Fundamental Of Business Ethics q1b3d

FUNDAMENTALS OF BUSINESS ETHICS A Developing Country Perspective

Juan Elegido Department of Business Ethics, Lagos Business School, Pan-African University, Lagos, Nigeria. Email: [email protected] To cite this book: Elegido, J.: 1996 Fundamentals of Business Ethics, Ibadan, Spectrum.

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J. M. Elegido

To Dick Kramer with gratitude

PREFACE

The title of this book indicates that it is written from a developing country perspective. This choice of title does not seek to suggest that there is a Nigerian ethics, which would be basically different from, say, Portuguese ethics. Ethics is about human fulfilment - personally and in community - and the fundamental ways in which a male Portuguese farmer can reach fulfilment as a human being are not essentially different from those open to a female Nigerian manager. Because of this the ultimate and more general ethical principles which are discussed in chapter 3 of this book are relevant to all human beings. In this sense this book is squarely based on a universalist view of ethics. However, when one moves beyond ultimate principles and tries to ascertain whether acting in a certain way is likely to contribute to the fulfilment of the actor and the well-being of the other parties affected by his or her actions, it is essential to take into all the features of the situation. At this level whether one is acting in a developed or a developing country may have great relevance. An example may make this issue clearer. Let us think of the common problem of civil servants and politicians who ask for special gratifications before performing some functions. Some very general principles such as "one should act fairly" and "one should seek to protect and promote the common good of the communities to which one belongs" have the same relevance to this problem in developed and developing societies. Even more specific principles are also universally relevant. Examples of such principles are those discussed in chapter 8.II of this book. However, before even such relatively specific principles can be applied one still has to consider in detail the consequences which are likely to follow from refusing or accepting a request for a certain questionable payment. At this level of analysis it is suggested that the answer could be very different depending on whether one is, say, a clearing agent in the port of Lagos or an investment banker in New York. This is not to say that clearing agents in Lagos are justified in surrendering to every attempt to extort money from them, or that there are no conceivable circumstances in which it would be ethical for an American investment banker to give in to extortion requests. The point is rather that the specific circumstances in which issues arise are relevant to the ethical assessment of the alternatives facing the actor, and that, generally speaking, there are many issues in which some ethically relevant circumstances tend to differ systematically between developed and developing countries. The fact that this book has been written from a developing country perspective means that, when considering such issues, an effort has been made to take into the circumstances which typically obtain in developing countries. I make no attempt in the book to introduce different schools of business thought. The reader

will find no reference to "utilitarianism," "deontologism," "natural law," "contractarianism" or "hermeneutics." My experience is that there is nothing better calculated to kill for good the interest in ethics of the average business executive than a discussion of "schools of thought." The focus of this book is not on schools but on issues: I have just tried to provide the best solutions I could find to the problems that business life throws at us, and in devising those solutions I have never been deterred from using any material that seemed useful by the fact that it proceeded from the "wrong" school. Still, I have tried to organise the book around a set of internally consistent principles and knowledgeable readers will have no difficulty identifying its intellectual pedigree. This is a book squarely located within the natural law tradition and anybody familiar with the work of Germain Grisez, John Finnis and Joseph Boyle, will realize the enormous intellectual debt I owe these philosophers. The primary audience of this book are business executives working in Third World countries, more especially those working in Nigeria. Being aware of the public I was addressing I have tried to do my best to keep the philosophical baggage light. I am afraid, however, that my best efforts in this regard were not enough, especially in the first three chapters, devoted to foundational issues. There is a point beyond which complex issues cannot be simplified without serious distortion. As a practical help to surmount this obstacle I have provided brief summaries at the end of each chapter. Anybody who finds the first three chapters heavy going can limit himself or herself to reading only their summaries. Participants in seminars in which I have used some of the material contained in this book have expressed surprise at the fact that no reference was made to religious arguments. This surprise is understandable. After all, a very large majority of managers in Nigeria are religious believers and participate actively in the activities of some religious body. Almost without exception, among the teachings of such religious bodies one finds material that is highly relevant to issues of business ethics. It is true that religious teachings can be highly relevant in the field of business ethics, especially from the point of view of providing an effective motivation to widen the horizons of business executives beyond the narrow confines of their immediate self-interest. In fact these issues are explored in the last chapter of this book. However, given the wide variety of religions that are represented in any sample of Nigerian managers, it is my experience that, in trying to identify norms of behaviour which can be accepted by all the of a firm, one will be well advised, as a matter of prudence, to avoid appealing to standards of behaviour which can be accepted only on the basis of their being taught by a religious authority. This book has been written as a consequence of my experience in teaching business ethics in the Lagos Business School. My very special thanks go to the School and the participants in its executive development programmes for the opportunity I have had to interact regularly and discuss

issues of business ethics with so many highly experienced executives. Thanks are also due to my colleagues in the Lagos Business School, especially to its Director General, Professor Albert J. Alos for his encouragement and help, and to Dr. Christopher Kolade and Dr. Pat Utomi for many illuminating conversations on questions of business ethics. Dr. D. Melé and his colleagues in the Department of Business Ethics of IESE were a constant source of stimulus and guidance. Among the alumni of the Lagos Business School I would like to thank especially Pascal Dozie, CEO of Diamond Bank, who once dreamt of an "oasis of sanity" in the midst of the Nigerian business scene, and Fola Adeola, CEO of Guaranty Trust Bank, who was the first person to ask me to organize an in-company seminar on business ethics for executives of the bank he leads. That pioneer experience eventually led to many similar seminars for other organizations. This book is dedicated to Dick Kramer, the former Country Managing Partner in Nigeria of Arthur Andersen & Co. In doing this I am trying to acknowledge his help and inspiration in my work on business ethics, his crucial contribution in launching the Lagos Business School and sustaining it during its early years, and the large debt that the Nigerian business community owes him for his untiring efforts in promoting an enabling business environment in the country.

CONTENTS PART I - ETHICAL THEORY CHAPTER 1.- INTRODUCTION ....................................................................................................... 6 I. WHAT IS ETHICS? .............................................................................................................. 6 II. WHY SHOULD I TRY TO ACT INTELLIGENTLY? ..................................................... 9 The Meaning of "Acting Intelligently" ........................................................................ 9 Reasons for Acting Intelligently.................................................................................. 10 III. WHY SHOULD I TAKE OTHER PEOPLE'S INTERESTS INTO ? ........ 14 The Prisoner's Dilemma............................................................................................... 14 Repeated Interaction .................................................................................................... 15 A Step Towards Greater Realism ................................................................................ 16 The "Recoil Effect" of Selfish Decisions .................................................................... 17 a) Psychological Effects .................................................................................. 18 b) Effects on the Moral Character of the Agent ............................................. 19 Conclusions .................................................................................................................. 21 IV. ACTING ETHICALLY: THE PERSPECTIVE OF THE FIRM .................................... 22 Group Action and Personal Moral Responsibility...................................................... 23 Ethical Standards and Business Effectiveness ............................................................ 25 V. SUMMARY ......................................................................................................................... 34 CHAPTER 2.- FUNDAMENTAL CONCEPTS FOR ETHICAL ANALYSIS................................ 37 I. INTRODUCTION................................................................................................................. 37 II. INTRINSIC VERSUS INSTRUMENTAL GOODS ........................................................ 37 III. UNDERSTANDING OF INTELLIGIBLE GOODS VERSUS SENSIBLE MOTIVATION ............................................................................................................ 41 IV. DIFFERENT TYPES OF WILLING ................................................................................ 42 V. TWO MAIN TYPES OF ETHICAL RULES .................................................................... 44 VI. SUMMARY ....................................................................................................................... 46 CHAPTER 3.- FUNDAMENTAL PRINCIPLES OF BUSINESS MORALITY ............................. 49 I. INTRODUCTION................................................................................................................. 49 II. PRINCIPLE OF SOLIDARITY ......................................................................................... 51 III. PRINCIPLE OF RATIONALITY ..................................................................................... 53 IV. PRINCIPLE OF FAIRNESS OR IMPARTIALITY ........................................................ 54 V. PRINCIPLE OF EFFICIENCY .......................................................................................... 57 VI. PRINCIPLE OF REFRAINING FROM INFLICTING DIRECTLY WILLED HARM TO A HUMAN BEING ................................................................................. 58 VII. PRINCIPLE OF ROLE RESPONSIBILITY .................................................................. 64 Special Responsibilities ............................................................................................... 64 The Need for a "Plan of Life" ...................................................................................... 65

The Special Responsibilities of Managers .................................................................. 68 Role-Responsibility and Diversity of Responsibilities............................................... 70 VIII. PRINCIPLE OF ACCEPTANCE OF HARMFUL SIDE-EFFECTS .......................... 71 IX. PRINCIPLE OF CO-OPERATION IN IMMORALITY ................................................ 73 X. COST-BENEFIT ANALYSIS ............................................................................................ 75 XI. CONCLUSIONS ................................................................................................................ 83 XII. SUMMARY ...................................................................................................................... 84 PART II - RESPONSIBILITIES OF THE FIRM CHAPTER 4.- RESPONSIBILITIES OF THE FIRM ........................................................................ 88 I. INTRODUCTION................................................................................................................. 88 II. PROFESSOR FRIEDMAN'S POSITION .......................................................................... 89 III. CRITIQUE OF FRIEDMAN'S POSITION ...................................................................... 90 IV. THE LIMITS OF SOCIAL RESPONSIBILITY.............................................................. 95 V. HIP OF THE FIRM ......................................................................................... 96 VI. PRIORITIES IN THE FIRM'S RESPONSIBILITIES .................................................... 102 VII. THE OVERARCHING GOAL OF AN ETHICAL BUSINESS FIRM ....................... 111 VIII. SUMMARY.................................................................................................................... 116 CHAPTER 5.- RESPONSIBILITIES TOWARDS CUSTOMERS .................................................. 119 I. INTRODUCTION................................................................................................................ 119 II. PRODUCTS ........................................................................................................................ 122 The Products Themselves ........................................................................................... 122 Objectionable Product Features.................................................................................. 124 Planned Obsolescence................................................................................................. 124 III. SAFETY ............................................................................................................................ 126 IV. PRICES .............................................................................................................................. 131 V. INFORMATION ................................................................................................................ 136 Advertising and Truthfulness ..................................................................................... 138 Advertising and the manipulation of desires.............................................................. 145 Collateral effects of advertising on society ................................................................ 147 VI. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES ............................... 147 VII. SUMMARY ..................................................................................................................... 150 CHAPTER 6.- RESPONSIBILITIES TOWARDS EMPLOYEES .................................................. 153 I. INTRODUCTION................................................................................................................ 153 II. STABILITY OF EMPLOYMENT ................................................................................... 155 III. FAIR COMPENSATION ................................................................................................. 159 Payment of a living wage ........................................................................................... 159 Non-discrimination ..................................................................................................... 161 Pay differentials .......................................................................................................... 162

IV. JOB DESIGN AND PARTICIPATION .......................................................................... 164 VI. SIGNIFICANT SERVICE TO CUSTOMERS ............................................................... 167 VII. PRIVACY ........................................................................................................................ 168 VIII. FAIR HEARING ............................................................................................................ 172 IX. PROTECTION FROM HARM ........................................................................................ 173 X. TRADE UNIONS ............................................................................................................... 176 XI. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES ............................... 178 XII. SUMMARY ..................................................................................................................... 179 CHAPTER 7.- RESPONSIBILITIES TOWARDS OTHER STAKEHOLDERS............................ 181 I. RESPONSIBILITIES TOWARDS SHAREHOLDERS ................................................... 181 Introduction ................................................................................................................. 181 Right of Ultimate Control ........................................................................................... 182 Right to Information ................................................................................................... 185 Right to Financial Returns .......................................................................................... 186 Responsibilities towards Shareholders in Relation to Mergers and LBOs ............... 189 Advantages of Ethical Behaviour Towards Shareholders ......................................... 191 II. RESPONSIBILITIES TOWARDS CREDITORS............................................................ 192 III. RESPONSIBILITIES TOWARDS SUPPLIERS ............................................................ 195 IV. RESPONSIBILITIES TOWARDS DISTRIBUTORS ................................................... 198 Responsible Use of Channel Power ........................................................................... 199 Refraining from Subverting the Ethical Standards of Distributors .................................................................................................................. 201 Disclosure .................................................................................................................... 201 Keeping to Agreements .............................................................................................. 202 Due Process ................................................................................................................. 202 Strategic Opportunities for Ethical Companies ......................................................... 202 VI. RESPONSIBILITIES TOWARDS COMPETITORS: THE ETHICS OF COMPETITION ......................................................................................................... 203 Specific standards ....................................................................................................... 206 VII. SUMMARY ..................................................................................................................... 210 CHAPTER 8.- RESPONSIBILITIES TOWARDS SOCIETY - I..................................................... 211 I. INTRODUCTION................................................................................................................ 211 II. QUESTIONABLE PAYMENTS....................................................................................... 213 Coming Down to Cases .............................................................................................. 215 The Paradigmatic Bribery Situation ........................................................................... 217 Payments Made in Order to Protect One's Just Entitlements .................................... 219 Co-Operation In the Immorality Of Others................................................................ 221 A Final Point For Organizations................................................................................. 223 III. SUMMARY....................................................................................................................... 223

CHAPTER 9.- RESPONSIBILITIES TOWARDS SOCIETY - II ................................................... 225 I. COMPLIANCE WITH THE LAW..................................................................................... 225 The Duty To Obey The Law ...................................................................................... 226 Unjust Laws................................................................................................................. 227 Determination Of the Injustice Of a Law................................................................... 228 Obedience To Unjust Laws ........................................................................................ 229 Other Reasons Which May Excuse From Obeying a Law ....................................... 230 II. RESPONSIBILITIES IN RELATION TO THE ENVIRONMENT ............................... 231 The Fulfilment of Human Beings as Ultimate Standard of Assessment .................. 233 Cost-Benefit Analysis ................................................................................................. 235 Protection of the Environment and the Law .............................................................. 237 III. RESPONSIBILITIES TOWARDS THE LOCAL COMMUNITY ............................... 240 IV. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES ............................... 242 V. SUMMARY ........................................................................................................................ 244 CHAPTER 10.- INSTILLING ETHICAL STANDARDS IN ORGANIZATIONS ........................ 247 I. INTRODUCTION................................................................................................................ 247 II. MEANS AVAILABLE TO TOP MANAGEMENT TO INFLUENCE A COMPANY'S ETHICAL CLIMATE........................................................................ 248 III. ETHICAL CODES ............................................................................................................ 258 IV. A FIRM'S DECISIONS SHAPE ITS CULTURE........................................................... 264 V. SUMMARY ........................................................................................................................ 266 PART III - RESPONSIBILITIES OF THE INDIVIDUAL MANAGER CHAPTER 11.- FIDUCIARY RESPONSIBILITIES OF MANAGERS ......................................... 269 I. INTRODUCTION ............................................................................................................... 269 II. FIDUCIARY RELATIONSHIPS ..................................................................................... 270 III. CONFLICTS OF INTEREST ........................................................................................... 271 Ethical Norms Applicable in Conflict of Interest Situations .................................... 276 IV. ACCEPTANCE OF GIFTS .............................................................................................. 279 V. INSIDER TRADING ......................................................................................................... 281 Preliminary Clarifications ........................................................................................... 281 Wrongfulness of Insider Trading................................................................................ 282 VI. HONESTY ........................................................................................................................ 286 VII. CONFIDENTIALITY ..................................................................................................... 288 The Foundation of the Duty of Confidentiality ......................................................... 289 Limits of the Duty of Confidentiality ......................................................................... 291 Confidentiality in Relation to Know-How ................................................................. 292 VIII. SUMMARY.................................................................................................................... 295

CHAPTER 12.- OTHER ETHICAL RESPONSIBILITIES OF THE INDIVIDUAL MANAGER ............................................................................................................................. 299 I. THE DUTIES OF DILIGENCE, COMPETENCE AND CONTINUOUS LEARNING ................................................................................................................ 299 Introduction ................................................................................................................. 299 The Duty of Diligence ................................................................................................ 299 The Duty of Competence ............................................................................................ 300 The Duty of Continuous Learning ............................................................................. 302 Final Considerations ................................................................................................... 302 II. THE DUTY OF OBEDIENCE .......................................................................................... 303 III. THE DUTY OF LOYALTY............................................................................................. 305 The Foundations of Professional Loyalty .................................................................. 305 The Limits of Professional Loyalty ............................................................................ 308 IV. SUMMARY ...................................................................................................................... 311 CHAPTER 13.- HARMONIZATION OF RESPONSIBILITIES TO THE FIRM AND OTHER RESPONSIBILITIES ............................................................................................... 313 I. INTRODUCTION................................................................................................................ 313 II. WHISTLEBLOWING ........................................................................................................ 313 Whistleblowing and Loyalty ...................................................................................... 314 Other Considerations Weighing Against Whistleblowing ........................................ 316 Conditions for Legitimate Whistleblowing................................................................ 317 II. DUTIES TO THE FIRM AND DUTIES TO THE FAMILY .......................................... 320 IV. GENERAL PRINCIPLES ON HARMONIZATION OF RESPONSIBILITIES ......... 329 Limiting one's responsibilities .................................................................................... 329 Defining one's responsibilities with precision ........................................................... 330 Acting according to objective criteria ........................................................................ 330 V. SUMMARY ........................................................................................................................ 331 PART IV - BUSINESS ETHICS IN A WIDER PERSPECTIVE CHAPTER 14.- BUSINESS ETHICS IN A WIDER PERSPECTIVE............................................. 335 BIBLIOGRAPHY

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PART I GENERAL ETHICAL THEORY

CHAPTER 1.- INTRODUCTION I. WHAT IS ETHICS? This is a book about Business Ethics. It will be helpful to begin by demarcating the special province of Ethics. All the areas of human knowledge can be classified into two large groups. Theoretical disciplines like Physics, Chemistry or Economic Analysis investigate what reality is like. Practical disciplines like Medicine, Military Strategy or Ethics seek to determine how human beings should act. Within practical disciplines we can make another great division. Technical disciplines seek to determine how one should act in order to attain a certain objective. Thus, for instance, assuming that one wants to cure a certain person, how to go about it is a technical question (Medicine deals with it); similarly, assuming that one wants to ensure the unconditional surrender of Japan at the least cost in American lives (as President Truman wanted to do at the end of World War II) it is a technical question whether dropping atomic bombs on two Japanese cities is the most effective way of attaining that end (Military Strategy deals with this question). Ethics, with its various branches, is the other major type of practical discipline. Ethics tries to help us decide how we should act not just in order to attain a given objective or objectives but, rather, all things considered. The focus of ethics is to determine how to behave in order to ensure that our life is flourishing, successful, worth living, fulfilling (throughout this book we will use these four expressions more or less interchangeably). Solomon has provided an excellent description of the aim of ethics: "Ethics is, first of all, the quest for, and the understanding of, the good life, living well, a life worth living. It is largely a matter of perspective: putting every activity and goal in its place, knowing what is worth doing and what is not worth doing, knowing what is worth wanting and having and knowing what is not worth wanting and having...It is also, within business itself, keeping in mind what is ultimately important and essential and what is not, what serves our overall career goals and what does not, what is part of business and what is forbidden to business, even when increased profit - the most obvious measure of business success - is at stake.1" This is a wider type of enquiry than that of technical disciplines for while the latter just concern themselves with the more effective means to attain specific ends (e.g. 1

SOLOMON (2) p. 9.

3 the best way to attain military victory), ethics also has to consider what ends are worth pursuing and under what conditions it is worth pursuing them. Thus, to continue with the previous examples, assuming that the most effective way of saving a patient is to amputate his leg (a medical doctor is the competent person to tell us this) one can still question whether, all things considered, saving somebody's life is worth the expenditure of so much effort, time and money, and whether the voluntary destruction of a human limb can be justified in order to save a life (most moralists would answer positively both questions). Similarly, assuming that dropping atomic bombs on two Japanese cities is the way of getting Japan to surrender unconditionally which will have the lowest cost in American lives (military men will tell us whether this is the case), one has yet to investigate whether, all things considered, seeking at all costs the unconditional surrender of one's military opponent is such a fine thing, and whether the killing of tens of thousands of non-combatants is justified by the objective of minimising the loss of American lives (on these two issues opinions are much more divided among moralists). We have said that ethics seeks to help us decide how we should act, but it is important to clarify the way in which it does this. As we will argue, sound ethical reflection can identify some actions, such as torturing people or blaspheming, that it is never right to perform. But Ethics cannot provide us with a set of rules such that by applying them we will be able to know exactly what to do (as opposed to what not to do) in all possible situations. There are several reasons for this, the most obvious one being that there are just too many factors that are relevant in each concrete situation. For instance, we could easily make a list of over five hundred factors which may conceivably be relevant in a way or another to a decision whether or not to drop now a bomb on a given target, and after completing it it would become apparent that we could easily prolong it indefinitely ("Just a minute! I forgot something. Add, 'If all the pilots have a sudden attack of diarrhoea, abort the mission.' And also this one! 'If three influential American newspapers, the British Prime Minister, and sixty senators suddenly oppose the idea vehemently, reconsider it'"). It is simply impossible to formulate a set of rules capable of coping with such complexity. This point is important because it follows from it that anybody who has bought this book with the hope that after reading it he or she will know exactly "how to act ethically" in all situations, is bound to be disappointed. One can teach general principles, train a person to consider the most common pitfalls, expose him or her to the main lessons that experience has taught our predecessors, and so on. But in the end there is just no way to avoid the need for the person faced with the problem to assess the situation as it presents itself here and now and act as the constellation of factors present at that point seem to demand. It will often happen that the presence of one factor, which perhaps is

4 never present in the more usual situations analyzed in the standard textbooks, makes all the difference in the world and renders inapplicable to one's case the usual "solution" recommended for more typical predicaments. We have stated that Ethics is the discipline that explores systematically the conditions conducive to a flourishing life. The next step is to try to identify these conditions. A good point to start is by looking at the way in which people use like "ethics" and "morality." At bottom what most people have in mind when they speak of acting ethically seems to be: a) acting intelligently (as opposed to being carried away by one's urges and emotions); and b) taking the interests of others into (as opposed to acting in a purely egoistic manner).2 Most ethical teachers of note are also agreed on these two points. That these principles are widely held is obvious. This is so much so that saying of somebody that she is selfish or unable to master her ions, only to add immediately that she is one of the best persons one knows would strike most people as pretty odd, somehow as if one were affirming that somebody whose height is four feet is very tall. Still, even though we are bringing up these principles at this point precisely because they both express what Ethics means in the view of many people and reflect the teachings of most prominent moral philosophers, we do not wish to defend them on the basis that they are widely held, or that at least many people pay lip service to them, but on the basis that they are true and sound, that is to say, that they provide a reliable guide to leading a flourishing life. Therefore we will now proceed to examine what can be said in their defence. II. WHY SHOULD I TRY TO ACT INTELLIGENTLY? Many leading thinkers in Ethics have argued that behaving in a morally upright manner is nothing else but being fully rational. A perfectly moral person would never allow the pull of emotion to cause him or her to act in a less than entirely reasonable manner. At this point a possible misunderstanding should be avoided. Behaving intelligently does not demand that one strive to kill all feelings and emotions. In order to ensure that our intelligence occupies the driving seat our emotions have to be controlled and disciplined, but they do not need to be uprooted.

2

There is a long tradition of identifying in this way an ethical perspective. See, for instance, GOODPASTER and FRANKENA p. 26.

5 Still, disciplining and controlling our emotions is often hard work. What is the point of endeavouring to act at all times in a fully rational manner? Is it worth the effort? The Meaning of "Acting Intelligently" Before answering these questions it will be necessary to clarify what is involved in acting intelligently. There are two levels in acting intelligently. The first is to consider carefully the means to use in order to attain most effectively our objectives. The person who acts without thinking, getting carried away by anger, enthusiasm or fear, is not likely to act intelligently in this sense. But there is a second, and higher, level of rationality. A person may deploy the most exquisitely crafted plan in pursuance of a foolish objective. Full rationality demands that we weigh intelligently not only the adequacy of the means but also the value of the ends. We may see more clearly the meaning of this second level of rationality by considering an example. Let us think of a young doctor who has performed brilliantly a difficult open-heart operation, thereby saving her patient's life. The good effects of that action can be classified in the following way. Aspects of Substantive Human Fulfilment Promoted

Instrumental Goods Attained

Positive Emotions and Feelings Aroused

- The life of the patient has been saved. - The doctor has increased her knowledge

- The doctor has earned money, which may be useful in future to preserve her and her children's health, provide education, etc. - The doctor has increased her reputation, which will be useful to get more patients, etc.

- She feels high: flushed with success, competent, ired.

This distinction between human fulfilment, instrumental goods, and feelings or emotions is basic for ethical analysis and will be explored in more detail in the second chapter of this book. At this point we will just assume in the reader an intuitive grasp of these concepts. Acting irrationally at the level of choosing one's objectives means being driven exclusively by the positive or negative urges and emotions aroused by performing an action or by contemplating it in one's imagination, while acting intelligently basically means guiding oneself by a consideration of the human fulfilment that immediately or mediately one can achieve or promote through one's action (and, of course, the human

6 harm one can prevent). We have contrasted the person who guides herself by a consideration of the human fulfilment she can promote with the person exclusively driven by feelings or emotions. What about the person who aims at attaining instrumental goods such as money or a good reputation? Is he or she acting intelligently? It depends. If such goods are pursued as means needed in order to promote human fulfilment, then the agent is actually pursuing that human fulfilment, though only in a mediate way, and therefore is acting rationally. If that is not the case and the actor is in reality moved by the high feelings associated to obtaining these instrumental goods then he or she is acting irrationally. Reasons for Acting Intelligently3 We have clarified what we mean by acting intelligently: allowing our intelligence, rather than our feelings, emotions or ions, to play the ultimate directive role in choosing both our ultimate objectives and the means to attain them. We can now address our original question. Is acting intelligently worth the effort? This question is so basic that it is difficult to articulate clearly an answer to it. Still, some light can be thrown on it by examining briefly the main alternative option available. Assuming that a person were to consciously decide not to regulate his life with his intelligence, what other way of regulating his life would be open to him? He could assign the ruling role to his emotions. To gain some insight into the practical implications of this, consider the following example. A is a first year Law student. Today is January 1 and he has taken as his New Year resolution for the coming year to do at all times exactly what he feels like doing. Anybody with experience of what life is really like could tell our student friend that he is in for a very rough year indeed. If he only attends lectures and reads when he feels like doing so he is bound to fail most or even all his subjects. Most likely he will also lose all his friends if each time he feels irritated with them he acts exactly as he feels like acting and says what he feels like saying. His relations with his parents, brothers, sisters and other relations are similarly bound to hit the rocks. He is even unlikely to have a good time. Many things we really enjoy we would never do if we had to wait to start doing them until we felt like it. Usually we have to overcome feelings of lassitude and lethargy before we stir ourselves to go to a party, visit a friend or go to play a game of tennis.

3

On this issue see FINNIS (2) ch. II.

7 The fundamental point illustrated by this example is really very simple. Our intelligence is able to survey and understand the whole field of human possibilities and ways of reaching our own and other people's fulfilment. Our emotions, on the contrary, are aroused only by some aspects of reality. He who chooses to "follow emotion" is going to leave out of many important data and is bound to make serious mistakes. There is a second main reason for giving to our intelligence the leading role in our lives. Briefly put, we can only achieve unity within ourselves by striving to educate our feelings and emotions in the ways suggested by reason. This is possible because our actions are habit-forming; the person who succeeds in controlling her anger today will feel less anger next time she is faced with a comparable situation. On the other hand, if we just follow our emotions we will not succeed in achieving an integration of the different aspects of our personality. This is because each emotion or feeling pulls in its own direction. Thus, for instance, a business manager can experience simultaneously feelings of anger towards his boss, fear at the possible retaliation of his boss if he fails to her, professional and social ambition, compulsive desires for money, tiredness at the demands of the job, envy of some colleagues, shame of a shabby deal in which he has engaged, frustration at the lack of progress of his children, resentment towards his wife, etc. In the absence of a sustained effort to put this disparate collection of feelings under the control of reason, his personality will just become a battleground for competing impulses, most of which are bound to be frustrated. Furthermore, the lack of inner integration which is produced by acting on feelings not subordinated to reason is exacerbated by the fact that in the realm of emotion and feeling a constant "dose" of stimulus tends to provide a decreasing level of sensible gratification or reduction of tension: whether in eating, in lashing out in anger, or in any other action undertaken in response to sensible motivation, the law of decreasing returns always operates. To complete our consideration of this issue we will discuss briefly two examples which throw additional light on the reasons we have for avoiding acting exclusively on the basis of emotional urges or aversions. A is a twelve year old boy who was to travel to school for the term. He was due to leave home at 8.00 am. His mother intended to get up at 7.00 am, have breakfast with him and see him off. The night before she went to bed by 11.00 pm. When her alarm clock rang at 7.00 am she felt too lazy to get up and continued dozing in bed for an extra two hours. The boy fixed his own breakfast and was taken to the airport by the driver. He left feeling disappointed and hurt. This example illustrates in a simple manner the unreasonableness involved in acting only on the basis of feelings or emotions. In itself there is nothing wrong with resting in bed. But by acting exclusively on the basis of certain feelings (in this case of

8 laziness) the mother in the example loses the opportunity of achieving some real good: in this case strengthening her relationship with her son. A special case of the general attitude of acting exclusively on the basis of feelings or emotions is that of the person who concentrates exclusively on "having a good time." Some people, especially in the nineteenth century, tried to elaborate a consistent defence of the view that one's paramount objective in life should be to maximize pleasure and minimize pain. Bentham was a prominent defender of this doctrine. He coined the famous phrase "the greatest happiness for the greatest number." In his mind "happiness" was simply a matter of maximizing the feelings of pleasure and minimizing those of pain. The identification of happiness with pleasure, as taught by Bentham, has been abandoned long ago by most moral philosophers, for it soon became evident that there are many good things one can pursue in this life which cannot be reduced to "pleasure." Perhaps the clearest argument to show this is that of the "experience machine.4" Let us imagine that there was a machine which, by stimulating the brain, could make a person feel that he was going through any desired pleasurable experience: the experience of eating a delicious dish, that of arguing brilliantly a case before the Supreme Court, that of having children and loving them, that of composing a great symphony, etc. Let us imagine further that once a person was plugged into the machine it became impossible to unplug him. Would one, if the choice were available, decide to spend all the rest of one's life attached to the machine, enjoying all types of pleasing sensations but absolutely and definitely cut off from reality? Reflecting on this fantastic choice helps us realise that we are not satisfied with a life which can offer us only feelings of pleasure. We want to really attain certain goods and really lead full and successful lives. We would not willingly settle for the mistaken feeling of having achieved success or attained some goods. But if this is the case, "having a good time" is not an adequate guide on how it makes sense to conduct our lives.5,6

4

NOZICK pp. 42-45 and FINNIS (2) ch. II.3 are useful discussions of the "experience machine."

5

For the avoidance of misunderstandings it may be well to add that there is nothing wrong in itself with having a good time. What is criticized in the text is the attitude of the person who sacrifices real fulfilment to having a good time. The argument is that a rational being can never consider such a bargain satisfactory. 6

For a more general critique of the conception of a successful life as that which maximizes "wantsatisfaction" or "satisfaction of desires" (whatever may be the object of the wants or desires) see FINNIS (1) pp. 113-4 and RAZ ch. 12.

