Ethics and Business May 10, 2010Posted by SBDC in Small Business General.
As I look back to the year 2009, I think of the adage about the old dog who thinks he’s seen just about everything in life only to be amazed by some new revelation out of the blue. We were all affected in some way by the severe downturn of the economy last year. Not that we didn’t see that coming. We knew that the “bad paper” existed and it was only a matter of time before it had to get flushed out. So the crash in the stock market was not a surprise to me. What did surprise and send me into a morass of mixed emotions was the corruption of what I once thought was the one truism in this world that would always lead us down a path towards a higher civilization—capitalism and the market economy. Alas, how my bubble has burst. What I held as philosophical truth, the business decision, is now just another casualty of the human endeavor. Or is it?
Being the business philosopher that I am, I have to ask myself the questions: Why? What went wrong? What were the conditions that led to this breakdown? Where are we now heading in business practices? And what will become the next truism to be dismantled in the “advancement” of the human state? Or perhaps Adam Smith is still right, and perhaps the business conditions that led to the economic downturn were simply the market economy’s way of ridding itself of the virus it caught along the way. (Please—somebody stop me!!)
I doubt that many of our blog readers would be interested in reading a tome about what “coulda, shoulda, woulda” happened if this or that would or wouldn’t have taken place, such as the creative (yet shortsighted) mortgage lending practices that led to the housing bubble which led to the destabilization of banking, etc., etc., etc… I believe I will focus on one specific idea for this article and leave other points to discuss at another time. So, I’m going to stick my hand into the hat and see what I pull out. Ah ha—let’s talk about business ethics.
The question—Starting with what is fundamental in business decision making (i.e. minimizing costs/maximizing profits), is there a relationship between that and ethical principles? If so, what were the ethical priorities (if any) of the CEOs of major financial institutions? And, can good ethical decision-making be a guidepost for the future, steering us down a better business path, whether it’s a large or small business concern?
A few assumptions are necessary here in order to baseline this discussion. First, let’s understand that I am not addressing any issue of law. Whether or not actions leading up to the market crash involved unlawful acts is debatable, and should be categorized as moral issues (or of wrongful actions). An ethical dilemma is, rather, a choice between (or among) rightful actions. In other works, which of any number of choices in a given business problem produces the optimum results in, say, minimizing costs/maximizing profits? To complete the development of this discussion, we should understand one other factor, and that is the difference between ethical and non-ethical principles in decision making. In the context of this article, let’s say that ethical principles take into account an entity as a whole, including company’s internal and external stakeholders; whereas non-ethical principles are those that focus on one’s self; prioritizing, instead, on how a decision will effect such things as “my” promotion, “my” career, “my” pay raise, etc. This brings me to the point where I suggest that the lack of sound ethical decision-making was at the crux of the market meltdown. Taking evidence from articles in the newspapers, company executives reaped huge monetary rewards for short-term gains. Is that indicative of non-ethical decision making rather than ethical. What about the stockholders who tacitly condoned those actions while watching their wealth (and home values) soar? What were the ethical principles and how were they prioritized by these companies, holding such sway?
It is very apparent that I am not going to get out of this Socratic argument with myself, but perhaps these are worthy questions for us to ask ourselves for our own businesses. Do ethics matter?
According to Michael Josephson, (Josephson Institute of Ethics: http://josephsoninstitute.org), ethical decision-making is an everyday occurrence in the business arena. And like any decision-making process, there is some model that is in play to take the problem at hand, consider the alternative solutions and arrive at a decision. A simple, yet effective, problem-solving model is important. Josephson developed the Principled Decision Making Model that has three steps: 1) Consider the welfare of all stakeholders; 2) Give precedence to ethical values over non-ethical values; and 3) Prioritize based on what will bring the most good and the least harm to others. This leaves only a few more things to ask: What are the Ethical principles of your business? Do your employees know and understand them? And, are these principles working for you. Ethical principles, (such as: Justice/Fairness, Responsibility, Respect, Trustworthiness, Caring, Civic Virtue/Citizenship, Social/environmental consideration, honesty, etc) can be selected and prioritized according to your business plan and business model. These principles then become the “guidepost” for your ethical decision-making.
I wonder if the business executives of the major financial institutions who made the business decisions leading to the recent economic calamity had or followed the ethical principles of their companies.
Please feel free to respond, debate. I would be glad to hear from you. Philip Young- PTAC