Business Ethics – Which Theory Do You Follow?

Business ethics should seem simple, but the more analytic we approach the subject the more complicated the explanation of “business ethics”.

While standing in line for a dinner/reception at a well know Canadian University (I was there as their keynote speaker for a business ethics symposium), the Dean of the Business School asked me – “What theory of business ethics do you follow?”  Most of the time I’m fully prepared to answer questions posed about ‘ethics’, but in this case – that question caught me off guard.

I wanted to be respectful with my answer while thinking to myself – “the more academic we make ‘business ethics’ the less effective it will be for students to learn and apply.”  My response – “I follow the theory of business ethics that keeps one out of federal prison.”

The look I received in response was – priceless.  “I see,” he responded and from there the discussion seemed to change direction.

The next day it all made sense – not only to the Business School Dean, but the students in attendance – as I walked in dressed in an orange jump suit and handcuffs.  (you can see some of my presentation here).  As I explained I took 23 steps from the curb into federal prison, it became clear that every choice does have a consequence.  And, as I explain, the choices you make today create the consequences you experience tomorrow and into the future.

But…I was still plagued with the answer to the question…”What theory of Business Ethics do you follow?”

BUSINESS ETHICS THEORIES:

The other day, I ran across an excellent article that outlined different theories of business ethics in “the star online” – the full article written by John Zinkin is here.  The following is a reprint of excerpts from the various theories of business ethics he espouses.  Thanks and credit to Mr. Zinkin for his work.

Machiavellian ethics

These are pragmatic, weighing probable consequences and the likelihood of achieving given outcomes, often regardless of how the ends have been achieved. People practising this type of ethics will argue that the ends justify the means.

The merit of this system is that at least any decision being taken can be assessed in terms of whether it will achieve the desired ends; and if it fails this basic test, then it should not be taken.

However, there are two problems with this approach. First, it does not recognise that organisations need codes of conduct and rules to help people to make predictable and consistent decisions.

Second, it can lead to a failure of “Tone at the Top” with people encouraged to “do whatever it takes” – the kind of thinking that contributed to the recent failures of governance in Wall Street that have hurt us all so badly.

Utilitarian Ethics

These are a more moral extension of Machiavellian ethics, where the outcomes are weighed up by calculating how to “achieve the greatest good for the greatest number” for both the company and its customers. Principles are important only as rules of thumb.

The problem with this type of approach is that it encourages the tyranny of the majority and can lead to ignoring the needs of minorities and so be used to justify persecuting minority shareholders, which is poor governance.

Kantian rules-based ethics

Rules-based ethics (associated with the German philosopher Immanuel Kant) go one step further in that they also consider the effect actions have on the rules of the organisation and whether they adhere to given principles.

This approach tends to be bureaucratic and perhaps overly legalistic, sometimes with a rigid adherence to the rules without due regard for particular circumstances that may justify exceptions.

Of course, the problem is that if there are too many exceptions or waivers, the rules themselves and the system they represent are discredited; outcomes become unpredictable; and corruption and free riding are encouraged.

Rousseau’s social contract ethics

Social contract ethics recognise the need for mutuality and reciprocity if companies are to flourish: both within the organisation itself, where “Do unto others as you would be done by” is as good a rule as any for behaviour, and between the company and the community it serves.

They also recognise that no company is an island and it must therefore behave responsibly towards the community, minimising the external costs the company creates, lest it create a “tragedy of the commons” with its associated risk of systemic failure.

The problem with this type of approach is when it leads to the kind of loyalist, tribal thinking within a profession so that bad practices are covered up and justified in the name of loyalty to the group (a favourite topic of films with rogue cops who are protected from Internal Affairs for example).

Personalistic ethics

Personalistic ethics reflect what an individual feels about the decisions being taken. As such they often share the following three characteristics:

First, they are driven by the individual’s personal sense of virtue and how the decision will reflect on the person’s character and sense of self-worth;

Second, they may be based on empathy where the decision maker puts himself/herself in the shoes of the other person when deciding what to do;

Third, they may be based on intuition driven by conscience – asking the question “will I be able to sleep at nights” when making a decision.

Obviously it is important that board members must be personally comfortable with the decisions they are involved with.

The problem is that often people who decide on Personalistic ethical grounds become impatient with other people calculating what to do using either a rules-based or utilitarian approach, and may be uncomfortable with Machiavellian thinking.

SO – WHAT THEORY OF BUSINESS ETHICS DO YOU FOLLOW?  Having spent time in federal prison for unethical choices…I stand by my response to that question.  I follow the theory of ethics and choices that keep you out of prison.

COMMENTS WELCOME!