The Social Politics of Business Ethics
Written as a
paper for the Dept of Social Politics, by
Ian Pirie, 1999.
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"It is not logic that makes men reasonable, nor
the science of ethics that makes men good" (Oscar Wilde: Aristotle at
Afternoon Tea).
Over
the last few years, there has been a growth in the number of books and articles
which have appeared on the subject of business ethics, and there is a flourishing
Journal of Business Ethics. A new
academic field is clearly establishing itself, and it has the characteristics
one might expect of a new and "underdeveloped" field: in particular,
lack of agreement over basic terms, methodology and boundaries (Donaldson, J.
1989).
However,
the earliest articles and books specifically addressing the topic of business
ethics or social responsibility appeared in the late '60s and early '70s, and
there has been a marked change in emphasis since then, with a clear shift from
'social' to 'ethical' concerns. As Nash
(1990) says, the recent change in emphasis in the literature reflects a
"shift from problems of institutional responsibility and institutional
mechanisms for encouraging conformity to high standards" to a
preoccupation with the "moral capacity of individuals".
This
chapter aims to examine this shift, by reviewing a number of books published
since the 1960s. It will examine
how thinking in this area relates to the
historical context, (for which the reader is also directed to the chapter by
Alan Neale). It will primarily argue that questions of business ethics cannot
be detached from social and political dimensions, nor reduced to problems of
individual morality. An assessment will be made of the different positions
taken, especially in some of the recent literature, in relation to business
ethics.
First,
below, three historical "phases" are identified in writing about
business ethics and social responsibility. These phases correspond to changes both
in business and in the economic/political context, and go some way towards
explaining why attitudes to business ethics have changed.
However,
it is misleading to suggest that different business malpractices simply reflect
"different times", as Pearson (1995) seems to do: "the excesses
of one era produce periods of reaction", or that the literature simply
reflects public reaction to the changing patterns of behaviour by business
organisations or individuals; for example, Nash (1990) says: "often discussion
grows out of a major collapse of moral standards in a specific business
activity". These are both
over-simplifications. On the first
point: while in certain periods a particular kind of malpractice might be more
prominent, there is also a fair amount of continuity; for example, while
price-fixing was prevalent in the 1950s (Nash 1990), several cement companies
were found guilty in August 1995 of the same offence. And on the second: we
still have to explain and understand the different patterns of behaviour, as
well as the changing reactions to it, in particular why we no longer stress
"institutional responsibility and institutional mechanisms".
The aim
of a historical approach should surely be to avoid the extremes of contingency
and determinism. We cannot explain away
or excuse poor ethical standards by attributing them to "what was
done" at the time. Nor can it be
convincingly maintained that there are no patterns to business behaviour, no
general trends or principles. The view
taken here is that two interrelated aspects of historical change are crucial to
understanding business ethics: the first is political (in the broad sense, that
is shifts in the distribution of power), and the second is social (viz. changes
in dominant ideas).
historical
overview:
phase 1 - origins
The
origins of concern over ethical/responsible business go right back to the early
years of the century, especially in the
(a) the new power of large corporations and
"robber barons", (leading to anti-trust legislation in the States);
(b) the inter-war depression, which many saw as caused
by unregulated business;
(c) the growth of the trade union and socialist
movements, and of social democracy in politics.
The main
political responses to the dangers of corporate power and unregulated
capitalism were anti-trust legislation in the
phase 2 - post World War II
The
consumer boom of the '50s was followed by a reaction against excessive
materialism and inequalities in the '60s.
There was a disillusion with mere consumerism, especially on the part of
middle class-youth; Sethi (1971) refers to the "post-depression era
population, whose primary concern was not economic rationality"; and there
were protests against corruption, poverty, war and imperialism. In the early '70s writers were very conscious
of the 'times... a-changing', and the public was increasingly aware of the
power and impact of the corporation, -
the "corporate wall" of Sethi's title - both at home and abroad (
e.g. Dow chemicals in
The
main pre-occupations of books at this time were:
(a) incidents of business activity which had caused
public protest - cases discussed in Sethi's book include: the
(b) crises in the social and natural environments:
Steade (1975) covers the topics: profit, business power, quality of working
life, pollution, social renewal;
(c) challenges to the economic system of capitalism
and in the political sphere - see Perrow (1972), and Heilbroner and
Some
had seen a "revolution" happening around 1968, and although this view
turned out to be over-dramatic, the social and political climate undoubtedly
changed with the development of the (middle class) consumer movement, and the
more radical new social movements around feminism, ecology etc.
Given
this more public discussion, much of the literature at this time focuses on
ways of regulating business, and making business "accountable". (1)
The expression "social responsibility of business" gained ground at
this point also (Donaldson, 1973), and we might mention that a course was
started at this institution under the title Social Responsibilities of Business
in 1976.
