The economist Milton Friedman argues
that “there is one and 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, which is to say, engages in open and
free competition without deception or fraud”(1).
These “rules of the game” are to be
understood as a particular society's laws. In a nutshell, Friedman is arguing
that business people are ethical if and only if they struggle to increase their
profits and that they are entitled as part of that struggle to do whatever the
law permits.
As long as a person's profit-maximizing
actions conform to the law and professional rules, he is, in Friedman's view, acting
ethically.
Ethics is not
rules.
The activities of businesses under the
Nazi regime should be sufficient to show that morality (2) and law are
distinct. Helping to build extermination camps was legal and good for profits
but it was not ethical. Even in a more just society, laws often state only a minimum
requirement, usually what is enforceable in practice, rather than what is
right.
Yet Friedman’s answer is the most common
one in business today.
Friedman’s approach to ethics is limited
because rules cannot cover every situation. An ethical code that simply gives
detailed rules and nothing else will sink under pressure either from clever
people who find ways round the rules or from new situations the rules don’t
cover.
Another very real problem for investors who
take law as their professional moral guide is the different laws that operate
in the different countries where they do business. While the sale of the
pesticide DDT is illegal in the EU, it is legal in many less developed
countries. Does that make it morally acceptable to invest in factories
producing DDT in poor countries?
What distinguishes ethics from rules is
that rules tell you how to act while ethics tells you how to think before
acting.
If rules are the bricks with which we build
the house that shelters us from greed and selfishness, then the foundations of
that house are ethics. Without ethical foundations, the house of rules will
collapse under the growing weight of regulations and the pressure of financial
storms.
So what is
ethics?
Put simply, ethics is the way we resolve
conflicts of desire.
If I earn a thousand dollars, I want to
keep it all to buy a TV. The government wants to build a hospital and so wants
to take my money. My neighbor also wants to take my money because he is out of
work and wants to feed his family. There are three conflicting desires
surrounding my thousand dollars.
The ethics of our culture has devised a
way of resolving this conflict: the government is entitled to say, 25% of my
money (called income tax) and I am entitled to the 75%.My neighbor is entitled
to none of my 75% but is entitled to some of the 25% in the form of
unemployment benefit given to him by the government. Taxation and social
benefits are not considered theft in our culture; they are considered right and
proper.
Ethics has resolved the conflict of
desires and provided a basis upon which people can then write rules to govern
taxation and social benefits.
What is Business
Ethics?
Now the way that people resolve
conflicts of desire has gone through many different phases in history. Within
religious traditions there are moral rules revealed by God; these are ultimate
but they no longer command general support within western culture.
So from the 18th century onwards,
European and North American society devised codes of ethics based on rational
rather than revealed values. Two such systems carried all before them.
Utilitarianism was devised in England,
firstly by Bentham, who set out a simple principle: always acts so as to maximize
pleasure and minimize pain. This was later modified by Mill to read: always act
so as to maximize happiness for the maximum number.
The German philosopher Kant said
Utilitarianism was the morality of pigs, simply pursuing pleasure. He proposed instead
that people should always act in accordance with that principle or maxim by
which you want everybody to act; this universalisation principle is the
rational way to know your moral duty.
Customers are often unwittingly Kantian
in their approach to providers: they insist that a company has a duty to care
for them, even though the company will lose out by doing so.
These two ethical systems have dominated
Western culture for the last hundred years (omitting the Marxist ethic that was
so influential in Eastern Europe, Russia and China). Ends or goals drive the first,
while the second is based on duty. Most recent social, political and economic
decisions in Western culture have been derived from one of these two principles.
Yet both are fraught not only with theoretical
but also with practical problems. For example, are governments morally
justified in fostering a high level of unemployment if it enables the majority
to prosper? When is a minority so large that its unhappiness cannot be ignored,
whatever the majority may wish? Does the maximum number include foreigners or
just my own countrymen? And who defines duty?
If I am a condemned man on death row, I
want to universalize the principle of no capital punishment; if I am the father
of the victim, I universalize the principle of an eye for an eye.
Weak rule utilitarianism
In Financial Services, utilitarianism
tends to dominate and this throws up particular variants of the problems
already highlighted. Here, as in most areas, the utilitarian approach is not
applied to individual instances; it is applied to the creation of rules. So,
for example, rather than deciding if each instance of insider trading is
immoral by utilitarian standards, utilitarian ethics concludes that the maximum
happiness is generated by a rule against all insider trading.
This Rule Utilitarian approach can be
applied strictly (e.g. lying is always wrong) or weakly (e.g. lying is usually
wrong but is acceptable to save life, as when soldiers are interrogated by an
enemy).This Weak Rule Utilitarian Approach characterizes the attitude of Western
ethical culture today.
This approach is practical and easy to
understand, yet it seems to encourage an attitude of reckless risk taking. For
example, somebody agrees with the rules but knows that if he cheats a little at
work no noticeable harm will be done. So if he gains $10,000 from a bank that
has billions, $10,000 is a lot to my family and nothing to the bank; therefore the
sum total of happiness is increased by utilitarian standards. Therefore,
somebody might argue, this is not really immoral, even though it may be against
the rules. So the clever cheat becomes a hero.
This attitude may be becoming more
common in society and in Financial Services. Moreover, the perceived growth of
this attitude makes clients suspicious of those who work in Financial Services.
This paper therefore contends that we need a new approach to ethics if the
infrastructure of Financial Services is to withstand the attacks upon it by the
professionals who should be safeguarding it.4
Virtue ethics
‘Virtue ethics’ is an approach which is
rooted in ancient Greek philosophy and which has experienced a revival among
contemporary philosophers. This requires virtuous people to act virtuously in a
virtuous environment.
