This blog is based on collaborative work I did at the University of Sussex with the brilliant Andre Almeida

Isn’t ethics a bit of a drag? Often, we think of ethical considerations as restrictions on the way we act. Without ethics we’d be free to do what we want, but with ethics there are boundaries that severely limit our options. On this gloomy view, self-interest and obligation are forever in tension. This understanding of ethics isn’t just implicit in our everyday thinking about what it is to be an ethical individual – it’s also implicit in our our everyday thinking about what it is to be an ethical business. I think this gloomy view should be scrapped in favour of a more optimistic approach to business ethics. But before I introduce that approach, let me say a bit more about what’s wrong with the gloomy view of business ethics.

On the gloomy view, an unethical business can simply pursue its own profit, whereas an ethical business must sometimes act against its own financial interests in favour of the wider interests of society. A business free from obligations to pay taxes, to make philanthropic donations, to care for its employees and to respect its stakeholders is a business that is free to maximise profit. A business that chooses to meet its obligations is most likely a less profitable business, since doing the right thing inevitably costs money. Acting ethically might be good for society, but it’s basically bad for business.

Many academics working in business ethics think that this miserable attitude to ethics is pervasive in the business world. Porter & Kramer, for instance, argue that economic theories have enshrined the problematic idea that ‘…to provide societal benefits, companies must temper their economic success’.

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The gloomy view is problematic for a number of reasons. First, it gives being good a bad reputation. Any self-respecting business person wants what’s best for their business, so if acting ethically inevitably means compromising on the success of your business then ethics becomes burdensome – it becomes an obstacle on the path to business success. Second, the gloomy view makes ethical business hard to sustain. With profit and ethics pulling in opposite directions, profit will sometimes win when it shouldn’t. This is a particular risk when a business is going through hard times. As we’ve seen with the fallout from both the economic crash and the recent Brexit vote, when the profitability of a business is threatened philanthropic projects are often the first things to be thrown overboard. Third, the gloomy view entails a muddled view of what the point of business really is. Is the purpose of a business to help others or to help itself? If it’s both, how on earth do we balance ethical and financial considerations when evaluating a business? With a double or triple bottom line, which bottom line should get priority when? This muddle makes the successful navigation of business decisions very difficult.

Hopefully I’ve done enough to convince you that the gloomy view is no good. But if I’m right that it’s no good, what should we replace it with? Thankfully, philosophy has provided some insights into what it means to be an ethical individual that transfer nicely to a business context. The idea that acting ethically means acting against your self-interest is associated (perhaps unfairly) with the 18th Century philosopher Immanuel Kant. Kant’s contemporary, the great poet, dramatist and philosopher Friedrich Schiller, skillfully mocks the gloomy view in the following epigram:

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Schiller argued that the absurd view of ethics captured in this epigram ‘…could easily tempt a weak understanding to seek moral perfection along the path of a gloomy and monkish ascetic.’ Against such a view, Schiller suggested that the truly virtuous person is one for whom duty and desire are in harmony. If you have what Schiller calls ‘a beautiful soul’, you simply want to do what’s ethical. Such a person doesn’t have to put their self-interest aside in favour of doing the right thing because, for them, doing the right thing is in their self-interest. Their desire and their conscience push in exactly the same direction, so no compromise is needed. Of course, most of us fall a long way short of Schiller’s ideal of the beautiful soul. Nevertheless, pursuing an ethical life becomes a lot less gloomy once you recognise that the ultimate aim is to bring duty and self-interest into harmony.

How can we apply Schiller’s model of virtue to business ethics? Schiller’s ideal is for duty and self-interest to be in harmony, so the virtuous business is one in which being profitable and being ethical come hand-in-hand. Such a business would make money by doing the right thing and do the right thing by making money. There would be no trade-off between financial and ethical considerations because the business will have developed in such a way that these two things push in the same direction. The ideal business isn’t one that compromises profits in favour of societal benefits, but rather one that makes profit by bringing societal benefits.

How could profit and ethics be in harmony like this? Let me give you an example. Grameen Bank was founded by Chittagong Muhammad Yunus in Bangladesh in 1976. Yunus introduced the practice of ‘microcredit’, giving loans as small as US$27 to people below the poverty line. The societal benefits of these loans were formidable, lifting countless families out of poverty by offering them the means to help themselves and to avoid predatory loan sharks. But the really interesting thing about Grameen Bank is that it makes a profit. It isn’t a charity that gives away money for the benefit of others and against its own self-interest. Rather, it’s a profitable enterprise that makes its profit by doing something beneficial to society, and ploughs that profit back into the business to yield more social benefits and more profit. Grameen Bank thus exemplifies how a good business can harmonise profit and ethics: the actions that make money are actions that bring societal benefit, and only by bringing those benefits can the business continue to make money.

Scrapping the gloomy view of business ethics in favour of this Schiller-inspired view promises to overcome the problems I mentioned earlier. First, business ethics needn’t have a bad press since business people can pursue what’s best for their business at the same time as pursuing what’s best for society. Second, business ethics needn’t be hard to sustain since there doesn’t have to be a difficult trade-off between profit and ethics, as the two push in the same in the same direction. This applies even when a business is going through hard times (it’s worth noting that Grameen Bank opened in New York a year before the financial crisis yet managed to grow steadily regardless). Third, business people can avoid a muddled understanding of what the point of business is. The point is to profitably do good, so in the ideal business the question of how to balance profit and ethics simply won’t arise.

Just as achieving Schiller’s ideal of the virtuous person is easier said than done, meeting this ideal of the virtuous business is pretty hard work. But lofty ideals are a valuable guide even if we can never fully achieve them. I’m reminded of the observation that even if you have no hope of reaching the North Pole, a compass can still help you head in the right direction. Perhaps the Schillerian ideal of the ‘beautiful business’ can act as a kind of ethical compass, and as a reminder that ethics doesn’t have to be a drag.

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2 thoughts on “Business ethics (without the misery!)

  1. A lovely way of looking at the world – I think that one example would be recruiting people who take pleasure in coaching others; the result is an organisation that is good at developing its talent, which is both the right thing to do ethically, and useful for the business. My challenge to this ideal is how do you apply it to existing businesses to help them move to a model of ethical profitability – all banks can’t become Grameen?

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    1. Hi Graham,

      Thank you for your comment. I think a business looking after its talent is an excellent example of what I’m talking about. In answer to your question, there are several ways an existing business might move closer to the ideal of ethical profitability. The first thing is a change in structure. Many large businesses have a team or department dedicated to social responsibility. I think this reinforces the idea that ethical practice is somehow distinct from the real work of business (with all the troublesome consequences entailed by that division), so I’d suggest scrapping such dedicated teams in favour of a business-wide programme that incorporates a socially responsible mindset into all aspects of the business. The second thing is a change in strategy. Social problems are business opportunities, so I’d propose actively looking at social problems relevant to the business, and exploring the possibility that there’s a sustainable and profitable way of addressing those problems.

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