In this
phase, with the exception of Baumhart's (1961) Harvard Business Review article
on "business ethics", terms like "social responsibility" or
"social issues" (2) were preferred.
phase 3 - the Thatcher/Reagan era
With
the encouragement of "enterprise", privatisation, and de-regulation,
public concern turned to the internal affairs of businesses, and the
reprehensible behaviour of prominent businessmen, as well as - perhaps more
than - the social impact of business. A
list of scandals which have caused discussion would include: Guinness, Maxwell,
BCCI, British Airways, and the pay awards to Directors of ex-public utilities.
With
the breakdown of the Soviet economies, and the apparent world-wide dominance of
capitalism, perhaps it is inevitable that criticisms of "the system"
are less often heard, and blame for problems is laid on individuals.
This
brief sketch shows how changes in the political climate, as well as the
changing business organisational structures led to the study of business ethics
becoming separated from the wider social and ideological context. Other reasons why this has happened are more
to do with the defensive attitude of business to its socio-political
environment, an attitude which is reflected in the narrowness of business and
management theory.
Thus,
apart from the writings of social reformers such as Robert Owen or the
advocates of workers' co-operatives, and apart from the activities of a few
'philanthropical' companies, public demand for higher standards of
conduct on the part of business has arisen only after a crisis of some
sort, or after a decision has been made which has had negative consequences.
Thus, again with the exception of a few companies, business is being pushed
into social/ethical considerations by outside factors - by popular
protest, or media, group, or government pressure; there may be many more
companies now, even a majority, with ethical codes of behaviour, but it is
certainly possible to argue that these moves came about only as reactions to
public criticism, and therefore as self-interested survival tactics. (3)
Also,
as Donaldson (1989) points out, reforming figures such as Owen, Lord
Shaftesbury, even the successful Quaker entrepreneurs, "rarely feature in
the management literature, and never prominently"; and he adds: "
Perspectives
on ethics.
However,
there is surely a danger in a focus on "ethics" which separates
individuals in business from their organisations, and the organisation from its
social context, in order simply to question the ethics of specific actions. To adopt such a purely
"internalist" perspective (4) means, as Shaw (1996) points out, that
our ethics will be based solely on general principles and abstract reasoning, -
it will not help us to understand how problems have arisen and what can be done
to prevent them, let alone saying anything about the kind of society in which
we want to live. Such an internalist
approach also stops at the level of the individual, putting aside both the
organisation and the "system" as a whole, (5) and it is the
contention here that this is inadequate.
The
case for integrating ethics with social concerns can be made in several ways.
First, as Trevino and Nelson (1995) argue: "our ethical conduct is
influenced (and, to a large degree controlled) by our environment". These authors make this point to argue for a
key role for managers in creating a highly ethical culture. However, it equally indicates that if
managers or political leaders demonstrate low
ethical standards, others will surely follow!
Second,
what we view as ethical or unethical is often a reflection of
economic/political trends; the acceptability in the '80s of rampant
individualism and even greed is the clearest example, but the well-known view
that "what's good for General Motors is good for
And
finally, (as a surprisingly large number of writers in the field note) there is
a conflict between the values, particularly the profit-drive, of capitalism and
the requirement of socially responsible/ethical behaviour. Thus Nash (1990)
notes the likely conflict between "common-sense values" (such as
"honesty, fairness, respect for others, service, promise-keeping, prudence
and trustworthiness"), and the pressures of the market-place. Similarly, Jennifer Jackson (in ed. Almond
1995) accepts that it is often more difficult for people in business to
practise the virtues of temperance, compassion and a sense of justice. Other writers recognise that in the real
world, lying, fraud, deception and theft sometimes lead to greater
profits. What is perhaps more surprising
is that, despite making these observations, the writers cited are all
optimistic about the prospect of rendering business more ethical.
I would
wish to argue, therefore, that understanding the issue of ethical business
requires developing a method of analysis which goes beyond the traditional
disciplines of management and organisational behaviour and which considers
business in its socio-political context.
This approach clearly identifies ethics with the question of the
"good society", as well as with questions of power and
responsibility. (6)
This
being said, we need now to look more closely at different approaches to
business ethics in the literature, and to try to group them according to their
stances on the relationship between ethics and the social context.
(i) the 'happy capitalists'
The
first group comprises writers who do consider the social context, but they
either separate it explicitly from any problems which might be identified in
regard to ethical behaviour in business, or they argue that the economic
context of 'free-market capitalism and liberalism' itself creates the highest
ethical standards. As they see
individual self-interest as the motive force behind the market, these writers
lack a theory of organisations (or, in more recent new right analyses, they
view organisations as protectors of vested interests, and a threat to the just
order of a liberal market economy).
The
best-known advocate of free-market capitalism must be Milton Friedman, whose
statement that the only responsibility business has is to its shareholders is
often quoted in texts in this field. (7)
The basis of his argument is, of course, that capitalism is a just
system, promoting the maximum freedom, provided no one 'interferes' with the
market mechanism. He identifies
'morality' as a personal matter, and argues that business is not capable of
making ethical judgements.
Presumably,
according to this view, when damage or harm is done by an enterprise this must
either be because the market has not been made the supreme arbiter (i.e.
the vested interests of a group such as a trade union, or a pressure group have
been allowed to override the market), or because of some accident, or
individual error or misdemeanour on the part of a manager. Friedman stresses the ownership rights of
shareholders, and goes so far as to say that a manager who uses corporate funds
for some charitable purpose is diverting the shareholders' property to uses
other than those they intended, and certainly not to their benefit, and this is
unethical since it is tantamount to theft!