9

III. WHY SHOULD I TAKE OTHER PEOPLE'S INTERESTS INTO ? Put as bluntly as in the heading of this section, most people are not clear at all on what could be an adequate answer to that question. Is it really smart for me to take into consideration other people's interests? Would it not pay me better to look after number one and let the devil take the hindmost? Recently, researchers from several disciplines have been pursuing lines of inquiry which cast light on this question. We may find it profitable to review some of the conclusions they have reached as a way to organise our thoughts on this issue. The Prisoner's Dilemma Many people have heard of the so-called "prisoner's dilemma." There are different formulations of the problem. The following is the most simple. Two people who have committed a serious crime have been arrested by the police and are held incommunicado, in isolation from each other. In order to induce them to confess their crime their jailers offer them the following alternatives. If only one of them talks, that prisoner will go free while the other will be sentenced to ten years in jail. If both of them confess they will receive mitigated jail sentences of five years. If neither of them talks the two will be accused of a lesser crime, which the police has reliable evidence they have committed, and can expect to receive a one-year jail sentence each. It would be in the common interest of the two prisoners that none of them talk in order to ensure that they receive the comparatively light sentence of one year each. But when each prisoner thinks of his or her own self-interest it turns out that from that perspective the best option is to talk. The dilemma lies in that when the two prisoners behave in this way both of them end up receiving the heavier sentence of five years. How is it that from the point of view of individual self-interest it is better for each prisoner not to be loyal to his or her accomplice? If a prisoner talks and the partner does not, the first prisoner goes free, while if both the first prisoner and the partner confess, the first prisoner at least gets the sentence of five years instead of ten. Whatever the partner may do the first prisoner is better off talking. What is the relevance of this fanciful example to our understanding of the real world? Many analysts have insisted that the prisoner's dilemma provides a good metaphor for social interaction. Much as it is true that if all men were unselfish and agreed to cooperate in pursuit of their common good, a better life for all would result, the sober truth, in their view, is that the options that each individual faces are similar to those of the prisoners in our example and that it is always to an individual's advantage to disregard

10 other people's interests and protect his or her own: "nice people get trampled upon, mean people end up on top." Repeated Interaction And this was the way things stood when Robert Axelrod, a professor at the University of Michigan, published his celebrated book "The Evolution of Co-operation7" in 1984. Overnight this book changed the status of the question and opened up a host of new lines of inquiry.8 Axelrod's basic insight was simple. He just asked, "What happens if two people play the game "prisoner's dilemma" not just once, but a hundred times? Will selfishness still pay better than altruism? It was simple to get volunteers and set them to play in pairs while researchers kept scores of how many years of jail they accumulated. The fewer the years of jail which had accrued to a player by the end of one hundred rounds of playing the game, the better he or she had performed. Each volunteer chose his or her own method or strategy. Some were consistently "good guys" and never betrayed their partners whatever the latter did; it probably will come as no surprise that they tended to be betrayed often and as consequence they did very badly and quickly accumulated centuries of jail liability. Others were consistently "mean" and always betrayed their partners; the interesting point is that they did not perform particularly well either. Still others chose to follow mixed strategies, as for instance being loyal for three games followed by defaulting once, or defaulting twice and being loyal once, etc. Many other people did not follow consistently any strategy, but rather played opportunistically according to how they assessed the intentions of their partners. Some players developed a playing strategy that came to be known as Tit for Tat and these were the players who performed best (i.e. over the long term were condemned to the fewest years in jail). Tit for Tat is simplicity itself: stay silent in the first round; thereafter do in each round as your partner did in the previous one: if the partner cooperated, co-operate; if the partner talked, you now follow suit. In other words, Tit for Tat is a strategy based on strict reciprocity. There is something especially interesting about these experiments and the perspectives they open up for the understanding of human interaction. Axelrod's experiments are more realistic than the simple prisoner dilemma. In many situations in real life we do not have only a single interaction with a person, but expect that we will 7

8

AXELROD.

Actually, some of the main ideas put forward by Axelrod had been explored before by other researchers. But it was Axelrod's book that had decisive impact.

11 meet again him or her in the future. In these reiterated games, as often happens in real life, one has to count on the possibility that if one disappoints the expectations of one's partner, the latter will retaliate. If we only stop to think a little, we will be able to recall very many situations in real life where even mutually antagonistic participants are forced by the realities of the situation to conclude that co-operation is far preferable to trying to gain a unilateral advantage which will be necessarily short-lived. A spectacular instance of this, which Axelrod analyses in some detail in his book, is the live-and-let live system that evolved in the front lines during World War I. When officers pressed soldiers to attack and were there to supervise them, soldiers, of course, complied. But what happened in the long intervals between battles? Did soldiers try to kill as many enemies as possible? Far from it. They soon realised that if they fired at the people in the opposite trench, the latter would fire back and life would be miserable for everybody and short for quite a few. The solution which was arrived at in many places was described as follows by a French soldier: "We fire two shots for every one fired at us, but we never fire first." Pure Tit for Tat! Similar arrangements have been reported in many other wars, provided only that there was some stability in the front lines so that everybody became able to appreciate the advantages of a stable pattern of behaviour based on reciprocity. A Step Towards Greater Realism In real life people are not constrained to associate only with one partner. They interact with a large variety of people and eventually they associate in a more stable way with those they like best. In order to better simulate this condition researchers introduced a new twist in their experiments. Twenty or thirty research subjects would be gathered in a room and told that each had to play, say, a hundred rounds of "prisoner's dilemma," but that each was free to choose his or her partner and to change partners as many times as he or she liked. What happens when this is done? Typically, after a while "loyal people" identify each other and choose themselves as partners. Quickly islands of "reliable co-operators" emerge and obtain fairly good results. The opportunists, on their part, keep busily engaged in trying to take advantage of each other. Sometimes they win, some times they are bested, but by the end of one hundred rounds they have obtained worse results than the co-operators. Does this remind you of anything you have seen happening in professional life? Should we conclude from all of this that altruism and fairness are better than opportunism and selfishness? Not quite yet. In fact, what we have said up to this point only tends to illustrate that "enlightened selfishness" pays better than the raw variety. But we are still within the realm of exclusive concern with self-interest in which the ultimate

12 objective is still: What is best for me? That this is the case is shown graphically by the fact that eventually a variety of Tit-for-Tat was developed that was able to outperform the straightforward kind as well as all other playing strategies. The winning variety prescribes as follows: "Do as you have been done by until the last rounds, then betray your partner no matter what." The essence of this strategy, as applied to the real world, could be described as follows: "Co-operate if you expect to meet your partner again, do her in if you don't." The "Recoil Effect" of Selfish Decisions Is this the final conclusion? Well, this is as far as developments of the prisoner's dilemma have gone until today. But, of course, even the latest developments of the problem still fail to reproduce some important features of the real world. To take these features into we will have to introduce other considerations taken from recent work of psychologists and philosophers. Even the latest versions of the prisoner's dilemma fail to take into consideration the effects on the prisoner himself of the decision to co-operate (even if this does not serve the prisoner's self-interest) or not to co-operate. In making real decisions, however, these effects should not be overlooked. In order to consider these effects systematically, one can usefully distinguish between effects on the feelings and emotions of the actor on the one hand and, on the other, effects on his basic dispositions as a rational agent, that is to say spiritual effects. a) Psychological Effects The effects on one's feelings and emotions have been described with great penetration by Professor Robert H. Frank in his path-breaking book "ions Within Reason: The Strategic Role of the Emotions9." Imagine that you have finished your dinner in a posh restaurant. Does it make sense for you to give a tip to the waiter? If you have followed the reasoning in the preceding pages you will conclude: yes, I will probably come back to this restaurant and if the waiters know me as a generous tipper they will give me better service. But what happens if you are visiting Sidney and you never expect to go back? Will you still tip the waiter? Now, as a matter of fact very many people do give tips in these circumstances. Are they stupid? Professor Frank argues that the behaviour of people who act in this way makes 9

FRANK.

13 perfect sense. Why? When you tip the waiter, even if he is unlikely to be able to pay you back in any way, you will not be acting out of self-interest, but rather out of a sense of fairness. By acting in that way you will reinforce some of your emotional predispositions such as sympathy, caring, warmth, positive response to others and the like. The more you act in a thoughtful, considerate way, the stronger these emotions and feelings become. On the contrary, the more you act as a mean-spirited, selfish individualist, the stronger become the opposite emotional traits. Now, the important point is that our emotions and feelings are observable by others. Of course, we are all more or less adept at dissimulation, but it is very difficult to consistently fake emotional responses which are not really there. There are many cues that allow others to guess our real emotional state: posture, breathing rate, pitch and timbre of voice, facial expression and muscle tone, eye movement, etc. It is just impossible to control all of them unfailingly. As Frank observes, even a baby can discriminate between a genuine smile and a forced one. In fact Frank was able to show this in a controlled experiment. He gathered a group of students in a room for half an hour. The students did not know each other before this meeting. Afterwards he asked each student to predict whether each of the others would be likely to talk or to stay silent when playing prisoner's dilemma. Finally he got them to play a few rounds of the game. It turned out that even after such a brief acquaintance students were able to predict co-operation with 81% accuracy (a guess would have been right 73% of the time), and to predict defection with 56% accuracy (a guess would have been right 27% of the time). Therefore there is at least this much point to giving a tip to the waiter you are unlikely to ever meet again: in doing so you make stronger in you the emotions of the nice man, which by and large can be identified by others. And nice, helpful people are those that many others want for partners. b) Effects on the Moral Character of the Agent Besides shaping our feelings and emotions, our choices and decisions have also an impact at even deeper levels of our personality, as are our basic spiritual dispositions as a rational agent and what we value.10 Each time we choose to disregard the well-being of other people we reduce, at least marginally, the importance of that well-being for us and the strength of the bonds which unite us to them. Choosing to act in that way also reduces the importance we give to acting on the basis of knowledge and understanding as 10

For a consideration of the self-determining effects of choices see GRISEZ (2) (pp. 51-2, 55-8, and 438-9) and GRISEZ AND SHAW (esp. pp. 29-30 and 46-9). For a report of empirical studies linking "altruism" to the traits we discuss in this section see RUSHTON (p. 39).

14 opposed to being carried away by flights of emotion. Finally, when we treat others as if they had no intrinsic worth or dignity, we automatically relativise our own value in our eyes and lessen our self-respect and self-esteem. 1) Weakening the Bonds with Others An essential aspect of relationships like friendship and love is that parties involved in them identify themselves with each other in the sense that each of them perceives as his or her own the benefits or harms experienced by the other. These relationships do not have to be confined to only a few parties, as is the case with husband and wife, mother and child or two close friends. Even in the cases of larger societies such as villages, religious communities, tribes, extended families, or nations, in so far as the societies are healthy, their will experience similar, although relatively diluted, relationships towards each other. Little reflection is needed to realise that to be involved in relationships of love or friendship is in itself a form of human fulfilment and a great human good. It is even easier to grasp that not to have any such relationship -to be radically alone in the sense that one does not care for anybody and nobody cares for one- is to suffer a great deprivation. Well, the point is that, beyond what may happen at the comparatively superficial level of our feelings, each time we choose to harm another human being or refuse to take into that some action of ours is likely to be harmful to him or her, we keep shaping ourselves as individuals for whom other people are not important. In a very real sense what we do can be described as cutting ourselves off from other human beings. 2) Weakening the Leading Role of Reason Being able to be in intelligent control of our lives, rather than being a puppet of our emotions and feelings, is also an important aspect of human flourishing, which we will explore in more detail in the next section. For our present purposes we will just assume that directing our lives on the basis of knowledge and understanding, rather than leaving them at the mercy of blind and conflicting emotions and feelings is something desirable and worth striving for. Now, each time we choose to simply ignore the legitimate interests of others we subordinate our intelligence to our emotions. In such occasions we can see clearly enough that the good of others is in no way less good than our own or less deserving of protection. It is our imaginations and feelings which are radically parochial and tend to react much more strongly to prospective harms or benefits to ourselves and those who are emotionally close to us. Accordingly, each time we choose to be selfish we disregard valid reasons to help others and choose instead to act on the basis of feelings of self-preference. Each time we

15 do so we increase our predisposition to "go by emotions" and reduce our ability to be in intelligent control of our lives. Of course, a swallow does not make a summer, but the bill keeps mounting... 3) Reduction in Self-Esteem However much psychologists of different schools may disagree over other things, the immense majority of them solidly agree on how much human beings need selfesteem. There is no surer way to stunt the development of a boy than for him to grow in an environment in which repeated experiences make him convinced that he is incompetent, unattractive, uninteresting, stupid, and generally unlovable. On the contrary, there is no more effective help to the maturing of a girl than her growing surrounded by love, constantly reassured of her intrinsic worth. Even though our childhood experiences have the greatest importance in determining our self-esteem, this is not fixed in stone for the rest of our lives after childhood. Our subsequent experiences and choices continue affecting it and making it grow or eroding it. What is of interest to us here is the effect of the way we treat others on our own self-esteem. This effect is very large. If in practice I treat all others as if they did not have any intrinsic worth and dignity, I will feel a strong compulsion to justify my actions to myself by holding the belief that they are really valueless and unworthy of concern. The problem, of course, is that I am a being of the same kind as them. If they are worthless, then I am worthless. And the more I treat them as unworthy of concern the more I relativise my own self-respect and self-esteem. If I understand the great dignity of each person as a rational being and act accordingly, with concern and respect, automatically I shall acquire a heightened sense of my own dignity and will grow in self-respect and self-esteem. But if I treat people as mere instruments to my ends and only show them respect, say, if they have money and power, I shall automatically relativise my own worth and if it ever happens that my earnings or my social standing go down ny self-esteem will automatically vanish. Conclusions We can now try to pull together the different strands of our analysis. In order to do so we will once again pose to ourselves our original question: is it really smart for me to take other people's interests into ? Indeed it is. In the order in which they have been unearthed by our analysis, we have the following good reasons not to behave in a purely selfish way: a) If you are selfish and let others down they will retaliate. On the other hand, if

16 you are considerate towards their interests you will be building up productive future relationships. b) Even in cases where you are not likely to meet the same person in the future, or in which you might think that all things considered it will be to your benefit to act selfishly in this occasion, by persisting in acting fairly you will be shaping your emotions in a way that will tend to facilitate your being recognised by others as a "good cooperator." Other co-operators will seek you out, identify you, and will enter into productive relationships with you. c) At an even more basic level, by disregarding other people's interests you will be shaping your own deep character; specifically, you will be isolating yourself from others (each time you disregard them they become less important for you), increasing your tendency to be driven by feelings and emotions rather than by reason (each time you disregard your intelligence's dictates, doing so becomes less significant for you), and eroding your self-esteem (each time you treat another human being like dirt you reinforce your view of yourself as dirt). Up to this point we have emphasised professional decisions, but it should be clear that the ethical aspects of these decisions cannot be isolated from the rest of one's life. Every decision one makes changes one for better or worse and in this way ends up affecting one's relations with one's friends, children, spouse, and even with God. Finally, it may be useful to note that taking into fairly other people's interests does not demand that one behave as if one were stupid. The persistent defeat of "good guys" by both Tit for Tat and "mean" players is a salutary reminder for all those who would like to believe that there are no wolves out there.

IV. ACTING ETHICALLY: THE PERSPECTIVE OF THE FIRM Usually, people think of ethics in relation to individual actions. However, there are two important reasons why the ethical quality of the actions of firms matters. In the first place, the ethical standing of an individual is affected by that of the groups with which he is associated; thus, for instance, somebody's moral character can be sullied by his being associated with a firm which acts immorally. In the second place, the ethical values of an organization have an important influence on its ability to perform effectively. Group Action and Personal Moral Responsibility Imagine a situation in which A, B, and C are independent traders who happen to share the same premises but which otherwise act with total independence of each other. Imagine now that A misrepresents to a buyer the quality of some merchandise which he knows to be in bad condition and sells it as if it were prime quality. It is obvious that A

17 has acted unethically and that B and C are not involved in his immorality. Depending on the circumstances B and C may have some responsibility to warn the buyer, but this responsibility will be relatively weak. Imagine now a situation in which X, Y, and Z are business partners. Y and Z now come to know that X, acting for the partnership, is trying to defraud a customer in a way similar to that used by A in the last example. Now Y and Z are implicated in X' immorality and have a special responsibility, which is definitely stronger than that of strangers, to do what they reasonably can to prevent X from carrying out his project. If the fraud had been consummated already they would have a duty to do what they reasonably could to get the partnership to redress the customer's loss. Even if now X were to die they would still have a duty to make good the customer's loss out of the partnership's assets. The example is simple, but similar principles apply at much larger levels. Thus, for instance, they help to explain why present day Japanese authorities feel the duty to publicly apologise on behalf of their country for the actions of the Japanese army during world War II, at a time when the people now apologising were mere toddlers, if they had been born at all; and to pay monetary compensation to some of the victims of those actions out of Japan's public funds (even though a large majority of the Japanese now living were not born fifty years ago); or why German authorities still feel that has special duties towards the Jews. The principles at stake in these situations should be understood with precision. We are not trying to argue that one could act immorally without knowledge or intention, or that the sins of the fathers truly could become the sins of the children without the mediation of any choice by the latter. Those would be odd views indeed. The issues at stake are more subtle. The root of the matter is that certain individual responsibilities derive from the fact that an individual belongs to a certain community, and they would not obtain if the individual in question did not belong to that community. One such responsibility, for instance, is to do what one reasonably can to shape the policies and actions of the groups to which one belongs so that they will be ethical. Another is to take care that the groups to which one belongs discharge any responsibilities of restitution or redress which the groups as such may have, even if this will result in the expenditure of present scarce resources and the people whose decisions caused the harms that now have to be redressed are no longer around. Still another is to stop one's association with a group which is engaged in unethical practices, even if oneself is not doing anything wrong. None of these responsibilities is absolute and the specific steps that it may be one's duty to take will depend on all the circumstances of the case and on one's competing responsibilities, but all of them are real and weighty and have to be taken seriously. It will be observed that, strictly speaking, in the end we always come back to the

18 responsibilities of individual human beings to act or refrain from acting in certain ways, and these responsibilities can only be breached by individuals who know what they are doing and choose to act in those ways. In that sense, immorality is something radically personal and non-transferable and the sins of the parents remain in the parents and can never stain their children. But it will also be realised that in determining what are the precise responsibilities of individual human beings, it is necessary to take also into what are the precise responsibilities of the groups to which they belong, as such groups. In this sense, the sins of the parents can be the origin of heavy responsibilities in the children, which would not exist but for their parents' sins, and which in turn can easily become the occasion of fresh sins in the children. Not having yet considered systematically which are the fundamental moral principles, we are still unable to bring this discussion down to specifics and consider in detail how far is one responsible to prevent or redress unethical behaviour by one's company or business associates.11 At this point it will be enough to make the more general point that group actions create individual responsibilities and that, because of this, thoughtful individuals have to give serious thought to the ethical quality of the actions of the groups of which they are . It should also be clear already at this stage that an important responsibility of individuals is to select carefully the groups with which they become associated. Specifically, from an ethical point of view, one of the most important decisions of a manager is that of deciding to work for a certain firm. As somebody put it, rather colourfully, "You cannot pretend to act very ethically and then accept a job with the Mafia." It is certainly an ethical responsibility of the manager to investigate the firm which pretends to hire him at least with the same zeal with which most firms investigate potential candidates. If the investigation reveals that the firm is unethical the thing to do is to look for another job. Ethical Standards and Business Effectiveness How do the ethical standards of a firm affect its effectiveness as an economic agent? Does honesty pay? Some people argue that ethics is fine from the point of view of upholding one's personal standards, but that from the point of view of business effectiveness it makes no discernible difference. To back this view they point out that often firms which seem honest do not succeed in business, while firms that seem to disregard ethical issues may be quite profitable. There is no denying such observations. However, all that they tell us is that honesty, by itself, does not guarantee business success. But one should that 11

The principles that are applicable in trying to discern one's specific duties in such a situation are discussed in Chapter 3.IX.

19 brilliant strategy, consistent service to customers, or first class financial management, each by itself, do not guarantee business success either. Business success is the product of the complex interaction of many factors. Any one factor can only contribute to it, not guarantee it. The relevant question is whether consistent ethical behaviour, of itself, contributes positively to business success. It seems clear that it does so by fostering three key ingredients of that success12. Ethical behaviour contributes to the good reputation of a firm and to other parties being ready to trust it, and it promotes employee commitment to the success of the firm.13 Besides contributing to business success these factors also have the highly desirable characteristic of not being easily imitable and therefore can provide a sustainable competitive advantage. New products or services, organisational structures, compensation policies, exploitation of new markets, possession of valuable assets, are all factors that can provide a competitive advantage. Unfortunately, however, they are often easily replicated by one's competitors. On the contrary, factors like reputation, trust and commitment, in so far as they spring from the fact that a firm acts in a consistently ethical way, are far harder to imitate and can provide competitive advantages that last for decades14. What may need some more explanation is the way in which reputation, trust and commitment are linked to a firm acting ethically. Reputation and Trust A firm has a reputation, which in good measure depends on its past actions, among all the people with whom it relates in the course of its activities. It not only has a reputation, good or bad, among its present and potential customers, but also among present and potential employees, investors, suppliers and distributors; it will as well be perceived in a certain way by government officials, regulators, mass media, and the general public. In so far as its actions have consistently sought to take fairly into 12

An empirical indication of the positive link that exists between ethical behaviour and business performance is provided by the performance of stock indexes and investment funds made up of shares of companies that are selected on the basis of ethical criteria. See DOMINI AND KINDER and SPARKES. 13

The management literature has in fact tended to lay increasing emphasis on value factors as determinants of business success. See, for instance, PETERS AND WATERMAN, TULEJA, KAY and COLLINS AND PORRAS. 14

KAY, especially chapters 5 and 11, provides a very good discussion of ethical values as a source of sustainable competitive advantage. Marks & Spencer is a well-known example of a company in whose strategy ethical values have played a paramount role; SIEFF contains a good discussion. The role of ethical values in providing competitive advantages to Japanese firms is explained in GORDON.

20 the interests of all concerned, the firm will have won the trust of many of those with whom it relates and it will find it easier to enter into productive relations with them15,16. In so far as its actions have only reflected the interests of the people who control the firm, its reputation will be poor and other parties will tend to mistrust it. That a firm has a poor reputation and is mistrusted does not entail that other parties will necessarily refuse to deal with it. All its competitors may have equally poor reputations and therefore lack of reputation may not constitute a special handicap (although a positive reputation would provide a competitive advantage). But even to have a worse reputation than one's competitors does not need to condemn a firm to be a failure. A party X may still be ready to deal with another party Y, which he does not trust, provided that X: a) can specify fully the characteristics of the product or service it wants Y to supply to him;17 and b) can ensure that the product or service complies with his specifications either by i) prior inspection before payment, or ii) entering into an enforceable contract with Y. Still, there are many areas of activity in which the above conditions do not obtain and in which, therefore, people will not be willing to enter into business relations with a firm which does not have a good reputation (at least if they have alternatives), or in which they will be ready to pay a for dealing with a firm whom they can trust18. Employee Commitment As for "employee commitment to the success of the firm," we are using here this expression in a wide sense. It refers to the readiness of the employees to devote their efforts to promoting the common interests of the firm, rather than focusing exclusively on

15

The role of trust in commercial relations is discussed in ARROW, OUCHI, and GAMBETTA. Much work has been done during the last 20 years on relational or implicit contracts (see MACNEIL and HART) and on trust relationships (see FOX). On empirical work on the relationship between trust and cooperation see especially SMITH, CARROLL AND ASHFORD. 16

A particularly important type of relationship is constituted by strategic alliances. On them see HAMEL, DOZ AND PRAHALAD and CONTRACTOR AND LORANGE. 17

This is turn will depend both on how experienced a buyer of that product or service X is, and on how susceptible of explicit specifications the product or service is. It is interesting to point out that, in their relationships with suppliers and distributors, firms are often not interested only or primarily in a specific product or service (whose characteristics can often be specified explicitly) but in a general attitude of cooperation and a readiness to introduce changes as needed, often at short notice. In practice the only way in which the latter can be guaranteed is by saying; "You know me; you know that you can trust me." 18

In the case of suppliers the may take the form of lower prices or provision of special services; in the case of employees the may take the form of greater dedication; etc.

21 advancing their own individual interests, at the cost of the firm if need be19. The concept of commitment to common goals is intuitively very clear in team sports. Some players play a "ing game;" their objective is to contribute to team performance and they are ready to the ball to whichever colleague is best placed in the field. Other players are "selfish" and are intent on scoring themselves and enhancing their individual reputations. The culture of entire teams emphasises either individual achievement or team performance. As sports fans know very well, other things being equal teams which play as teams tend to outperform teams where each player is out to maximise their individual performance.20 There is a strong positive relationship between the ethical standards of a firm and the commitment of its employees to the common good of the firm.21 Where a firm is managed in a selfish manner, that is to say, in a manner that takes into only the interests of those who control it, its employees will tend to adopt the same attitude. This is in part spontaneous "doing as you are done by," and in part a natural response to the character of the firm's objectives; after all, why should employees sacrifice their own individual interests in order that some other people may enrich themselves? On the contrary, in an ethical firm employees have reasons to trust that if the firm prospers they will share in that prosperity. But there is still another important factor why in ethical firms employees will have higher commitment: they have reasons to sacrifice their own individual interests in some occasions: the objectives of the firm will not be limited to maximising somebody's profits but will include objectives which are valuable in themselves such as satisfying some genuine needs of a set of customers, fostering the human fulfilment of those who work in it, and so on; such objectives may much more easily motivate personal sacrifices. Peters and Waterman put this point well in their book In Search of Excellence22: "Our guess is that those companies with overriding financial objectives may do a pretty good job of motivating the top fifteen - even fifty. But those objectives seldom add much zest to life down the line, to the tens of thousands (or more) who make, sell and service 19

MOWDAY, PORTER AND STEERS.

20

There is empirical evidence that employee commitment is associated with greater employee effort, lower employee turnover, and greater readiness to contribute to the organization in ways that are not strictly part of the employee's job. See STEERS, ANGLE AND PERRY, and MAYER AND SCHOORMAN. 21

Empirical confirmation of this relationship is reported in HUNT, WOOD AND CHONKO. Also in STEERS and in FARH, PODSAKOFF AND ORGAN. 22

PETERS AND WATERMAN ch.9.

22 the product." And at another point in their book they add:23 "By offering meaning as well as money, they give their employees a mission as well as a sense of feeling great...The institution provides guiding belief and creates...a sense of producing something of quality that is generally valued." Think, for instance, of the motivating power of a firm like the pharmaceutical company Merck, flatly stating in its internal management guide "We are in the business of preserving and improving human life. All of our actions must be measured by our success in achieving this goal."24. And there is no reason why only pharmaceutical firms, which can literally make a life or death difference through their activities, should emphasize such service objectives. Firms engaged in more humble activities can also try to make their employees see the difference they make to customers. J. W. Marriott Sr., founder and chief executive of Marriott Corporation also tried to get the employees of Marriott Corporation see the impact that the firm could have on the welfare of its customers: "The service business...makes a big contribution to society. A good meal away from home, a good bed, friendly treatment...It's important to make people away from home feel that they're among friends and are really wanted.25" Firms for which High Ethical Standards Are Critical As we pointed out above, it is clear that a good reputation, the fact of being widely trusted, and a workforce committed to the firm's success will have a positive influence on almost any firm's performance. But for some firms such factors are peculiarly critical. The characteristics of a firm that make it more especially important for it to have reputation, trust, and employee commitment are the following: a) Key partners of the firm are required to commit significant resources to it in the expectation of future performance by the firm which cannot be efficiently guaranteed by legal methods. In the following paragraphs we will use the term "partners" to refer to all the parties with which a firm does business: managers, employees, providers of funds, suppliers, distributors, customers, etc. The resources committed could be money in the case of a financier, one's future career in the case of a manager, special production facilities in the case of some suppliers, significant payments in the case of customers, etc.

23

Idem ch. 12.

24

Cited in COLLINS AND PORRAS. There is evidence that in Merck's case such a statement is not mere rhetoric. See chapter 5.II. 25

Idem.

23 Whenever one of the firm's partners has to make a significant commitment while not being in a position to ensure that the firm will reciprocate, the firm will be in a strategically favourable position to take advantage of its business partner. This is a typical prisoner's dilemma situation. Thus, for instance, after firm A has built at great expense specialised facilities tailored specifically to the peculiar needs of firm B, firm B could easily turn back and put pressure on firm A to cut its prices to the bone, taking advantage of the fact that B is the only viable customer for the new facilities. If firm A is not stupid it will realise in advance this possibility and will only agree to build the new facilities if either it can trust implicitly that firm B will not take advantage of the situation or if it can get iron-clad legal guarantees that will prevent firm B from so doing. As often iron-clad legal protection is either expensive, inefficient, or just impossible to get, the deal may only be possible in the presence of a high degree of trust. We can note in ing that, contrary to general belief, having a reputation as an ethical firm is more important for business success in Nigeria than it is in many other countries. The reason for this is that it is so difficult to enforce contracts through the courts here. Another clear example is provided by the relationship between a person putting up a building and the architectural or engineering firms which supervise on her behalf the work of contractors. These firms can easily reach an implicit or explicit agreement with the contractor to the effect that they will not be too demanding in their supervision in exchange for under the table payments or for the contractor being accommodating in other relationships. The client herself is in a difficult position as it is practically impossible for her to force these firms to do their best for her, or even to ascertain whether they have done it. Of course, the client is making a significant commitment to such firms by entrusting to them the protection of very significant interests of hers. The bottom line is that she has to be able to trust them and that in a market where honesty cannot be taken for granted she will be ready to pay a for the services of a firm that she can actually trust. b) It is difficult to monitor the quality of the work done by the employees. Whenever this is the case the existence of a high degree of employee commitment will be especially critical. Think of a bricklayer working for a construction firm. Fundamentally, supervising him is simple. His supervisor can tell him, "I will pay you so much per block you lay; the standards of quality I expect are such and such; so long as you attain these standards the more you work the more you will earn." The standards of quality for his work are relatively simple to describe and at the end of the day it is easy to decide whether they have been attained or not. Whether the bricklayer has a great degree of commitment or not is relatively irrelevant. For so long as he wants to maximise his earnings it will be

24 possible to ensure that he delivers a high level of performance. Compare that to the work of supervising a bank credit manager. How do you measure her productivity? By how much money she lends? It is obvious that what counts is not just her ability to lend, but whether or not she lends to creditworthy borrowers. This, however, is very difficult to ascertain; in fact nobody will know with certainty how good a job she did until several years later, when the loans have been repaid,... or have become bad. In the meantime one has to hope that she is trying to promote the interests of the bank as opposed to just doing the best for herself. Such employees cannot be managed just by offering them incentive pay and monitoring the quality of their work, precisely because it is difficult to determine reliably that quality.26 It is very important that they have the firm's interests at heart (i.e., an attitude of commitment). If this is lacking the firm which employs them will be unable to remain a top performer in its industry. "Quality cannot be supervised into such work;" it has to come from the mind of the workers themselves, from their values. In what jobs is it relatively more difficult to monitor quality? This is a very large question, but simplifying a lot we could say that, generally speaking, this is relatively easier in jobs which produce "things" and relatively more difficult in jobs which deliver services, and among the latter it tends to be more difficult the higher is the level of qualification of the employee. c) The flow of communication within the firm and/or between it and some of its business partners is crucial to its success. That knowledge is power is a very old insight. Many people, however, fail to grasp an immediate corollary of this insight: if in giving information to somebody I am giving her power -often power over myself-, whenever I cannot trust her I will be inclined to minimise the information I give to her. In other words: for a manager to receive all the information she needs to make the best possible decisions, she has to get the people in a position to provide that information to trust her. If abundant, timely, rich and accurate information is essential to a business, then trust—and therefore ethics—is also essential to that business.27 A clear example is that of a company trying to practice Just in Time methods of supply. In order to successfully operate with minimal stocks it is essential that suppliers freely transfer to their customers information about the problems they themselves are 26

Economists categorize such problems as "agency problems." On agency theory the classical reference is JENSEN AND MECKLING. For a consideration of more recent work and of its relevance to Business Ethics see BOWIE AND FREEMAN. Of course, the agency problem is at its most acute in relation to the work of the chief executive, precisely because that is the work whose long-term effectiveness is most difficult to evaluate. It is at that level that trust and ethical standards are most crucial. 27

On the relationship between high-trust relationships and ethics see, for instance, CULBERT AND MCDONOUGH.

25 encountering. Thus, if they foresee that there is likely to be some hitch in their regular process of supply this information should be ed on to the customer as soon as possible in order to give him maximum opportunity to adjust its own operations. But, of course, if the supplier has reason to fear that this information will eventually be used against her when a new contract has to be negotiated, she will be averse to disclosing it. The point is that the less the supplier trusts the client the less smoothly Just in Time will work. Similar mechanisms operate within a company. For instance, it is very important for a consulting firm that its consultants share freely their knowledge and experience with each other so as to increase everybody's competence and develop a body of common knowledge on which the firm as such can build. However, if the individual consultants do not trust the firm, they will tend to keep to themselves the valuable knowledge they acquire considering that the more they become "indispensable" the more secure they will be professionally. d) Large size and envisaged long life span. "Honesty and fair dealing are the secrets of success; if only you can fake them you've got it made." In this phrase, which has been repeated innumerable times, Groucho Marx made a valid point: strictly speaking a good reputation among business partners does not depend on the firm being ethical, but on its seeming to be so. This is true enough. Because of this, it is relatively less important—from the point of view of business success—for small firms which envisage to have a short life span to be truly committed to ethical behaviour. In such firms it is relatively easier to "fake honesty and fair dealing." But even the most gifted actor would be ill advised to try to promote a good reputation on the basis of a fake ethical attitude when she is working in a large company which is supposed to last well beyond the professional life of the present generation of managers; the dictum that applies to such firms is not that of Groucho Marx, but rather: "You cannot fool all of the people all of the time." In fact, if one is building for the long term, it is not enough to behave with scrupulous honesty. The real problem becomes how to create a culture of honesty, which will embed that way of acting in the organization. That is, for instance, the typical concern of many a successful entrepreneur whose organization is growing and now finds herself heading a medium-size or even a large company when only a few years back she was able to supervise personally everything that happened in her business. At this point she will not be happy simply with knowing, say, that she is personally treating well all her employees; she will not be satisfied either with the fact that during a given period there has been no evidence that any of these employees has been treated unfairly by any manager in the organization. What she wants to know is what steps she can take to drive the value of fairness as deeply as possible in her organization, not only for the present but also for the future, and not only for the occasions in which she is around to supervise matters, but also, and principally, for the occasions which will never come to her attention.

