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 United States. (Luthans et al 1972).  Key factors were:


(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 United States, and government involvement in regulating the economy, through Keynesianism and the New Deal. 


          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 Vietnam).


          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 Santa Barbara oil spill, resistance to the building of nuclear power plants, ITT and Chile;

(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 London (1975), where Heilbroner writes of the "long-run challenge to business civilisation".


          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: "OB books which include ethics are rare".  In other words, management studies have been concerned with, as it were, the norm - and (as will be further shown below) have kept ethics 'at a distance'; and where ethics is treated, it is regarded as being a different discipline.


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 America" can also be seen in this light.


          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 Carmichael and Drummond (1989), can only go so far as to say (p 77): "High-ethics, low-profit organisations do not survive. High-profit, low-ethics organisations should not survive."   It can also be argued that while there is currently a "climate" in which ethical business may do well, this may just be a passing fashion.


          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 America"!


          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 Carmichael and Drummond's (1989) view, that "good business" is "an exercise in simple economics".  For Cannon, then, increased freedom will bring increased responsibility - there is a "new climate" and "corporate leaders in the private sector acknowledge their responsibility to respond..." .


          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 London, he nevertheless believes that the City is already beginning to see reason and to consider long-term rather than short-term goals.  In the light of ongoing scandals about the pay of directors of large organisations, mergers of insurance companies on a global scale, and the extent to which international trade in goods is dwarfed by trade in money, my view is that Hutton is whistling in the wind.


          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.


(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, (Nov 1st 1969)

Friedman, M., (1970) Perrow, C., (1972)

Heilbroner, R.L. and London, P. (ed.), (1975)

Klein, T. (1977)

Luthans, F. Hodgetts, R.M., Thompson, K.R., (1972, 1976)

Sethi, S. Prakash, (1971)

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 Chile from becoming a socialist country.  He later advised the new military junta on economic policies, sidestepping ethical issues this might raise by saying that his role was purely as a technical advisor...


(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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