Proper vs. Improper Compromise in Business

by | Mar 13, 2012

Valid moral principles should never be compromised because they are the guidelines for achieving our long-term self-interest, such as a profitable business

What is the difference between these two situations?:

a) You are negotiating a price of a product with a buyer. You are asking for $120, the price that you ideally would like to get. The buyer counters with an offer of $80, which would leave you virtually no margin.  You want the sale but you also want to make a profit. So you compromise on your desired price, and offer the product for $100 (assuming that other buyers have not been forthcoming). The buyer really wants your product because it is of value to him. He also compromises his desired price of $80, and agrees to pay $100. The sale is completed. You get a sale, although a lower margin that you had hoped, and the customer gets the product, although for a higher price than he had hoped–but you both are satisfied at the end.

b) You are facing a lot of pressure to cut costs at your business. There has been cash flow problems for a while, and something needs to be done. One of your employees suggests that you eliminate quality control for a while in order to save money. You decide to compromise temporarily your value of offering outstanding quality to your customers and your principle of honest dealing (you decide not to tell anyone that quality control has been eliminated and hope that nobody notices).

The situation (a) is a proper compromise: a compromise of price of product by mutual consent, with no deception or fraud. The situation (b) represents an improper compromise: a compromise of valid moral principle, such as honesty (not telling customers that quality control has been omitted and pretending it has not) and integrity (saying that you offer outstanding quality, and then not putting your money where your mouth is).

Valid moral principles should never be compromised because they are the guidelines for achieving our long-term self-interest, such as a profitable business. Skipping quality control can lead to increase in profits in the short term but to big losses, or even bankruptcy, in the long term when customers start returning defective products, or worse, get harmed or injured by them, and sue for damages.

Compromising a valid principle even once is hazardous because it leads to a slippery slope: compromising a principle once undermines its value as a guideline–which we fallible beings need to project the long-term consequences or our actions and to reach our goals. If you get away with one compromise, you are tempted to it again, until the principle has been tossed aside. You arbitrarily decide whether to follow it or not–which is the same as to have no principles at all. Consider the principle of honesty, which tells us not to fake reality in order to gain a value. One day you decide to compromise the principle to fib a little to get something and get away with it. The next time there is an opportunity to fake in order to get something, you decide to try again. After all, it worked once, so why not. At this point, you have thrown out the principle of honesty; it has become useless as a guideline.

The topic of this post occurred to me from my email conversation with Robert Genn–thank you, Robert. We were discussing whether an artist should continue a relationship with  an art dealer who  increases agreed-upon prices without consultation and pockets the difference. While an artist and a dealer should be free to negotiate a commission (and may compromise what each may ideally want, by mutual consent), it is not in an artist’s self-interest to continue a relationship with a dealer who violates a contract or tries to deceive the artist. That would be a violation of the principle of justice (judging people’s character and conduct objectively and granting them what they deserve). A contract-violating or deceptive dealer does not deserve the artist’s business. Continuing to do business with such a dealer is not in the artist’s self-interest.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. How to Be Profitable and Moral” is her first solo-authored book. Visit her website at profitableandmoral.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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