26 The attentive reader will have realised by now that the essential factor that links high ethical standards to business success is reputation. The degree to which a firm's business partners will trust it depends on its reputation with them, and "employee commitment" depends largely on employees being able to trust the firm for which they work, that is to say, on the firm's reputation with its own employees. It is therefore very important to realise that reputation is indivisible. Even if a firm treats very well its employees, these will not trust it if they realize that it exploits its customers or suppliers. They are bound to conclude that they are being treated well not out of firm principle, which will still be there even in adverse circumstances, but because somehow it is for the time being in the interest of those who control the firm to treat them well. Similarly, shareholders who feel well treated but who realise that creditors are being taken advantage of will not be able to trust the firm A firm can act unethically in any of many different areas. Examples are compliance with the law, respect for the environment, policies towards its own employees, relations towards the customers, responsibilities towards investors, community relations, social responsibilities, competitive attitude, and many others. There is no room for picking and choosing among them. A misstep in any of them will affect the overall ethical reputation of the firm with all its business partners and not just its reputation as a customer, a supplier or an employer.

V. SUMMARY Ethics is a discipline which seeks to determine the way in which we should behave in order to lead a fulfilling life. Ultimately being ethical means a) acting intelligently (as opposed to being carried away by our urges and emotions) and b) taking the interests of others into (as opposed to acting in a purely selfish manner). Acting intelligently demands that we consider carefully the best way to attain our objectives and also the value of those objectives, so that we pursue only objectives worth attaining. Ultimately, the only worthwhile objectives are aspects of the fulfilment of human beings. By giving to our intelligence the leading role in our lives we are able to take into all relevant data, we make it possible to attain internal unity among our different ideas and feelings, and can ensure that we pursue worthwhile ends. We all have very good reasons to take other people's interests into . If we fail to do so others will retaliate, we will acquire a bad reputation, we will acquire the emotions typical of a "bad co-operator", we will isolate ourselves from others (their interests will become less valuable to us) and make it more difficult to initiate or sustain non-manipulative personal relationships, we will increase our tendency to be driven by feelings and emotions rather than by reason, and we will erode our self-esteem. Business firms also have good reasons to act ethically. By doing so they make it

27 easier for their individual to live ethical lives. Also, by acting ethically a firm tends to acquire a good reputation, win the trust of other parties and foster among its employees an attitude of commitment to the firm's interests; all these factors can provide sustainable competitive advantages to a firm. High ethical standards are more important for a business firm the more that firm a) has to do business with partners which are required to commit significant resources without being able to obtain reliable guarantees of performance by the firm; b) is not able to monitor reliably the quality of the work of its key employees; c) needs to be able to rely on fast and accurate transmission of information within the firm and/or between it and some of its business associates; and d) is of large size and envisages to have a long life span.

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CHAPTER 2.-FUNDAMENTAL CONCEPTS FOR ETHICAL ANALYSIS I. INTRODUCTION In order to analyze fruitfully business situations from an ethical point of view it is necessary to master some basic concepts and distinctions which facilitate the understanding of moral problems. We could say that such concepts and distinctions are the basic tools of the ethicist. We will examine in this chapter the most important ones among them. II. INTRINSIC VERSUS INSTRUMENTAL GOODS1 The "good" and "bad" have a restricted meaning according to which they mean "morally good" and "morally bad". In this sense one would say that telling a lie is (morally) bad, but that enjoying good health is neither (morally) good nor (morally) bad, but rather something (morally) indifferent. "Good" has a wider sense according to which it refers to anything at all which is in one way or another fulfilling and desirable. In this sense enjoying good health is something definitely good. The opposite of "good" in this sense is "bad" or "harmful" To avoid confusions we will always use the "good," "bad" and "harm" in this more general sense. To refer to a moral bad or a moral harm we will use the "evil" and "wrong." To refer to something which is morally good we will use the term "right" and the expression "morally good." Something which is desirable not because of its intrinsic value but merely because it is useful to attain other things in which we are interested we call an instrumental good. We also may say that it is good not intrinsically but only instrumentally. A clear example of an instrumental good is money. Something which is intrinsically valuable or good in itself is an intrinsic good. An example of an intrinsic good is knowledge which is something valuable in itself and independently of whether or not it will give us more money, power, or prestige. In the last analysis only aspects of the well-being of persons are truly intrinsic human goods.

1

7.

For a detailed discussion of the basic human goods see FINIS (1) and GRISEZ AND SHAW Chapter

38 The following is a list of the basic types of intrinsic human goods: (i) Knowledge: We easily understand that knowledge is good. It is obvious that being wellinformed is desirable and that error and ignorance are to be avoided. One can participate in this basic human good, as in all the others, in a very great variety of ways and degrees. We increase our knowledge by mastering a treatise on Economics; but we can also increase it -though in a more humble way- by reading today's newspaper. (ii) Life: This includes also health, vitality, freedom from pain, and the good of transmitting life by having children. (iii) Play: This refers to all those activities which give us an opportunity to exercise our faculties and skills and which we appreciate and enjoy for their own sake. It includes sports, games, dance, music, etc. In the sense in which we are using the term here there can often be an element of "play" in many things we do. Thus, if two students are engaged in arguing a point of Sociology, it may be that they are primarily interested in finding out the truth about that issue; in that case they will be seeking primarily the good of knowledge. But it may well be that what they appreciate most in their discussion is simply the thrust and parry of a good discussion; if that is the case they will be primarily seeking the good of play. In practice, of course, it is quite likely that both factors (and others not mentioned here) motivate them simultaneously. In fact any professional work properly carried out is likely to contain an important element of "play" in our sense. (iv) Aesthetic Experience: This refers to the experience and enjoyment of beauty. (v) Harmony with other people: This includes friendship, the love of parents and children, that of husband and wife, the well ordered social life of a community, etc. (vi) Intelligent Control of One's Life (Harmony within ourselves among our ideas, habits, emotions, and actions): The expression "intelligent control of one's life" has also a very wide connotation. It refers to the good of being able to act intelligently, of acquiring real mastery over our actions and being able to shape our life and character in accordance with what we perceive to be true. We fail to exercise an intelligent control over our lives if we act out of prejudice or blind impulse, arbitrarily, or as a mere tool in the hands of others. We make it easier to exercise that control if we train our emotions and build up appropriate habits. (vii) Religion (Harmony with the ground of reality): This good is constituted by the establishment and maintenance of proper relationships between oneself and God. Although there are some arguments among leading authors on some relatively secondary issues related to the above enumeration, for our purposes in this book we can take it as a complete list of the basic aspects of human fulfilment or kinds of intrinsic human goods. While there are countless things men can try to do or achieve it would seem that all of them can ultimately be analyzed as attempts, perhaps misguided, to attain one or several of these basic forms of human fulfilment.

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It is worth stressing that the goods in the above list are not just things which the present writer happens to like. They are not either merely things which happen to be popular in contemporary society. The list is offered as a list of things which are objectively good, irrespective of anyone's opinion about them. As a matter of fact, we find that practically every culture we know shows in a way or another its appreciation for all of them. On the other hand, it is also important to stress that the fact that something is good does not imply that each and every person has to be personally interested in it. In fact it is a sign of intellectual maturity to be able to discern the goodness of something which has very little appeal to oneself. Thus, I may willingly recognise that the enjoyment of beauty (aesthetic experience in the above list) is something of intrinsic value. I may recognise also that the Ninth Symphony of Beethoven is a most beautiful composition; in fact it is because I understand this that I am not surprised at all to find music lovers spending money on recordings of it and devoting time to listen to it. But it does not follow from this that I must be personally interested in classical music. I may be tone-deaf, or my education may have been defective and I was never trained to appreciate classical music. Again, it does not follow from the fact that something is good that one should be ready to pay any price for it. While I can appreciate that it would be good to know in depth the culture of the Tivs, this does not mean that I am willing to devote the next five years of my life to the study of that culture to the exclusion of all other projects. A doctor who finds that her patient has an incurable disease which cannot be treated and is bound to kill him in three years' time, may reasonably decide to withhold this knowledge from the patient for the time being; not because being in error is in itself a good thing, but because in this case the price in distress and worry which would have to be paid for having this knowledge seems just too high. The difference between intrinsic and instrumental goods may be better understood by considering some examples. A student is reading hard Commercial Law in part to the exam, which he has to do to qualify as a lawyer (he wants to become a lawyer partly in order to make money, partly because she thinks she will find the practice of Law very interesting, and partly because she wants to promote justice in the society), and in part because she wants to know well Commercial Law. In this example ing the exam and qualifying as a lawyer are obviously good, desirable things, and the student wants to achieve them. But she does not want them for themselves, but rather as means to other objectives. Even making money is quite likely to be sought not as an end in itself but as a means to further ends (e.g. economic independence, ability to live well, ability to travel and so on). Among the objectives mentioned in the example the ones that the student seems to consider intrinsically good and seeks as ends in themselves are the ability to practice Law (an instance of the good of "play" in our terminology), promotion of justice in the society (an aspect of harmony among people) and greater knowledge of Commercial Law (an instance of the good of knowledge).

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A young man has accepted a job to make money in order to be able to marry his fiancee whom he loves very much. In this example the young man seems not to be interested in the job itself. He only wants it as a means of making money. Therefore for the young man getting the job is good only instrumentally. Money is clearly also an instrumental good. His real end seems to be to be able to marry his fiance (an instance of the good of harmony between people) Three men are playing football. One does it because he is a football fanatic; another one wants to improve his fitness; the third one wants to rest his mind so as to be able to do his work better. The first man plays football for its intrinsic value. For him the game is its own reward and he considers it an intrinsic good (an instance of the good of play). The second is interested in football only instrumentally; the good which he ultimately pursues is to improve his fitness (an aspect of the good of life). The third is attracted to football also instrumentally. His objective is to work better, but we do not know whether he wants this purely as a good in itself (e.g. if he takes great pride and interest in the practice of his profession) or as a means to still other goods which he values intrinsically, as for instance taking care of his family (a complex of harmony among people and concern for the health, knowledge, etc. of his relations), promoting some good in his clients (e.g., health if he is a doctor, friendship with God if he is a pastor, etc.) and so on. III. UNDERSTANDING OF INTELLIGIBLE GOODS VERSUS SENSIBLE MOTIVATION All the above examples make reference to situations in which we understand that something is good (whether intrinsically or instrumentally). Something which we understand as being fulfilling to human beings we call an intelligible good. Something which we understand as blocking the fulfilment of human beings we call an intelligible bad or harm. The fact that we understand something as being good or valuable provides a positive motive for behaviour; similarly, the fact that we understand something as being bad or harmful provides a motive to avoid it. However, human beings are not pure minds. While our intelligence and freedom of choice are distinctive and differentiate us from other animals, we are also endowed with capacities to experience emotions and feel instinctive attraction and repugnance which are similar to those of other animals. These emotions and feelings provide sensible motivation and are triggered when we experience sensibly (through our senses or by the medium of our imagination) an individual object or concrete situation.2 In some cases our emotions and our intelligence point us in the same direction and no 2

The distinction between willing and sensible desire is well explained in FINNIS (2) pp. 45-8. The matter is explored at greater length in DONAGAN (2), especially chs. 1 and 8.

41 problem arises. Thus a person feels hungry. He, of course, is aware that eating is necessary to sustain his health and obtain energy. Let us assume also that he has no reason for not eating (the need to keep a diet for health purposes would be an example of such reason). In this case he eats and, if all goes well, this brings about results which are both pleasant and (in so far as the intelligible good of health is promoted) also fulfilling. However, in other cases sensible motivation may pull us simultaneously in conflicting directions; besides, some or all of our emotions may clash with the dictates of our intelligence. In such cases there is need to choose. Thus a person may be affected at the same time by the following motives: a) he is aware that he should keep a diet for health reasons (intelligible good); b) he feels emotional repugnance towards his shameful obesity (negative sensible motivation) which also pushes him to keep to the diet; c) at the same time he may feel hungry and crave for food (positive sensible motivation). The principle of rationality, to which we made reference in the preceding chapter, indicates precisely that in these conflict situations -which are extremely common- there are very good reasons to give to our intelligence a moderating and guiding role over our emotions (which is not the same as saying that our emotions should be suppressed). Finally, there are still other occasions in which a person acts automatically or compulsively, without prior deliberation and choice. Thus, for instance, A sees a boy scratching his car with a screwdriver. He gets very angry and slaps him. It may well have happened in this example that A did not slap the boy because he thought that that was an appropriate punishment for his behaviour (i.e., he was not acting in pursuance of an intelligible good), or even in order to relieve his anger (i.e., he was not acting either on the basis of sensible motivation). Perhaps he just found himself slapping the boy. If this was the case slapping the boy was not intentional at all but rather an automatic response. IV. DIFFERENT TYPES OF WILLING Consider the following three scenarios: A and B are marooned in an island. A hates B and eventually kills him. C and D are marooned in an island. The food is very scarce and in fact is insufficient to feed both of them. C is weaker and fears that she will die first and then D will be able to survive indefinitely until rescue arrives. C kills D. E is driving a lorry. As he moves down a steep slope he realises he has lost his brakes. In front of him on the left side of the road there is a group of six people paralysed with fear as

42 the lorry thunders down towards them. On the right side of the road there is one person, equally unable to react. E has no chance of squeezing the lorry between the two groups. At the last moment he steers away from the group of six people and runs over the person on the right hand side of the road. We can assume that in the three cases the actor is able to act with a perfectly cool mind. In the three cases the end result is the same: one life is lost. However, other things being equal, it seems intuitively clear that A and C have acted in seriously immoral ways while E has done nothing wrong at all. A consideration of these three examples draws to our attention a set of distinctions of prime importance in ethical reasoning. A killed B for no ulterior purpose; the aim he sought was blotting out B's life and he accomplished it. We say that A's end was purely and simply to kill B or that he intended B's death as his end. C did not want D's death in itself. What she wanted was to survive. She killed D as a means of ensuring her own survival. We say that she intended D's death as a means to secure an ulterior end. E in no way wanted the death of the person he ran over either as an end or as a means to something else. In fact the death of that person in no way helped him to accomplish what he wanted, viz. to avoid the death of the other six people. However he foresaw that a necessary consequence of doing what he wanted (which very strictly defined was to steer away from the large group) was that a person would die. These distinctions are very important because, as we will see, there is an important moral principle to the effect that it is always immoral to will, either as an end or as a means, to harm another person in a basic aspect of his or her well-being (i.e. in anything of intrinsic value to him or her). On the other hand sometimes -though not always- one can blamelessly accept a harmful sideeffect of one's actions. The above distinctions can be further clarified with the help of some examples. A had committed a crime. He knows that B has obtained conclusive proof of that fact. He also knows that if only the proofs of his crime could be destroyed, B's uned allegations against him could do him no harm. B is travelling by plane carrying the proofs with him. In order to destroy the proofs A plants a bomb in the plane. The bomb is detonated at a distance by A while the plane is in flight. The proofs are destroyed and B and other 93 engers and crew lose their lives. Killing of the 93 people was not willed by A either as an end or as a means. For him it was only a side effect of the way in which he chose to destroy the incriminating proofs. Note, however,

43 that this does not entail that his action was morally justified; far from it. In many situations it can be grossly immoral to accept certain types of side-effects. We will consider later this issue. A, a young married woman, finds that she is pregnant. As having a baby would have the effect of delaying the completion of her university studies she decides to have an abortion. The abortion is willed as a means of ensuring that there is no delay in the completion of the young woman's university education. B, a young married woman, finds that she is pregnant. Shortly afterwards she is diagnosed as having a cancer of the uterus. Doctors advise her that if she undertakes immediately the usual treatment of receiving radiation she has an excellent chance of being cured but that if she delays more than two months undergoing radiation it will be too late to prevent the spread of the tumour. She is also advised that the radiation is certain to kill her baby. She decides to undergo the treatment and, as expected, suffers a miscarriage. In this case the death of the baby is willed neither as an end nor as a means to recovering health. It is rather accepted as a side-effect of receiving treatment3. The above points can be summarised by saying that one can act intentionally in three main ways: a) by willing something in itself; b) by willing something as a means to a further end; and c) by accepting something as a collateral effect of actions taken in pursuance of an objective one wills to attain. The main point to is the all-important distinction, for purposes of ethical analysis, between willing something (whether it is as a means to a further end or as an end in itself) and accepting it as a collateral effect.

V. TWO MAIN TYPES OF ETHICAL RULES In applying any ethical rule it is an essential preliminary issue to decide whether the rule at hand is absolute or non-absolute and this can only be done by examining the ultimate principles which justify such rule. The fact that this is almost never done s for a great deal of the confusion that typically surrounds many discussions on ethical issues. There are two fundamentally different types of ethical rules. We have, on the one hand, rules such as "One ought to give alms to the poor." Such rules are non-absolute. They are both true and quite important, but they are open to exceptions. Thus, for instance, imagine that A is arriving at his son's school in order to pay the fees for the coming session. Imagine further that the registration period expires precisely today and that A carries in his pocket the exact amount he has to pay. Now a poor man asks him for alms. 3

The distinction between choosing something as a means to an end, and accepting a side-effect of one's action is discussed at greater length in FRIED (2) pp. 20-28, HARTMAN, and FINNIS (3).

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Most people would agree that A will not behave immorally if he fails to give alms on this occasion. The reason for this is not that the rule "One ought to give alms to the poor" is false. It is quite true and valid and it points to a serious responsibility we all have to help the needy. But that is not the only responsibility A has. He also has a serious responsibility to provide for the education of his son and, in the circumstances of this case it would seem that discharging this responsibility ought to be given priority by him. Non-absolute ethical rules, thus, are rules that specify ethical responsibilities we have, but which leave open the possibility that in some concrete circumstances the discharging of such responsibility may be superseded by the claims of an even more urgent or more pressing responsibility. But there are also absolute ethical rules. An example is "One should not intentionally torture innocent children." This rule is absolute because there are no circumstances in which it would be right to make an exception to it. Absolute rules are absolute because they are based on the principle of avoidance of intentional harm which, as we will see in the next chapter, its of no exceptions. Examples of absolute ethical rules are norms such as "It is never permitted to subject a human being to a condition of chattel slavery," "Torture is never permissible," "One should never lie in a context where truth is reasonably expected," "One should never seek to obtain something to which one is not fairly entitled," and "One should never try to induce another person to breach his moral duty."4 It would be a mistake to think that non-absolute norms are not important, or even that they are less important than the absolute ones. This is however a frequent mistake that is probably connected to the fact that most people think of Ethics as a catalogue of prohibitions: "it is forbidden to do this," "it is forbidden to do that..." If this were the case, then it would make sense to consider absolute prohibitions more important than non-absolute ones. However, such an image of Ethics would be deeply misleading. Of course, there are negative moral norms. They delineate a morality of elementary duties. That morality marks off the rudimentary requirements of human fulfilment which are embodied in these most basic negative rules ("thou shall not...). These rules should be respected for they cannot be breached without thereby injuring human persons. But beyond these negative precepts lay the far more extensive (and, one could add, far more interesting) regions of the morality of aspiration. The latter is not concerned with finding out what are the indispensable minima, but rather with exploring the higher reaches of excellence which are open to human effort and with taking advantage fully of all the opportunities of promoting good open to us. This is the morality of the Good Life, of human beings functioning at their best, of the fullest realization of human powers.

4

For a good discussion of the issue of why some moral norms are absolute and others not see GRISEZ (2) pp. 256-8.

45 The moralities of duty and of aspiration should not be conceived as antagonistic to each other; rather they are complementary. In studying problems of business ethics an effective procedure is to divide the analysis in two stages. In the first, by identifying the relevant absolute moral norms, one tries to identify among the available options those which are intrinsically wrong. These are discarded as falling below acceptable minima. But this is not the end of the ethical analysis, which indeed at this point has hardly begun. In the second stage one has to engage in a sustained effort of imagination in order to generate other options which not only respect minimum standards, but which actually succeed in promoting as fully as possible the well-being of all concerned.

VI. SUMMARY In this chapter we explore some concepts and distinctions which are essential for the purpose of ethical analysis. Something is instrumentally good if it is desirable not because of its intrinsic value but merely because it is useful to obtain other things in which we are interested. Something is intrinsically good if it is valuable in itself; ultimately only aspects of the well-being of persons are intrinsically valuable from the viewpoint of human action. The following is a list of the main types of human goods: knowledge, life and health, excellence in play and work, aesthetic experience, harmony with other people, harmony within ourselves, and harmony with God. Something which we understand as being good (whether intrinsically or instrumentally) we call an intelligible good. We can be motivated to act in a certain way by an intelligible good; but we can also be motivated to act by our emotions and feelings. We can act voluntarily in one of three main ways. We can will to effect a certain state of affairs as an end in itself. We can will to effect a certain state of affairs as a means to an ulterior end. We can also accept causing a certain state of affairs, neither as an end nor as a means to something else, but simply as a side-effect of effecting another state of affairs.

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CHAPTER 3.- FUNDAMENTAL PRINCIPLES OF BUSINESS MORALITY I. INTRODUCTION All of us can give many examples of ethical rules. Some which readily come to mind are "One should not tell lies," "One should keep one's promises," "One should respect one's parents," "One should help people in distress," "One should not steal ," "One should not commit murder." Many ethical rules are controversial, at least to some extent. Thus, for example, while a large majority of people would agree that, in most situations, one should not tell lies, there is far less agreement if one proceeds to ask whether exceptions to this rule are allowed in some more or less extreme cases. Assume, for instance, that a man carrying a cutlass in his hand asks you whether your sister is in the house. You reasonably fear that he wants to attack her. Your sister is actually in the house. Does the rule that you should tell no lies cover this situation? When the proper scope and meaning of an ethical rule is called into question, one should refer back to the more ultimate principles and purposes that justify the rule. Thus, for instance, in the case of the man with the cutlass one could reason that one should tell no lies because i) telling lies is a way of harming the people one deceives and ii) it tends to undermine mutual trust among people. If that were the complete justification of the rule against telling lies (which is not the case), it would follow that the rule did not apply in this case. By telling the man that your sister is not in the house you would not be harming him in any way (on the contrary, you would be preventing him from doing something that, once he recovers his sanity, he would greatly regret having done), nor would you be undermining trust among people by acting in this way1. Let us reflect for a moment on what we have just done. In order to determine the right way to act in a difficult case, we first searched in our mind for some applicable ethical rule and we came up with the rule "One should not tell lies." As it was not clear whether the rule that came to our mind was truly applicable to the special case with which we were confronted, we took two additional steps. 1

Perhaps it will be well to make explicitly the point that the issue of the justification and scope of the duty of truthfulness is much more complex than this. The question is discussed here only as an illustrative example.

50 In the first place we inquired further into the more ultimate general principles on which the rule itself is presumably based. In this way we came to consider principles such as "one should do no harm to others." Then we also examined more carefully the facts of the case at issue, including the likely consequences of acting in one way or another. Finally, by relating the facts of the case facing us to the more general principles we were able to cast additional light on the problem and come to a better grounded conclusion on how we should act if confronted by such a case. In order to use systematically this procedure in problems of Business Ethics we will first have to identify the more fundamental ethical principles. This issue is very complex and in several ways controversial. Fortunately, we do not have to undertake here the elaboration of a complete list of ultimate ethical principles. The scope of this book is restricted to Business Ethics and therefore it will be enough for our purposes to examine a number of ethical principles which have special importance in order to make right decisions in business life, without entering into the question of how far each of them is truly ultimate. With these warnings in mind, we offer the following as constituting a reasonably complete list of (by and large) independent and ultimate principles of Business Ethics: * Principle of solidarity: "We must be concerned with promoting the well-being of all human beings, not only our own. In so far as we fail to do so we undermine our own fulfilment." * Principle of rationality: "One should always strive to act intelligently." * Principle of fairness or impartiality: "One should apply the same standards in judging one's own actions, those of people who are dear to one, and those of strangers." * Principle of efficiency: "In trying to promote human fulfilment good intentions are not enough; one must endeavour to use effective means." * Principle of refraining from willing harm to a human being: "One should never choose directly to harm a human being." * Principle of role-responsibility: "One does not have equal responsibility for all the aspects of the well-being of all human beings. One's special circumstances, capacities, roles and commitments give one a priority responsibility for certain aspects of the wellbeing of certain people." There are other principles of right decision-making that are less ultimate or fundamental in the sense that they derive from the ones just enunciated. Two of them have frequent application in the ethical analysis of business decisions and will be considered briefly in this chapter. They are the following: * Principle of acceptance of harmful side-effects: "Under certain circumstances it

51 can be reasonable to perform actions which are likely or even certain to cause harmful sideeffects." * Principle of co-operation in immorality: "Under certain circumstances it can be reasonable to co-operate in some ways in the immoral actions of other people." Finally, in many discussions of issues of Business Ethics, Cost-Benefit Analysis is used. Because of its general importance, and in view of the fundamental nature of the issues of Ethics it raises, we will also discuss Cost-Benefit Analysis in this chapter. We will now proceed to discuss the justification and implications of these principles in greater detail. II. PRINCIPLE OF SOLIDARITY2 "We must be concerned with the well-being of all human beings, not only with our own. In so far as we fail to do so we undermine our own fulfilment." We already discussed extensively the principle of solidarity in the first chapter under the heading "Why should I Take Other People's Interests into ?". It will be sufficient here to make some brief remarks about the relation between the principle of solidarity (some people call it principle of altruism; others call it principle of community or principle of co-operation)and that of intelligent action. The reason why we raise this issue is that the literature on Economics tends too often to assume that these are contrary principles and that one has to choose between them.3 Consider two hypothetical situations. A man is walking in the bush. Suddenly he sees a very small child drowning in a shallow pond only two foot deep. The man steps into the pond and rescues the child. Nothing surprising here, you might think; and you would be right. It is the most natural thing in the world for somebody who can save a human life without risk nor 2

For a good discussion of this issue under the heading "First Principle of Morality" see FINNIS, BOYLE AND GRISEZ pp. 282-4. The relationship between solidarity and personal fulfilment is also discussed (though not necessarily using these ) in GRISEZ (3) chapter VI and GRISEZ AND SHAW pp. 63-4. 3

On that issue in standard economic approaches see BRANDT and MUELLER. For a criticism of the assumption of egoism as a description of actual economic behaviour, and rich bibliographical references on the issue, see SEN pp. 16-22. For a wider criticism of the identification between rationality and self-interest see PARFIT.

52 significant inconvenience to himself to do so. Imagine you are assured for the rest of your life of an income of five million naira per annum. Now you can take some drugs which will have a permanent effect on your temperament. One of them will affect your emotional reactions in such a way that you will become perfectly indifferent to anybody else. If you chose to take it, it would be extremely difficult for you to bring yourself to spend a kobo of your money on anybody but yourself. Another drug will give you exactly such a degree of sympathy for other people and their problems that it will come quite naturally and easily to you to spend a million naira every year in helping the needy people in your area. Of course, this example is totally fanciful. But it has a point. Each one of us has the emotions he has, not the ones he would like to have; and often enough we have to make the best of a bad job. But beyond whatever emotional shortcomings each of us may have to contend with, we can see easily that, if it were in our power to choose, it would be better for us to have an emotional make up which made us sensitive towards the needs of others rather than one that made us naturally mean. Taken together the two preceding examples tell us something about selfishness. As we indicated above, many economists tend to talk as if behaving rationally meant being self-centred and egotistical, while taking others into were the result of irrational feelings of benevolence towards others. Our two examples tend to show that this is almost the exact reverse of the truth. Our intelligence in no way ens us to be selfish nor shows that restricting our concerns to ourselves is more rational than trying to help others. All our intelligence does is to give us an insight into the value of the basic human goods. We just "see" that things like knowledge, friendship or health are good and worth having and promoting. By itself our intelligence does not put proper names on the value of these goods (that is to say, what I understand is not that "John Elegido's health is valuable", but rather the more general proposition that "health is valuable"). At the level of intelligence I can see with the same clarity the value and goodness of my being alive and of anybody else being alive. That is why I spontaneously understand the point of a stranger wading into the pond to save a drowning child. Matters are very different at the level of imagination and feelings. My imagination is much more vivid and my feelings stronger when reacting to things or events which benefit or harm me and those closer to me, while I often have great difficulty in being deeply moved by the lot of people I have never met. In other words, it is perfectly true that our feelings and emotions tend to be individualistic or at least parochial. It is wrong therefore to argue that being selfish is in any way more rational. One can choose to be an egoist, but in doing so one will not be following reason, but rather feelings

53 of self-preference. And the people who opt to follow the path of egoism are not making themselves better off; as we saw in the first chapter they are thwarting their own fulfilment in very important ways. What we are calling here the principle of solidarity stands at the basis of all the major ethical and religious traditions. It has been the constant concern of all the greatest moral masters to inculcate it. Witness the following sample of injunctions in which the principle is reflected:: * "Good people proceed while considering that what is best for others is best for themselves." (Hitopadesa, Hinduism) * "Thou shalt love thy neighbour as thyself." (Leviticus 19:18, Judaism) * "Therefore all things whatsoever ye would that men should do to you, do ye even so to them." (Matthew 7:12, Christianity) * "Hurt not others with that which pains yourself." (Udanavarga 5:18, Buddhism) * "What you do not want done to yourself, do not do to others."(Analects 15:23, Confucianism) * "No one of you is a believer until he loves for his brother what he loves for himself." (Traditions, Islam)

III. PRINCIPLE OF RATIONALITY "One should always strive to act intelligently." We have already discussed the principle of rationality in chapter I, under the heading "Why should I Try to Act Intelligently?" There we explained that acting rationally means guiding oneself by an intelligent consideration of the way in which our actions are likely to help or harm the fulfilment of human beings, while acting irrationally means allowing emotions or feelings to deflect us from the path recommended by our intelligence. Some further considerations on the significance of acting intelligently were adduced in the discussion on the relationship between self-interest and rationality in the preceding section of this chapter. There is no need to add anything further here on this topic. IV. PRINCIPLE OF FAIRNESS OR IMPARTIALITY4 4

Good general discussions of fairness can be found in GRISEZ AND SHAW pp. 119-20 and in DONAGAN (1) pp. 57-9.

54

"One should apply the same standards in judging one's own actions, those of people who are dear to one, and those of strangers." It will be useful to start our examination of the principle of fairness by reflecting on our common-sense understanding of what is acting in a fair way. The following is a situation in which fairness is clearly lacking. Mr. A often acts as referee in football matches played by the children of his neighbourhood. In a match a boy stopped the ball intentionally with the hand. Mr. A sent him out "to teach him a lesson of sportsmanship." In another match three weeks later Mr. A's own son stopped the ball intentionally with the hand. Mr. A did not send him out. He said: "too severe a punishment can discourage a young boy." What is the problem with Mr. A's attitude? Even though he tries to justify his decisions with well-sounding general maxims, it is transparent that he is actually driven by his feelings towards his son. It is a clear case of feelings rather than intelligence being in control. The principle of fairness does not demand that one treat everybody identically. It is consistent with fairness to treat different people differently provided one has a reason for discriminating that would also be valid if other individuals were concerned5. Thus, for instance, fairness does not demand that if you have N1,000 you ought to share them equally among all human beings. You can use them, for instance, to pay your driver's salary while giving nothing to your auntie. The reason why doing so would not be unfair is that there is a general reason (e.g. "things go better for everybody when each person gives priority to discharging his or her contractual undertakings; accordingly I ought to pay to my driver the salary I promised him") which justifies your action and that goes beyond the bare fact that "I like my driver and I do not like my auntie." Similar considerations also justify, for instance, people giving priority to providing for the needs of their immediate dependents. Tests of Fairness Of course, in real life even when we act most whimsically and unfairly we are apt to allege that there is a reason for our action. Thus, for instance, in the example we saw above Mr. A alleged that "too severe a punishment can discourage a young boy." How can we discover whether an alleged reason is genuine? In practice, this can be exceedingly difficult, but there are several tests which can be of great help. 5

This point is discussed at greater length below in conjunction with the principle of role responsibility.