The
simplest response to this is to take a few cases of damage or harm done, and to
try to find the causes. With such
incidents as:(8) the Exxon Valdez oil spill; ITT's involvement in Chile (in the
overthrowing of a legitimately elected government); or Nestle's sale of dried
milk for babies in the third world, despite evidence that it has caused deaths
from dehydration - it is hard to be convinced by explanations simply in terms
of accidents, errors, individual misdeeds, or interference with the market (9).
To take the case of the pollution caused by Exxon as an example, here were
involved not only the ship's captain, and the oil company, but the oil consortium
Aleyeska, and several government agencies; in addition, a major part was played
by public reaction over the damage to wildlife, which the company seriously
underestimated.
Similar
positions to Milton Friedman's were taken by Professor H.B. Acton, and by John
Wood of the Institute for Economic Affairs, in papers published by the
Foundation for Business Responsibilities in 1972 and in 1973 (10). Professor
Acton also revives Samuel Smiles's victorian doctrine of self-help. In a debate with Michael Ivens of Aims of
Industry, John Wood described a CBI recommendation that companies should
consider an ethical dimension in corporate activities as "a recipe for
corporate hemlock". Wood went on to
describe social responsibility as diverting business into "ill-defined,
conflicting and usually transitory social objectives, in place of the pursuit
of profit, or avoidance of loss."
Perhaps surprisingly, Michael Ivens' retort was that people adopting
this position were "romantic brutalists..." - such splits on the political
right have since become even more pronounced!
I think
it is fair to say that all of these writers rely on stressing the tremendous
gains made by (free-market) capitalism, (11) and have little or nothing to say
about the negative social impact of business. Moreover, the model of capitalism
being used surely belongs to some (mythological) point in the past? Modern patterns of ownership and control, and
modern business organisations, are so much more complex, the world is so much
more inter-related, while also manifesting such gross inequalities, that talk
of market mechanisms treating people equally and creating equal freedom cannot
be taken seriously. However, at least
these writers acknowledge the impact of the social context on business.
Other
writers who see a positive ethical aspect to capitalism (e.g. Burke et al 1993)
recognise that not all managers act ethically, and they try to identify reasons
for this - such as short-term market
pressures, or organisational phenomena. This position will be examined
separately below.
(ii) organisational approaches
(a) the organisation and the
individual
Several
recent books acknowledge that business ethics is a matter of concern, but then
make the assumption that the problem can best be addressed through managers'
understanding and training. Thus they
set out to convey to managers an understanding of what ethics consists of, what
principles might guide someone faced with an ethical dilemma, what kind of dilemmas
managers may find themselves in, and how to think through problems. Such writers are usually quite keen on
'ethical codes', which are believed to help produce an ethical organisational
culture. The concern with organisations
here is limited to questions of how they can be adapted and used to increase
ethical standards; the individual is seen in consensual terms, as a member of a
team, rather than as potentially in conflict, or as i any way constrained by
the organisation.
There
are several useful features to this approach, but many limitations. One valuable outcome is to remind us that not
all ethical problems are at the 'macro' level - many arise within the
organisation, around, for example: sexual harassment and discrimination,
positive discrimination/affirmative action in recruitment or promotion,
"perks" and pilfering, conflicts of interest, whistle-blowing....
etc.
However,
it is surely over-simplistic to say, as Solomon and Hansen (1985) do, that the
problem is merely that managers and employees are not always aware of the potential
harm that could arise from a decision or action, or that "ethical errors
are the result of ethical naivete" and "most people in business who
do wrong do so not because they are wicked but because they think they are
trapped and do not even consider the ethical significance of their
actions". It may be that an
individual really is trapped, especially given the increasing pressures
of a competitive and insecure environment.
We must
surely distinguish between situations where someone: (i) is not aware of the likely consequences,
(ii) is faced with more than one 'right' action, and
has to choose the best, when different ethical principles are involved -what I
call an ethical dilemma
(iii) knows what the right thing is to do, but chooses not to do it, and
(iv) wants to act ethically, but finds themselves unable to, because of some constraint
or other.
With
the first of these kinds of situation, education or training will help, though
maybe only up to a point: there is some disagreement about how people develop a
moral sense, what stages they go through, whether men and women have the same
moral sense etc. (see Snell, R. (1993); also Barry, J. and Clarke, H. in Davies
(1997) for discussion of Kohlberg, Gilligan etc.).
The
second kind of situation is more difficult, and the more you 'know' about
ethics the more difficult it may become!
Often in the literature the recommendation to managers in this kind of
situation is to do what feels right
- a rather shaky position?
But
there is a perennial philosophical and practical problem in the third
situation: knowing what is right or wrong is one thing, but being convinced I should do what is right is another...
