On December 11th, 1995, a fire in Methuen, Massachusetts, destroyed the Malden Textile Mills. Much to the astonishment of its workers, the president of Malden Mills, Aaron Feuerstein, decided to keep his 3,000 employees on the company payroll, idle, while the factory was being re-built. Despite a cost of roughly $10,000,000, he said that it was just the right thing to do from a business perspective.
Yes, it did cost the stockholder, nonetheless, the, the [sic] quality, the quality [sic] and the efficiency that we get in our factories is critical to the health of our company. And so I make it my personal business to see to it that I have loyalty and goodwill amongst my people. That's what we enjoy at Malden Mills, and they're the valued asset. They're not just a cuttable expense. They're the people who make the quality for us, and our products, our polar tech products in the performance outer wear marketplace, and only because I have very good workers, and I'm not about to tear that apart and break that down for some short-term gain. (2)
Commentators have been unanimous in proclaiming that Mr. Feuerstein did the ethical thing, whatever its impact to the company's bottom line. Yet his decision to take care of his workers under these circumstances was certainly not the same decision that many other business managers would have taken, and it raises an interesting conceptual question. What is the relationship between an economically sound business and one which is morally good? This question is similar, though not identical, to the more general question, "why be ethical?," a puzzle as old as the history of moral inquiry.
Two antithetical answers to this question come readily to mind. One of the possible selling points for the study and implementation of business ethics is the promise that an ethical business is more economically viable than an unethical business. Ethics, it might be claimed, is a tool for increased productivity, profit, and stock market performance. A contrasting approach is to set ethical behavior and profitability at opposite poles to each other, with ethical choices being specifically those which diminish the economic viability of the company. You can either do the right thing, or the profitable thing.
Rather uncontroversially, I wish to begin with the assumption that neither of these positions is wholly correct. Our experience offers us many vivid examples of successful businesses and businesspeople who are morally above reproach, as well as scoundrels who make millions. Our experiences also point to ethical as well as unethical business failures. One might visualize this as a Venn diagram showing an intersection of the ethical with the profitable, with a realm outside of both which is neither ethical nor profitable...crime which does not pay, as it were.
Having established the question at hand, it will be appropriate to explain just precisely what is intended by phrases like successful business and ethical business. In order to explain the relationship between two things, it is necessary to be clear on just what those things are. For the moment, however, I will consider other authors' proposed answers to this question before suggesting my own.
APPROACHES TO BUSINESS ETHICSA variation in the theme that ethical businesses are always profitable can be derived from what is, I think, a common misreading of Milton Friedman. His position is often taken to be that the only moral duty of business is to make money, therefore there can be no conflict between ethics and profitability. So long as a business is profitable, it has fully discharged its moral duties, and hence the realms of the profitable and the ethical are coextensive.
In addition to the fact that such an interpretation of morality warps the term ethics beyond recognition, it is also crucial to realize that it does not follow a close reading of Friedman. In his article, The Social Responsibility of Business is to Increase its Profits, Friedman says that business activities must stay "within the rules of the game, which is to say," that they must engage in "open and free competition without deception or fraud." Further, their pursuit of profits must conform "to the basic rules of society, both those embodied in law and those embodied in ethical custom."
Let us consider then another interpretation of the question. LaRue Tone Hosmer (3) offers a practical series of justifications for moral business behaviors. Using a familiar stakeholder analysis, Hosmer argues that a company must be viewed as trustworthy ("right," "just," and "fair", with the author providing quotation marks) in order to obtain the wholehearted support of its range of stakeholders. Trust is central to the organic relationship between a company and its stakeholders, and the creation of trust requires ethical behavior. Therefore a successful manager must be an ethical manager; an unethical manager cannot cultivate the trust needed to run a successful business.
Hosmer's thesis is criticized by Bill Shaw and John Corvino (4). They point out, specifically citing Plato's story about the ring of Gyges, that the appearance of morality yields the same social benefits as the actuality of morality. Hosmer's justification for moral behavior is vulnerable to the skillful scoundrel, who can cultivate an undeserved reputation for trustworthiness while acting unethically behind closed doors. Further, by Hosmer's argument, a good manager has no basis for treating non-stakeholders ethically, since the business is not dependent on their trust.