55

The first and most simple test of fairness is to consider what would be one's position if the roles were reversed, that is to say if one were to bear the burdens of the action. This test is reflected in the advice often given in ordinary life: "Put yourself in his place." Another simple but powerful test is that of consistency. If someone is really prompted by a fair concern for all parties affected rather than by mere self-interest or attachment he will apply the same rule when its application favours him or those near and dear to him and when it does not. Thus, for instance, if somebody says "It is alright for me to take the goods of other people whenever I find it useful," we should immediately tell her, "Then you will agree that it is also alright for others to take your goods whenever they find it useful." If she disagrees with this consequence of her position, then there is no need to keep arguing; it is clear that she is not motivated by a rational consideration of the effects of her actions, but by the fact that she feels more strongly when her own interests are involved. Many philosophers, following Immanuel Kant, have advocated the test of universalizability. Granted, the word is quite a mouthful, but its meaning is simple enough: a proposed course of action is universalisable if it can be recommended as a universal rule, which would apply to everybody. Thus, for instance, a person tempted not to keep her promise in a given occasion, should ask herself, "Could I recommend as a universal rule that everybody be relieved from the obligation of keeping promises?" It is rather obvious that breaching one's promise is a course of action that is not "universalisable" (i.e. it cannot be made into a universal -or general- rule) as doing so would cause great harms to everybody. It then becomes clear that breaching my promise in this occasion in which doing so would give me some advantage is not consistent with fairness. David Hume and Adam Smith favoured the test of the impartial spectator. Would an impartial spectator, having the interests of all parties affected by a certain action equally at heart, approve of that action? If that is the case the action is fair. The hypothesis of an original social contract has also been used effectively in analyzing the fairness of some arrangements or institutions6. In modern days John Rawls has come up with an influential version of social contract analysis through his test of the veil of ignorance. Rawls speaks of a hypothetical constitutional conference in which all persons would have to agree on the basic social arrangements of the society in which they will have to live; but by hypothesis all participants in that conference would be ignorant of what would be their personal attributes in later life. For instance, while attending the conference nobody would know his or her future sex, wealth, employment, race, nationality, intelligence, other talents, possible physical or psychological handicaps, etc. 6

There has been much recent work in business ethics recently trying to apply to the field the social contract approach. See, for instance, DONALDSON, DUNFEE, and DUNFEE AND DONALDSON.

56 The main idea of the test is that any arrangements made behind such a "veil of ignorance" would be fair, for they would not reflect the personal interests and biases of any of the participants. The way in which the test of the veil of ignorance operates can be illustrated with an example. Imagine that two people are arguing on whether or not redistributive taxation (i.e. taxation in which some of the earnings of the richer people are used to ameliorate the position of the poorer sections of the population) is fair. Perhaps A, a wealthy, energetic and highly intelligent woman argues that redistributive taxation is quite unjust and that she should not be compelled to give to others. Perhaps, when pressed on the point, she would even declare that she is quite willing to apply to this issue the tests of consistency and universalisability; if she ever became poor she would be quite willing to make do without public assistance. Still, most of us are likely to believe that she is influenced in her position by the fact that given her wealth, intelligence and energy, she knows very well that she is highly unlikely to ever become destitute, and that this is what, consciously or unconsciously, actually drives her to attack so forcefully redistributive taxation. A way to approach the problem would be to apply the test of the veil of ignorance and imagine that a group of people had to determine, under the conditions we indicated above, whether their society ought to have redistributive taxation. People in such a position would reflect that they had a significant chance of being handicapped in some important way and, as a consequence of this, of finding themselves destitute without this being their fault. Accordingly, a strong case can be made that such people would decide to cover their bets and make sure that at least they would be protected against the extremes of destitution -if only in cases where that condition is not one's own fault- through something like redistributive taxation. Therefore we could conclude that redistributive taxation is actually fair, in the sense that it is an arrangement which makes sense when it is considered behind the veil of ignorance, that is to say, independently of one's present interests and consequent biases. It will help us to understand the purpose of all these tests of fairness if we realise that ultimately all of them try to answer the same questions: "Is this way of acting likely to have been prompted by a genuine and impartial concern for the good of all parties affected? Is it rather likely to have been prompted by the mere fact that the person deciding felt more strongly attached to one party than to the other?" In practice, when one is considering a complex problem of fairness it is often helpful to try and apply several of these tests to it. Different tests are likely to illuminate different aspects of the problem. V. PRINCIPLE OF EFFICIENCY7 7

For a discussion of the role of efficiency in moral thought see FINNIS (1) ch. V.6

57

"In trying to promote human fulfilment good intentions are not enough; one must endeavour to use effective means." For some people it may come as something of a surprise to be told that in order to act ethically one has to try to act efficiently. In their minds efficiency belongs in the world of hard headed pursuit of self-interest, while ethics would belong to a different realm in which hazy and vague good intentions would predominate. But, of course, that is not the picture of ethical behaviour which we have tried to draw in the preceding pages of this book nor, for that matter, the conception of Ethics entertained by any of the great ethical thinkers. In this book we have drawn on the common understanding of ethical behaviour and have described that behaviour as action shaped by the principles of intelligent action (or rationality) and solidarity. Elaborating on the demands of these principles we have suggested that ultimately one acts ethically when one seeks to choose always in a manner which will tend to promote the fulfilment of human beings. Now, if one actually wants to promote this fulfilment one cannot possibly be satisfied with woolly and impractical good intentions. One has to actually try one's best to translate intentions into reality, which means acting as efficiently as one can. A very prominent feature of human existence is scarcity. Our time, energy, resources and skill are limited. We can always think of ways in which our own well-being and that of others could be further advanced...if only we had the means. Hence, none of the means and opportunities available to us should be wasted - that is, employed so as to yield less than they might in of human well-being. From this perspective, it is not right behaviour, for instance, for a company to have a general desire to contribute to solving the general needs of the society and then give money to the first plausible rogue who comes along with a beautiful project for a hospital for the needy. Ethical behaviour in this type of situation would demand not only readiness to help others (principle of solidarity), but also readiness to make the effort to identify a competent organisation capable of istering properly the money one wishes to donate and to make sure that it actually reaches its intended beneficiaries and it does so in the most effective way possible (principle of efficiency).8 Again, from this point of view one realises that the fact, in so far as it is a fact, that a market system is a more effective mechanism for the satisfaction of some human needs in some specific contexts, provides an ethical argument in favour of using a market system in 8

In fact in such a case the principle of efficiency would demand, first and foremost, that the company give serious consideration to whether donating money for building a hospital is the best way of using its own resources and capacities. For this issue see chapter 4.VI.

58 such situations. In other words, it is misguided to oppose, as is often done, ethical arguments to efficiency arguments; in themselves efficiency arguments are ethical arguments.9 VI. PRINCIPLE OF REFRAINING FROM INFLICTING DIRECTLY WILLED HARM TO A HUMAN BEING "One should never choose directly to harm a human being.10" This principle states that it is never right to choose directly to harm a human being, however praiseworthy the objective of one's action may be. The principle is not as radical as it seems at first sight. To begin with, only harms which are directly willed are covered by it. As we saw in the last chapter, the infliction of harm will be directly willed when the objective of the actor is precisely to inflict harm, either as an end in itself (e.g., killing out of hatred) or as a means to a further end (e.g., killing to inherit the victim's wealth). Harm is not directly willed or chosen when it is only a collateral result of the actor's action which is not pursued either as an end or as a means to a further objective (e.g. collateral deaths of innocent civilians caused in the act of bombing a legitimate military objective).11 Sometimes it may be exceedingly complex to decide whether something is directly willed or not according to these criteria. Without entering into details, it will be enough to point out here that, in the view of many prominent writers, actions like amputation for medical reasons, killing in self defence, or dismissing incapable workers are all examples of harm resulting as a side-effect of one's actions rather than of willing infliction of harm. In the second place, the only harm covered by the principle is an attack to intrinsic aspects of the well-being of a person (i.e., intrinsic human goods). Instrumental goods like money, and purely sensible goods as pleasure or absence of discomfort are not covered by the principle. 9

Of course, this is not to say that the most efficient solution is always an ethical solution. Acting in a certain manner may be the most efficient way of providing some benefit for A and B; still if it is at the same time unfair to C, it should not be done. But the fact that a solution is efficient in advancing human well-being is an ethical argument in its favour; what happens is that that argument can always be outweighed by another ethical argument (e.g. the fact that the action contemplated is unfair). 10

For good discussions of different versions of this principle see FINNIS (1) ch. V.7, FRIED (2) pp. 28-42, DONAGAN (1) (the latter two from a more Kantian perspective than that adopted in this book, but with useful points). 11

For an analysis of action in of causality rather than in of intentions, which yields ethical conclusions opposed to those defended in this section, see DONAGAN (1) p. 164. and generally ch. 5. For the view adopted here see GRISEZ AND SHAW PP. 142-4 and 149-51.

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Even with the above qualifications not everybody agrees one has an absolute duty to refrain from ever inflicting directly willed harm and the matter is a subject of continued lively debate. Some people believe that in certain circumstances it may be right to will the infliction of harm to somebody if that is the only way to avoid even worse consequences. We cannot review here the whole controversy but we can at least point at the main reasons which underpin the principle. 1) In the first place, it is not possible to do a true calculation of consequences in order to ascertain whether or not the consequences of our choosing to harm a human being are really better or worse than the consequences of the opposite choice. There are two fundamental reasons for this: a) It is never possible to take into all the consequences of a proposed course of action in order to satisfy oneself that the good consequences of doing something are bound to outweigh the bad consequences. To see this think of a simple example: A tyrant threatens to torture to death two innocent men if X does not similarly torture one of them. Assuming that X believes the tyrant, would it be his moral duty to torture the innocent man? Superficially one could think that the relevant calculation is "one life versus two," but this would be extremely shortsighted. How can we know how many children each of the people involved would have if he is allowed to live a full life? And how many grandchildren? How many people would be involved by the tenth generation if X obeys the tyrant's orders? And how many if he does not? Can we know how many of them would choose to be businessmen, how many doctors, how many priests, and how many artists? And how can we know the good and the bad that each of these people would do during his or her life? Again, the effects of each person's actions in his or her own character, and the example given to others by either complying with or resisting the tyrant's orders are also extremely important, but equally impossible to foresee in any detail. The simple fact is that the consequences of any act are like the consequences of a stone dropped in a pond. The ripples extend out to the horizons of foreseeability and beyond. b) Even if it were possible to foresee all the consequences of our acts it would still be impossible to decide whether or not the good consequences outweigh the bad ones. In order to perform the necessary calculations one would have to add together the good and bad consequences of each of the acts contemplated in order to ascertain which one will produce the "greatest net good". We have just seen that it is actually impossible to foresee all, or even the most important, consequences of an action. But even if that were possible, there is the more fundamental obstacle that human goods cannot be weighed and measured as the calculation of the "greatest good" requires. For instance, somebody may be considering whether to deceive a friend of his so that somebody else may receive treatment in a hospital. But how can one possibly compare the relative values of "truth," "friendship"

60 and "health"? What is the common denominator, the scale on which one outweighs the other? There is no such scale. Basic human goods are not reducible to some ultra-basic "good" underlying all of them. Trying to add and subtract them is like adding and subtracting pears, planes and poems.12 In the end, whenever we try to justify doing harm to a human being on the basis that it is "the least bad alternative" we are simply responding to the pull of our feelings and emotions. What we actually mean by the "least bad alternative" is the alternative which produces less feelings of repugnance in us, and nothing more than that, for there is no way for our reason to find out which of the alternatives will have better or worse consequences in the long run. Therefore what actually happens whenever somebody decides that "the end justifies the means" and proceeds to choose to will the infliction of harm on a human being is that she has decided to "go by feelings" rather than "go by reason.13" In other words, she has abandoned the principle of rationality. In this context "abandoning the principle of rationality" may not sound as being all that terrible; that is why it would probably be useful if the reader were to refer again to what we wrote in the first chapter about the concrete meaning of that principle: it ultimately determines our whole stance in facing the world. 2) A second, though related, fundamental reason which leads us to the same conclusion is that every human being is a subject of immensurable worth or dignity and that as such it is never right to use him or her as a mere tool for somebody else's purposes. In willing to harm a person, even if this is done only as means of avoiding what one considers (wrongly, as we have seen) to be a greater harm, one is making his loss one's gain, or the gain of some others; one to that extent uses him up, treats him 12

There has been much recent philosophical discussion on the issue of incommensurability of different goods. For our purpose here some interesting treatments are FINIS (1) pp. 112-5, GRISEZ (1), GRISEZ AND SHAW pp. 132-3. 13

Whenever somebody faces the option of willing to inflict harm to a human being "to avoid a worse alternative" the situation can be analyzed in the following way: i) The actor has a reason (something which can be understood) to refrain from harming that human being: the very harm which she is to cause him or her; ii) The actor does not have a reason to harm him or her. The only conceivable such reason - given that the immediate effect of the action is the causing of harm - would be the fact that the bad effects which will follow from not causing the harm outweigh the harm the victim will suffer. But we have just seen that there is no possible way to do this computation. iii) However, the actor does have strong feelings of repugnance towards some of the bad consequences which she thinks will necessarily follow if she fails to intervene by causing harm.

61 as "material," as a mere "resource" for the good of others. On this issue two different conceptions of human beings are confronted. According to one, human beings are ultimately just some type of highly evolved animals. In the end their value is limited and it can be counted or weighed (although defenders of this conception always fail to make clear how that counting and weighing could actually be carried out). Accordingly, it can happen that in some specific situations the value of an individual may be found to be outweighed by other goods at stake. In such a situation it would be right to use that human being as a mere instrument to one's other objectives, and this would include the possibility of willingly harming him if necessary. According to the second conception each human being has been chosen personally by God, has a spiritual nature endowed with understanding and freedom which sets him or her far above any other animal, has an eternal destiny, and has therefore literally infinite value. Because of this one can never be justified in intentionally choosing to damage him or her in a basic aspect of his or her personality. According to the second of these conceptions every human being has some inviolable human rights that it is never right to infringe. According to the first, there are no human rights of that type; all human rights would be only "human rights in principle and depending on the circumstances." 3) A third essential reason in favour of holding that one is never justified in choosing to inflict certain harms on other human beings is that the alternative view demands of us to stand ready to sacrifice every single commitment we have made and every principle by which we live. People who hold themselves ready to do anything provided that it is required "for the greater good" are people for whom no principle is really sacred and no attachment definitive. This sacrifice of a stable moral identity is so undesirable in itself that some moral philosophers have been ready to argue that in itself it could constitute the "greatest evil.14" The above arguments are likely to seem very abstract to most people. Their significance can perhaps be brought home by using two examples. The first one we have already considered before . E is driving a lorry. As he moves down a steep slope he realises he has lost his brakes. In front of him on the left side of the road there is a group of six people paralysed with fear as the lorry thunders down towards them. On the right side of the road there is one person, equally unable to react. E has no chance of squeezing 14

See PARFIT, pp. 24-28, 43. Strictly speaking, as we have already argued several times, it is just impossible to decide rationally what is the "greatest evil," at least for so long as supernatural consequences are not introduced into the picture. But the loss of a stable moral character is certainly a very great evil.

62 the lorry between the two groups. At the last moment he steers away from the group of six people and runs over the person on the right hand side of the road Here E does not will to kill the person on the right as an end in itself nor as a means of accomplishing something. In fact if that person were not there and could not be killed he would accomplish equally well his purpose of avoiding running over the group of six people. Strictly speaking what he wills to do is to steer away from the group of six people. It is true, however, that given the circumstances, he knows for a certainty that in doing that the person on the right side of the road will be run over and killed. When confronted with this example a great majority of people agree that the lorry driver does nothing wrong. However, many people justify this conclusion by saying that "it is better that one person be killed rather than six." At this point one should be extremely careful for "be killed" is an ambiguous expression. It can cover both situations in which there is a direct intention to kill and situations in which the death of somebody is accepted as a side-effect of a different action. While as a matter of usage of English it is correct in both cases to say that "A killed B," the truth is that what was chosen in each case (and therefore the moral evaluation of the actions) is very different. To see this clearly consider for a moment another fanciful example: A is the sheriff in a town where an awful murder has been committed. He sees that people are so indignant that a riot is imminent and from his experience of similar situations in the past he confidently expects that at least half a dozen lives will be lost during the disturbances. To avoid this he frames a man that he knows is innocent, for by doing so and having him publicly hanged the crowd will be calmed and six lives will be saved. Most people agree that the sheriff acted unethically and that a grave injustice was done to the framed man. The interest of the example lies in which it forces us to recognise the implications of applying indiscriminately the justification "it is better that one person be killed rather than six." Many people who, on a common sense basis, think that the lorry driver did nothing wrong and that the sheriff acted immorally, are instinctively applying the distinction between "willing" and "accepting a side-effect" which we considered in the last chapter and on that basis they consider acceptable the conduct of the lorry driver (he only accepted the death of the bystander) but not that of the sheriff (he willed the death of the innocent man). This result is precisely the one that follows from the application of the principle we are considering in this section.

63 VII. PRINCIPLE OF ROLE RESPONSIBILITY15 "One does not have equal responsibility for all the aspects of the well-being of all human beings. One's special circumstances, capacities, roles and commitments give one a priority responsibility for certain aspects of the well-being of certain people." Special Responsibilities From the principle of fairness or impartiality some thinkers, such as the Utilitarians, have concluded that our duty is to do as much good in the world as we possibly can, without giving any special preference to people who are close to us. Bentham, John StuartMill and Sidgwick were prominent Utilitarians. Thus, for instance, Utilitarians think that a truly ethical person will attribute the same importance to helping with his homework a child he does not know at all and to helping his own son. In fact, according to utilitarian principles, if he can find another child who would benefit more from having help with his homework than his own child, then it would be his duty to leave his son to his own devices and go and help the stranger.16 According to utilitarianism what matters is the quantity of good we do, not who is the recipient of it, for after all the good of any human being is as good as that of another. In our view this utilitarian position is quite unwarranted. The easiest way to show why this is so is by asking oneself what would be lost in a world in which everybody acted according to the utilitarian principle. The answer is that in such a world both efficiency and intimate personal relationships would be severely impaired. Why would efficiency suffer? Because given the actual psychological constitution of human beings as they actually are, what is everybody's responsibility easily escapes everybody's attention. If everybody had the same responsibility to help the child of our example with his homework it is quite likely that he would end up having to do without any help. It is precisely the realisation of this that has prompted human beings from time immemorial to divide responsibilities: each person has his or her property, his or her family, his or her special social role which carries special social responsibilities. And thus the soldier watches over the community, the farmer grows food, the doctor heals, the housewife tends her home and so on. Through a complex process of personal choices (e.g., of profession), mutual agreements (e.g., in marriage), accidents of nature (e.g., in father-son 15

See GRISEZ AND SHAW ch. 20. COVEY pp. 95-144 contains useful points relevant to this principle. 16

In fact a consistent utilitarian could conclude that, after all primary and secondary effects of the action have been taken into , better consequences would follow from helping his son rather that the stranger. The point of the example is that, according to utilitarian principles, what counts is the overall balance of good and harm, not the existence of special responsibilities.

64 relationships), and many other factors, people are assigned specific responsibilities. In this way things work much better than if everybody were in charge of everything and equally responsible to provide for the welfare of everybody. What about intimate personal relationships? If we had the same responsibilities towards everybody we would have neither reason nor opportunity to be especially close to any one person. Today Mr. A would be helping this child with its homework, tomorrow that one...and in all probability never his own daughter. The problem then would not be just one of efficiency (that Mr. A's daughter and most other children would not be helped effectively with their homework) but one of lack of intimacy (that Mr. A's daughter would not have an opportunity to grow close to her father). Extend this to all other responsibilities which are founded on personal commitments, as those between spouses, between friends, or among those who have committed themselves to the same cause, and you will have a chance to appreciate how unappetizing a world would result if we were to try to run it on utilitarian criteria. These considerations lead us to conclude that there are very good reasons for people to take on special responsibilities deriving from their special roles. It is fully justified for Mr. A to give special attention to his daughter, and this is not based on the unreasonable assumption that her well-being is somehow superior to, or more important than, the wellbeing of any other child; it is founded instead on the benefits that accrue to everybody from living in a world in which parents give priority attention to -and accept priority responsibility for- the well-being of their own children (which, of course, does not have to mean that they care nothing for the welfare of any other children).

The Need for a "Plan of Life" Several prominent moral philosophers have emphasised the importance of each person having an overall plan of life which integrates one's different objectives, orientations and commitments.17 This idea is closely related to the role played in our moral life by special responsibilities and commitments. The expression "Plan of Life" sounds very solemn, but it refers to something that in itself is quite simple. Think of the following examples. A got a Law degree when he was still a young man. After qualifying as a lawyer he thought that he would like better being a professional tennis player and devoted himself to this project. He never went too far as a tennis player and after three years he managed to get ission into medical school. It took him seven years to 17

On "Plan of Life" see FINNIS (1) ch. V.2, GRISEZ (2) ch. V, RAWLS pp. 408-23 and FRIED (1) pp. 97-101.

65 qualify as a doctor. After practising medicine for two years he got fascinated by pure science; he gave up the practice of Medicine and ed again in the university to study Physics. He had not yet completed his degree when he changed his mind once again and decided that he was better fitted for becoming a successful marketing man. He dropped his studies and tried to get a job as a salesman... B is a young woman who has had four children in seven years of married life. Professionally she is the audit partner in a leading ancy firm. She has recently ed to do her PhD in ancy as a part-time student. She has also started a boutique in partnership with a friend and she aspires to make it one of the leading fashion houses in Lagos. She is contesting to become the chairperson of her university's alumni association in Lagos and has also begun to take a serious interest in politics. She is considering running for a seat in the National Assembly during the next elections. Obviously there is something wrong with A and B. While each of the individual decisions they make is at least defensible when looked at in isolation, the problem is that they do not hang together. Put in very general we could say that while each individual decision makes some sort of sense, their lives, seen as a whole, do not make sense. In the case of A his problem is that each of his projects fails to take advantage of what he has accomplished before and also fails to lay the ground for any future actions. As for B, she is hopelessly overcommitted. Any two or three of her commitments would be more than enough to fill a lifetime; as it is she is likely to fail in all of them and accomplish nothing. These examples are over-simplified caricatures, but they illustrate an important general principle. Acting rationally demands that we provide a harmonious set of orientations, purposes and commitments for our life which will provide a basic framework for each of our more specific choices. As the future is subject to many unforeseeable contingencies it will usually be unreasonable to commit oneself to a detailed blueprint or "forty-year plan"; what is needed is rather to outline the general traits of what we could call one's vocation in life or what, in business terminology, one would call a mission statement: a basic set of orientations and commitments which takes into one's peculiar circumstances, talents and opportunities. And why should one choose such a "plan of life" or "vocation"? Most simply put: to avoid irrational waste. Each one of us faces a vast field of opportunities for achieving worthwhile objectives, but if we fail to impose stable priorities on the ever-changing feelings of attraction and repugnance that we experience these opportunities are bound to go waste. We can outline briefly here the basic rational requirements of any such basic "plan

66 of life" or "vocation." In order to save space we will only enunciate them and illustrate each of them with an example in which it is overlooked. i) There is need for some degree of concentration and commitment. In principle there are innumerable good objectives one could pursue, but anybody's time, energy and resources are limited. Accordingly, in order to be effective, it is necessary to concentrate on some priority objectives and commitments. In the examples given above both A and B acted irrationally precisely because they overlooked this basic requirement. ii) The choice of what to concentrate on must take into one's peculiar talents and opportunities. There is always a temptation to choose one's priorities on the basis of one's feelings. One's feelings should properly play a role in these decisions, for one is likely to be much more effective if one is not forced to act constantly against one's inclinations. But one's talents and opportunities are even more decisive. If a person fails to commit himself to pursue a vocation for which he or she is exceptionally endowed, without having an adequate reason to do so, this fact will tend to indicate either that that person has failed to grasp adequately the real attractiveness of the goods he or she could have achieved, or that he or she is being carried away by feelings of like or dislike18. This principle of role-responsibility or vocation (we will use both expressions interchangeably throughout this book) has great importance in professional ethics. Thus, for instance, if there is an epidemic in a city, it is accepted that medical doctors have a more pressing responsibility than other people to go there to help the victims, even if this entails risking their own lives. And in the same way soldiers have a special responsibility to defend the country in times of danger, priests to give good example in moral matters, and so on. The Special Responsibilities of Managers At this point we can ask ourselves: What is the special responsibility of business executives? The way to answer this type of question is to ask oneself what are the special opportunities of promoting or harming the good of others that business executives have by virtue of their special position, and what are the special implicit or explicit commitments that business executives have assumed in accepting their jobs and choosing this career. When the issue is approached in this way, the following major responsibilities emerge: a) To foster the effectiveness of their organizations. This effectiveness depends in a crucial way on the behaviour of their executives. 18

For the significance of "being carried away by feelings of like and dislike" see Chapter 1.II.

67

It has often been remarked that today's society is a society in which all major tasks are performed by organizations rather than by individuals. Think for instance of health care. In case of a major illness we do not expect to be cured by an independent medical practitioner as would have been the case everywhere less than one hundred years ago; we go to a hospital. The same applies in fields as diverse as education, research, production, distribution, communications, medicine, defence, religious ministry, or entertainment. The reason for this is simple: organizations can bring together more resources of knowledge, skills and equipment. At the same time, anybody familiar with the way organizations typically operate will be acquainted with their innate tendency to degenerate into bureaucracy, ineffectiveness, timidity and waste. There is need for a constant effort to refocus their mission, concentrate their energies and subject them to discipline. All of this is the special task, and the special responsibility, of the managers of an organization. On how well they perform this task depends not only the prosperity of the organization and of all those associated with it, but also how well the organization will serve the needs of others. b) To foster the unity of their organizations. Organizations are made up of many individual human beings, each of whom has his or her own ideas, aspirations and ambitions. Of themselves organizations naturally tend to disunity and disgregation. This natural tendency can only be countered through a constant effort directed to creating a common culture, focusing the organization on common goals and providing with reasons to pull together. Because this task is essential to the success of the organization and to its ability to contribute to the larger society, and because the organization's executives are in a strategic position to perform it (in fact, if they fail to perform it, nobody else can fully make up for this failure), it is an important role responsibility of them to discharge it. c) To discharge their fiduciary responsibilities. In the great majority of cases managers are not owners. Usually they ister resources which belong to others and by virtue of the characteristics of their position is very difficult for the owners to ascertain whether they have been fully conscientious in the discharge of their duties. Think, for instance of the management of a company reporting to the shareholders a profit of N75 million on an investment of N300 million. Do these figures show that the management have performed very well? There is no way to tell with full certainty; perhaps the economic situation was so exceptionally favourable that it could have been possible to make N150 million profit instead of N75 million; or perhaps that level of profit has only been attained by spending less than it was prudent on things like research, opening of new markets, and training. Or perhaps the good results have been achieved at the cost of alienating many of the employees. In the end it is in important respects a matter of opinion whether management performance has been extraordinary, average, or

68 poor. The general problem of how to ensure that managers concentrate their efforts on promoting the interests of the owners of a business, rather than their own, has been the occasion of the flourishing economic literature on Agency Theory19. Basically this literature concentrates on the issue of how to design the jobs and incentives of managers ("agents" in Agency Theory terminology) in order to create the best possible alignment of their interests and those of the owners of the business ("principals" in Agency Theory terminology). In most occasions it is impossible to create a perfect alignment of interests between principals and agents. In English-speaking countries the law tried to solve the agency problem through the concept of "fiduciary duties". In law, whenever somebody owes responsibilities to others and it is especially difficult to ascertain how conscientiously he has discharged those responsibilities, it is said that he or she is a "fiduciary," that is to say, somebody placed in a position of trust; and the law places on such persons specially onerous duties of punctiliousness in caring for the interests of those to whom their duties are owed. The ethical reasoning behind the position of the law on this point is sound. The more one is in a position of trust, the more scrupulous he or she has to be in protecting the interests of one's principals. It is therefore one of the defining characteristics of the role responsibility of managers that they have to behave in all matters in which there might be a conflict between their own interests and those of the organizations employing them with the scrupulousness the law expects of fiduciaries. The basic principle is that managers have accepted some powers on the implicit understanding that they would use them for the benefit of their principals. Accordingly, using those powers for their own benefit is a misuse of such powers. Role-Responsibility and Diversity of Responsibilities The principle of role-responsibility or vocational responsibility has an extremely practical and important consequence in Business Ethics that is often overlooked. It may happen that a company follows very enlightened and indeed path-breaking policies in making certain that no environmental damage is produced as a consequence of its operations, going in this far beyond the demands of the law. People are too prone to conclude that a second company that simply keeps to the law in these issues is, by this fact, less ethical than the first. But reflection on the principle of role-responsibility shows that that is not necessarily so. Perhaps this is clearer at the personal level. Consider the following example: 19

See references in note Error! Bookmark not defined. in Chapter 1.

69

A lady has five children, is strongly committed to bringing them up and devotes all her time to her functions of mother and home-maker. Now, reflecting on a book she has read about the life of Mother Teresa of Calcutta she thinks that perhaps she ought to imitate her wonderful example and be ready to devote her time to helping the destitute. She also thinks of the examples of a Nelson Mandela or a Mahatma Gandhi and wonders whether she ought not to commit herself much more strongly to the struggle for justice in her own society. Of course, any person of common sense would have no difficulty in advising the lady of our example to come down to earth and be realistic. There are many ways of promoting human fulfilment: it can be done by bringing up one's children to become mature human beings, by helping the destitute, by engaging in political activity, and in thousands of other different ways. Each of these "vocations" can be highly effective at the social level and richly fulfilling at the personal level, but it is simply impossible to combine effectively all of them. In all likelihood, for this lady to travel to India to help Mother Teresa in helping the destitute would not demonstrate a high level of ethical commitment, but rather an irresponsible dilettantism and lack of fidelity to her own vocation. This is clear in relation to individuals and it ought to be equally clear in relation to organizations. When we see a company exceptionally committed to the protection of the environment, there is no need to conclude that that level of commitment should be demanded of all other companies. A more likely conclusion is that that is the special commitment (or mission or vocation) of that company. A different company, which has different traditions, circumstances and capacities, should probably commit itself to more demanding standards in areas different from protection of the environment. It could be help to its own employees, service to customers, technological innovation, or any among hundreds of different ways of promoting the common good of the society. VIII. PRINCIPLE OF ACCEPTANCE OF HARMFUL SIDE-EFFECTS "Under certain circumstances it can be reasonable to perform actions which are likely or even certain to cause harmful side-effects." During our examination of the principle of refraining from willing harm to a human being we have seen that there are some things which one should never choose to do, whatever the consequences which may foreseably follow from taking this stand. But we also saw that this applies only to willing the destruction or impeding of some intrinsic good. Should a person who wants to act in a fully rational way also avoid doing anything from which the destruction or impeding of an intrinsic good may follow as a collateral consequence or, in what has become a common expression, a side-effect20? 20

GRISEZ (2) pp. 239-41 contains a good discussion of side-effects and of our responsibility

70

The plain answer is that it is simply impossible to act in such a way that the causing of harmful side-effects will be avoided absolutely. Consider the following examples: A takes JAMB. He performs well at the examination and he gets ission to do the course of his choice.Of course, as a consequence somebody else is not itted. B opens a restaurant. It is extremely successful and many people patronise it. As a consequence of this other restaurants in the neighbourhood have many fewer clients and have to dismiss some staff. C writes a book about Business Ethics. He hopes that it will help clarify the ideas of many people on this important topic, but he also knows that some people will misunderstand some of the arguments contained in it and will be led to unsound conclusions. D has a great talent as a painter. She also has great ability as a writer. She becomes a writer and as a consequence a number of good paintings remain forever unpainted. E takes her car to go to visit her aged mother. By doing so she adds to traffic congestion and atmospheric pollution in Lagos21. F buys some food. By doing so she is marginally driving up the price of that food. If we accept that a principle ening us to avoid causing any harm (even if only as a side-effect) would be impossibly restrictive, should we conclude that for as long as we do not directly intend (i.e., will as an end or will as a means to something else) causing harm there is no ethical problem? Not quite. Consider another example. Pests are destroying H's garden. H is considering using poison to kill them even though this entails some relatively small risk that his neighbour's children will eat the poison and be killed. First, we should note that the choice being considered is not "to kill the children." for them. 21

Many people think that if the harm caused by an action is very small, then that harm can be left out of in our moral thinking, even if the harm is suffered by many people. For strong arguments to the contrary see PARFIT pp. 68-86.