The philosophical problem here is: how do I know I should do right? And
although to philosophers an argument such as Kant's demonstration of the link
between being rational and doing one's duty may be convincing, it is something
of a tall order to convey to the average employee or manager! (See, however,
Sorell and Hendry 1994). The practical problem here concerns motivation, for
experience tells us that not everyone is motivated towards duty (the Kantian
view) or happiness (the Utilitarian argument - where we should all be motivated
to seek the maximum happiness for the maximum number) - some want power,
excitement, revenge... and business is an ideal means to get these.
With
regard to the fourth situation, where the
organisational context is the most obvious constraint on individual
ethical behaviour, a number of writers discuss ways of improving corporate
culture to obviate this. Collins and
O'Rourke (1994), for example, suggest a three-step procedure for identifying
and improving an organisation's ethics:
(i)
analyse how power is (a) obtained (b) maintained (an approach based on Machiavelli?)
by managers in relation to the different stakeholders (see below)
(ii)
make a judgement based on: are promises kept, are harms avoided, how much
mutual aid is practised, are persons and property respected, how much honesty
is there?
(iii)
identify necessary changes in organisational structure, operating policies, and
reward systems.
As a
procedural guide this looks fine, but again it doesn't tell us how to ensure
managers want "mutual aid, respect and honesty" in an organisation;
and it gives the impression that once the 'necessary changes' have been
identified - by the manager? - the problem is solved!
Donaldson
J. (1992) also recognises (p 94) the powerful constraints on individual
behaviour in organisations, such as what he calls "intervening
processes" in the "cultural milieu". He goes on to discuss in some detail (ch 5)
"ethical structures for industry", and in doing so recognises the
importance of external factors such as law enforcement. However, the main thrust
of this otherwise useful book seems to be that, "all business activity is
value-driven", and that "ethical and efficiency values can be
reconciled. Indicative of this emphasis
on values is the conclusion that where there have been
"transgressions" in the financial services, this is due to either
"low values or confused ones". Given this perspective, solutions
proposed are mainly to do with "consciousness-raising", and issues of
conflicting power and interests are played down.
Within
the 'organisational' perspective, moreover, there is further disagreement over
what kinds of organisation are in fact
developing, let alone how these will affect individuals' (ethical)
behaviour. Of particular concern is the new, leaner, 'post-modern'
organisation.
On the
'optimistic' side there is Pearson (1995). This writer is sceptical abut
anything practical emerging either from using philosophy to promote ethics in
business, or from any business ethics initiatives... as he puts it "Kant
never had to run a business"! He
also argues that the globalisation of markets and of technology is producing
global corporate alliances, where each company focuses on its core
competencies, and outsources in areas where other companies have advantages;
this will be accompanied by loosely-coupled networks of autonomous teams and
fragmented forms of organisation (rather than bureaucratic hierarchies). In
this world, business will depend more than ever on "trust", and
consequently managers and workers will be pushed into more professional,
ethical ways of acting. A similar position is taken by Hutton (1995).
On the
'pessimistic' side, there is Nash (1990), who suggests that:
(i) the
de-layering of management will deprive organisations of experienced managers,
leaving more temptations for short-term interests to take priority,
(ii)
workers generally have less job security, and there are more low-paid workers
and a bigger gap emerging between their pay and that of top management, causing
resentment rather than a sense of solidarity and commitment
(iii)
traditional methods of leadership such as personal contact and communication
are all but obsolete, so ethical values cannot be passed on.
Clearly
one cannot consider the 'organisation' without being soon drawn into
considering external factors as well. It might
seem, however, that - ideological commitments aside - the only way of
deciding between the optimists and the pessimists will be to watch what
happens: will there be more or less ethical behaviour by and in organisations?
(b) inside the
organisation
Other
writers usefully point to the psychological or cognitive factors that are at
work in organisations, not all of which will promote ethical behaviour. Among such internal factors, Hartley (1993)
mentions custom, groupthink, indifference and expediency - though he does not
attempt to analyse or evaluate their influence.
A more
thorough analysis of such factors is provided by Trevino and Nelson (1995). For
example, they discuss a most revealing personal recollection on the part of
D.A. Gioia, who was one of the managers at the time Ford produced the Pinto
model. This car had a vulnerable petrol tank placed in a dangerous position,
such that when a car was struck from the rear it could explode. Despite a number of fatal accidents, Ford
refused to recall the car, (Gioia was responsible for recall decisions) and
even decided, after calculations, that it would be cheaper to meet the costs of
being sued for fatalities than to recall and redesign the car. Gioia discusses his own actions in terms of
"script processing" - a technique we all are said to use to get
through the pressure of making many decisions: we develop a script which sets
up a behaviour pattern that does away with the need to inspect each decision in
detail. Gioia simply thought that the
Pinto case was just like a number of others he had encountered, and he was
under stress from a heavy workload, so he went onto "autopilot".