Shaw and Corvino, while agreeing that "over the long term moral behavior positively influences corporate profits," (5) are convinced that ethical business behavior cannot be justified in purely business terms. They suggest instead that a virtue approach to ethics. Following the writings of Robert Solomon, they argue that a virtuous life is a richer, more meaningful life that one of mere prosperity. Ethics "pays" when one allows for a broader definition of success than simply the bottom line.
If we then turn to Robert Solomon in Ethics and Excellence, we find an Aristotelian model of business ethics. In response to the question of why a business manager should strive to be virtuous, Solomon offers an answer based on his understanding of human nature. Instead of seeing the human animal as atomic and egoistic (presumptions central to most economic theories), Solomon regards human beings as innately social creatures, as Aristotle's "political animal," bound in social relationships.
Is the point and purpose of morality to insure (or, at least, make more probable) our long-term interests, a point that is already satisfied by the (perfect) market? That is, I believe, a thoroughgoing misunderstanding of morality, which is not concerned with individual interests, short or long term -- which is not, emphatically, to say that it is opposed to our individual interests. Morality has to do with culture and tradition, shared rules and mores in living together. It is not, primarily, a matter of constraints, although it obviously includes a great many constraints, and many of those constraints (such as "taboos") can only with some ingenuity be argued to serve individual long-term interests. (6)
Two points merit comment. First, Solomon believes that in a "properly constituted social self, the distinction between self-interest and social-mindedness is all but unintelligible" (7). In other words, man is naturally an ethical animal. There are appealing truths here, but also a great many problems. If ethics is simply a reflection of the sort of social animal that we truly are, then why would we need to discuss, teach, and reflect on ethics? There are reasonable answers to this sort of question...birds need to learn to fly. But a more troubling fact is the reality that even a social animal has self-interests, and the well-being of society can easily pale in urgency with the demands of personal benefit, to say nothing of survival.
Further, following Aristotle, Solomon suggests that our ultimate happiness depends on ethical behavior. If ethics is central to the happy life, then unethical behavior is imprudent, whatever else it might be. We defy our ethical nature at the cost of our own well-being. Again, one might well wonder how prudence is appropriately satisfied when moral behavior makes large demands on our individual needs.
Finally, a related view of the relationship between successful business and ethical business is found in Norman Bowie's "Challenging the Egoistic Paradigm" (8). Bowie argues that the economic assumption of psychological egoism is factually incorrect. If we try to model human behavior on an assumption of rational benefit maximization, we not only misunderstand how people actually behave, but we risk the creation of a self-fulfilling prophecy. Bowie cites research with concludes that an individual is more likely to be selfish if he or she believes that other people are selfish. "The egoistic paradigm is not sufficient as a description of human behavior and if adopted universally is destabilizing" (9). Bowie's alternative to this model involves a Kantian approach to business ethics which seeks to encourage heartfelt ethical behavior and genuine altruism. Ethical behavior is then defined as that behavior which makes social cooperative activities such as business possible.
The question of the relationship between profitable business and ethical business intersects with a more basic question, the question of why we should be moral. The question must be faced head-on, as it is far from trivial. Examining the question, "Why should I be moral?," one notices that the question carries with it--as questions often do--the framework for its own answer. A satisfactory positive answer ("You should be moral because...") must offer a rational basis for moral behavior. This, in turn, must offer either direct or indirect benefit to the questioner. Unpacked, the question becomes, "Show me how moral behavior will benefit me enough to produce a rational private cost-benefit ratio."
Given that this is what the question is really asking, it is not surprising that its answers tend to resemble each other. A positive answer must either show direct or indirect benefit. In a discussion of business ethics, the apologeticist for ethical behavior must either offer an enhanced bottom line, or else some species of non-monetary benefit. The first approach is inadequate because there is no shortage of examples of unethical businesses that make money. The second approach...the virtue approach...is inadequate because it is contingent on the questioners' values. For example, if I tell a person that she should be moral in business in order to feel good about herself, she might reply that her self-image does not suffer when she exploits customers and her workforce. I am not in a position to gainsay that report; I can only try some other approach.
I must conclude that the question, "Why should I be moral?," is not one which can be answered in an affirmative, unconditional way. This is not a condemnation of the enterprise of ethics, but a realization of what it is and of what it is not. We need to face the fact that an unethical person can obtain wealth, social esteem, and other goods. Yet there is a way to ask this question which can be met with a satisfactory answer. We need to ask why ethics matters.