71 As we have seen that cannot be chosen rationally for any further purpose. The precise choice here is "to use poison to kill the pests." However, we are aware that, as a side effect of that course of action, a measure of risk is created for the neighbour's children. The further question now arises: would H be acting fairly in subjecting them to this risk given the objectives he is seeking? The answer seems clear: one never would consider putting one's own children at risk to improve one's garden. Therefore it would be unfair to subject somebody else's children to the same risk and the side-effects cannot be reasonably accepted. By reflecting on this example we can now try and generalise the conditions under which one could reasonably accept that some harm will be caused as a consequence of one's actions: i) The action itself must not be such that in performing it one necessarily has to will to cause harm, for in that case the action would fall under the principle of refraining from willing harm to a human being. Other way of saying this is that causing of harm must not be chosen either as an end or as a means to a further objective; at most it can be accepted as a side-effect. ii) The acceptance of the harmful side effects must be compatible with fairness, i.e. one would still be ready to perform the action if the people affected by the side-effects were oneself or those near and dear to one instead of strangers. IX. PRINCIPLE OF CO-OPERATION IN IMMORALITY "Under certain circumstances it can be reasonable to co-operate in some ways in the immoral actions of other people." This is another issue of very great practical importance. Even if we want to do at all times what is right, we live in a world in which many people are ready to act in immoral ways. It often happens that others try to use the result of our work for immoral purposes or that they try to put pressure on us to co-operate with them in actions which seem ethically incorrect. Should a person who is trying to act in a fully ethical way always refuse to get involved in this type of situations so as not to be connected in any way with anything which is immoral? The great majority of teachers of ethics have not thought so. Indeed, the only way of avoiding totally being connected with anything evil would be to abandon this world, which hardly seems practicable. There is need, however, to make some distinctions. The fundamental principles which we have already considered will allow us to do so. A and B and C decide to rob a bank. They plan together the robbery and agree that they must try to avoid violence but that they will shoot and kill if it is

72 necessary for the success of the operation. The day of the robbery A waits inside the getaway car outside the bank while B and C walk into the bank. B and C pull out their guns, disarm the guards and force D, the cashier, to open the safe and hand over to them all the money. As they go away B and C shoot and wound two guards who tried to raise the alarm. A drives the car during the getaway. In this type of situation there is no doubt that B and C are fully responsible for the robbery and the wounding of the guards. A and D have also co-operated in different ways in the operation. What is the extent of their moral responsibility? In a way both A's and D's co-operation was essential. If any of them had refused to co-operate, it would have become impossible, or at least much more difficult, to carry out the robbery. There were, however, essential differences in the ways in which each identified himself with the plan. Even though A did not physically take the money nor fired any shot, he is fully identified with the enterprise and wills the success of the whole operation (in fact he expects to share in the proceeds). He also wills whatever means are necessary (including shooting) to achieve the end of robbing the bank. That he waited outside in the car and did not participate in the physical acts of snatching the money and shooting was dictated by the thought that that was what was needed for the success of the plan. His intention was identical to those of B and C and from a legal and moral point of view he is equally guilty with them of whatever is done in the course of the operation. Traditionally this type of co-operation has been called formal co-operation in immorality. D's responsibility would seem to be very different. He had not planned to help the robbers. He did not wish for their success. He in no way identified with their objectives nor expected to share in the loot. He engaged in material co-operation in the immoral action, that is to say, he only co-operated in the material or physical performance of the operation. Intuitively we see that it would not be appropriate to blame him for the robbery. In fact the law takes this position and a cashier in these circumstances would not be committing any crime. Reflecting on the example of the cashier we can try and isolate the conditions which make it reasonable to co-operate in the immoral actions of others. Basically, they are the following: i) One's action is only a subordinate part in the wrongdoing of other person or persons; ii) One's co-operation is merely "material", i.e. one does not intend at any moment the immoral end, nor approves of it, nor wishes for its success;

73 iii) One's part in the complex action, taken as an action in itself, is not immoral; iv) Accepting that the persons with whom one is co-operating achieve their wrong ends as necessary side-effects of one's own actions does not involve unfairness; this implies that the reasons which motivate one to engage in that purely material cooperation are so strong that one would still would agree to co-operate if the people harmed by the overall scheme were oneself or those near and dear to one. We can try to clarify further conditions iii) and iv). Imagine an engineer who keeps the utilities working in the printing press of a magazine which regularly engages in defamation and slander; in his case condition iii) would be fulfilled because what he does (maintaining machinery) in itself is in no way immoral. Similarly, in the example of the bank cashier the action of handing over packets of money is not immoral in itself. Condition iv) can also be illustrated by the example of the cashier. Assuming that the money involved represented ten per cent of the capital of the bank, the cashier could well reflect that if his own money were at stake in the robbery, he would certainly prefer to lose ten per cent of his capital rather than his life; accordingly there would be no unfairness involved in handing over the money. X. COST-BENEFIT ANALYSIS22 Imagine that you are a manufacturer of toasters. Your company has just developed a new model and now an engineer has sent to you a report in which he argues that, given the design of the toaster, there is a risk that a child using it imprudently may suffer some serious accident. He has made an attempt to estimate how often such accidents could happen and he thinks that on average one child every three years would suffer a fatal accident and three children per year would suffer injuries severe enough to require hospitalization for a period of over a week. The engineer's report also asserts that if the design of the toaster were to be changed to eliminate that risk the additional cost per toaster would be of N23. As the company is expecting to manufacture and sell about 50,000 toasters per year, the total additional cost the company would have to incur in order to eliminate this hazard to children would be about N1,150,000. It is obvious that several of the principles we have just considered are relevant in making a decision in this hypothetical problem. As a matter of fact, most of us in trying to grapple with it would probably use rough versions of several of them. Thus we would try to consider whether there are any significant differences between accepting the likelihood of a death and murdering somebody; whether it is fair to subject the public to 22

For a general overview of Cost-Benefit Analysis see MISHAN.

74 such hazards; whether the party primarily responsible for protecting children from such risks is the manufacturer, the state, or the children's parents; and so on. Together with, or sometimes instead of, such an unstructured general approach, business or government policy-makers often make use of cost-benefit analysis in order to make this type of decisions. At first sight cost-benefit analysis could not look more different from the application of the type of principles we have just been discussing. The basic idea underlying it is that when a proposed course of action (e.g., to redesign the toaster of our example in order to minimise the number of accidents related to its use) has to be evaluated, one has to endeavour to express all the advantages and disadvantages (or costs and benefits) which will result from it in a common unit. The common unit that is used is naira and kobo. This is done in order to make it possible to ascertain whether the benefits exceed the costs, or, when several alternative courses of action are being examined, to determine which one offers the greatest balance of costs over benefits. In the example of the toaster, which we are considering, the costs of changing the toaster's original design are already expressed in economic : N23 per toaster; N1,150,000 for 50,000 toasters. But trying to express in money the value of the deaths and injuries which could be avoided through the redesign of the toaster is obviously more difficult. To begin with, there is no market in lives or human suffering; therefore any attempt to find out the economic value of such things will have to rely on indirect methods. Let us examine, as an illustration, the way in which cost-benefit analysts usually approach the problem of asg an economic value to a human life. A traditional method has been to compute the expected earning power of the victim over his or her entire lifetime. While for some very specific applications this could be adequate, in general it is obvious that the fact that Mr. A is expected to have over the balance of his life earnings of N2.3 million does not mean that the worth of Mr. A is N2.3 million. To assert this would be tantamount to having the same optic on human life as slave owners of the past: the only value of a human being is what he or she can produce for me. Another way of perceiving the inadequacy of this approach is to realise that according to it the life of a rich man is much more valuable than that of a poor man, that of a man more valuable than that of a woman (statistically speaking men have higher earnings than women), and the life of somebody who is already retired would have no value at all. A second approach to the task of putting an economic value on a human life is to ask oneself how much are people ready to pay to protect their own lives. Of course, it is very rare for people to have to face the question of how much would they be ready to

75 pay to avoid certain death. But people very often have to choose whether or not to pay a certain amount of money to obtain a marginal increase in safety; the choices they make in such occasions can perhaps give us a clue on the value they put on their lives. Thus, for instance, a woman who is not ready to pay N3,500 for installing a safety device in her car which would eliminate a 0.0005 chance of death is implicitly saying that she is not ready to pay more than N7 million23 for her life. Of course, we often act on the basis of insufficient information, or we analyze imperfectly whatever information we have, and thus it can happen that the same woman who refused to buy the safety device for her car may be ready to pay N4 million for a surgical operation which will remove from her a condition which poses a 33% risk of death, thus implicitly putting now a value of at least N12 million on her life, when before she seemed to be valuing it at less than N7 million. Still, by observing many examples of similar decisions, analysts can come up with rough estimates of the value we put on average on our own lives, measured in of how much we are ready to pay to protect ourselves from measurable risks. The example of readiness to pay for a certain safety device in a car exemplifies well a more widely applicable technique in cost-benefit analysis: in order to ascertain the value of something for which there is not a market (e.g., protection against a certain risk of death) one can look at a situation in which that is sold together with a given good (e.g. protection against that risk of death may be sold together with an automobile) and compare the market value of that composite package with the price that the given good fetches on its own. Thus if the market price of a certain make of car without any accessories is N700,000, while the market value of the same car when it incorporates a safety device which eliminates a certain chance of death is N703,500, then the verdict of the market is that the value of eliminating that chance of death is N3,500. The same technique can be used, for instance, to put a value on fresh air, by comparing the value of a house in a certain neighbourhood with a high level of pollution with the market value of a similar house in a neighbourhood of similar social standing which enjoys clean air. Cost-benefit analysis is a popular technique, especially among economists. It has been used in product safety problems, to help decide the level of safety which should be built into many products (in problems similar to our hypothetical example of the toaster); in environmental matters like decisions on how far manufacturers should reduce the amount of pollutants they release into the atmosphere; in military issues such as evaluation of alternative strategies; and in many other such problems.

23

The relevant computation is 1/0.0005 x N3,500 = 2,000 x N3,500 = N7,000,000.

76 Many objections of a technical nature can be raised against specific applications of cost-benefit analysis. Is the data used reliable? Is the survey technique used adequate? Can some specific findings be extrapolated to other situations? However, beyond technical objections to which proponents of cost-benefit analysis may answer with appropriate technical refinements, one has to consider more radical objections, which go to the very essence of the technique. The attentive reader will have realised that the arguments which were raised before in discussing the issue of whether it can be justified to will to harm a human being in order to achieve some other good results24 are equally relevant here. We have already argued that, while a diligent consideration of the likely consequences of an action is essential in order to act ethically (that is required both by the principles of efficiency and fairness), to try to decide whether a course of action is right or wrong exclusively by computing the balance of consequences is radically misguided. For essentially the same reasons we can now say that to try and decide whether something is right or wrong exclusively on the basis of cost/benefit analysis is similarly misguided. When we discussed the principle of avoidance of harm we argued at length that willing the infliction of harm on a human being either as an end in itself or as a means to obtaining a greater good could not be justified. The three main reasons for this conclusion were the fact that long-range (and often even short-range) consequences cannot be foreseen, that different types of goods cannot be truly added together, and that persons have an immensurable value and dignity and therefore they can never be rightly sacrificed against their will in order to reach any objectives. These three objections apply with full force to cost benefit-analysis. Therefore a decision to will the infliction of substantial harm on anybody on the basis of such analysis (i.e., on the basis that the analysis "proves" that the benefits of the action are going to exceed the costs) can never be right. Let us concentrate for a moment on the most fundamental of the objections to using cost-benefit analysis in order to justify the intentional infliction of harm on a human being, namely that one cannot compare the value of different types of human fulfilment. In our discussion of the principle of avoidance of harm we argued that different types of human goods such as life, knowledge, integrity, friendship, religion, and aesthetic value cannot be added or subtracted as they are heterogeneous values and there is no common denominator in of which all of them could be expressed. However, people often try to use cost-benefit analysis techniques precisely to achieve this comparison. They will say, for instance, that a human life is worth N5 million, an unspoilt landscape (a means to contemplation and to aesthetic experience) in such and such a region is worth N40 million, and a successful marriage N3.4 million. 24

See Section VI above.

77 They readily conclude from this that it is rational to sacrifice, say, three lives and six successful marriages to an unspoilt landscape.25 Do such "calculations" make any sense at all? Is it true, in any significant sense of the word "true," that a human life is worth N5 million and a successful marriage N3.4 million? Of course, it is not. As we have pointed out already several times there is no basic unit available to compare in themselves the basic aspects of human fulfilment. One can say quite truthfully "I like more a good book than a good symphony." I can also say that I would be ready to pay so much for the book and so much for a recording of the symphony. In these and similar senses comparisons are possible and meaningful. But what I compare in such a case is not the book and the symphony, or knowledge and aesthetic experience, but rather the strength of my responses to them. In other words, such comparisons are comparisons of feelings, not of aspects of human fulfilment in themselves. Something rather simple, but that still needs saying, follows from this. If with the most sophisticated survey techniques and methods of mathematical analysis I conclude that on average Nigerians put a value of N5 million on their own lives, I am not thereby morally justified in killing a Nigerian26, even if I were ready to pay N5 million for the right to do so. Does this mean that cost-benefit techniques of analysis are useless? Many people think so. Some have even argued that they are positively harmful27. But a more favourable view can be defended. They are not substitutes for moral norms and principles and therefore they must never be used in isolation from them. However, if they are used within a structure of moral principles they can be useful. What this means can be better explained by means of an example. Mrs. A is an extremely talented and resourceful branch manager in XYZ bank. The bank's CEO very much wants to post her to the bank's Kano branch, which is in very serious trouble. The CEO firmly believes Mrs. A is the only person readily available to him who is capable of arresting the decline of the branch and avoiding its closure. His estimate is that closing the branch will cost the 25

Actually, no real-life examples are as brazen as this. But the underlying logic of many real cost-benefit applications is close enough to this caricature. 26

In the sense of willing to do so either as an end in itself or as a means to another objective of mine. 27

Three strong articulations of this view can be found in MACINTYRE, SAGOFF (1) and (2), and KELMAN.

78 bank N32 million in economic costs and will result in 73 people losing their jobs at a time when alternative jobs in Kano are extremely scarce. Imagine further that Mrs. A's husband is dead set against leaving Lagos, and that A will not consider moving to Kano leaving her family behind. Using highly sophisticated survey techniques and advanced methods of mathematical analysis a consultant hired by the CEO has concluded that generally speaking the value that people put on a successful marriage (in of the economic sacrifices they are prepared to make to ensure the success of their own marriages) is clearly lower than 73 times the value they put on not being unemployed plus N32 million. Even if all this is so, the bank's CEO will not be justified in setting out to ensure that Mrs. A's marriage hits the rocks, thus eliminating the obstacle to her agreeing to move to Kano to save the branch. Acting in that way would be intrinsically immoral as he would be setting out to harm a human being in an important aspect of her well-being. No result of cost-benefit analysis overrules the reasons the CEO has to avoid such actions. But it is a different question to use cost-benefit techniques within a framework of moral principles (rather than as a substitute for them). Specifically, it is different to use sometimes these techniques to try and cast light on the questions of whether a certain course of action is fair (principle of fairness) and/or efficient (principle of efficiency). Consider a different example. In a manufacturing company occasionally there is an industrial accident. The company has an industrial nurse on duty in the premises at all times, but is now considering having also doctors on duty during all shifts and equipping fully an operating theatre. If this were done it is estimated that on average an incapacitation of grade B (i.e. such as the loss of an arm) per year could be avoided. For the purposes of this example let us assume that the accidents which cause such incapacitations are not due to any negligence of the company but to the carelessness of the workers. Let us also assume that the total annual cost to the company of taking these measures (taking into also the original investment in the operating theatre) would be N3.8 million. How can cost-benefit techniques be used to throw light on this issue within a framework of moral principles? The persons responsible for making the decision would start by trying to consider the problem in the light of all the basic moral principles. If at this stage they concluded that one or more of them either demanded or ruled out a certain course of action they would be ready to act accordingly. Therefore they would rule out from the start actions like deceiving the workers, defaulting on binding commitments, or bribing inspectors to fake reports. They would also be ready to compensate people who are harmed because of the company's fault and do whatever is fair.

79

It is at this point that cost-benefit analysis can be of help. What does fairness demand in this situation? Is it fair to all parties concerned to spend N3.8 million per annum to be ready to provide extra help to somebody who has been injured through his own fault, rather than distributing that money to the shareholders, using it to increase salaries, reducing prices, or a combination of all of these? If it turns out that in a variety of contexts, in both collective and individual decisions,28 the value we place on the loss of a limb seems to range between N600,000 and N1,200,000, this would be a prima facie argument for concluding that, given the values prevalent in our society, spending now N3.8 million might not be required by fairness. A similar conclusion would follow from a consideration of the principle of effectiveness. The basic ethical commitment is to do what is in our power to promote human fulfilment. Is spending N1.8 million per annum in preventing the loss of an arm per year the most effective way of doing so? If cost-benefit techniques could show that by expending such an amount it would be possible, for instance, to make new investments that will create five new jobs, and that our social and individual decisions show that usually we are ready to spend up to N1 million for each new job created, then this would tend to show that on the basis of the values prevalent in our society that expenditure would seem to be inefficient. The italicised words in the two previous paragraphs are very important. They constitute an ission that our judgements on the value of different aspects of human well-being do not pretend to have an absolute validity. We are just making a judgement of relative value in line with the views which are usual in our society. While the fact that a certain aspect of human good is appreciated less than others in our society is not a reason which will justify an ethical person in attacking directly that good in a person, it is a consideration to which an ethical person can give a strong weight in deciding the priorities it is fair to follow in allocating scarce resources. By using the usual techniques of cost-benefit analysis we are adopting the valuations which are usual in our society. A consequence of this is bound to be that they will incorporate different valuations and priorities in different societies. Thus for instance, in the US conditions that favour freedom and autonomy are likely to have a relatively high value placed on them while conditions which tend to foster security and relative equality, are likely to be relatively less valued. In Nigeria and in many other countries the reverse will often be the case. In itself there is nothing wrong with such differences. They reflect the fact that societies, like individuals, cannot pursue effectively all possible goods and values at the same time and have to concentrate on 28

An example of the former would be the choice of safety standards that are imposed in different industries, or the amounts awarded by courts for compensation after motor accidents. An example of the latter would be the differential salaries demanded by workers in jobs that have higher risks factors.

80 fostering some of them to the (relative) neglect of others. But not all differences in social valuations respond to such legitimate and reasonable differences of opinion. Sometimes a society places very low value on some aspect of human good due to an unreasonable and (therefore) immoral bias against that good, or, even worse, due to the fact that the group or class which have a greater appreciation for that good are held in contempt in such a society. An example of this is provided by the fact, to which we made reference above, that by applying certain techniques to the measurement of the value of human life one could conclude that the lives of the poor are worth less than those of the rich, those of women less than those of men, and those of the elderly or the sick nothing at all. As we explained, this in turn results from an implicit judgement (which may actually be shared by many people in a given society) that human beings have no intrinsic worth and that all their value derives from their capacity to contribute to the process of production. If an analyst wishes to make an ethical use of cost-benefit techniques, these and similar potential shortcomings of the techniques will have to be acknowledged and corrected. Basically, the following three restrictions have to be observed in order to make sure that such techniques are truly the servant of principled thought and not a substitute for it: a) As we do not pretend that such techniques allow us to add and subtract the absolute value of different aspects of human fulfilment, we must never conclude from them, no matter what the numbers may tell us, that some human beings can safely be sacrificed to others. In other words, we must acknowledge that these techniques can never provide a justification for violating the principle of non-infliction of directly willed harm. b) As we recognise that in using such techniques we are using as our point of departure the usual evaluations and preferences in a given society, we must always be ready to criticise such evaluations whenever they may seem to violate fundamental ethical principles or human rights. Thus, for instance, if the application of a certain measurement technique would lead us to the conclusion that men are more valuable than women, we should not be shy in acknowledging that, once more, the GIGO factor29 has struck and, as we indicated when briefly discussing this specific technique above, briskly proceed to change our method of analysis in order to generate results less in conflict with our basic moral convictions. c) Finally, it is also important to realize explicitly that the fact that the benefits of an action exceed the costs (according to a more or less reasonable system of commensuration that we have adopted, it is well to repeat once again), still leaves open 29

GIGO is a well known acronym for the sentence Garbage In, Garbage Out.

81 the different question of whether the costs and benefits are distributed in a fair manner. Do I get all the benefits while others pay the costs? Do the costs accrue to a few poor people while most of the benefits are enjoyed by a large number of wealthy individuals? If the resulting distribution of costs and benefits is unfair, according to the tests discussed in section IV of this chapter, it will be necessary to explore whether it is possible to compensate the people who will suffer the costs. On the issue whether it is fair for a firm to accept that extra burdens be inflicted on some people for the sake of providing benefits for others, the discussion in chapter 4.VI on criteria for accepting causing harmful side effects to other parties and the conditions under which a responsibility to compensate for them arises, is relevant.

XI. CONCLUSIONS This discussion of basic ethical principles at an abstract level is likely to have proved hard-going for most readers. However, having concluded it, we have now laid the foundation for the rest of the book. This is an appropriate moment to survey the general structure of the book. From now on we will concentrate on discussing specific problems of Business Ethics. In all such discussions we will try to reach definite conclusions on the demands of ethics in relation to the issues considered. Thus, for instance, we will consider whether it is right or wrong for managers to accept certain types of gifts from suppliers. In doing so we will base our answers on some of the principles we have considered in this chapter. (In the case of accepting gifts, for instance, the more relevant principles are those of fairness and role-responsibility). Accordingly, the treatment of all specific issues in the coming chapters is truncated, so to speak. None of them provides a full answer to the question "why should I act in this way?" Such an answer is only provided by the specific discussion devoted to each issue together with the discussion contained in this chapter of the more basic principles to which that specific discussion makes reference. Strictly speaking, a full answer is not provided even by taking together the discussion of a concrete issue and the discussion of the relevant general principles in this chapter. The conclusions reached in the coming chapters are basically of the form: "one should act/not act in this way because that is required by fairness (or in order to avoid inflicting directly willed harm on somebody, or in order to act intelligently, etc...)." Such conclusions are complemented by the discussion of basic principles in this chapter, which basically are of the form: "acting fairly (or avoiding the infliction of directly willed harm, or acting efficiently, etc...) is required in order to act ethically, that is to say, in order to contribute to the best of our ability to our own human fulfilment and to that of the people affected by our decisions."

82

Of course, this still leaves open the ultimate question: Why should I concern myself with my own fulfilment, talk less of that of others? That is the question that we tried to answer in the first chapter of this book and to which we will return in chapter 14. Therefore the fundamental structure of this book is as follows. Specific questions of Business Ethics are addressed in chapters 4 through 13. The fundamental principles which justify the answers we provide in those chapters are discussed in this chapter in of how these principles contribute to human fulfilment. The final reasons for being concerned with human fulfilment are provided in chapters 1 and 14.

XII. SUMMARY Ultimately, all our conclusions about what is right or wrong to do derive from a limited number of basic ethical principles. The following are the fundamental principles of Ethics relevant to the consideration of business issues: * Principle of solidarity: "We must be concerned with promoting the well-being of all human beings, not only our own. In so far as we fail to do so we undermine our own fulfilment." * Principle of rationality: "One should always strive to act intelligently." * Principle of fairness or impartiality: "One should apply the same standards in judging one's own actions, those of people who are dear to one, and those of strangers." In order to check the fairness of a proposed course of action tests such as those of universalisability, considering the action from the viewpoint of an impartial spectator, putting oneself in the place of the other party, and considering the action behind a veil of ignorance, can be useful. * Principle of efficiency: "In trying to promote human fulfilment good intentions are not enough; one must endeavour to use effective means." * Principle of refraining from willing harm to a human being: "One should never choose directly to harm a human being." Each human being has some basic human rights which must be respected absolutely in all situations. * Principle of role-responsibility: "One does not have equal responsibility for all the aspects of the well-being of all human beings. One's special circumstances, capacities, roles and commitments give one a priority responsibility for certain aspects of the well-being of certain people."

83 There are other principles of right decision-making that are less ultimate or fundamental in the sense that they derive from the ones just enunciated. The following two have frequent application in the ethical analysis of business decisions: * Principle of acceptance of harmful side-effects: "Under certain circumstances it can be reasonable to perform actions which are likely or even certain to cause harmful side-effects." Basically, the action itself must not be such that in performing it one necessarily has to will to cause harm; and the acceptance of the harmful effects must be compatible with fairness. * Principle of co-operation in immorality: "Under certain circumstances it can be reasonable to co-operate in some ways in the immoral actions of other people." This will be the case when a) one's action is only a subordinate part in the wrongdoing of other person; b) one does not approve nor intend the immoral end; c) one's part in the complex action, taken by itself, is not immoral; and d) accepting that the persons with whom one is co-operating achieve their wrong ends as necessary side-effects of one's actions, does not involve unfairness. Finally, in many discussions of issues of Business Ethics, Cost-Benefit Analysis is used. This technique can be quite useful, but it must be always used within the framework of the above moral principles, not as a substitute for them.

PART II RESPONSIBILITIES OF THE FIRM

CHAPTER 4.- RESPONSIBILITIES OF THE FIRM I. INTRODUCTION People often speak of the "responsibilities of the firm" or, in a more common phrase, of the "social responsibilities of companies." These expressions are often used very loosely and are given different meanings by different speakers. Therefore, it will be useful to engage in some preliminary clarifications. Some people assert that business organizations have responsibilities which go beyond making profits. Often what they have in mind is that it is proper for companies to worthy community initiatives like universities, museums or hospitals; to reduce to a minimum pollution, going voluntarily beyond the standards set by the law; to employ the physically handicapped; to refuse to invest in certain places (e.g. apartheid South Africa) in order to foster desirable political objectives; and generally to use their resources or restrict their activities in ways which are not calculated to maximise their profits but which will contribute to the common good of the communities in which they operate. Other people reject outright the above position and argue that the only responsibilities of a business company are to obey the law and make profits for its shareholders. Still others think that companies can legitimately concern themselves with some of the causes listed above but not with others. It is not easy to find one's bearings in this jungle of conflicting opinions. In this chapter we will explore the main issues at stake and try to delineate some basic principles to provide basic orientation in making decisions on this type of problems. Before concluding this introduction it may be useful to clarify a semantic problem which sometimes gets in the way of an orderly discussion of these issues. It is often said that it is the duty of a company's managers to maximize their firm's profits. Now whether or not managers have such duty will be discussed in the next sections; but before one can agree or disagree with such thesis one has to understand clearly its meaning. Maximizing profits does not just mean making an effort to generate greater profits. It means making every effort to make profits as large as possible, subordinating literally everything (including loyalty, comion, the environment, social welfare, and all other such considerations) to the increase of profits1. There is no argument, or at least there ought not to be, that profit is extremely important for 1

A clear-headed profit maximiser like Milton Friedman states explicitly the constraints on maximization of profits that he accepts as legitimate. In his view there is only one: compliance with the law.

89 all business organizations. But before one unthinkingly agrees that "firms ought to maximise their profits" one ought to ask oneself whether one really agrees that profit is ultimately the only thing that matters in business, and that in case of conflict every other consideration ought to give way before it. If one does not, one is not truly a profit maximizer. As a way of organising our arguments and getting a bearing on the issues at stake we will follow three stages. First, we will criticise the position of those who argue that the only responsibility of firms is to maximise their shareholders' profits. Having thus established that firms do have some responsibilities beyond making profits, we will then try to clarify the principles that set a limit to those responsibilities. The third stage will be to examine what in practice is perhaps the most pressing issue: the principles which establish priorities among a firm's different responsibilities. In this way we will have set the stage for the examination of different specific responsibilities which will be undertaken in the following chapters. II. PROFESSOR FRIEDMAN'S POSITION Professor Milton Friedman, the famous monetarist economist and winner of the Nobel Prize for Economics, has consistently argued in favour of the thesis that a corporation has only one responsibility: maximise profits for its shareholders while operating within the limits set by the law. He set out his main arguments for this position in a famous and often-quoted article entitled "The Social Responsibility of Business Is to Increase its Profits."2 In Friedman's view it is certainly a responsibility of corporations to respect all the laws which protect the public interest. But going beyond this would amount to having "socially responsible executives" functioning as redistributors who would take other people's money (i.e., the shareholders') and spend it on what these executives themselves defined as the "general social interest," as if they were some sort of self-appointed tax collectors. As he puts the point: "Can self-selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest? Is it tolerable that these public functions of taxation, expenditure, and control be exercised by the people who happen at the moment to be in charge of particular enterprises, chosen for those posts by strictly private groups?" It is Friedman's contention that it will be better for everybody if business executives concentrate on maximising profits for in this way, he says quoting some famous words of Adam Smith's, they will more effectively be "led by an invisible hand" to promote the good of the society. In fairness to Friedman it should be emphasised that he is in no way against charity and giving to the needy. He is against giving to the needy other people's money. His view is that if a corporation spends money ing worthy causes instead of distributing that money among its 2

FRIEDMAN.

90 shareholders it is thereby preventing the latter from ing the causes they prefer. The right course of action, in his view, would be to distribute all profits to the shareholders and then each of them would be in a position to make any contribution he or she likes... or no contribution at all.

III. CRITIQUE OF FRIEDMAN'S POSITION In order to appreciate the full implications of Friedman's ideas it may be useful to try and consider what they would entail in some hypothetical situations. i) If the executives of a TV company were to come to the conclusion that they could increase their profits by using programmes featuring child pornography, and showing of these programmes were not forbidden by the law, as in many countries is not, then it would be their moral duty to use them irrespective of the harm they would cause. ii) If the sales of a mail order business would increase 0.2% by selling master car keys and there were no law making this activity illegal, then it would be the moral duty of the managers of the business to add this new line to the business, even if they were convinced that most of the keys would be bought by potential criminals. iii) If the managing director of a company could fire 100 old employees who had worked loyally for the company for over 20 years with only one month's notice and no further benefits, and he judged that by doing so he could increase the company's profits, then it would be immoral for him to make any additional voluntary payments to them in order to reward their past loyalty. iv) Imagine that the laws of a country were not to make an oil company legally liable, nor subject to penalties, if as a consequence of its operations much agricultural land were to be rendered useless for agricultural purposes. If that were the case it would be immoral for the executives of that company to incur extra expenses either in ensuring that pollution is minimised or in compensating the peasants whose land has been affected. And this would be so even if, by hypothesis, the oil producing operations are proving extremely profitable. These practical consequences of Friedman's theses are so odd that one is forced to conclude that there must be some defect in the theses themselves. But, where exactly does the problem lie? Actually, all over. Within the short space available here we will have to concentrate on criticising what seem to us to be the main assumptions behind Friedman's position.3 We will be examining the following theses: i) by fulfilling one's legal duties one has already discharged all one's moral responsibilities; ii) groups as such do not have moral responsibilities; iii) all the assets of a 3

Friedman's position has been heavily criticised from many quarters. The following are among the best of those critiques: SHAW AND BARRY p. 214, GOODPASTER AND MATTHEW, GRANT, STONE pp. 80-87, PARKINSON pp. 305-37.