Trevino
and Nelson (1995) also identify "multiple ethical selves" and
"role behaviour" - where we use different ethical standards according
to the situation we are in, or the role we
are playing. A
similar discussion can be found in Hartley (1993), who examine
"groupthink" in the case of General Motors' Corvair vs. Ralph
Nader. An example here might be the
common belief, that business is a particular kind of situation, more analogous
to a game like poker than to other parts of life, where "bluffing" is
quite acceptable. (See: Carr (1968) in Drummond and Bain 1994). With "groupthink", an individual's
ethics unthinkingly reflects the group's - just as we often take our society's
ethical standards for granted.
Other
writers (e.g. Donaldson 1989) refer to the disturbing findings of Stanley
Milgram, who demonstrated how we are prepared to sacrifice our individual
conscience when faced with a figure of authority who tells us what we are doing
is right.
It
would seem to me that there is considerable evidence that organisations affect
individuals' ethics, and that a lot more work could usefully be done at this
level. However, most of the literature,
again, takes a "managerial" approach, and this ducks the question:
who ensures managers are ethical? It
also assumes that managers can "empower" employees to be more ethical
- but what of the "empowerment paradox": - is empowerment something
that can be given, or do workers have to take it for themselves? (Gandz, J. and
Bird, F.G. 1996). (12)
(c) ethics in
the organisation
A (sometimes)
useful feature of the approach to business ethics which focuses on the
organisation, lies in the "brief guide to ethics" that most of these
books contain. Unlike the apologists for
"pure capitalism" mentioned above, (who sometimes give the impression
that Adam Smith said it all - or that we can simply amalgamate Adam Smith, the
Utilitarians, and Kant), and unlike Pearson (1995) (who, as noted above, is
sceptical of philosophy), these writers at least recognise that philosophers
have struggled over ethics for two millennia, and some acknowledge that there
is still a good deal of disagreement.
However,
these writers are not philosophers, and they naturally sometimes produce rather
sketchy summaries of mainstream ethical theories. Moreover, all are constrained
by the facts that, as noted, ethics and business/management studies have
evolved as quite separate disciplines (since the early political economists
that is). Given these constraints and the disagreements among philosophers on
ethics, it is not surprising that some authors simply conclude that you should
take from all the different theories whatever you can!
There
is no space here to comment on these summaries of ethics, but I would not wish
to suggest it is a waste of time getting to grips with the
"classical" theories of ethics. (13)
(iii) the
stakeholder approach and managerialism:
One
perspective which begins to go beyond the business organisation to the social
context uses the stakeholder model (14).
This acknowledges the changed patterns of ownership and control that
characterise business in the twentieth century, and argues that a business's
loyalty is not only to its stockholders, but to all those who have a
stake or interest in the firm's activities.
This
model, it can be argued (Weiss 1994), may deal with the objection that an organisation has no
intentionality or conscience, and
therefore we cannot speak of "ethical business", but only of ethical
individuals. For what is focused on here
is the relationships of interest and power surrounding management. Weiss recommends a series of steps for
managers: first, draw up a map of stakeholders - customers, suppliers,
employees, stockholders - next, identify the interests and power of each, any
coalitions that might exist or come into existence; finally, decide what
responsibilities or (moral) obligations you have to each stakeholder.
The
positive aspect of this procedure lies in its recognition that business affects
a wide range of people, who have rights, or a kind of property claim, against
the business, and that blind loyalty to stockholders may deprive others of
their rights, or do them unjustifiable harm.
"Ethics" then comes in as a way of sorting out any conflicts
and moral dilemmas which may arise - though how far it can help prioritise
between different stakeholders is debatable.
A
further "selling point" for some writers (including Weiss) is the
argument that a business will not survive if it ignores its stakeholders'
rights or needs. This provides,
therefore, what philosophers call a 'prudential' obligation - you would be
wise, for your own safety or self-interest, to do your duty.
A more
conceptually "loose" version of the stakeholder approach is taken by
writers like Clutterbuck and Snow (1990, 1992).
Here are included: customers, employees, suppliers, shareholders, the
political arena, the broader community, the environment. This approach necessitates a different means
of appeal to motivate managers, and the language here is of "mutual
benefit" (seen as a step on from enlightened self-interest, but clearly
closely related). These writers,
together with Carmichael and Drummond (1989), stress that "good business
pays", and "ethical failures cost". It is argued that: in a period of skills
shortage, employees will prefer to work for a company with a good (ethical)
reputation, and will stay longer; customer loyalty will be stronger; suppliers
will meet higher standards ("good business is good to do business
with"); government intervention will be avoided; relationships with
legislators and bureaucrats will be improved; you will be better able to
influence the (trading) environment; and that companies which are sensitive to
their environment "tend to be better and faster at perceiving and taking
advantage of social and market change".
On the
face of it this is a very strong prudential case! However, no-one is claiming that high ethical
standards guarantee success, or even survival - profit must still come first;
and, you may even do well with low ethical standards... Thus, even
Two
major areas of limitation can de identified with the whole stakeholder,
managerial approach. First, following
from the question of who is included as a stakeholder (see also chapter 3 of
Hoffman W.F. and Frederick R.E. (1995): if narrowly interpreted, the concept is
based on property or interest relationships, some of which may be enshrined in
law, thus providing a strong basis for regulation; but could we then include (e.g.) the natural
environment, or animals? And if not, how
are they to be protected?
