Three Errors About Business Ethics

by | Jan 24, 2015 | Business

There is a moral code that is consistent with long-term profitability of business.

In an ideal world, everyone understands that long-term profitability in business requires acting morally (and what that moral action involves). However, that knowledge is not automatic. That is where businesspeople can go astray. There are three common errors they make about business ethics: 1) they reject it explicitly—“business is about exploiting others, not about ethics;” 2) they reject it implicitly—“business is a pragmatic endeavor to make profits—morality does not apply;” and 3) they want to act ethically while pursuing profit but are confused as to how, accepting the prevailing moral view—“the role of business is to serve the needs of society.”

People who make the first type of error don’t qualify as businesspeople; they are crooks. They are the used car salesmen that sell you lemons, the pyramid schemers, the con artists, and other criminals. They have abandoned morality and need to be dealt with the justice system.

The second type of error, failing to recognize that success in business requires guidance from moral principles, is far more common than the first. There are a lot of businesspeople (I hear this from some of my Executive MBA and MBA students all the time) who think that business ethics is a nice ideal put not really practical in business. This kind of rationalization can be used when one is trying to avoid difficult situations, such as delivering bad news to employees, clients, or shareholders, or to appease critics of one’s business.

The third type of error, wanting to make profits ethically but being confused as to how, is also common. Witness business leaders espousing the mantra of “giving back” and proudly publicizing their companies’ contributions to various charities. Or peruse the annual reports of major corporations for their Triple Bottom Line (economic, social, and environmental goals) achievements.

While all three errors ultimately stem from faulty thinking, addressing the first error would require expertise in psychology (and psychopathy), which I don’t have. I will focus, therefore, on the causes of and cures for the latter, more common errors.

Thinking that ethics is not practical and therefore does not apply to business is relatively easy to correct. It stems from the prevalent view of morality as altruism (self-sacrifice): it is our duty to sacrifice our own interests for the needs of others. Someone needs a job—we must hire them. Someone needs our products but cannot afford them—we must lower our prices or give products for free. Businesspeople who reject altruism see it is destructive for business, but they fail to see that business still needs guidance of proper morality—because we don’t know automatically what goals to pursue and how. Their error can be corrected by showing them the alternative moral code of rational egoism (self-interest) that makes it possible to achieve long-term profits morally.

The third error, wanting to act ethically but being confused, also stems from the moral code of altruism. However, this error is harder to correct than the second, because those who have accepted altruism fail to see its destructiveness and utter conflict with long-term profitability of business. Instead of rejecting altruism, they embrace it either as true believers or as a means to appease the critics of business, such as various environmentalist and social activist groups. Such businesspeople, failing to see the destructiveness of altruism, engage in actions that sabotage their companies’ ability to fulfil their function: maximizing returns for their shareholders through creating and trading products and services (while respecting individual rights of others). Convincing them that altruism is destructive and must be rejected, is more difficult than showing pragmatist businesspeople that there is a moral code that applies to business and helps maximize profits. For the latter, it’s a matter of filling a void, for the former, serious de-programming is needed before an alternative moral code can be accepted.

But the good news is: there is a moral code that is consistent with long-term profitability of business. That code is rational egoism, which is based on the requirements of human survival and flourishing as its standard of value. Anything violating those—such as any form of sacrifice, others to oneself or oneself to others—must be rejected, using reason, adhering to facts by the means of observation and logic, as the guide. Re-discovering reason and objectivity and their attendant virtues is a tall order, given the cognitive confusion at universities today (which I have witnessed first-hand), but it is possible and necessary for the long-term profitability of business and happiness for the rest of us.

 

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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