91 company actually belong to the company's shareholders in the sense that the latter are exclusively entitled to them; and iv) through the operation of "an invisible hand" the common good is most effectively promoted when each person pursues his own self-interest. It seems clear to the present writer that if these theses can be effectively criticised then Friedman's position will lack all plausibility. The proposition that one has no moral responsibilities which go beyond compliance with the law is clearly unsound. There are three reasons why legal duties often fall short of moral demands. First, because of difficulties of enforcement, legal standards often do not cover all the relevant moral duties. A clear example is provided by the legal duty of a father towards his children: to "maintain" them (i.e. pay for their food, clothing and education) and avoid physical ill treatment which amounts to cruelty. It is obvious to everybody -including the lawgivers- that a father's moral duties towards his children are far more extensive than this; but the law concludes, probably wisely, that to try to enforce a broader set of duties (e.g. of affection, good example, timely supervision, etc.) would be likely to cause problems at least as serious as those it would avoid, for instance by authorising an unacceptable degree of intrusion in family matters by public functionaries. Secondly, the law necessarily reacts slowly and a long time can from the moment a problem is identified until a suitable law is ed. Thirdly, morally objectionable laws may be in force. Think for instance of countries in which laws establishing slavery, apartheid or religious discrimination have been or are in force. Because of these three reasons one cannot assume that by keeping to the law one has discharged all of one's duties towards others. It cannot be argued either that only individuals have a duty to act conscientiously and to promote the common good. This issue was already examined in Chapter I under the heading "Group Action and Personal Moral Responsibility." Here it will have to suffice to observe that there is no apparent reason why moral rules should be different when persons act corporately as a group from what they are when they act in their individual capacities. If we expect individuals to act morally and to be concerned with the interest of others, not only with their own, why should the matter be different with groups, and specifically with business organizations? In fact there is no real reason to justify that groups as such should be indifferent to the interests of third parties or to social problems if they can help them without injustice to their or to other parties. Professor Friedman offers no shred of argument to justify a basic assumption of his position, namely that the resources companies spend in "social responsibility causes" belong to the shareholders; he just asserts it. However, on examination this thesis proves quite weak and vulnerable to attack. Certainly the shareholders are entitled to be remunerated for the use of their money. Even more, as they are the ultimate bearers of financial risk in the enterprise, they are entitled to a higher return than creditors; and corresponding to the real chance they have to lose the whole or a substantial part of their investment, it is only fair that they also have a real chance to make extraordinary profits. But none of this justifies the position that they are entitled to receive

92 every last kobo of any surplus produced by the enterprise in its operations. The thesis that the whole surplus generated by a company should rightly be distributed to the shareholders cannot be justified on the ground that that is the reasonable expectation of shareholders and that it is on that basis that they invested their money in the company. Neither the law nor accepted conventions justify that expectation. The law is clear that a company's assets do not belong to the shareholders, but to the company itself.4 And as to the way in which these assets can be lawfully used -or distributed in case of liquidation- section 279(4) of the Companies and Allied Matters Act specifically provides that in the performance of their functions directors are to have regard to the interests of the company's employees.5 This act also assumes that a company will make donations by providing that they must be disclosed in the company's annual report. The corporate law of most countries contains similar provisions. Accepted practice does not provide a justification for a generalised reasonable expectation on the part of the shareholders that they will be receiving all the surplus generated by their company. Many companies make donations for worthy causes and go in many matters beyond their strict legal duties. In any case, if a firm's commitment to acting morally and to promoting reasonably the common good is clearly expressed in its mission, objectives, and other statements of the company's intentions, prospective investors will have reasonable notice before they commit their funds to the firm. Even more decisively, the evidence available does not indicate that shareholders do expect to appropriate all the economic surplus created by their firms. The evidence indicates that institutional investors are prepared to tolerate donations at a significantly higher level than is usual at present.6 4

See WALDRON pp. 57-9. Other legal systems have taken the same view. Thus, for instance, the German Constitutional Court has held that the shareholders' rights are rights of hip in an organization and not direct rights over property: HADDEN. 5

The law has been moving in that direction also in other jurisdictions. Thus, for instance, Section 309(1) of the U. K. Companies Act 1985 provides that "The matters to which the directors of the company are to have regard in the performance of their functions include the interests of the company's employees in general, as well as the interests of its ." In the U. S. many states have enacted what are commonly called "other constituency statutes," which change the legal responsibilities of company directors (see COMMITTEE ON CORPORATE LAWS); thus, for instance, Massachussets has enacted that "In determining what he reasonably believes to be in the best interests of the corporation, a director may consider the interests of the corporation's employees, suppliers, creditors and customers, the economy of the state, region and nation, community and societal considerations, and the long-term and short-term interests of the corporation and its stockholders..." (Mass Gen Laws Ann ch. 156B, para 65; quoted in PARKINSON pp. 151-2) 6

ALLIED RESEARCH INTERNATIONAL and FOGARTY AND CHRISTIE pp. 15-16.

93 Finally, the thesis that there is in operation an invisible hand that ensures that each person's egoist behaviour results in the greatest good for the whole also has to be challenged. The most that economic analysis can demonstrate is that under conditions of perfect competition, and provided also that there are no other forms of market failure such as externalities, the satisfaction of effective demand (i.e. demand backed by the possession of money) for goods and services is maximised.7 But conditions of perfect competition, or a reasonable approximation of them, often do not obtain. Also, it is often the case that companies do not have to pay for all the real costs of their activities, as happens, for instance, when a company pollutes the environment.8 In fact, as Etzioni has pointed out, the exercise of social responsibility is a way in which firms internalise some of their external costs and in this way promote a more efficient allocation of resources. As he has said "morality is a major way externalities are 'introduced' into one's deliberations and decisionmaking...Indeed, morality is a much more widely used and less costly and less coercive mechanism for attending to the commons than government inducements or public 'incentives' provided via the market."9 Finally, it can also happen, and in practice it regularly happens, that a free-market mechanism marginalises those who have natural handicaps (e.g., among others, physical or mental handicaps, old age, or lack of education). As Veljanovski has put it, "if wealth is concentrated in the hands of a few rich landowners who buy Rolls Royces and caviar, then allocative efficiency will be consistent with the poor starving and the economy's productive capacity channelled into the manufacture of these luxury items. If wealth were distributed more equitably, less Rolls Royces and caviar and more necessities of life would be produced."10 The conclusion of all of this is that the manager who is trying to do what is right in the real world would be reckless to place all his trust in the "invisible hand" of the economists' models. If the above arguments are cogent they would seem to undermine radically any attempt at mounting a rational defence of the thesis that business organizations have no responsibilities beyond maximising their profits and keeping the law. Certainly, they seem to undermine the arguments that Friedman has published in defence of this position. It may now be useful to look back and try to assess the more general significance of these arguments beyond criticising Friedman's specific thesis.

7

Speaking strictly, provided that all exchanges between people are voluntary and market-mediated, all information is public, and there are no costs to transacting, the allocation of resources that results from market trading is Pareto-optimal (DEBREU). 8

On the general problem of externalities a classical reference is COASE.

9

ETZIONI p. 34. See also GAUTHIER, esp. ch. 4.

10

VELJANOVSKI p. 22.

94 We argued in chapters I and III that an individual's basic responsibility is to promote the fulfilment of human beings (of which he or she is one) to the full extent of his or her possibilities. In the absence of a cogent argument to the contrary, people have traditionally assumed that this responsibility obtains both when a person acts individually and when he or she does so in association with others. Ultimately what we have done in this section is to criticise the most popular attempt to date to provide such an argument in favour of ethical abstentionism by (business) groups. We can therefore reaffirm ourselves in the conclusion which we had already reached in chapter I: the most basic reason why business organizations have responsibilities is that their have a responsibility to promote the fulfilment of human beings not only when they act individually, but also when they act tly with other people.

IV. THE LIMITS OF SOCIAL RESPONSIBILITY It is very important, however, not to go to the other extreme and assume that business executives are justified in using indiscriminately their companies' resources in trying to cure all manner of social ills. We will now try to examine what are the grounds for placing limits on a company's assumption of social responsibilities extraneous to its main mission. There are limits in the responsibilities of business firms for the same reasons why the responsibilities of individuals are also limited. As we argued in chapter III, when examining the principle of role responsibility (more specifically, when discussing the requirement for some degree of concentration and commitment), limitations of time, capacities and resources make it impossible to attend effectively to all opportunities of doing good and avoiding harm which could conceivably be pursued. Organizations, like individuals, need to concentrate on pursuing some specific objectives in order to act effectively. In the case of business organizations the attainment of economic objectives, naturally constitutes this primary concern. As regards groups there is also a special ground of limitation in pursuing worthy projects: their have typically ed together for some specialised purposes (e.g., religious worship in a church, defence of the professional interests of the in a trade union, satisfaction of economic needs in a business organisation, etc.). It could easily be unfair to some of these to devote a substantial part of the common resources and efforts to pursuing projects that were in no way envisaged at the time each member ed the group. These two considerations tend to limit the indiscriminate assumption of social responsibilities by a business firm. The practical consequences of these considerations will be unfolded later, in the section devoted to examining the priorities in a firm's responsibilities.

V. HIP OF THE FIRM We must now try to identify criteria that will allow us to determine the order of priorities among the claims of the many parties who can plausibly claim that are owed duties by the firm.

95

Some people argue that the basic responsibility of a firm is to balance the interests of all its "stakeholders", that is to say, of all the parties which are affected by its operations11. A firm's stakeholders comprise not only its owners, managers, and other employees, but also other parties such as customers, creditors, distributors, suppliers, trade unions, and communities in which the firm operates. The position that asserts that, in principle, a firm has similar responsibilities towards all its stakeholders, and that all of these responsibilities have to be "balanced," is similar to the general ethical position of the Utilitarians, which was examined in chapter III, in relation to the principle of role responsibility. As we saw, Utilitarians contend that, in principle, we have the same responsibilities towards all human beings. The same arguments which we used against the utilitarian position are relevant here. At a lower level of generality, one can see how implausible the approach of trying to balance the interests of all stakeholders is by observing how we operate in other communities, such as the family. The father of a family does not act on the basis that he has to balance the interests of all parties affected by his actions, such as spouse, children, other relations, neighbours, landlord, telephone company, etc. He is quite likely to recognise a stronger responsibility towards his spouse or children than towards, say, the landlord. This does not mean that he will feel justified in defrauding the landlord from his rent in order to advance the interests of his children; if the father in our example is an honest person he will feel bound to try to discharge all his undertakings towards all parties and to defraud nobody. But his having stronger responsibilities towards his children implies, for instance, that if he has a windfall, as for instance winning a lottery, he will most likely devote a large share of the winnings, or even all of them, to caring for the family rather than share them liberally among all parties with whom he comes into regular . Although the issue will rarely be posed explicitly, before deciding how he will share his lottery winnings, a father of family will have to have a determinate conception of which people are of the family. This conception is always conditioned by the views prevalent in one's society; in some societies people feel strongly bound only to of their nuclear family; in others one model or another of extended family will prevail. Something similar happens in business organizations. A firm is ultimately a community of people and before one can decide what are the responsibilities of the firm towards different people one will have to have a certain conception of who are the "" of that community and who are "third parties" in relation to it. Three conceptions of who are really the of a business organization enjoy greater 11

For a clear and concise statement of this position see, for instance, EVAN AND FREEMAN.

96 popularity. According to the first "the shareholders are the firm." Of course, this does not mean that managers or employees have not to be adequately compensated, in order to motivate them to work. But it means that ultimately they are outsiders; after the firm has discharged its contractual obligations to them and to other third parties, if there is any surplus this belongs exclusively to the shareholders. According to the second conception ultimately the managers are the company. This position is not often defended openly in books or articles, but it clearly reflects what many mangers believe. One has only to watch one of the many battles fought over a contested takeover bid anywhere in the world to see this conception at work. In order to preserve their control over the contested company managers will use tactics which bear exotic names such as "golden parachutes," "poison pills," "Pac-Man defences," "shark repellents," "white knights," "super poison puts" and "selling the crown jewels." These and many other defensive manoeuvres are often used in ways that are highly unlikely to prove beneficial to the shareholders.12 The interesting point here is not just that the managements of companies which are suffering a hostile bid often use these tactics, but rather that they very often seem quite sincere in believing strongly in the rightness of what they are doing. Such managements often see themselves and their colleagues as the people who are truly committed to the company and who have the most at stake in the company's success or failure. By contrast they see shareholders as transient investors who today are in the company and tomorrow are out of it and that, in any case, usually have only a small proportion of their wealth committed to it. Accordingly, managers tend to believe strongly that they are fully justified in doing their best to protect the continuity of their own jobs and those of their colleagues from the threat posed by an outsider trying to gain control of their company. If doing so entails sacrificing an opportunity for the shareholders to sell their shares at a large profit, most managers are unlikely to believe that there is anything basically unethical in this. Like the last one, the third conception also sees a company as a human community, and also uses the degree of commitment to it as a criterion to determine who are the of the community; anybody who is seriously committed to the company is a member. But the third conception is less restrictive in the application of this criterion and concludes that workers are as entitled as managers to be considered fully fledged citizens of the firm. As for shareholders, upholders of the third conception can make a distinction. Transient shareholders who buy some shares today only to sell them again tomorrow can be seen as providers of finance who, because they run a higher risk than creditors, are entitled to higher returns when things go well; but they are still strangers rather than of the firm. But committed, stable 12

For defensive tactics against takeovers see DANZIGER and JENKINSON AND MAYER.

97 shareholders can be considered full of the firm, and the more so the higher the percentage of their wealth that is at risk in the company. This conception therefore accepts as full of the firm managers, other employees and at least the more committed shareholders. How should each of these conceptions of who are really the of a firm be assessed from an ethical point of view? It certainly is morally wrong, say, for managers, to keep speaking to shareholders and other employees of "our company," while deep down they think of themselves as the only real "owners." The common example is the management which at every opportunity repeats that "we are all just one happy family in this company" and then retrenches half the work force at the first dip in earnings. But the basic immorality one finds here is the immorality of deception and of knowingly, or at best irresponsibly, inducing people to entertain false expectations. It does not necessarily follow that if the a company is organised according to the "shareholders" or "managerial" models openly and without misrepresentation, and any such arrangement suits all the parties concerned, it is still bound to be, by its very nature, unethical. Reflect first on the "shareholders conception of the firm." A woman has a daring new idea for a business scheme - let us say a new type of fast food t - but has neither the time nor the inclination to try out her idea personally. She commits her life savings to the venture and even raises extra funds by mortgaging her house. Then she hires a manager. She agrees with him that he will work for three years on a generous salary, at the end of which period he will have to look for another job. The manager finds the acceptable, especially because he had already decided to go back to university to pursue a higher degree in two or three years' time and this job will allow him to save the money he needs to finance his education. He prefers that none of his compensation should be contingent on the success of the venture because he does not want to run the risk of not being able to pay for his education if things go wrong. After an initial difficult period the venture turns out to be a great success and the owner of the project is able to sell it to another company at a very large profit. Is there anything necessarily immoral in this arrangement? It would not seem so, and to confirm it the reader might think it worthwhile to test it against each of the basic ethical principles discussed in chapter 3. The owner has kept all the extraordinary profits the venture has produced, but most people would agree that she has earned them by having the bright idea that was at the basis of the firm's success and by having accepted to assume, at high personal stakes, all the financial risk of the venture. The manager freely agreed to the arrangement, which in fact has turned out to be beneficial to him. In order to explore the "managerial conception of the firm" we may refer to one of the successful "new generation banks" that sprouted up in Lagos in the late eighties and early nineties. These banks were typically promoted by a small group of managers (often very young people) who had gained experience in the immediately prior generation of banks. In order to get finance and, even more critically, the clout needed to obtain a banking licence, these young manager-promoters had to get a group of shareholders to invest in the bank.

98

Some of these banks have failed and the shareholders have lost their money. But a few of them have been spectacularly successful and in these cases the shareholders have recovered their investment several times over in just a few years. However, there is something that shareholders in many of these successful banks typically have failed to get, and that is any real power in "their" banks. The manager-promoters treat them with respect, pay them high dividends, and give them bonus shares from time to time, but there is no doubt in anybody's mind about who are the real bosses in such banks. The core group of managers who started the bank, perhaps with some later additions control the bank. Shareholders are essentially outside investors. Again, is there anything necessarily wrong with this scheme of things? It would not seem so. All parties usually understood from the start whose bank it was that was being promoted. Shareholders readily appreciated that they were being asked to finance somebody else's venture and they are usually quite happy that their investment has turned out to be so successful. Still, having said all this, it seems clear that while the "shareholder" and "managerial" conceptions of the firm are not necessarily unethical, the conception of the firm as a community of managers and employees and shareholders (at least in those cases where all shareholders or a substantial portion of them are seriously committed to the firm) will in most case have definite ethical advantages over the other two. In the first place, it is superior from the point of view of fairness. As we will see, the real importance of determining who are "really" the of a firm, lies in the fact that are entitled to greater participation in decision-making and that the interests of the deserve special consideration in cases of retrenchment and of extraordinary profits. Now a basic justification for considering managers and employees full is that typically any good results of the firm will be as much due (if not more) to their contributions as to the contributions of shareholders. It is therefore fair that they share as much as shareholders in these results, including in the ability to be protected in case of downturns. In the second place, this model is clearly more motivating for all concerned. One always finds it easier to give one's best when one works in what is one's own. To see oneself as a mere hired hand or a mere outside investor is almost automatically tantamount to limiting one's commitment. But the very fact of being usually more motivating makes the third model of the firm usually more ethically attractive. It is in a highly motivating environment that human beings can more easily find their fulfilment through developing their talents to the full and contributing at full stretch to satisfying the needs of others. Precisely because both the shareholder and the managerial models of the firm are models of limited commitment, they have an in-built tendency to stultify those who do not find themselves inside the charmed circle of "us, the real of the firm." Finally, there is another ethical flaw that very easily infects both the shareholder and managerial models. That is an implicit rejection of those who are excluded from real hip in the firm, a refusal to form a community with them.

99 There is no ethical problem involved in my failing to associate with a certain Malaysian peasant. The explanation of this failure can be readily found in the fact that our circumstances are so different that we just have no cause nor need to come together. And of course a similar explanation underlies my failure to actively associate with many other people who are geographically much closer to me: we are pursuing different projects, different life plans, and there is no potential advantage in our committing to each other. What is essential here is that all these failures to associate with people are not based on selfishness, on lack of respect or concern for them, or on narrow-mindedness. It just stems from the fact that my time, like everybody else's is limited and I can only do a limited number of things. But the situation would be very different if I insisted on minimising my commitment to and my involvement with a fellow worker with whom I am in daily interaction, and more so if I recognise that our forming a closer association and entering into richer mutual commitments would be likely to result in our being more productive in our t endeavours. In such a case it is almost impossible to avoid the inference that my insistence in keeping a distance from others springs from ethical inadequacies on my part. This is very clear in the managerial model. Why does it fail to include the other employees? After all the lot of the workers is as bound up with that of the firm as that of the managers, or even more so, and the workers also spend a large proportion of their working hours there. Still, they are told, "you are not one of us." What is the implicit message in this? "You are somehow inferior and less important, and in any case, we just do not want to associate with you." These last points should not be misunderstood. They do not try to deny what was stated before, namely, that the managerial and shareholder models of the firm are not intrinsically immoral. There can be situations - in fact, many situations - in which any of these conceptions will not be in fact unfair, demotivating, nor imply a conceited refusal to associate with other human beings. In such situations, precisely because there is nothing intrinsically wrong in such conceptions, organising a firm in accordance with them can still be compatible with the highest ethical standards. However, there is no doubt in the present writer's mind that in the vast majority of situations the third, more inclusive conception of the firm will be the most appropriate one, in the sense of being the one which is most fair, most helpful to the full development of the human beings involved in the firm, the one most capable of motivating them to render an effective service to the outside society, and the one which better expresses and implements the fundamental unity of all human beings. Still another way of misunderstanding the main thesis of this section would be to interpret it in legal . There is not the slightest intention here of advocating any given form of legal organization of companies (e.g., co-operative societies) over others. In fact, the present writer has nothing but the greatest iration for the astonishing flexibility and capacity to develop that the legal form of the limited liability company has shown throughout its history. The essential points are the extent of the participation in decision making power of the three basic groups (shareholders, managers and employees), the extent to which the interests of these groups are protected even in adversity, and the extent to which they share in the value created by the firm. When one's attention is directed to these criteria, it is possible to find that while some co-operative societies and non-profit

100 organizations may be actually run for the benefit and at the behest of a single person or a narrow group, some firms organised strictly along the lines of a limited liability company can respond fully to the third model described here (think of many Japanese firms, for instance). The specific mechanisms used to attain this end can be very varied: quality circles, profit-sharing, flat structures, collegial mechanisms, job enrichment, performance bonuses, office parties, and a very long etcetera only limited by human ingenuity.

VI. PRIORITIES IN THE FIRM'S RESPONSIBILITIES We are now in a position to try and draw up some guidelines to determine the relative order of priorities in the responsibilities of a firm. Basically, this order of priorities can be derived from principles we have already tried to justify in prior sections of this book. The main ones are: a) Firms have a responsibility to act ethically because individual human beings have that responsibility, both in the occasions in which they act on their own and in those occasions in which they act tly with others. Accordingly, the principles which we discussed in chapter III in respect of individual actions also apply to the actions of companies. b) In several important respects firms have special responsibilities towards their and these responsibilities deserve to be given priority. Who are the ? As we have just argued, in most ordinary circumstances shareholders, managers and employees should be considered as The issues we are going to discuss can best be examined in the context of some specific examples that may lend some colour and concreteness to general principles. Think of the following brief scenarios, to some of which reference has already been made. 1. The Chief Executive of a new TV company has just received a memo from the station's Director of Programmes. The gist of it is that audience ratings to date are very disappointing and that it is imperative to take radical measures to increase audience. Among the new programmes proposed feature daily pornographic movies, a heavy increase in the violence content of films for children and increase of scandalous revelations about the private lives of prominent citizens. The Chief Executive is certain that following these recommendations would in fact increase audience. 2. XYZ Ltd is a distiller and marketer of spirits. The company has distilleries in Calabar and Lagos. The results of the company for the last five years have been quite satisfactory and shareholders have obtained significantly above average returns. Following expansion of its facilities in Lagos, the company has decided to close the Calabar distillery as concentrating operations in Lagos will lead to substantial cost savings. Closing of the Calabar distillery will lead to the retrenchment of 85 workers who have been with the company an average of 21 years and have served it loyally during this period. There are two alternative proposals before the board: a) give one month notice to the workers and retrench them without further

101 benefits; this is what is provided for in the contract each worker has signed and, in the special circumstances of this firm, it is legal according to the laws of the country; and b) give each worker a significant voluntary gratuity on retirement. This would reduce by 40% the expected profits of the company for the year. 3. A,B,C & Co is an advertising agency founded and owned by Messrs. A, B and C. A total of 14 professionals and 21 non-professionals work in the agency. Everybody in the agency, including Messrs. A, B and C, has a salary commensurate with market levels in the industry in Nigeria. The present value of the investment in the business of A, B, and C is about N3m and is represented basically by equipment. In the last year the agency made N4m profit. At present the agency has no need to expand its capital base. The partners are now considering the following alternatives: a) share the profit exclusively among the partners; b) share N2m among the partners and N2m among the rest of the staff in proportion to their estimated contributions during the year to the success of the agency; and c) share N4m among all the staff (including the partners) in proportion to their estimated contributions during the year to the success of the agency . 4. ABC Commercial Bank Plc has a total of 40 million shares outstanding; the average share price this year has been N5.20. The bank made this year a profit before taxes of N61,280,935. The Chief Executive has presented to the board an ambitious programme of charity donations for the year totalling N12,000,000. Proposed donations include N1,000,000 shared among several universities, N2,000,000 for a prestigious business school in Lagos, N4,000,000 for university and secondary school scholarships, and N5,000,000 for the promotion of the arts in Nigeria. During the board's discussion of this issue four main positions have been defended: a) approve the programme as presented; b) reduce it by 50%; c) reduce it by 90%; and d) do not make any charitable contributions. 5. A shipbuilding company in a developing country needs to open a new shipyard. The most convenient site to them is in a costal city which has a high level of unemployment and underemployment. However, the site is relatively small and is surrounded by a high density residential neighbourhood. The noise generated by the operations of the yard is likely to prove disturbing, though not unbearably so. The shipbuilding firm has studied the possibility of offering to pay for the relocation of the residents of the area who live close to the intended site, but the costs of this are very high and would have a decisive negative impact on the economics of the project. Still, the local government authorities are extremely keen on attracting the shipyard to their city and even a large proportion, though not a majority, of the residents of the affected neighbourhood are in favour of the opening of the new shipyard. The directors of the company are now considering what to do. 6. XYZ is a pharmaceutical company which operates in a developing country. It wants to market a new sleeping pill which it has developed and which the company feels has a tremendous market potential. Since XYZ is in bad financial condition after having invested over two million dollars to develop the drug, the Chief Executive wants to launch the new drug as quickly as possible. Research indicates that the drug, though very effective, has

102 harmful side effects on unborn children. The company now wants to decide among three alternatives: a) to go ahead anyway, putting on the container a small label which will read, "Not to be used by pregnant women;" however, the carelessness of many people in reading labels makes it virtually certain that some pregnant women will take the drug and will give birth to deformed children; b) to order the research department to continue research until the harmful side-effects can be eliminated; in the considered opinion of the directors, however, this is likely to result in either having to close the company and put some five hundred people out of work, or merge with a larger company which has been trying to buy them up for some time; and c) to put prominent warnings on the bottle and market it only through doctors who will have been adequately warned. This will reduce greatly the risk of pregnant women taking the drug, but will also reduce by 85% the projected profits from the drug. What are then the specific priority rules capable of casting some light on these and similar problems? In the first place, and most basic of all, it is never consistent with a basic ethical stance for a firm to inflict directly willed harm on a human being. This is a straightforward application of the principle which was discussed in chapter 3. On the basis of this principle, the option of broadcasting pornographic, defamatory, violent or otherwise harmful material, in scenario No. 1, precisely in order to hook the spectators through those very characteristics of the programmes, would be excluded. This principle, as such, however, would not exclude the marketing of a dangerous drug (scenario No. 6), as in that case the potential danger to customers is a collateral effect of an otherwise acceptable business objective. Of course, this does not mean to say that there are no ethical objections to the marketing of such drug, only that such objections do not derive from the principle we have just cited. Secondly, a firm must not choose courses of action which have side effects which are harmful to others if this is incompatible with fairness; in this context, and the reader might at this point wish to refer back to the discussion of fairness in chapter 3, what the principle of fairness demands is to accept harmful side-effects to others only in these occasions in which one would judge that the goods obtained through the company's action would justify accepting the incidental harms even if one's own company, to which one is attached both through self-interest and on an emotional basis, were not the one involved in the issue; alternatively, there is also unfairness if one would not accept the incidental harms (or risk of harms) if they were to be suffered by one's dear and near instead of by strangers. On this basis, for instance, most of the experienced managers with whom the present writer has discussed the scenario of the drug with harmful side-effects have concluded that the company should either continue research, or market the drug only through doctors and use prominent warnings on the bottles. However, the standard of fairness would not seem to require the shipbuilding company in the developing country not to build a new shipyard in the city affected by high unemployment. After all,

103 all of us accept to suffer some uncompensated side-effects as a consequence of the activities of our neighbours and bear with them as a quid pro quo for the benefits we derive from living in society13. Thus all of us suffer inconveniences from traffic congestion, all of us accept the chance of being victims of traffic accidents for which we will not be compensated if there is no negligence in those who cause them, and all those who live near airports have to put up with the noise of planes landing and taking off. It is true that as society becomes more prosperous it becomes possible to insist that many of these nuisances be abated or at least that innocent victims be compensated in full for the harms they suffer. But this is a gradual process and poor societies cannot afford to be as fastidious as rich ones; at any rate, there will always be inconveniences that cannot be compensated and readiness to exercise a measure of forbearance will always be an essential requirement for living in community. Keeping these considerations in mind, it would not seem unfair if the neighbours of the new shipyard have to suffer some inconveniences for which they cannot be compensated, but which are not apparently higher than other inconveniences they suffer from other people or than those that they themselves cause to others, also without compensation, especially if one keeps in mind the expected long-term benefits to the larger community. Elementary duties of fairness include also complying with the just laws of one's community; avoiding deception or any form of undue exploitation of one's customers; and abiding by one's contractual commitments including especially: paying principal and interest to creditors, providing for shareholders a return commensurate with the degree of risk they incur, and paying employees fair salaries14. We can call all of the duties referred to up to this point a company's primary responsibilities. All these primary responsibilities constitute definite moral duties. Accordingly, until they have been discharged there is no point in a company assuming any further social responsibilities. That would be similar to the case of a father contributing money to a campaign to save endangered whales while he is still unable to feed his children. If a company generates enough revenue to enable it discharge all of its primary responsibilities, its next priority should be to try and ameliorate as far as possible the negative side-effects produced by its activities. This can be done either by reducing or even eliminating them completely, or perhaps by compensating totally or partially the persons or communities affected by them. We can think, for instance, of an oil company which causes pollution in the areas where it operates. It is obvious that the company did not "intend" either as its end or as a means to 13

14

This issue is treated by FRIED (1) ch. 11 through the concept of the "risk pool."

The assumption here is that in the case of employees it is not enough in order to act ethically to pay a salary to which the employees have agreed, or even a market salary; one ought to pay a fair salary which in most ordinary circumstances ought to be sufficient to provide for the needs of the worker and his or her family. For this see chapter 6.III.

104 pollute the environment; we can also assume that accepting the pollution as a side-effect of its oilproducing activities was fair given how important it is for the country that oil be exploited. But this is not enough. If after the company has discharged its primary responsibilities there is still a surplus available, the next priority should be either to control pollution by going beyond the means demanded by the law and/or compensate the communities and individuals directly affected by the unabated pollution. These are real costs incurred by the company's oil drilling activities and until they have not been avoided or compensated there is no true economic surplus. In truth the source of the "profits" would be the uncompensated harm caused to the people affected. Obviously, similar considerations would apply to the shipbuilding company in our scenario no. 5 if its operations proved more successful than originally expected. The negative side-effects of a company's activities can be of many types: pollution of the environment, injuries caused by the improper use of its products by some customers through no fault of their own, deadening effect on some employees of the monotony of the tasks they have to perform, strains on the family life of employees who are subject to transfers or frequent travelling, traffic congestion caused by parking around the company's premises the cars of its employees and customers, etc. Once a company is able to generate extra wealth beyond what is needed to discharge its primary responsibilities and to avoid and/or compensate for the negative side-effects of its activities the next priority in justice is to increase the rewards of its managers, employees and shareholders so that they will participate in the prosperity they have helped create with their contributions. This can be done in many different ways. Managers and employees can be given better salaries or conditions of service, greater job security, special bonuses, opportunities for more personal development, and so on. For shareholders, the company can receive higher dividends or, alternatively, it may follow policies that are likely to lead to an appreciation of the value of the shares. The reader will realise that the thesis defended in the last paragraph depends crucially on the assumption that these three types of people are the of the company. Somebody who believed that the company really belongs exclusively to the shareholders would have included only them at this point. A person with that belief would think that the responsibilities of the company to its managers and other employees would have been discharged fully once the company had complied with all its contractual obligations towards them. However, because we believe, on the basis of the reasons advanced in the previous section, that, outside of cases in which special circumstances obtain, managers and employees are "part of the company," it follows that we consider it a responsibility of the company to make them participate in any surplus they have contributed to generate, over and above their strict contractual entitlements.15 15

It is of interest to note in connection with this that one of the eight principles of practice of excellent companies that Peters and Waterman identified in In Search of Excellence was precisely "Productivity through people - creating in all employees the awareness that their best efforts are essential and that they will share in the rewards of the company's success" (italics added). The point of course is that doing what fairness demands pays in of commitment and productivity.

105

If the above points are cogent, it would follow that there are good arguments to think that, among the options which we are offered in the example of the profitable advertising agency (scenario No. 3), distributing the profits among the partners and the staff is the most adequate. Also, on the basis of these principles, it would seem quite unfair to retrench without any compensation the workers in the Calabar distillery (scenario No. 2), even if the law allowed it. However, even at this point one cannot say that all this surplus "belongs" to managers, employees and shareholders, to the exclusion of everybody else. The reason for this is that no material resources ever belong to anybody, not even to individual human beings, in that absolute manner. This point is very basic and it would take us too far to try to argue fully for it here. Basically, we are stating that "ownership" is never an absolute right but rather an institution that is justified only in so far as it contributes effectively to the satisfaction of the needs of all human beings.16 As the point is controversial and will not be justified here we will state it in a conditional manner: in so far as no individual is absolutely entitled to squander scarce resources while other human beings are in need, and in so far as a reasonable use of human resources demands that their "owners" see themselves as holding them ultimately as "s" which must take into consideration the needs of all those around them, these same principles also apply to groups of individuals holding resources together. In using and sharing them they must take into those social and individual needs in their communities which are unsatisfied through other mechanisms. Here it is worth making the point that in practice it is greatly to the common good "to allow a hundred flowers bloom," that is to say, to have many centres of initiative providing funding for social needs, rather than depend exclusively on state funding, which often is bureaucratic, insensitive and even ideologically exclusive. There is still a third main reason which justifies the practice of companies which make contributions to institutions of an assistential, educational, cultural or similar nature. The firm benefits from the existence of a healthy society, and this condition results in part from the voluntary contributions of many individuals and groups. In Nigeria, for instance, such contributions in the form of levies, donations in launchings, and voluntary work of different kinds, are extremely common. It would be free-riding for a firm to benefit from such voluntary work by its neighbours while following a policy of not making any voluntary contributions. What are the limits of these contributions is a question incapable of receiving a precise answer, but perhaps a basic point can be made. The size of these contributions should usually be quite modest in relation to the profits of the firm making them. There are four main reasons for this: first, that the other responsibilities of a company will of themselves tend to absorb a lot of resources; 16

The issue is discussed in some detail in ELEGIDO (4).