If, on
the other hand, you interpret stakeholders in a wide sense, as Clutterbuck
does, then the basis of the model is either a belief in ongoing social concern
about ethical standards, or a moral position about our responsibilities to each
other, and this gives less scope for enforcement and presents a weaker argument
than the prudential one.
Moreover,
when identifying who is affected by a business do we take into account direct
effects only? For example, when the
subsidiary of a multinational company does well, and improves the standard of
living of the immediate community, does it have any responsibility towards the wider
area or region, where standards of living will relatively decline?
The
second area where this approach is open to criticism is its managerial
slant. First, stakeholders as identified
by management may exclude people who feel themselves affected by a business - and
a powerful business organisation can always manipulate the perceptions of
others (15). Second, this approach must
involve prioritising, and it is interesting to note that Weiss (1994) quotes a
survey of managers, who when asked to rank their stakeholders in order of
importance, put themselves at the top!
No surprise? On the other hand, perhaps it is a surprise that at the
bottom of the list were both shareholders and elected officials and government
bureaucrats!
So we
are left with the essentially political question: who decides who the
stakeholders are? In the survey
mentioned above it was found that only 38% of the firms gather external views
on business ethics, only 29% have non-executive directors for this purpose, and
only 25% employ consultants (16).
If a
stakeholder approach is to serve any purpose, we must clearly ensure that fair
and balanced assessments are made of all stakeholders' needs - and to do this
in my view necessitates more equal power-relationships between the interested
parties.
In
conclusion, the stakeholder/managerial approach begins to study links between
organisations and society, recognises that it is public demand that is raising
the ethical stakes, and highlights interesting issues about power, interests
and rights. However, the likelihood of
critical examination of ethical issues is minimised by the limitations of the
stakeholder concept and by the constraints of the managerial approach.
(iv) social
contracts and covenants
There
are similarities between the stakeholder and the social contract approach - and
it is of interest that the Labour Party adopted the former in the run-up to the
1997 General Election, rather than the latter, which in one interpretation
would seem closer to socialism (see below).
Perhaps New Labour wouldn't want to be associated with Newt Gingrich's
"contract with
There
are two interpretations of the concept of a "social contract" in
political philosophy (from where it originates) - the first (and oldest,
deriving from Hobbes and Locke) emphasises the freedoms which citizens
gain as a result of agreeing to co-operate under the law. Without some
agreement to give up our absolute rights to a sovereign body, in exchange for
protection, life would be, in Hobbes's words: "solitary, poor, nasty,
brutish and short". (Hobbes, T., 1651).
A
different emphasis was given later by Rousseau, for whom the social contract
was an agreement which would enable moral development in society
(Rousseau, J-J., 1762). The difference
can also be summarised as between "negative" freedom (freedom from
interference by others, insecurity etc) and "positive" freedom
(freedom to be creative, co-operate etc).
This
distinction is mirrored in writers on business ethics. An example of the former interpretation is
Cannon (1992), who says: "There
exists an implicit or explicit contract between business and the community in
which it operates", and who stresses the "voluntary and active nature
of the economic and business relationship." This leads to "mutuality of
benefits". The emphasis on freedom
is clear: "The leaders of the enterprise will seek the minimum of external
intervention by the state in the workings of the market. It is in the interests
of the firm to keep the costs of state intervention to a minimum by
internalising... the contract. It is in the interests of the state to favour
those enterprises which keep the costs to the community of intervention to a
minimum." This is not far from
I find
this a shallow and over-optimistic view.
In the car industry, for example (17) there has been a long fight
against being asked to exercise social responsibility in regard to pollution.
Cannon at one point acknowledges this, but seems not to attach any
importance to it. What is lacking is any
analysis of the power of different groups in society, and any sense of how
dominant ideas arise - assuming 'social responsibility' is a dominant
idea at present. Far from this, Cannon's
book gives the impression that "new climates" just arrive ("a new paradigm seems to be
emerging") - which surely equally means they could just disappear! Notions of 'hegemony' or of 'negotiation'
would be useful here, (see Sutton 1993) but writers like Cannon are too anxious
to retain the "freedom" they see as central to a business society.
There
are, however, writers who attempt to shift the perspective. For example, Camenisch (1981) gives a more
Rousseau-like version of the contract, which is based on the argument that
business's main purpose, its defining feature in fact, is to "provide
goods and services which contribute to human flourishing" (my
emphasis). If profit-making is the
essence of business, then Friedman must be right to say that to make a profit
is its social responsibility. But if
"contributing to human flourishing" is the purpose, then all kinds of
questions arise as to what kind of life we wish to live - and the locus of
decision-making (as to what specific activities business should pursue) shifts
from business (or the "market") to "humans" who wish to
"flourish". (18)
An
argument with some similarities to this, though with resonances closer to the
mainstream of management writing, and to the stakeholder perspective, is put by
Nash (1990). This is the view that the
ideas of such as Peters (1987) on "excellence" in business have at
their heart the notion of integrity, and of subordinating self-interest
to value-creation and service to others. Nash's "covenantal ethic" is based
on "caring and value-creation".
