Wednesday, January 6

Value ethics for better business outcomes

Business value ethics has come to prominence in modernity due to the systemic collapses in corporate responsibility, particularly in the financial services and banking sectors. By ethics I mean principles or codes of conduct that govern business transactions.
Ethics relates to both organisations and all involved or employed inclusive of the regulators charged with responsibility for the systems integrity What I propose is to examine past philosophers ideas and what can be applied today.
Aristotle’s beautiful city concepts
Stepping back in time to the great philosopher Aristotle we find he contends a city-state should be fashioned on aristocratic nobility and justice principles for all and not as a business enterprise whose sole purpose is to maximize wealth. Nor was it to be place purely to promote liberty and equality, but rather he argued for a constitution based upon on noble actions and in the virtuous sharing in the community. His ideas overlaid a pragmatic and practical application, by arguing a city’s control is best represented by a constitution which gives a majority rule or power to the “middle class” as one suited to equitably represent both the rich and the poor. Justice and education were to be provided to all equally regardless of wealth or social standing.
Hence although Aristotle asserted business could best be transacted by means of money which he approved to procure goods or services, he also maintained it had become the catalyst  as an accumulated corruptible means to obtain one’s fortunes. Aristotle was also very interested in both underlying principles for justice and the importance of aestheticism in the building environment. He contended the architecture and design of a city influenced our wellbeing; appearance as well as design brings order and beauty that conveys happiness and a welcoming feeling to inhabitants and strangers alike.  
Such ideas remain just as relevant for us to day as there were then. For Aristotle was a philosopher that associated happiness with the habit of making virtuous choices so that by embracing such a disposition he asserted we build our moral compass to enable us walk a virtuous path through the moral dilemma that life presents to us. Hence as time goes on it is our underlying virtuous disposition, strengthened by prior choices, ensures superior outcomes. But the question arises as to we know what are the right choices. In this respect Aristotle talks about the middle course, as in the middle ground, for instance as between profligacy and insensibility as therein lies our self-discipline. Aristotle ideas on justice are also rooted in virtue and then in its virtuous application.
The counter argument of course is that not all people are inclined to virtue, nor do they find happiness in the contemplative intellectual pursuit of virtuous aims. Rather, by way of example we have the counter views of the materialists and so on. Hence Aristotle, like all philosophers and philosophy in general has its limitations and one will always be able to demonstrate a fatal flaw one way or another.     
Notwithstanding his views have proved to be a reliable sage as money and the growth in business has bedevilled humanity in whatever form it has been adopted be it capitalism, socialism, communism or a mixture as is evident in modern day China.
Advancements in science and industrialisation.
But given the vast advancements in science from around 1500 AD we see the effect of new discoveries on business and trade. Combined with the puritan work ethic from the Reformation business expansion began to be associated with virtue, despite the fact that the 'mercantilist' system that arose was in effect highly unethical.   
For Oliver Cromwell had enacted laws to bolster the 'mercantilist' system to give preference to the British enterprise and shipping companies. Although historically we have many monetary empires dating back to the fall of the Roman Empire none rivalled the Industrial Revolution in England from 1740- 1780, - a logical melting pot given the recently discovered Newtonian mechanistic world - as suggested by John Gribbin in ‘Science a History 1543- 2001’
Hence the industrial revolution became the catalyst for western world industrialization, but it was a two edged sword in terms of benefits. Whilst inventiveness, division of labour and productivity supported vastly improved living standards capable of supporting a much bigger population it was at the expense of massive exploitation of people and land- to become as many would argue the genesis of our current ecological disaster.
Moral ethicist Adam Smith
During the Victorian era philosopher and moral ethicist Adam Smith published in 1776 his influential classical economic work entitled ‘Wealth of Nations’ to criticize the 'mercantilist' system. Smith articulated the view that business and money was the invisible hand of free markets which will produce a satisfactory price return for land, labour and capital because the self interest in any free market benefits the whole of society as competition keeps prices low. The advantage of free trading has always benefited nations and was evident in that of the Australian aborigines. Like indigenous groups elsewhere, they traded ceremonial artefacts, grinding stones, sea shells, ochre's, shields, axe heads, spears and even 'water rights' along the permanent waterways that marked trade routes. This enabled a "United Nations" approach to trade as scarce resources in one region were exchanged for another's in the same manner as Adam Smith suggested trading between nations having different natural resources yielded optimum outcomes. The trouble is, of course, such free trade agreements are reliant on the trust and goodwill of the respective negotiating parties – something that is prone to be absent in secret deals where each party vies to outwit the other.  The word “free trade” touted by politicians when entering into these agreements is misleading since invariably it involves the conferring of rights or preferences only disclosed later to the public.    
Smith was acutely aware any concentration in power would distort a free market and pointed out Merchants wielded monopolistic power afforded them as a consequence of bans on foreign competition. Mercantilism was also associated with a monetary system which used exported bullion to pay for imports- mainly from Asia- which reduced money supply to exert downward pressure on prices and economic activity at the expense of impoverished workers.
Mercantilism also adversely affected the colonies which were forced to use English ships, pay duties and only trade in commodities whose prices were set by the British Empire to effectively create an underclass of colonial citizens - a significant factor that led to world war and eventual American independence.
Another aspect to growing industrialisation was the emergence of "consumerism" as consequence of the ease of transportation and communication of globally produced goods and services at cheaper prices with more choices to those who have the means and desire. Aristotle's ideas that our desires can override ideals of virtue was proving to be a real issue.
Equally Christianity struggled to come to grips with this new found materialistic world with a wide disparity in opinion. What emerged were the extremes of religious fundamentalism erroneously linking salvation to increased material wealth.