106 second, that the company already pays taxes which quite properly constitute the main vehicle through which it contributes to the general needs of the society; third, that as Baumol and Blackman have observed "the business executive who chooses voluntarily to spend until it hurts on the environment, on training the handicapped, or on of higher education is likely to find that he is vulnerable to undercutting by firms without a social conscience that, by avoiding such outlays, can supply outputs more cheaply17"; and, fourth, that a company will usually contribute more effectively to the common good by using surplus resources to expand its operations and develop new and better products and services related to its core expertise than by seeking to assess and solve an unlimited number of unrelated social needs about which it has no especially valuable knowledge. All this does not mean that these contributions to worthy causes should be reduced to zero, for the reasons which recommend making them are real and have weight, but it means that they should be of a relatively modest magnitude. To get a sense of scale, it may be useful to point out that, among generous U. K. companies, the percentage of pre-tax profits spent on charitable activities averages a little over 0.5%; American companies are much more generous, but even there the corresponding proportion is less than 2.5%.18 If these considerations are sound one would recommend that the profitable bank in our scenario no. 4 devote about N1.2m to donations rather than, on the one hand, make no donations at all or, on the other hand, give N6m (almost 10% of profit before taxes) or N12m (almost 20% of profit before taxes). The considerations which were advanced during our discussion of the principle of roleresponsibility in the last chapter are very relevant at this point. As we suggested there, the specific responsibilities of companies towards the service of the common good of the society in which they operate cannot be captured in a standard list, which would apply equally to all companies, any more than such a list could capture the specific responsibilities of individuals. In the same way as the political activist, the housewife, the boy-scout leader, the community fund-raiser, the parish council chairman, and so on, have each chosen different and specialised ways of serving the common good, often in addition to their own professional responsibilities, some companies have created a tradition of innovation and excellence in some area of service to the society such as care for the environment, community , improvement of business ethics, or empowerment of employees. A company which has such a traditional commitment has a very strong reason to keep building on it for so long as it remains compatible with discharging its own primary responsibilities and is still an effective way of promoting the common good of the community. The above criteria can now be summarised in the following set of priorities for the responsibilities of a firm. Managers may find this prioritised list helpful in making decisions on 17

18

BAUMOL AND BLACKMAN p. 53.

FOGARTY AND CHRISTIE p. 121. See also Charity Aid Foundation, Charity Trends, Tonbridge, 15th ed., 1992.

107 social responsibility issues: i) A company's first responsibility is to discharge its primary responsibilities. These include not to harm anybody intentionally; not to undertake activities which have harmful collateral side effects except with proportionate reason; to comply with the law; not to engage in deception; to contract fairly and discharge its duties under its contracts, especially those to consumers, creditors, suppliers and employees; to provide the shareholders with a return commensurate with the level of risk they assume. ii) Once the above has been accomplished the next priority is to minimise even these harmful side effects which it is not unfair to accept and if this is not possible to compensate the parties affected. iii) If enough revenue has been generated to satisfy the above responsibilities, then four other responsibilities have to be discharged among which no generally valid rules of precedence can be established. It is reasonable to try to satisfy them simultaneously. In what proportions should resources be assigned to each of them will depend on all the circumstances of the case. These four areas of responsibility are: - To make employees and shareholders share in the prosperity they have contributed to create. - To with a relatively small share of the firm's profits to worthy initiatives in the community. - To expand and/or improve the company's operations, thereby contributing to job creation and to the satisfaction of needs and creation of wealth in the community. - To devote resources to sustaining and strengthening the company's special traditions of service to the common good of the society. VII. THE OVERARCHING GOAL OF AN ETHICAL BUSINESS FIRM It is often said that the end of business is to make profits. Attentive readers may have asked themselves while reading this chapter how far that statement is affected by the arguments we have presented in it. To say that "the end of business is to make profits" is ambiguous. The sentence is framed in the indicative mood, and as such it seems to describe what business firms do. However, most people using it do not really wish to say that in fact all firms are managed with the exclusive end of making profits. And if that is what they wanted to say, they would be making a statement which is demonstrably untrue. We all know many firms which are not run in a way likely to maximize their profits. Firms may in fact be run with a view to attain any among the following objectives, or a mixture of several of them:

108

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Make money for the managers (as opposed to making it for the firm itself). Ensure that the present managers remain in control (even if this is not conducive to highest profits for the firm). Keep a tempo of operations that allows the firm to survive while not being too demanding on the managers. Increase the profits of another firm (e.g., a parent organization). Increase the political clout of the owner (think for instance of many a newspaper or media organization) Etc., etc., etc.

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I am sure that every experienced reader realizes that the list could be made indefinitely longer. As a matter of fact, on reflection it is surprising how few firms are really run with a singleminded desire to maximize their profits19. Somebody who argues that "the end of business is to make profits" is not likely to be put off by the above observations. His likely reply is that he knows well that many firms fail to be run in a way that will make as much profit as possible, but that what he means is that "business firms ought to be run with the end of making profits" and that successful business firms are in fact run in that way; he may also add that we can say that a business is successful precisely because it makes more money than its competitors. It is true that if what we are talking about is not what are in fact the goals of business firms, but what they should be, the most popular candidate is "maximising profits." I would like to argue, however, that this is a very poor candidate for a measure of business success. It has three fundamental shortcomings: a) It is seriously defective from an ethical point of view. The reasons why a consistent policy of maximising profits would be ethically wrong have been discussed above in our criticisms of Friedman's position. Basically, the problem is that a firm which endeavours to maximise profits will have to act in several immoral ways; it will also have to fail to recognise some important responsibilities it has, notably those towards its managers, employees, customers, and the wider community. b) It is also seriously defective from a practical point of view. By telling important groups such as managers and employees, that they are strangers to the firm, mere hired hands, it will tend to alienate them and limit their commitment to the firm's success.20 19

SIMON and CYERT AND MARCH have provided elaborate defences of the position that business firms do not pursue coherent objectives. According to them organizations are best viewed as shifting coalitions in which different factions pursue different agendas. Simon received a Nobel prize, in good measure on the basis of his work on this issue. 20

As a matter of fact the evidence is that successful firms are not run in that way. Thus, for instance, one of the main conclusions of COLLINS AND PORRAS' landmark study of 18 especially successful

109

c) It is unduly ethnocentric. It reflects the values and preferences of a single culture (the AngloAmerican one) and it fails to reflect many other value preferences, even those of areas like continental Europe21 and Japan22, which have great economic weight. The view that firms should be managed with a view to generate maximum returns for their shareholders is a traditional one in the U.K. and U.S.A., and one that has been strongly emphasised in those countries in the last 15 years, in part by the constant threat of hostile takeovers pending over the head of managements which fail to satisfy the expectations of their shareholders, and in part by recent academic work.23 The view that is dominant in Japan is very different: Japanese companies see their shareholders as only one, and by no means the most important, among the constituencies which they have to satisfy24. The typical continental European view stands half-way between the other two and closer to the one we defended in section V of this chapter. Accordingly, it would be misleading to compare the performance of, say, an American and a Japanese company by comparing their reported profits. The Japanese company may have been more innovative and efficient and have created more value than its American counterpart. However, as the Japanese company puts emphasis on distributing that value to its employees through higher salaries and greater stability of employment, and to its customers, through lower prices, and all such payments and expenses, which in substance represent distributions of the value created, are treated in the s as costs (i.e., as if they represented reductions of the value created) its ing profits will understate the economic value it has created. The American company, on the other hand, may have created less value to begin with, but as it tries to as little as possible of it to anybody but its shareholders, it may be able to report a higher profit. Why is it intuitively appealing to use profit as a measure of the performance of a company? Because it seems to represent a summary way of assessing how effectively a company has used its economic inputs in the production of valued outputs; in other words, profit seems to offer a good companies is that "...'maximizing shareholder wealth' or 'profit maximization' has not been the dominant driving force or primary objective through the history of the visionary companies...Yet, paradoxically, the visionary companies make more money than the purely profit-driven comparison companies." (p. 8). 21

For and see ALBERT.

22

See ODAGIRI.

23

The work of RAPPAPORT and JENSEN (1) has been especially influential. The title of the book written by the first of these authors is particularly explicit: Creating Shareholder Value: The New Standard for Business Performance. 24

However, as Kay points out, this has not worked to the detriment of investors in Japanese securities. Total returns from investment in Japan have been outstanding in the long term (KAY, p. 367). As the same author observes, in so far as it inhibits the formation of trusting relationships with other groups, an exclusive preoccupation with the interests of one stakeholder group may not serve the interests even of that group.

110 measure of economic efficiency. However, as we have pointed out, using profits as a measure of efficiency confuses two different issues, creation of economic value and distribution of economic value, and does so in a way that systematically penalises those who, no matter how effectively they create value, have a belief system that leads them to distribute widely the value created. In other words, by using profits as a measure of efficiency we may be led to praise not the most efficient but the most stingy. If we want to measure how effectively a firm has performed the economic function of transforming low-value inputs into high-value outputs we cannot use conventional ing measures,25 but have to rely instead on economic value and economic costs. From this point of view a true measure of the value created by a firm is the economic value of its outputs26 minus the economic cost of its inputs. This adequately measures the loss which the economy would suffer if that firm were to be broken up and its human and material resources redeployed to other uses. The economic cost of an input is accurately measured by its opportunity cost, that is to say by how much that input would have yielded in its next best alternative use27. Thus for instance, the economic cost of the labour used by a firm is better measured by how much the firm's employees would have been paid in the best alternative job open to them than by the amount its present employer pays them. The former is a good measure of the opportunity cost of that labour; the latter may include, besides that opportunity cost, a share of the value generated by the firm, which this is distributing to its employees. There is little doubt, for instance, that the amount paid as salaries and bonuses by a successful Lagos bank does not represent the minimum amount for which a hard bargainer could have persuaded that cadre of employees to work for the bank, but in good measure reflects the fact that the bank is redistributing to its employees some of the value it has created. That this is the case can be seen clearly enough by observing what happens to the earnings of many such employees when they stop working for a successful bank. Another area in which we find large differences between ing figures and economic 25

There is a very long tradition among economists of criticising the economic significance of ing profits: see HARCOURT and FISHER AND McGOWAN. 26

That is to say, strictly speaking, how much its customers would be ready to pay for the goods or services provided to them by the firm. As there is no practical way of finding out reliably how much that would be, the price actually paid by customers has to be taken as a measure of the value to them of the goods or services they have bought. 27

In much of my discussion in this section I draw heavily on KAY, chapters 2 and 13; for more details see DAVIS, FLANDERS AND STAR. However, where Kay speaks of added value I prefer to speak of value created. I do so simply in order to avoid confusions among highly VAT-conscious readers. My departing from him in some more substantial issues is due to the fact that, in my view, he tries to define added value in as operational a way as possible, while I am more concerned here with conceptual clarity than with facilitating computations. As Kay points out, the concept of economic value used here, called rent or super normal profit by economists, goes back to RICARDO, and the idea that rent-seeking is the primary objective of economic activity was developed by SCHUMPETER.

111 concepts is the measurement of capital costs. The conventional ing measure of such cost is given by depreciation charges plus interests costs, which are incurred only when the source of funds is borrowed money. There can be alternative ways of obtaining an estimate of the true economic cost of the capital employed in the business, but at a minimum it will have to reflect a charge for the annual depreciation of the fixed assets (ideally computed on a current cost basis), plus another charge for the economic cost of the funds used, which will have to reflect both the riskless rate of interest in the economy and an extra interest to cover the risk of the specific firm in which the funds are invested. Often, there will be a difference between the actual return to shareholders (taking into both dividends and capital appreciation) and the minimum return that would have been required to persuade them to invest their funds in the firm; this difference measures the share of the value created by the firm which accrues to shareholders. Sizable differences between the reported profits of a firm and the value it has created can arise in situations of monopoly. A monopolistic firm may fail to create any value, but may nevertheless make large profits and pay out sizable dividends to its shareholders. That can happen because a monopolistic firm is in a position to appropriate value from consumers, even though it has created none. Another source of large differences between profits and the value created by a firm may result from externalities. Thus, for instance, electric power generated in a nuclear power station may seem relatively cheap. Its low cost, however, may be due to the fact that the electricity company only takes into those costs for which it is made to pay. If its s were to reflect the costs that it may be imposing on hundreds of future generations by creating radioactive waste that will have to be stored safely for thousands of years, the profit picture could be very different. Whenever the operations of a firm impose large costs to the community for which the firm is not forced to pay it may well be that the firm is actually destroying value rather than creating it28. The preceding paragraphs have outlined the main differences between conventional measures of profit and creation of economic value. The reason why we have spent time on this issue is that after this discussion we are in a position to define a reasonable overall goal for business firms. While for a firm to seek "to maximize profits" would be, as we have seen, open to very serious objections, to seek "to create as much economic value as possible in a way consistent with all the responsibilities of the firm and to distribute this economic value fairly among its stakeholders" would be quite appropriate. In this statement economic value should be understood in the way defined in the preceding paragraphs. The main principles which govern a fair distribution of that value among stakeholders have been outlined in the preceding section of this chapter. Notice, however, two points in the formulation of this goal. In the first place, the creation of economic value is expressly stated to be subject to the constraint of discharging all other responsibilities of the firm. In the second place, there is no question of stating, expressly or by 28

The opposite situation may also arise. A firm may be unable to appropriate a large part of the value it has created. This may happen, for instance, when a firm makes an important innovation, which cannot be protected and is quickly imitated by its competitors.

112 implication, that all firms are under a duty to try to create "as much economic value as possible." This is "reasonable," "appropriate," and quite "legitimate," but not "obligatory." Why? As was pointed out before, business firms in fact seek a wide variety of goals and there is nothing inherently unethical if all the of a firm agree to emphasise certain non-economic goals. Think for instance of a newspaper or publishing house keenly interested in ideological goals or of the businessman who sets up a business in his home town with the main objective of providing employment opportunities. For as long as the people ing such firms are not misled about their real objectives, and such objectives are not in themselves immoral, it is difficult to see what exactly would be wrong with pursuing them.

VIII. SUMMARY The position that the only responsibilities of a business firm are to keep the law and increase its profits is not sound. This is because a) moral responsibilities go beyond legal duties; b) groups, and not only individual human beings, have moral responsibilities; c) the claim that all the economic surplus generated by a company belongs exclusively to the shareholders has no basis in law, in accepted practice, or even in the expectations of most shareholders; and d) by itself the "invisible hand" of the market can guarantee neither the highest economic efficiency nor an all-thingsconsidered satisfactory distribution and use of economic goods. The position that the main responsibility of business firms is to balance the interests of all their stakeholders is not sound either. A firm's responsibilities towards its are stronger than those it has towards other stakeholders. Outside of special cases a firm's "" are its managers, employees, and shareholders. In order of priority, a firm's main responsibilities are as follows: i) A company's first responsibility is to discharge its primary responsibilities. These include not to harm anybody intentionally; not to undertake activities which have harmful collateral side effects except with proportionate reason; to comply with the law; not to engage in deception; to contract fairly and discharge its duties under its contracts, especially those to consumers, creditors, suppliers and employees; to provide the shareholders with a return commensurate with the level of risk they assume. ii) Once the above has been accomplished the next priority is to minimise even these harmful side effects which it is not unfair to accept and if this is not possible to compensate the parties affected. iii) If enough revenue has been generated to satisfy the above responsibilities, then four other responsibilities have to be discharged among which no generally valid rules of precedence can be established. It is reasonable to try to satisfy them simultaneously. In what proportions should resources be assigned to each of them will depend on all the circumstances of the case. These four areas of responsibility are: a) to make employees and shareholders share in the prosperity they have

113 contributed to create; b) to with a relatively small share of the firm's profits worthy initiatives in the community; c) to expand and/or improve the company's operations, thereby contributing to job creation and to the satisfaction of needs and creation of wealth in the community; and d) to devote resources to sustaining and strengthening the company's special traditions of service to the common good of the society. Because of the reasons advanced above, and of the limitations of ing profits as a measure of economic effectiveness, it is not sound to view the end of a business firm as being to maximise its profits. However, it is quite reasonable to posit as the overarching objective of a business firm: "to create as much economic value as possible in a way consistent with all the responsibilities of the firm, and to distribute this economic value fairly among its stakeholders." Even this objective, however, is "reasonable" and "legitimate" rather than "obligatory."

CHAPTER 5.- RESPONSIBILITIES TOWARDS CUSTOMERS I. INTRODUCTION There are two opposite ways of conceiving the relations between businessmen and their customers. We will call the first "The Warfare Paradigm." According to this paradigm the overriding objective of the business person is to advance, at all costs, his own individual interests; towards this end he engages in a never ending war against his customers in which he tries to get as much as he can from them. Of course, the war is one of wits, but it is none the less deadly and intense for that. Some minimum ground rules are necessary to prevent this war of wits from escalating into the real thing and therefore it is recognised that fraud, force and (in some contexts) outright abuse of monopoly power should be excluded. But outside that, "all is fair in war and love (and business)." Businessmen who operate within the Warfare Paradigm smile at their customers, bow before them, proclaim that "the client is king" and "the customer is always right," but for them these are only tactics designed to lull their customers into a sense of security in order to better fleece them. But not everybody conducts business that way. There is also another paradigm that we can call "The Service Paradigm." Businessmen who follow it see their relationship with their customers as one of co-operation. They do not seek to exploit them but to co-operate with them, by making available to them products or services which actually solve their problems or help them live richer and more fulfilling lives. These businessmen need money as much as everybody else and therefore endeavour to get paid for their efforts, but the crucial point is that they do not think of this payment as the spoils they won from those who were less shrewd or less ruthless than them, but as their fair reward for the value they have created for their customers. Their relationship with the client is not one of charitable beneficence, but it is nevertheless one of real co-operation. Which of these contrasting visions tends to guide one's business life has great practical importance. Consider the following selections from an article which appeared in 1990 in Sports Illustrated1: "In a country that has long been hung up on style over substance, flash over depth, the athletic shoe and sportswear industries...suddenly have come to represent the pinnacle of consumer exploitation. In recent months the industries... have been accused of creating a fantasy-fuelled market for luxury items in the economically blasted inner cities" The author of the article then proceeded to chronicle episodes of violence and even death in robberies whose objective was to steal the victims' sports shoes and went on to say: 1

"Senseless," Sports Illustrated, May 14, 1990. See also "Has Sneaker-Madness Gone Too Far?" Newsweek, December 18, 1989.

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"Something is very wrong in a society that has created an underclass in which pieces of rubber and plastic held together by shoelaces are sometimes worth more than a human life. The shoe companies have played a direct role in this. With their million-dollar advertising campaigns, superstar spokesmen, and over-designed, high priced products2 aimed at impressionable young people, they are creating status from thin air to feed those who are starving for self-esteem...There is also the specific targeting of young black males as buyers, through the use of seductive, macholoaded sales pitches presented by black stars." The issues of fact involved in this story are too complex for us to try to adjudicate on them here. The interesting point for our present purposes is that some people are ready to grant that the facts could well be as claimed by the writer of the story and still say: "Don't I have the right to sell as much as I can if I am not cheating anybody?" Chances are that somebody who speaks in this way thinks of business relationships according to the Warfare Paradigm. A person who sees his relationship with his customers as one of co-operation is more likely to conclude that the real issue at stake is that, if the facts were as the author of the article claims, these companies, far from serving many of their clients, would be harming them. If that were the case a Co-operation Paradigm businessman would have to think of changing policy, irrespective of his "rights.3" People who adhere to the Co-operation Paradigm do so for different reasons. Many do so simply because they have found in practice that it leads to success in business. An even better reason to follow this paradigm is that, unlike the Warfare Paradigm, it fits in easily with a moral life. We already expounded in chapters 1 and 3, and we will not repeat them here, the reasons why it is simply impossible to make the most out of one's life without seeking actively to make it also possible for the people with whom we relate to make the most out of their own lives. Now, it evidently makes no sense to try to conduct one's life according to principles like those of intelligent action and solidarity, and then, when it comes to one's business life, switch gears and concentrate on exploiting people as much as possible. If it also turns out that trying to serve one's customers as thoroughly as possible, far from being a short path to ruin, actually is a positive help for consistent business success, what other reasons does a reasonable man need to embrace the Co-operation Paradigm? Of themselves, the above arguments only tend to show that the Co-operation Paradigm is preferable to the Warfare Paradigm. We can go beyond this and show that the Warfare Paradigm is unethical in itself because it violates some of the fundamental principles we discussed in chapter 3. Most people who operate according to that paradigm will often go against the principle of fairness as they will treat others in ways in which they themselves would not wish to be treated. 2

Many companies had models retailing for considerably more than $100, with Reebok Pump leading the parade at $170. 3

Actually the concept of rights is far more complex than most people think. See ELEGIDO (3) ch. 9.

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However, this does not have to be necessarily the case. One sometimes finds businessmen who give no quarter and ask for none and are ready to be treated in exactly the same way in which they treat others; such people argue that they are being unfair to nobody, and in this they are right. But, of course, the principle of fairness is not the only ethical principle. Even if they avoid offending against the principle of fairness, such businessmen certainly intend to harm their customers and engage in actions which constitute direct attacks to the social good of harmony among people, which in a very important way is constituted by the existence of an order of co-operation and fair relations among people. In so doing they are breaching another fundamental ethical principle and their actions are immoral. The conclusion is therefore that in order to do business ethically one has to follow the Cooperation Paradigm. Still, some qualifications are necessary. The first is that a business firm cannot pretend to be the conscience of each and every customer. Once the firm has used reasonable means to prevent customers from suffering harm as a result of its activities, it would be inappropriate for it to try and arrogate to itself the right to make the customer's decisions. One has to determine one's policies on the basis that one's customers are real persons, deserving of one's help and respect, not mere means for the satisfaction of one's desires. But precisely because they deserve this respect one also has to assume that ultimately each customer is the best judge of what is in his or her best interests. Thus, for instance, one probably should refrain from aggressively marketing extremely expensive shoes to impoverished youths, but still, if a poor-looking youth whom one does not know walks into one's shop and insists on buying a top-of-the-line pair of athletic shoes, it is not one's role to refuse to sell them and insist on his expending that money in improving his education. Another important qualification to the idea that one has a responsibility to try to be of actual service to one's customers, is that one will sometimes be justified in accepting that some harmful side-effects may follow from one's well-intentioned actions. Thus, for instance, a conscientious beer brewer who in no way is trying to encourage drunkenness knows perfectly well that, as a matter of statistical certainty, some of his customers will get drunk; even more, he also knows that some of them will drive in that condition and will cause accidents. But in most circumstances it will still be fair for that brewer to accept these harmful collateral effects of its otherwise legitimate activities4. Another realistic consideration that should temper businesspeople's zeal in trying to cooperate with their customers is that in some cases the very people they are trying to serve may be intent on taking advantage of them. One cannot act on the naive assumption that "people are angels (all of them)". It is fully justified to take appropriate defensive measures to protect one's own interests. Speaking in general all that can be said is that one should adopt an attitude of cooperating with one's customers "as much as circumstances allow." What circumstances allow will vary from time to time and from place to place. 4

This point is expanded in the next section.

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Still, after one allows their full due to the above qualifications, the fact that somebody holds to the Co-operation Paradigm should make a great deal of difference to the way in which that person conducts business. II. PRODUCTS The Products Themselves There are ethical issues involved in the decision to launch a certain product rather than another. From a positive point of view, the most obvious way in which firms contribute to the wellbeing of human beings is through their products and services5. In so far as a given firm has a special ability to produce products that will contribute to the satisfaction of important needs of some human beings, or to enhance the quality of their lives, it is clear that, by that very fact, it has a special responsibility to do so. A good example of the issues at stake in this type of decisions was provided by Merck when it elected to develop a drug to cure river blindness, a disease that affected over a million people in Third World countries. The company made this decision knowing that the project was unlikely to produce an attractive return on investment, because of the poverty of most of the people suffering from this disease. Merck's attitude was that it could not make that decision on the basis of purely economic considerations. Its special ability to make an important contribution to human health placed an ethical responsibility on it6. Of course, a firm has also other responsibilities, such as to keep being an effective supplier of its present portfolio of products, safeguarding the jobs of its employees, providing returns for its suppliers of capital, and so on. Accordingly, it may well happen that on reflection, it will conclude that all things considered, there are good and sound reasons to regretfully have to leave the needs even important needs- of some potential customers unsatisfied. But the basic point is that satisfying the needs of one's customers has in itself great ethical significance. From a negative viewpoint, many products offered in the market are actually harmful to those who consume them. Beyond obvious cases like sale of drugs or prostitution, which are often illegal, consider, among many other possible examples, the following instances. A computer programme called the Mac-Playmate allows the player to get a computer graphics female to strip and force her to engage in a variety of sexual acts utilising devices chosen from the options menu, which includes instruments such as handcuffs, shackles, spike-heels, and whips. The game even includes an escape command that will quickly project a spreadsheet on the 5

From now on whenever in this chapter we speak of products, the reader should understand that we are referring to both products and services if the context does not imply otherwise. 6

Reported in COLLINS AND PORRAS.

123 screen if a supervisor enters the game player's office7. Radar detection equipment has been marketed successfully to car and lorry drivers in many countries. The use of such equipment allows motorists to know when they are in the vicinity of active radar equipment of the type used by the police to ascertain the speed at which vehicles are moving. The purpose of the product is to help motorists break speed limits with impunity. One could also at this point the athletic sneakers referred to above. The point that such examples help to make clear is that the fact that there is demand for a product does not automatically justify one in providing it. The product may still be destructive for the or for society. The general point is that it is ethically wrong (because of its being certainly incompatible with the Co-operation Paradigm) for one to intend (rather than to accept as a side effect of an activity which has a different and constructive purpose) that one's customer obtain something which he should not obtain. At this point an important distinction should be made between products such as alcoholic beverages and firearms, which can be used in a non-destructive manner, and products such as drugs and, many would argue, tobacco, which cause harm when used as intended. While the production or sale of the former can be justified on the basis that their foreseeable destructive effects in the hands of some customers are only accepted, and this acceptance is justified by the many good uses to which they will be put by many other customers,8 such justification would not apply to the latter, precisely because they are not susceptible of being put to good use. Objectionable Product Features Another ethical issue that arises in relation to product policy is that of objectionable features in a generally beneficent product. Think for instance of the problem facing producers of breakfast cereals who know that the higher the sugar content of their product the more it will be liked by children. However, these producers also know that excessive sugar is harmful to children's health. A producer may say that ultimately it is the parents' responsibility to decide how much sugar is good for their children. And so it is, but this does not let the producer off the ethical hook. The fact is that many parents are uninformed, or just do not care. And one is still the party which produces the harmful product. What should one do? In the end, the standard of fairness demands that one should not provide to others a product that one should not wish one's near and dear to consume. 7

8

The example is taken from LACZNIAK AND MURPHY p. 99.

Of course, this should never constitute a blanket alibi for indiscriminate selling and advertising of all types of alcoholic beverages and weapons. It may be the case, for instance, that while the sale of some specific weapons may be justified (e.g. shotguns which can be used for hunting and defensive purposes, but which are practically useless to criminals), responsible suppliers will refrain from marketing other types to the general public (e.g. assault riffles, or "streetsweepers") as this would not be justified by applying the conditions for accepting harmful side-effects which were spelled out in section VIII of chapter 3.

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Planned Obsolescence Still another issue of product policy with ethical implications is that of planned obsolescence9. Different types of planned obsolescence should be distinguished. Postponed obsolescence refers to a situation in which the manufacturer of a product holds back the introduction of an improved version of it until present inventories of the old version run off. In the absence of a clearly exploitative intention there will usually be nothing wrong with this. It is true that one delays the delivery of a superior service, but this is done in order to avoid economic losses10 for which in the end somebody would have to pay: either workers through lower wages, shareholders through lower dividends, customers through higher prices, or a mixture of these and other stakeholders. In essence there is nothing wrong in trying to manage the process of introduction of new products in order to avoid such losses. Any harms caused (usually the negative harm of delaying a better service) will be collateral effects of measures legitimately taken in order to avoid other harms (losses in inventories). Built-in physical obsolescence. This is a question of intentionally deg a product or part so that its life may be shorter than could otherwise be attained, the end being to force the customer to buy again sooner than he would have done. To begin with, this has to be distinguished carefully from not building products to last as long as could be achieved. In this latter case there need not be any sinister motives. If building longer-lasting products is more expensive and customers do not appreciate the longer life enough to be ready to pay higher prices, all that one will be doing is following the legitimate preferences of the customers, that is to say, serving them. When it is a case of true built-in physical obsolescence, which does not pursue to attain lower prices, but a shorter life per se, then it would be an unethical practice in so far as it is not compatible with the Co-operation Paradigm. However, given the prominent part that allegations of this type of obsolescence habitually play in the tirades of enemies of the free market system, one should hasten to add that in any competitive market such practices are bound to be far less prevalent than such social critics would have us believe. Anybody engaging in them runs the risk of the apparition of a competitor who delivers a product with a longer life at the same cost. In a competitive market one would have to think long and hard before offering such obvious opportunities to one's competitors. Fashion Obsolescence. This refers to the practice of regularly introducing changes in styles which render unfashionable older products. Typical examples are the regular cycles by which wide 9

Our discussion of this issue builds on LACZNIAK AND MURPHY pp. 98-9 and SCHOELL AND GUILTINAN p. 331. 10

The sharp loss of value of inventories suddenly rendered obsolete by the new product.

125 ties make narrow ties outmoded, and pastel colours dethrone vivid colours. Here everything will depend of the objectives sought by the firms who introduce the new fashion. If their aim is to render obsolete the products they themselves recently sold to their customers, it is clear that we are outside the Co-operation Paradigm and inside the realm of exploitation and manipulation proper to the Warfare Paradigm11. Firms acting in this way not only hurt their customers' pocketbooks; they may actually do a deeper harm by encouraging people to believe that the only obstacle standing between them and happiness is the lack of enough material goods. However, a fast introduction of new models need not be motivated by exploitative intentions. Thus, for instance, such a policy among fashion firms who supply the youth market may be motivated by a realization that many of their customers place a high value on having a distinctive appearance. There is nothing intrinsically immoral in catering to such desires. Once again, it is impossible to draw a dividing line between ethical and unethical actions by looking only at the external behaviour of firms. In the end everything depends on the actual intentions of the decision makers.

III. SAFETY No ethical principle is less controversial than that which enunciates our duty not to harm others knowingly. Accordingly, to state that business firms have a duty to take reasonable care to make their products and services safe should raise no argument. However, the introduction of the term "reasonable" in the last sentence should have warned the alert reader that things are not as simple as one could wish. What is "reasonable" care? Obviously, it depends on the circumstances. The level of safety that is reasonably attainable will change as engineering knowledge increases, and thus, for instance, a car manufacturer that today made cars only as safe as it was possible to make them forty years ago would rightly be considered to be grossly negligent. What is reasonable care also depends on the cost of introducing safety features, the intended s, the circumstances in which the product will be used, and many other factors. Taking reasonable care in making a product safe is not at all the same as making that product as safe as it can possibly be made. It is always possible to make a product even safer than it is...at a cost. Thus, for instance, one can add to the safety of a car by adding safety belts, reinforcing the body, using heavier and generally stronger materials, and so on. But few of us would care to buy the resulting monster: a car resembling an armoured van on caterpillars. Such a vehicle would be 11

Besides trying to exploit their customers, firms acting in this way will be doing serious social harm by fostering waste in a world in which there are still far too many people unable to satisfy elementary needs. However, in this chapter we are focusing on the relations between firms and their customers. The wider effects of the actions of firms on the society are discussed in chapters 8 and 9.