While pointing out that "today's survival environment stimulates a
me-first business ethic", she argues that truly enlightened self-interest
looks to "longer-term self-enhancement". Burke et al (1993) seem also to believe that
"at heart" capitalism is an ethical system, and problems only arise
because of either lower-level phenomena, such as the way responsibility
is organised, or short-termism, which is seen not as intrinsic to
capitalism but as a temporary associated value, which can be changed without
radically modifying the system.
In
fact, a feature of a number of recent books is to stress the problem of
long-term survival, and to argue that ethical practices are essential to
this. The "new" Labour party
seems to have caught on to this approach, and a strong case in economic terms
is argued by Will Hutton (1995).
However,
I am not the first to suggest that Hutton's overall argument is unconvincing.
Whilst Hutton argues that the British state is dominated by antiquated institutions
and values, typified by the City of
As
Hutton seems to me to underestimate the entrenched power of the City, so most
of those writers on business ethics who consider the social context seem to me
to underestimate such difficulties as: (a) the degree of conflict behind the
surface of the modern economy, and the difficulties of meeting competing needs
and values (19) (b) questions of
enforcement: if business continues to take the short-term profit-maximising
route, should the state intervene, and if so how? These writers aim to "re-moralise"
capitalism; the point should be to change it.
(v) business ethics and social
politics
A few
writers do manage to question the ethics of both business and capitalist
society. This must be done, since the
dominant values of a society will be shaped by its dominant institutions - and
this clearly includes business. We
cannot 'tidy up the stable' (20) without changing the structures and ways of
thinking that got the stable into a mess in the first place!
I
believe that a philosophical approach - that is, a critical approach - to business
ethics can help us get the necessary detachment in order to begin to identify
alternative ways of thinking, and new values.
However, the reality of power as it is now distributed has to be dealt
with as well, and this is a political question - a question of 'legitimacy'
(Sutton, B. 1993) (21).
Finally,
on the social front, we need to consider alternative models of society, and
alternative working arrangements, which would enable 'humans to flourish'. Some of these I believe are close to hand -
for example (i) workers' co-operatives such as Scott Bader, whose articles of
constitution include: no outside owners, not contributing to preparations for
war, minimising wage-differentials in the firm, and democratic decision-making
which involves all members on an equal basis; (ii) co-operative and municipal
socialism (not exactly flavour of the month, but see for example Birchall, J.,
1994).
Other
social models are not so much part of our 'modern British' life: in this
respect, the most useful of the business ethics books I have found are those
such as: Shaw and Barry (1995), which includes (i) Desjardins: "Virtues
and Business Ethics", (p. 95) where the basic problem is identified as
producing 'good' people in the (Aristotelian) sense of contributing to a 'good'
society; and (ii) Schumacher's "Buddhist Economics" (p. 178) where
the development of appropriate 'character' and appropriate institutions are
inseparable. Similarly useful is the
discussion of Sustainable Development by Carmen and Lubelski in Davies (1997).
These
approaches seem much more satisfactory: there is no artificial separation of
business ethics from social ethics, or personal from public ethics; there is a
recognition of the way business is 'embedded' in society; and there is a
questioning of the kind of society we need, to ensure ethical business. I believe that these are the basic questions,
and I hope that this chapter will encourage the reader to explore them further.
Notes
(1) Luthans,
Hodgetts, Thompson (1984) (4th edition) includes a section on "social
activism"; Galbraith, in The New Industrial State (1967) writes of
"countervailing powers" that would hold big business in check.
(2) See in
particular the following, from the late '60s and early'70s:
Baumhart, R. (SJ), (1968)
Davis,
Blomstrom (1971)
Donaldson, P. (1973)
Editors of Business Week, (
Friedman, M., (1970) Perrow, C., (1972)
Heilbroner, R.L. and
Klein, T. (1977)
Luthans, F. Hodgetts, R.M., Thompson, K.R., (1972,
1976)
Sethi,
Steade, R.D., (1975)
(3) Thus
Clutterbuck D. and Snow D. (1992) give the result of a survey of companies,
which suggests that between 60% and 70% have policies or codes on ethical issues.
At the same time, the main factor in promoting such policy was 'to enhance
corporate image' (identified by 88% of the companies) - and 26% said it was
'competitive pressure'.
Note
also the title of Humble (1973) Social Responsibility Audit, a management
tool for survival (my emphasis), and see Ivens, M. (1970) where it is
claimed (Introduction) that business is accepting its social responsibilities,
and "at the same time the intellectual forces opposing private industry
make it more and more necessary (my emphasis) for the individual director
to think through the full implications of business decisions, and to achieve a
coherent business philosophy."
(4) The term is
borrowed from the philosophy of science: an internalist perspective takes
scientific activity as a self-contained procedure for acquiring knowledge; an
"externalist" perspective recognises the impact of society on the
activity of science, and consequently holds "knowledge" to be
provisional or even to some degree relative.
(5) de George,
in Journal of Business Ethics, April 1987, identifies three 'levels of
analysis': (i) at the level of the free enterprise system, (ii) the corporation
in the system, (iii) the personal level.