Whilst we associate 'consumerism" as a modern phenomenon the underlying human condition to gravitate to materialism seems unchanged - given the opportunity a desire inevitably arises to accumulate material wealth. As the bible says "There is nothing new under the sun"; the story of Solomon reminds us there is nothing new about how our desire for material wealth can be all consuming. Solomon was both wise and ruled as king during a period of unrivalled prosperity, - as a great trader who secured from King Hiram of Phoenicia the materials for the magnificent temple. But towards the end of his reign he succumbed to the great trappings of immense wealth and worshipped idols.

The point to all of this is that all of us, even those with the Wisdom of Solomon, may not be immune to an excessive desire for material goods. It also serves as a sobering reminder that what we may regard as basic human material needs can be the equivalent of rampant consumerism to a struggling African family or even those homeless within our shores.
This applies also applies to nations just as it does to individuals and the amount we are willing to pledges in aid. Going against the trend it is remarkable that a tiny country such as Ireland whose generosity as a percentage of GDP puts other countries, including Australia to shame.
Although you cannot effectively legislate morality or orchestrate more even social outcomes you can have regulations to ensure free markets operate in a regulatory environment which specify basic human rights. We can make provision for safety nets and ensure ethical principles or codes are operational for both corporations and citizens alike. The irony is once  nations become industrialized, more equal societies almost always do much better in terms of health, well-being and social
cohesion and that it is the large income inequalities which have the capacity to destroy the social fabric and the quality of life for everyone.
Much of this inequality is driven by a desire to have more and be rewarded with more as end unto itself which can lead to treating people like goods. The trouble with having too many possessions is that eventually they may own you.
Although the classical economics of Smith was successful on overturning the unethical mercantilist system and his free market ideas remained popular up until the 1930’s his influence soon waned. In the period afterwards the inevitable boom and bust cycles continued in tandem with the growth of the larger financial institutions such as banks whose occasional lending sprees exceeded loanable funds beyond the level of maintainable voluntary savings to cause severe social dislocations. An arrogance took hold to disregard the lessons learnt in the past until the shock onset of the Great Depression years in the 1930’s.
The great ethicist and economist John Maynard Keynes
John Maynard Keynes was to present a new radically different system to offer hope we could avoid recurrences of the painful boom bust trade cycles. His sensible theory was we cannot rely on business as in markets to automatically adjust to ensure full employment so long as workers remained flexible in their demands. Rather his theory saw an active role for government intervention with both fiscal (taxation and spending measures) and monetary policy (control over the level of interest rates) to ensure economic growth and stability. Banks were to be regulated but enjoy ‘Lender of last resort’ from a reserve to ensure confidence was maintained in the system.
Hence Keynesians thought it was imperative for government action during severe economic cycles to introduce government spending, tax breaks and reductions in interest rates during recessions but to reverse the situation during highly expansionary times. In other words to increase those same levers during inflationary times.
Following the outbreak of World War II Keynes's ideas were universally adopted throughout the western world with commensurate success so that by the time we reached the mid-fifties all western capitalist nations mirrored his views to share in the relatively strong, stable economic fortunes of the immediate post war era. When I first studied economics in the mid-sixties Keynes and Samuelson dominated our textbooks, and there was a sense of confidence sound economics would guard against recessions.  I remember student debates where we considered the ethics of economic theory and how its implementation would benefit or otherwise society in general.
For Keynes was one of the first philosophical economists who insisted economic theories must lead to fairer more ethical outcome for everyone, and one could argue his philosophy was s mirror of the a more virtuous system first championed by Aristotle and then Smith. Keynes' views were no doubt forged from his desire to avoid a repeat of the great depression where he held onto his shares and subsequently lost his fortune along with many others. His theories, supported by extensive mathematically modelling, suggested the need for a strong regulatory regime to prudently effectively use both monetary (supply of money and interest rates) and fiscal policy (government spending and taxation) to help iron out the inevitable economic imbalances. His theories were largely adopted in Australia with some considerable success.
Keynes's influence begins to wane
As Keynes's influence began to wane many of his sound principles were jettisoned – particularly in relation to banking which has led to the more recent malaise where arrogant reckless and immoral activities became embedded into an economy whose systematic banking was destined to failure and become a blight on society at large. The paucity in intellectual enquiry during this period is breathtaking and I can only conclude much of it was only possible due to the growth in “crony capitalism” such was the utter nonsense that underpinned its erroneous applications.
The monetarists who gained ascendancy were sceptical over the ability of governments to effectively regulate the economy with fiscal policy as suggested by Keynes, mounting arguments his measures were both costly and unnecessary – a boon to the naïve politician striving to appease lobbyists.  They argument was one could rely solely on tight control of money to maintain price stability, a nonsensical concept never capable of sustaining any modern economy anywhere. These highly simplistic theories, were both easily understood and very appealing to politicians at a time of high inflation but selectively seized upon by crony capitalists and vested interests with no interest whatsoever in supporting a free market economy.
Concurrent to that change in economic focus was a type of philosophical materialism which had taken even firmer root to assert our wellbeing or happiness in terms of business prosperity measured solely by money. This became linked to the fundamentalist type religions who promised future wealth as if synonymous with salvation. Simply put -if it doesn’t make money it doesn’t matter! A type of economic fundamentalism persuasively joined forces with branded religion to present a rather potent cocktail of political inspiration based upon a minimalist role for regulation, suggesting business as in markets are sufficient as the sole arbitrator except for control over the money supply. Undoubtedly this was simply ego driven madness on a rather grand scale underpinning many of our current problems and the lack of a moral compass in business today.
Modernism and the call for a return to Values Ethics in business.
The aftermath of the monetarist’s ascension to political power and influence was the advent of the global financial crisis which has resulted in the rallying call for a return to Values Ethics in business.
In modernity we live in a time of intense competition but such competition has led to enmity, rather than any attempt to build enduring expansions in value in terms of services offered or goods delivered. This enmity has fuelled a non-virtuous approach to business which prompts a propensity to crush small competitors and strive for monopolistic or oligopolistic corporate existence of power for enterprises. In other words crony capitalism; the exact opposite to the invisible market hand of the free market where all could compete which was envisaged by Smith.  In some respects in modernity, except to the extent of limited governmental agents and regulation, this lack of an ethical focus mirrors the practices of the unethical mercantilists. However since the GFC there has been a groundswell of concern and anger unleashed by the public who are fed up with crony capitalism. It is not going to be easy to change direction considering there are currently 11,000 lobbyists resident in Washington alone.  
Changing with the times for the better.
But it is not all bad news, as the groundswell in collective consciousness to embrace a more ethical application is gaining momentum wherever you look. All of our big banks for instance have adopted sustainable practices to reduce the carbon footprint which mean they only occupy the very top independently assessed 5 star energy efficient buildings and most have stopped lending to new fossil fuel developments. Recently one supported a billion dollar plus lending facility for new sustainable natural energy development.Paradoxically entities adopting value ethics are usually the ones that reap the best material rewards, just as a film which asks a relevant philosophical question or invites examination of a moral dilemma or allows us to laugh at one another or uses satire to make us think, will generally do better at the box office.