This, of course, begs the question: what
is virtue? According to one contemporary philosopher, a virtue is an acquired
human quality that enables us to achieve those goods which are internal to the
practices that we value. This means that we do not look outside the activity in
order to maximize happiness or universalize duty, instead we state those human
qualities needed to do the job well within the terms of the job itself.
This principle is well recognized in the
medical world: I will give my patient the best treatment available no matter
what the circumstances e.g. I may be shunned for treating a dying terrorist by
those claiming the world is better off if he dies. In this instance the medical
profession’s own standards are what prevail, not external considerations.
We believe a similar approach is needed
in Financial Services.
Integrity: virtues and values
Many business codes of ethics insist
that employees must work with integrity without defining this quality.
We define integrity as the synthesis of
the virtues. In practice, companies speak of values and we will use the word ‘value’
instead of the word ‘virtue’.
The core principle of integrity is thus
defined as a synthesis of values, comprising an integrated balance of sometimes-contradictory
demands. As has already been stated, ethics is the resolution of conflicting desires
or interests and integrity is the value that integrates all the other values.
We need, then, to list some of those
values which we wish to promote and then describe some practical examples. This
will include not only values for the individual but also for companies and
wider communities. People need to be an integral part of something larger than themselves,
which must in itself have integrity – a virtuous environment within which to
work.
Fairness: rights and duties
A core value in contemporary society is
justice or fairness. The popular insistence on rights is an expression of an
ordinary person’s sense of fairness.
Yet to be truly fair, we believe there
must be an equal insistence on duties.
For example, a consumer’s right to have
an insurance claim paid quickly needs to be balanced by the consumer’s duty to
tell the truth about the real value of items damaged. Fairness is a core
feature of integrity, derived from people’s sense of dependency, and the
insight that all human beings are inter-dependent.
A word of caution is needed about the
way people use the language of rights. To assert that there are natural rights
can lead to a belief that rights describe some previous human condition where
all was harmony and that we all have a right to this Garden of Eden that has been
taken from us. Such is not the meaning of rights being used here. Instead of
rights as descriptive, the meaning in Financial Services will be prescriptive.
That is to say, the sector prescribes what its employees and consumers have a
right to expect when doing business.
This will draw on a natural sense of the
need for honesty, competence and so on, but in the end, the rights will be prescribed
by the sector both through industry regulations and through firms’ own rules.
While there is a natural, descriptive ‘right
to life’, is there a social, prescriptive ‘right to a pension’?
The answer to the question “what is
business ethics” is now clear. Business ethics will usually include as a necessary
ingredient the laws of the country where the company operates, the exception
being laws that are in themselves unjust. But in order to be complete, business
ethics also requires a prescribed list of values, rights and duties which are
to be understood and affirmed in the particular business under consideration. The
next section addresses how such a prescribed list might evolve within Financial
Services.5
1 Friedman, M,“The social responsibility
of business is to increase its profits." In T. L. Beauchamp and N. E.
Bowie (Eds.), Ethical theory and business (pp. 55-60). Englewood Cliff
Financial Services, NJ: Prentice-Hall, 1993
2 For the purposes of this paper, we use
the terms ‘ethics’ and ‘morality’ interchangeably, whilst we accept that
philosophical distinctions can be made regarding their usage. 3
3 “After Virtue” by Alasdair Macintyre
4 The 2002 Reith Lectures “Towards
Justice and Virtue” by Onora O’Neill contain an analysis of the contemporary insistence
on rights and rules, and the need for this to be counterbalanced by duty and
virtue.
Editor's note: This is
the 2nd of 4 articles from a paper called "Integrity in Practice" for
the British Financial Services Association. I want to thank both Father
Christopher and Roger Steare for permission to print their article. You
can retrieve the complete copy of the article from Roger or you can contact me
at principledynamics@gmail.com
and I will send you a copy
About the Authors
CHRISTOPHER JAMISON Worth Abbey
Father Christopher is Abbot of Worth, a Benedictine
monastery in Sussex. The Abbey runs a School and a Centre for Spirituality. He
has recently co-founded The Soul Gym with Roger Steare, to help business people
‘work out what’s right’. Born in Melbourne, Australia in 1951, Father
Christopher holds an MA from Oxford in French and Spanish and a BA from London
in philosophy and theology. He is co-author of “To Live is to Change”
describing the process of change that the Catholic Church has gone through in
the last thirty years. He was appointed headmaster of Worth School in January
1994, and has managed two major Development Plans, while participating in
“Action Learning for Chief Executives” at Ashridge College. He was elected
Abbot of Worth in July 2002.
ROGER STEARE Ethicability
Roger Steare is an Executive Coach and Business
Ethics Consultant with a practice in the City. He studied History of Philosophy
at London University with Lord Russell, son of the philosopher Bertrand
Russell. With Christopher, he participated in “Action Learning for Chief
Executives” at Ashridge and established Roger Steare Consulting in 1998. Roger
is a Fellow of the Recruitment and Employment Confederation and an Advisor to
the Talent Foundation. He has been a frequent media commentator on workplace
issues.
In October 2002, the FSA published Discussion Paper
18 “An Ethical Framework for Financial Services". In his introduction to
this paper, Professor David Jackman stated that the FSA wants “to establish a
clear and explicit, shared understanding about what integrity means in
practice." Integrity in Practice was commissioned by the FSA in order to
explain the foundations of ethical behaviour and the implications for Financial
Services in practice. The FSA’s business ethics portfolio has now moved to the
newly-formed Skills Council for Financial Services and this paper is published
as a contribution to the Ethics Forum established by the Skills Council.
I remember a wise man once saying, "If it is right, but wrong, a door will open. If it is wrong, but right, the door will close".
Posted by: Robert Reil | December 18, 2009 at 07:41 PM