(This is similar to Alford R.A, and Friedland R.F. (1985) who argue that
pluralism focuses on the level of the individual, managerial theory on the
level of the organisation, and class theory on the societal level). The argument of this chapter is that while
distinguishing between the three levels is useful procedurally and
conceptually, there must be interaction, in the real world, between them.
(6) See
Galbraith (1996), also the first two chapters in particular of Davies (1997),
where issues of ecology and democracy are interwoven with economics and with
business ethics.
(7) For example
(Friedmann M. 1962): "There is only one social responsibility of business
- to use its resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, engages in open and free
competition, without deception and fraud." Also: (ibid) "If
businessmen do have a social responsibility other than making maximum profits
for their shareholders, how are they to know what it is? Can self-selected
private individuals decide what the social interest is?
(8) For details
of these cases see: Hartley, R.F.
(1993): ch. 16 (oil-spill by the Exxon Valdez); ch. 6 (ITT); ch. 10 (Nestle).
(9) One wonders
whether Friedmann didn't in fact support the ITT action, since it aimed to
prevent
(10) The
Foundation for Business Responsibilities was connected in the press with Lady
Porter of Westminster Council - the allegation being that she used it to
channel funds to her Conservative group on the Council.
(11) Acton
(1972) p 9 credits capitalism with bringing: "Free speech, free movement,
free trade, free thought, exploration of the earth and oceans, an ideal of
peaceful domesticity, water colour drawing, conversation pieces, the novel and
domestic drama." (sic!)
(12) I am assuming that the modern manager
believes in empowerment, and doesn't want his/her workers to be "diligent followers and functionaries...
many indifferent, or fearful of punishment, or desirous of a good career, or
too obedient"? (The quotation is given by Nash (1990) and is actually
taken from Primo Levi's description of a typical member of the Nazi SS).
(13) To point
the reader in what I hope is a useful direction, and to give a flavour of the
breadth of the field, books which are about business ethics but which contain
good summaries of the philosophical aspects are (in order of publication):
- Hoffman M.W. and Frederick R.E.
(1984 , reprinted 1995) has useful articles by: J. Rawls, R. Nozick, J.J.C.
Smart, Irving Kristol and Kai Nielson; but the book raises more questions than
answers as to how to apply these to the cases cited.
- Donaldson J. (1989) has a useful
glossary of terms in ethics. It is worth noting also that he includes industry
and trade unions in his study. Although he has a chapter entitled 'Critical Business
Ethics', this is more a plea for the three key principles he identifies:
pluralism, the golden rule, and autonomy, rather than containing what one might
expect in the way of a 'critical' stance.
- Jennings M.M. (1993) this has a good
section on a wide range of ethical theories, and makes an attempt at
integrating the theories with the cases, but much of the time this feels a bit
contrived.
- Hartley R.F. (1993) is based on
detailed cases, and the working-together of ethical issues and real-life events
is most helpful, and the philosophical level is not too demanding.
- Snell R. (1993) emphasises moral
reasoning, and adapts a model put forward by Kohlberg ( 11) of different levels
of ethical reasoning. A useful way of 'sorting out' the many different ethical
theories!
- Sorell T. and Hendry J. (1994) have
a very high level both of clear theoretical explanation (making even Kant sound
fresh!) and of integration into current problems.
- French P.A. (1995) is at a high
philosophical level, but with helpful 'philosopher-boxes'. A central concern is
the corporation as an entity.
(14) William
Evan and R. Edward Freeman discuss this theory, linking it with a Kantian
approach, in Hoffman, M.W. and Frederick, R.E. (1995). However, this is not as new an idea as some
would like us to think, since they refer back to an essay in Huizinga (1983).
(15) I am
reminded of an old advertisement for 3M, a company which puts most of its money
into the space/armaments industries, but which reassures housewives that it is
doing something for them, because a spin-off of its work is an improved scourer
for the washing-up.... More recently, consider the possible influence of
Monsanto's advertising campaign over genetically modified foods.
(16) Weiss's own view is that the "primary
obligation is to the economic mandates of the owners".
(17) see Neale,
A. (1995)
(18) This
viewpoint corresponds to the third model identified by Shaw (1996), where
ethics is seen as a concern with "character", "virtue" and
"practical reasoning" - ideas derived from Aristotle - rather than
simply to do with individual moral decisions (what he calls the
"standard" model), or simply relative to the social and political
context (the "political" model).
Davies (1997) identifies four perspectives: virtue (represented
especially by Solomon (1993), Christian/theological, (Industrial) Democracy and
Ecosystems.
(19) indicative of this conflict is the way the
Guardian newspaper has carried on same page articles about the dangerous
pollution levels we are experiencing, and about the need to boost the car
industry... and we are re-assured, when the government announces the closure of
Dounreay, that the process of de-commissioning will retain thousands of jobs.
(20) see
Tidying Up The Stables, or the social responsibility of business in Perrow
(1972).
(21) See especially the articles by Habermas on
'legitimacy', and by Boulding on the 'Ecosystem of Power'.
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