But we need to do more to encourage business to invest in much needed innovation with resultant productivity improvements based on societal values which are clearly enunciated. There needs to be a particular emphasis to encourage new ideas as in business start-ups, with the provision of added incentive such as providing a tax holiday for their first year of profitability or for the period following the initial investment. This is understood by our present PM and the early signs are very encouraging.
Hence advances are being made in a plethora of organisations who are now embracing the ideas of value ethics regardless of ineffective government regulation. In fact in many companies they are indeed miles ahead of government legislative efforts.
Unsurprisingly these organisations perform better and are more attractive to work in, to invest in and provide sustainable outcomes for customers and other stakeholders.
St James Ethics Centre provides support to all organisations be they private or public, profit or not-for-profit, to identify and address the ethical dimension of what they do. I think it is particularly helpful for large multinational companies to have on line counsellors from the St James Ethics Centre to assist employees wherever they are stationed.


susan said...

Unfortunately, too many leaders choose not to act ethically because they think they can get away with it and because the negative consequences of being unethical are often diffused, deferred and/or invisible. As you've described in your post, when ethics shifts from being a moral obligation to arising out of love, it can help us transition from avoiding doing harm to actively doing good for people. I too look forward to the day when cooperation is exchanged with conflict and general cynicism turns to wonder.

Lindsay Byrnes said...

Hi Susan True, just as the spirit of the law is more important than the law itself
Best wishes

gfid said...

It seems profit is more desirable than ethics; integrity is out of style in most circles.

Lindsay Byrnes said...

Hi Granny F
True, but the irony is those few that adhere to high ethical values find the financial returns / profits simply look after themselves. I once worked for global group that gave shares to all employees simply based on their employment. Hence none were excluded and the offing’s were very generous to the extent clerks soon became very well off and worked hard and championed the entity in their local communities. They provided a facility to anyone to have free counselling through the St James ethics to ensure the highest ethical stance was taken in all countries. Guess what, the company prospered. Then it was decided to phase out the scheme as it was too expanse. Since then profits and the share price has plummeted.
Best wishes