THE SUSTAINABILITY APPROACHThe approach which I will take here is an extension of the presentation on ethical theory which I offered at this conference last year (10). In brief, my claim is that ethics occupies the realm of the preconditional, the realm of that which is necessary for other values to be actualized. As the human animal is inescapably a social animal, no human existence is possible in the absence of human society. Universal moral claims come from the principles which make social existence possible.
In the realm of business, as stakeholder theorists have well realized, a business in not a profit-making machine which operates in a vacuum. It depends upon a huge range of social mechanisms and contributions to be a viable entity. It is an interconnected entity, and the claim which monetary investors have in a business is not the only indebtedness that a business possesses. Yet it is not difficult for a business to act as a free rider, to act as a parasite on social institutions without returning enough to the community to compensate it for the resources that the business requires. The business might even act as a malignant parasite, actively damaging the community that it depends on, as in the case of a business which savagely pollutes its environs.
An ethical business is one which acts in ways that support the society which sustains it. Using this definition, what is the linkage between ethical business and profitable business? I would contend that we need to look at the sort of future which the business embraces. Unethical businesses are marked by the fact that they are not sustainable. The language that we use for the most unethical businesses, such as "boiler room operations," "fly by night companies," and so on reflect our awareness of this fact. Why are pyramid schemes unethical? They are not necessarily deceptive; I've had the chance to join pyramid schemes that called themselves exactly that. They are not unethical because not because they do not work at all; they do work, at least for those that start them. They are unethical because they do not work for very long. They must fail; the pyramid collapses every time out of mathematical necessity.
An ethical business is oriented towards the long-term future. This is not a novel observation, by any means. At the opening of my paper I quoted Richard Sears, founder of a certain well-known retail chain. Richard Sears was no altruist, but he did devise the policy of the unconditional guarantee because, as other retailers have since discovered, short-term losses caused by the policy were more than made up for by good will and repeat business. Over time, the policy pays off. The Malden Mills case is a prime example of what I am pointing to here. Aaron Feuerstein's decision to keep his workers on the payroll only becomes rational if one is concerned about the long-term results of one's actions.
This points to a danger in our society. Insofar as we live in an increasingly anonymous, unstable and fluid society, we can expect more and more unethical behavior. When a CEO is only accountable to this quarter's earnings and to nothing else, as mandated by Dodge v Ford Motor Company, he or she is subject to punishment for acting ethically. Where there is no shadow of the future, to use Robert Axelrod's phrase, it becomes reasonable to exploit a person or area for short-term gain and then to move on. We live in a business environment where fifteen-minute-old stock quotes are treated as historical and archival data.
The Center for Family Business at Oakland University in Michigan has found that large businesses run by private families are more profitable than businesses run by professional managers (11). The chief reason for this is that instead of focusing on quarterly profitability, family businesses look to the long-term well-being of their companies. Risking the firm for a quick buck is not an appealing option.
As a final point, I need to identify a likely line of criticism to this analysis. Might it not be possible to have a genuinely sustainable business which is nonetheless grossly unethical? Many individuals see paradigmatic examples of unethical business in massive corporations which have the power to grind communities under their heels with little danger to their own long-term prospects. What of the all-powerful monopoly which charges outlandish rates for its needed services? How does this fit into the preceding analysis?
In order to answer this objection, I need first to concede that bad business can last a very long time, just as bad people can live to a ripe old age. As one ready example, centuries-old German businesses used concentration camp slave labor during the Second World War. The ethics of sustainability derives its strength from the necessary preconditions of any sort of human existence. There are many ways in which a business might avoid negative consequences from its negative acts. As one local example, the Champion Paper Mill, located near Asheville, dumps waste into the Pigeon River which then flows downstream into Tennessee. The negative consequences of its pollution have little impact on Champion Paper Mill, which could presumably continue to pollute the Pigeon River until the end of time. This might serve as a metaphor for any number of sustainable yet unethical practices. No doubt Tennessee businesses send their sludge downstream as well.
In final analysis, it must be realized that the survival of a particular business is not morally equivalent to the survival of human beings. If the sustainability of a business threatens human sustainability, it may be necessary to artificially impose negative consequences on those businesses to cause them to either close shop, or preferably, to amend their ways. I would suggest, however, that the single most important step that we could make to encourage ethical business practice is to create an economic climate where long-term rationality, rather than short-term expediency, is the norm.
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