126 expensive, uncomfortable, slow, and would consume frightful quantities of petrol and oil. In this as in many similar issues the beginning of wisdom is to realise that in the design of any product compromises have to be made among many objectives, and that, given the knowledge available at a given time, improvements in one of them often can be achieved only at the cost of reductions in others. Who should decide what is the appropriate balance among competing design objectives? On the basis of the general considerations we advanced in the introduction to this chapter, it seems clear that, in accordance with the Co-operation Paradigm the ultimate decision should be with the , once he has the necessary information. But can s ever have such a level of information about more than a tiny fraction of the products they use? Actually, often they can and they do...in indirect ways. People who have next to no formal knowledge of engineering will have certain unarticulated expectations about the level of safety to be expected of a certain type of products. Thus people do not expect new tires to suddenly burst, gas pipes to leak just because they have been hit with the hand by a four-year old, or analgesics to cause cancer. It should be noted that fifty years ago the public would not have entertained such expectations. Given the existence of such social expectations the first duty of a producer is either to sell products that are up to such expected level of safety or give a clear warning. Usually business firms should not ascertain what is that expected level of safety by carrying out opinion surveys. When the average person is asked the speed at which he expects a car to be able to withstand a head-on collision without serious injury to the occupants, usually he will have no data to decide between 40, 50, or 60 kph. What the expected safety level often ought to mean in operational is the safety level of comparably priced products in the market. Sometimes the safety level of such comparable products is low, in the opinion of some experts. However, firms which have tried to emphasise safety in their products following expert advice have often found that many people are not ready to pay a for safety levels which go beyond that of comparable existing products. Thus, for instance, when experts denounced that the fabrics traditionally used in manufacturing children's pyjamas were highly inflammable, Sears promoted heavily pyjamas made from nonflammable material. Such pyjamas were a flop as the great majority of parents kept buying on the basis of traditional criteria such as price, colour, design, and softness, while blithely disregarding considerations of greater safety. When the common man rejects in the marketplace the opinions of the expert about the desirable level of safety that ought to be built into a product, that does not have to be the end of the story. Experts can still try to have their views accepted through the political process. It is often the case that political representatives are ready to take a more sober view than customers do in the marketplace, and that customers are ready to accept - or at least tolerate - this, so long as the gap between the standards imposed on all manufacturers through legislation and the perceptions of the public does not become too wide. If it does legislators risk being thrown out of office.

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This process can be seen in operation in the case of children pyjamas in the U.S. Eventually the Consumer Product Safety Commission, a federal agency, mandated some standards of pyjamas flammability. The story does not have to end at that point though. As it is well known there is now strong political backing in the U.S. for candidates for political office who promise to roll back federal regulations in many aspects of life which a majority of citizens have come to regard as intrusive. Whether the pyjamas flammability standards will survive this pruning is as yet an open question. At any rate, when the question is seen from the point of view of the individual firm the guidelines for responsible action in these issues are relatively clear. If there is a legal standard which is not manifestly unfair12, that standard ought to be followed. In the absence of such a legal standard a firm should provide the level of safety provided by comparable reputable products in the market, as in doing so it will be providing socially accepted and expected standards. If the firm believes that there are good reasons for providing a level of safety that is lower than the prevailing one (e.g. in order to be able to make the product more cheaply, or to provide superior performance in other areas), then consumers should be warned clearly. As people have a right not to be harmed knowingly, they have also a right to be warned when they are going to be exposed to a higher level of risk of harm than they would usually expect. Still, the above criteria sometimes cannot decide all difficult problems. Let us start by considering the well-known story of the Ford Pinto. The Pinto was a car especially vulnerable when hit from the rear. When hit in such way by another car moving at as little as 30 mph, the fuel tank was liable to be punctured by a bolt in the bumper and the car could catch fire. As a matter of fact the car was less able to withstand such impacts than similar cars. During 1976 and 1977 Pintos suffered thirteen reported fiery rear-end collisions, which was more than double the number for comparable cars. Ford could have brought the Pinto up to the safety level of similar cars in the market at a cost of only $11 per car by inserting a baffle between the bumper and the fuel tank. However, the company refused to do this until required by government regulators in 1978. Even after this issue was widely publicised in the press the Pinto continued to sell quite well. Accepting the above facts, some of which have been contested by Ford, what would Ford have had to do to act responsibly in this affair? Obviously, after the federal standards were ed, to comply with them, which it did. But what should Ford have done before 1978? Assuming that the Pinto was in fact significantly less safe in rear-end collisions than comparable cars, and that this posed serious risks of death to engers involved in such accidents, it seems clear that, on the principles discussed above, there should have been a clear warning to 12

As to this see Chapter 9.I.

128 prospective customers about the extra dangers they incurred by driving a Pinto. Of course, such warnings can be most inconvenient from a marketing point of view, as the last thing one wants to bring to the mind of a potential customer about to make a purchase decision are the dangers associated with the use of one's product. However, failing to on this information ultimately means failing to live up to the standard of allowing the customer to make informed decisions on how safety should be balanced against other factors. Given the existing social expectations this is one of those cases in which failing to reveal a hidden defect is equivalent to misleading the customer. There can be some especially tricky problems when there is no law which prescribes minimum standards, or when a firm believes that the safety standards prescribed by the law are unduly lax. These problems will be especially challenging when one believes that a significant number of customers, for one reason or another, cannot be relied upon to make decisions in their own best interests. Thus, for instance, most customers may be ill-informed, and the firm concerned may be unable to undertake the massive educational effort that might be necessary to put them in a position to make informed decisions. Or a firm may believe that some customers are making decisions that reflect an unreasonable lack of concern for their own, or their dependents', lives or health. Of course, the starting point in approaching such problems has to be that of respect for the decisions made by the people directly affected. In the first place, they are in a position to know in far greater detail the circumstances in which they have to operate and the problems they face. In the second place, allowance has to be made for the great diversity of ways in which people may choose to live fulfilling lives. When a lifestyle is very different from my own, I may have great difficulty in understanding the set of preferences and objectives which it embodies; but this may say as much or more about the narrowness of my mental horizons than it does about that lifestyle's unsuitability for bringing fulfilment to human beings. Because of such considerations, one should be wary of making judgements of the type, "even though some of our customers, after being fully informed of the risks, are ready to use that product, that cannot possibly be good for them." The presumption should always be that each person is in the best position to know what is best for him or her. And yet...The fact is that after making all allowances for the great diversity of legitimate life-plans and for the value of allowing each person to conduct his or her own life, one may still be convinced that another person is making a gross error, full stop13. In such cases one may still have to respect people's decisions to live their lives their own way for so long as they are not harming third parties, but this does not mean that one has any duty to help them to hurt themselves. The above considerations lead to the conclusion that a firm's responsibilities in relation to the safety of its products are not limited to keeping the law and providing to its customers the 13

And, in the view of the present writer, there are no valid arguments to show that such judgements are necessarily wrong. The arguments which are usually advanced to that effect depend on ethical and/or metaphysical assumptions which are highly contestable, to say the least.

129 information they need in order to assess meaningfully the risks they assume in using its products. If, after making all due allowances for diversity and the value of each person's making his own decisions, the decision makers are still convinced that assuming some risks is not justified, to the point that they would refuse to make such product available to their own loved ones, assuming that they were to find themselves in similar circumstances, then it would be unfair to provide the same product to strangers, even if they ask for it. And as in so many other questions which will arise in this book, this will often be the test to apply when more specific guidelines fail to provide a determinate answer. It is of interest to observe in this connection that in some of the civil suits which arose in connection with injuries suffered by engers of Pinto cars as a result of rear-end collisions, several Ford engineers were able to testify that they used Pintos for their own families. This tends to show that, even if Ford made an error of judgement in not providing to its customers information that they were entitled to know, at least they did not act unfairly within their own knowledge. IV. PRICES Something curious has happened to the very notion of fair or just prices. If one opens a book dealing with the ethics of business relationships written over a hundred years ago, one will not fail to find a very long chapter devoted to the problem of just prices. However, in most modern books of business ethics it is difficult to find even a short reference to the issue. What has happened? It would seem that three different factors together for the change. In the first place, it is quite likely that a better knowledge of Economics would have made some older authors (by no means all of them) more restrained in their utterances about fairness in regard to prices. Secondly, nowadays suppliers find themselves less often in a position of effective monopoly; this has made problems of fair pricing less acute. Finally, for quite some time there has been a tendency to assume that ultimately all questions of justice in mutual dealings can be reduced to problems of informed consent, and this has made modern authors a little too ready to believe that once a price has been freely agreed by the parties there cannot be anything wrong with it. However, for the generality of people issues of fairness remain important, irrespective of intellectual fashions. Surveys have revealed a large consensus in thinking that some pricing practices are unfair, even if customers agree to them. Thus, for instance, the following is a question posed in the best-known of such studies14: A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20. 82% of those interviewed rated the action as unfair.

14

KAHNEMAN, KNESTCH AND THALER p. 729.

130 Common standards of fairness are also observed to play a large role in the decisions of businessmen. A widely respected economist concluded a study of pricing practices with the observation that "...in practice, observed pricing behaviour is a vast distance from do it yourself auctioneering," the point being that many sellers do not set prices at the highest level at which they can still find willing customers15. It seems clear that there is a strong spontaneous tendency to use considerations of fairness in assessing ethically pricing decisions. The problem is to identify a consistent set of criteria for use in such assessments. In trying to delineate such criteria it may be useful to start by ing some essentials of Economics 101. In the first place, there is no good reason why price should be determined by intrinsic value. Any living being has a higher ontological value than inanimate matter, but this does not mean that a chicken should fetch a higher price than an ounce of gold. Value in use for human beings is the relevant measure of value in exchanges. The market is the best mechanism to determine the "value in use" of a good or service from a social perspective. A market price reflects: a) The relative availability of a good. Goods that are scarce will attract a higher price. b) All the different demands for a good. A scalpel is more useful, and thus more valuable, to a surgeon than to a butcher. The market price is affected by the different demands of different people for a given good. c) The market price also reflects the expectations of all active participants in the market about circumstances which will affect the future supply and demand of a good. If the predominant view in the market is that the demand will be higher and/or the supply lower in the future, the good's price will tend to go up. The opposite expectations will tend to bring the price down. Accordingly, market prices perform the very useful function of providing information to suppliers about the need to increase or decrease the production of each product relative to others. They also convey information to consumers about the convenience of increasing or decreasing consumption of each good. This function of assembling and conveying information to the participants in the market is performed by market prices in a more efficient way than any alternative method ever tried. Therefore somebody who accepts the Co-operation Paradigm can hardly do better than charge market prices -in crude words, "what the traffic will bear"- in order to engage effectively in the overall scheme of co-operation for the satisfaction of human needs constituted by a market. And it will be useful to keep in mind that market price does not mean the average in the country, or the average for the year, but the market price here and now.

15

OKUN p.170. Cited in KAHNEMAN, KNESTCH AND THALER.

131 But what happens if market prices are "too high"? In this context the expression "too high" usually lacks a stable meaning. Normally, what people mean by "too high" is "significantly higher than what we were used to seeing." Thus, if the usual market price of a loaf of bread is N20 and this year there has been a bad wheat harvest, many people will accuse merchants who now sell bread at N50 of "profiteering." But before heaping insults on such merchants of the public would do well to consider that this price of N50 is the one that reflects the present balance of supply and demand. This price will stimulate extra planting, the creation of inventories to last until next harvest, and greater economy in the consumption of what now has become a scarcer good. Still, many people will complain about the extra profit of the merchant who bought loaves at N20 and now finds that he can sell them at N50. But, am I sure that I have good grounds to complain? Assume that he buys at N50 and then the price drops to N20. Will I agree to pay him N50 for his old stock? The point is that what is fair is the overall system of price determination. If one accepts that overall system one has no good reason to complain when it delivers an unexpected bonus to some people. We can conclude from the above observations that the market system of determining prices is fair in a triple sense. First, market prices provide the best measure we can get of the social value in use of a good; secondly, the system is not loaded in advance against anybody: it just provides a set of neutral rules from whose operation anybody can benefit; thirdly, it is also fair in the sense that it provides for the common good by providing the information and incentives that are required for making efficient economic decisions. Sometimes, however, a market can reflect serious structural injustices. Think, for instance, of a situation which has happened not infrequently in the past. A whole ethnic or religious group is expelled from a country and given a very short period to go away. As a consequence they are forced to sell all their goods, and because of this temporary glut in supply the market price of the goods they sell (e.g., land and furniture) goes down drastically. In such a situation the presumption that a market price is a fair price breaks down. A contemporary example of this phenomenon is afforded by the fees charged by professionals like ants, architects or doctors. Even though in many places these fees are determined through market mechanisms16 this does not necessarily make them fair, if, as it is the case in many countries, professional bodies are allowed to keep artificially low the number of people allowed to practise the profession. Coming to a much more usual situation, of course prices which obtain in a market that is rigged or distorted, for instance by a situation of monopoly, or of collusion among several important players, do not reflect actual supply and demand, and therefore cannot be assumed to be fair17. 16

In many other places they are determined by the relevant professional body in what amounts to very thinly disguised collusive pricing, as to which see the next paragraph. 17

Collusion in fixing prices is unethical not only because it forces the other party to pay an unfair price, but also because it is fraudulent: the other party is made to believe that he is facing several non-connected parties when in fact that is not the case.

132

Prices can also be unfair where the special situation of need of a party allows another party to demand a price higher than that which clears the market. In order to consider this issue it will be helpful to have some specific examples in mind. Consider the following situations. Ship A has suffered some serious faults and now a gale breaks out. The ship finds itself in danger of sinking with all the crew. The captain of ship B offers to tow ship A into safety but demands for this service a fee that is five times higher than the traditional one in such cases or he will sail away leaving ship A to its fate. As the only alternative is the loss of his ship and crew, captain A agrees to these . C has been lost in the desert for two days and has exhausted his reserves of food and water. Now D finds him. D offers to sell to C a large bottle of Coke for N25,000 and to give him a ride to the nearest village, which is 50 km away, for N200,000. Not having any other alternative C agrees to such . E is an illiterate who has just arrived in Lagos. He has sold his farm and other property at home and has a good amount in cash. F meets him and convinces him that he needs badly a bicycle in order to move freely in Lagos. As E is not acquainted with the prices of bicycles, F succeeds in getting him to agree to pay a price at which E could have actually bought a motorcycle. All these examples reflect situations in which, because of a party's situation of special need, or his ignorance, he is ready to pay a price substantially above the market price at that time and in that locality. In all of them what has happened in substance is that a party has taken advantage of the special vulnerability of the other to get as much as he could from him. Many people like to say that for so long as a price has been freely agreed between two parties, there can be nothing unethical about it. When confronted with examples like those above such people will tend to argue that the agreement of the party who is ignorant or in a situation of special need is not "really" free. However, it can also be argued that the agreement is neither more nor less free than that which obtains in many other market transactions, in which at least one of the parties will be moved to agree by the situation of need in which he or she is. The situation is better analyzed by focusing on the concept of fairness rather than on that of freedom. We said before that a market price, no matter how high it may be, can be said to be fair in three main senses: it reflects the social value in use of a good, it is the result of the operation of a fair system, and it fosters the efficient allocation of resources in the economic system. The prices in the above examples are not fair in any of these senses; they just constitute acts of exploitation of the weakness of some people which are unrelated to an overall scheme of co-operation, as true market prices are: in all these examples we are clearly operating within the Warfare Paradigm, and that is what more clearly explains their ethical inadequacy. A final situation worth considering is that in which there is no market in a certain good or

133 service. In such situations mutual agreement over a price can be a good indication of that price's fairness provided that the parties are not greatly unequal in bargaining power because of differences in the information they have or because one finds himself in a special situation of need: in the absence of a reliable indicator of the social value in use of a good, the fact the two parties to a transaction think that they are genuinely better off after completing it (for otherwise they would not have agreed to it) is the best proof of its fairness. We can conclude therefore that charging a certain price will be unethical in the following circumstances: a) Special need or ignorance lead the buyer to accept a price above market price; b) Monopoly18 or collusion allow sellers to force upwards the market price; c) In the absence of a market a price will be unfair if the buyer has been led to agree by substantial information differences19 or by a situation of special need. V. INFORMATION The pervasive presence of advertising is one of the most characteristic features of modern consumer society. According to informed estimates by the age of 21 the average American has been exposed to between one and two million advertising messages.20 While Nigeria is not the USA, there would seem little doubt that it is moving in the same direction. It would be strange if such huge volume of communication were not to have important effects on the people at the receiving end of it. It is therefore important to examine carefully the relations between advertising and human fulfilment. Before going further it should be useful to warn that in what follows we will use advertising as a generic term to cover all communication efforts by firms, ranging from TV spots through point of sale messages and product labels, all the way to personal selling. Discussions of the ethics of advertising often conflate the issue of whether a certain advert is unethical (e.g., because it is deceptive) with the wider problem of whether advertising in general is socially beneficial or harmful. As commingling these two different, though related, issues tends to create confusion we will treat them separately here. 18

We are not using here the term monopoly in the technical way of the economist. Even if there are only one or two sellers there will be no monopoly in the sense relevant here if the market is open to willing participants, for in such cases the market price will reflect the economic position. 19

For a good discussion of the history of ethical thought about business situations in which there is disparity of information see LAWSON pp. 737-47. 20

GILSON AND BERKMAN p. 3. Cited in SMITH AND QUELCH.

134

In the present writer's view the general case against advertising is rather weak and relies too much on ideology and emotion and too little on solid theory or empirical evidence21. The most common charge levelled at advertising is that it is a wasteful activity which consumes vast resources without creating any value. Related to this is the charge that it increases unnecessarily the price of goods. Speaking on the basis of theoretical considerations alone, one should reply to such charges that in so far as advertising facilitates selling in large volumes, it can create economies of scale that will more than compensate the costs of advertising. It is also important to remark that it would be myopic to think of the costs of a product only in of production costs. The ultimate justification for the production of any good is to satisfy some need of the customers. All the costs that have to be incurred until a product has satisfied a customer's need should be taken into . Prominent among the costs incurred outside the process of manufacture are what economists call "transaction costs," an important subclass of which are the so-called "search costs." In so far as advertising constitutes an efficient way for the customer to get information about products its net effect should be to reduce search and transaction costs rather than increasing them. Empirical inquiries have tended to confirm the above general considerations. A well-known study compared the prices of glasses in American states which regulated (and substantially restricted) optometric advertising with the prices prevalent in states that did not. While the average price in states where free advertising prevailed was $17.98, that in states which restricted advertising was $37.48.22 Advertising also creates value in more subtle ways. Customers are often interested in the symbolic value of a product, in what it says about them. To give only an obvious example a professional person may wish to convey an image of solidity and prosperity by driving a Mercedes Benz car, while an advertising executive may prefer to look youthful and daring at the steering wheel of a BMW. In these and many similar cases the product's image - which in a large measure has been created by advertising - is part of the product. The same physical product, deprived of its image, would have significantly less value for the customers. The other main charge that has been addressed against advertising is that it systematically creates artificial wants, which would not exist except for it. By channelling consumption towards the satisfaction of such "artificial" wants it prevents the satisfaction of more important "natural" needs. 21

The classical critiques of advertising from a social point of view are VEBLEN, PACKARD, and GALBRAITH. 22

Cited in DEN UYL p. 49.

135 In so far as this argument depends on the distinction between needs which are natural (and are presumed to be "good") and those artificially created (assumed to be "bad"), it is rather hopeless. The ethical status of wants has very little to do with the fact of their being spontaneous or artificially induced. Suffice to reflect that a taste for Mozart quartets, religious readings, or discussions of business ethics, is almost invariably the result of careful and patient nurturing, while wishes like that of snubbing somebody, behaving cruelly or drinking a tenth glass of wine are unfortunately only too natural (in the sense of spontaneous). If one keeps such examples in mind one is forced to conclude that the fact that a want was not felt until somebody brought to our notice a certain new activity or object does not by itself tell us anything about the moral status of such want. A want may be destructive. From that it will follow that advertising that promotes it is unethical. (We will have more to say about this below). But it cannot be argued that advertising is undesirable because any want that is not spontaneous is "bad" and therefore the advertising that creates so many such wants is intrinsically bad. The point we have tried to make is that a blanket condemnation of all advertising per se as being socially harmful cannot be justified. But, of course, this does not imply that every single ment is thereby absolved from any accusation of ethical shortcomings. We turn now to examine the standards of morality against which specific ments may offend. Advertising practitioners do not have a good image. In an American study 48 percent of respondents said that advertising is an occupation with "the lowest ethical standards"23, and in two different Gallup polls in which people were asked to rank different professions in of their ethical standards advertising practitioners were placed above one single profession: automobile salespeople. Why do people have such a low opinion of advertising practitioners? Basically, they are accused of often being untruthful, and of manipulating people in order to increase sales. We will now try to examine with some care the ethical standards that should govern advertising activities in relation to truthfulness and the promotion of irrational desires. Advertising and Truthfulness In order to determine what are the duties of rs in relation to truthfulness one should first have a clear idea of what are the general duties of truthfulness of all human beings. As an extended discussion of this topic belongs in a book on general ethics rather than in one on business ethics, we will simply state that in our view it is unethical to choose to pursue the objective of inducing a mistaken belief in another human being, irrespective of whether this is achieved by saying something that is false in itself, or by saying something that could have several meanings with the intention that the receiver of the message will be deceived. If there is a clear choice to deceive another one should not quibble about the "method" used to attain this result. 23

Ibid.

136

According to the general principles we discussed in the first part of this book a different problem arises whenever one may reasonably fear, or even be certain, that as a consequence of one's activities, which are reasonable in themselves and which in no way have the goal of deceiving anybody, some parties may come to be deceived. This would be a case of an upright activity having harmful side-effects. As we know, in these cases one should try to abstract from the fact that one's own interests are at stake, and consider whether the good effects that one expects to attain provide a sufficient reason to accept the harmful effects one also foresees. How can these general principles be applied to specific advertising problems? It will be useful to consider separately different problems. False statements. Consider the text of the following ad which appeared in an American magazine directed at the teenage market24: "...[B]ecause you are a woman, you lose iron every month. The question is, are you putting that iron back? You may be among the 2 out of 3 American women who don't get enough iron from the food they eat to meet their recommended intake...But One-A-Day Brand Multiple Vitamins Plus Iron does..." While this ad claims that most American women do not get enough iron, the American Medical Association has flatly contradicted this claim and pointed out that "the average diet of Americans is rich in iron." In other words, in an attempt to induce teenagers to part with their money and buy One-A-Day Plus tablets, the company has told them a lie. A lie told by an r is as unethical as a lie told by anybody else. The selling tactic known as "bait and switch" also falls within this category. It consists in advertising that a product is available in some stores at bargain prices. In fact the product is not available, or is stocked only in minimal quantity. This is the "bait" that attracts customers to the stores. Once they are there salespeople are instructed to tell the customers that the bargain item has already been sold out and try and get them to "switch," that is to say, to buy other products at regular or even inflated prices. The lie here is that the r promises that a certain item is available when really it is not, at least not in reasonable quantity. A false statement can also be made visually, without the means of words. Thus, for instance, an ad of Volvo cars featured a huge lorry driving over a line of cars in a car crushing competition. Only the Volvo withstood the test. The problem is that eventually it was revealed that the volvo car used to film the ment had been reinforced with steel and wood to withstand the pressure while the other cars had been doctored to crumble even more easily. Eventually Volvo had to publish at its own expense ads apologising and paid a fine of $315,000.25 The general point is that in 24

Reported in LEISER p. 159.

25

Reported in LACZNIAK AND MURPHY p. 169.

137 so far as there is an intention to form a false belief in the mind of the customer there is unethical behaviour even if not a single word has been uttered to that effect. Misleading statements. From the point of view of an unethical person the problem with statements that are false outright is not that they harm others, or that they undermine mutual trust in society, but rather that, as they are definite, it is relatively easy to get caught. That is why, whenever possible, unscrupulous rs will prefer to use statements that are misleading rather than definitely untrue. We have already pointed out that so long as the intention is to deceive there is no ethical difference between false and misleading statements. Most professional codes of ethics do not hesitate either to put false and misleading statements in the same ethical bag. Thus, for instance, the Standards of Practice of the American Association of Advertising Agencies ban outright any "false or misleading statements or exaggerations, visual or verbal." An example of a misleading statement is provided by an ad which promoted a certain bread as being less fattening than ordinary bread because it had fewer calories per slice. As the reason why this was so was that the bread was divided into thinner slices, and in any case the difference in calories was minimal, the American Federal Trade Commission eventually ordered that the ad be discontinued26. A typical example of a visual misleading statement is that of the finance or insurance company that features an imposing building in the cover of its brochure but neglects to mention that it only occupies a rather small apartment in the building. Often the intention is to induce the belief that the whole building is the headquarters of the organization and in that way to exaggerate its financial solidity. Up to this point we have referred only to ambiguous or misleading statements in which the intention in precisely to deceive the customer. A different case is that in which the customer may be deceived even if that is not the objective of the r. We turn now to such cases. Claims susceptible of being misunderstood. Let us think of a finance company that lends N12,000 repayable in 12 monthly instalments and charges N180 per month (i.e. 1.5% of the sum originally lent). Even though, as any financially sophisticated person can easily compute, the annual effective interest rate charged in this transaction is 31.7%, some people will believe that they are paying 18% per annum (i.e., 1.5%/month x 12 months). Let us assume that the finance company does not have an intention to deceive its customers. Still, it is a fact that some, possibly many, will be misled. Does the company have a positive duty to disclose the effective rate in order to avoid the possible error of some of the customers? On the one hand the company will complain that if its competitors are not doing that, it may be putting itself at a competitive disadvantage in doing so. The company could also add that people should be encouraged to take care of themselves and accept responsibility for making the enquiries that 26

Reported in LEISER p. 160.

138 reasonably ought to be made. On the other hand, it can be argued that people ought not be expected to do more than a person can do with reasonable diligence. In practice, most countries nowadays demand of finance companies that they disclose the effective interest rates they charge, believing, reasonably enough, that once all companies have to do it, little inconvenience is caused to the companies in doing so, while many customers can be saved from major mistakes. Speaking generally, firms confronting this type of problems should be ready to try and take any practical ways open to them to reduce the risk of customers being deceived. How far should they be ready to modify their messages in order to achieve this? It will depend on how great is the likely deception and the risk that may flow from it. As usual in these problems, the only test is to try and abstract from the fact that one's interests are at stake and try to ask oneself, would I agree that the benefits from this ad justify the foreseeable harms to some misled customers if I were a disinterested observer? In applying this test, an important issue to address is what is the degree of alertness one should expect in one's audience. The first point here is that one should take into the real characteristics of the audience to whom the message is addressed: If the message is addressed to finance professionals, one is justified in assuming above-average financial sophistication; if it is addressed to barely literate slum-dwellers, their educational level will also have to be taken into ; if the message is addressed to the general public, only a standard of education possessed by most people can be assumed. Beyond the standard of education one can presume, there lies the issue of the standard of caution and prudence one has to assume. There has been in recent times some tendency among public regulators to regulate on behalf of the most gullible and imprudent of society. Whatever the reasons for public authorities to adopt this approach, the individual r is not required by sound ethics to adopt it. From an ethical perspective one is entitled to expect that others will make a reasonable effort according to their lights. Summing up, the way to approach these problems is to try to identify the extent to which people with the knowledge one can expect in one's audience, and who exercise at least an average standard of care in conducting their affairs, are likely to be misled by one's communication. Having done that it is a matter of trying to decide whether the prospective benefits to all parties of running the advert as originally envisaged provide a sufficient reason to accept the prospective harms to those customers who may be misled by the advert. Mock-Ups. What about situations in which, in order to provide a better effect in photographs or film, a different substance is substituted? Thus, a photograph of the frothy head on a mug of beer may well have been created with soap suds; and what looks like steaming coffee in a TV ad most probably is actually wine. According to the standards we have been applying, in itself there is nothing wrong in using such mock ups. Using them will be unethical if a) there was an intention to deceive; or b) even absent such intention, customers are likely to be misled and there is no sufficient reason for this.

139

Assume, for instance that mashed potatoes are used to create a picture of ice cream, and that the reason for the substitution is that the ice cream melts too quickly under the photographer's lights making it very difficult to get good pictures. In this case clearly there is no intention to deceive. Are ordinary customers likely to be misled? It will depend. Probably not if the advert emphasises the many different flavours available. Possibly yes if it emphasises the rich and creamy texture of the ice-cream. In this second case probably the best course of action would be to make the necessary extra effort to get good photographs using real ice cream in spite of its melting quickly. Even though this will require harder work and additional expenditure, it is quite unlikely to prove to be a mission impossible. Testimonials, endorsements and recommendations. Michael Jackson features in Pepsi ads. Does he actually drink Pepsi? When pressed on this question, the best that a representative of the artist could say was that "If Michael drank any soft drink, he certainly would drink Pepsi." Is there anything unethical in this? As usual, one has to distinguish. In the ads, Jackson never offers a testimonial, that is to say, he never states that he drinks Pepsi and that he likes it a lot (this would be a testimonial). All he does is to sing that Pepsi is the choice of a new generation. In fact, anybody who were to conclude from this that Michael Jackson must personally love Pepsi must be more than usually naive. On the other hand, if a person who does not use the product, or who does not like it, were to offer a testimonial, this would constitute an outright lie and would certainly be unethical. Puffing. One engages in puffing when one praises a product or service in vague and general without referring to any specific product characteristics. Examples would be "The right fund at the right time" or "This auto engine purrs like a kitten." Customers who have been exposed to over a million ments in their lifetime are not likely to take too seriously such claims. There is therefore room for some poetic licence and even for harmless exaggeration in advertising language. The reason for this, let it be noted, is not that "small lies are O. K." While small lies are certainly small, and therefore less bad than big ones, they are still lies, and therefore not O.K. The reason is rather that any statement has to be understood in the context in which it is uttered, and therefore in the same way in which we allow the poet to describe the teeth of his beloved as "pearls," without standing up and shouting, "That is a damn lie!" we can allow the r to describe his wares in somewhat glowing , knowing that actually all his listeners are aware of what he is doing and do not take his words all that seriously. Also, as Mahoney has pointed out, "A too punctilious or solemn approach to ments would take all the fun and attractiveness out of them, reducing them to a mere scrupulous cataloguing of sales features."27 But, of course, there is a point beyond which one falls into outright deception, and beyond 27

MAHONEY p. 129.

140 that point puffery becomes unethical. The key issues, as usual, are wether one intends to create a false belief in the mind of the customers, or whether such false beliefs are actually likely to be formed in the minds of ordinarily alert customers. Selective emphasis. Imagine that you are selling your old car. A prospective buyer has come to enquire and you enthusiastically extol to her its virtues: the soundness of the engine, the fact that it has only done 37,000 kms., the quality of the upholstery...but you are not keen to mention that as the car has been used for three years in a sea port, the body is seriously corroded. Of course, if you were to say that the body is in wonderful shape, that would amount to an outright falsehood and certainly would be unethical. Therefore, if the buyer asks outright your only alternative consistent with an ethical stance is to be truthful. But assuming that the prospective buyer does not ask, does the seller have a positive duty to disclose the defects of the car? It is not difficult to see that this issue is of interest to many beyond car sellers; the case we have described represents just an instance of a much more general issue, that of rs who praise in their ments all the good qualities of their products and services, but keep a discreet silence about their less desirable qualities. Generally speaking it will not be unfair not to point out a defect that prospective buyers can discover by themselves just by exercising ordinary care; even less will it be required for, say, a car company to mention in its general ments that there are other cars which are either cheaper or faster or safer. Usually a seller or r will not pretend to be offering independent and comprehensive advice, and it is doubtful if it actually has the skills required to do that well. The sellers' function is to point out the things that their products can do well, and then it will be up to the customers to compare what they have to say with the offers of other sellers, and, if they so wish, seek independent comparisons from specialised magazines or experts. It is a different matter, however, when the product has substantial shortcomings which will make it perform below the expectations of a reasonable customer and which an inspection carried out with reasonable care will not reveal. As one would not wish to see one's reasonable expectations disappointed, it is unfair to disappoint those of others. It would also be unfair not to reflect in the price of the product its defects, according to the principles discussed above. The duty to disclose shortcomings is stronger if the life, health or another very basic interest of the customer could be threatened otherwise. A good illustration of this is provided by the case of Raudixin, a drug which can be used for treating high blood pressure, but which, as a side-effect, was found in the U.S.A. to induce such deep depressions that hospitalization was often necessary, and suicide sometimes followed. As a consequence of this it is used in the U.S.A. only when safer drugs cannot be used. However in Brazil, where there were laxer regulations, the leaflet inserted in the package presented it as "the ideal medicine" for a series of conditions and failed to warn of its powerful side-effects28. The producer of this drug was clearly failing in its ethical duties. 28

Reported in LEISER p. 164.

141

Advertising and the manipulation of desires In Chapters 1 and 2 we introduced the very important distinction between the different substantive aspects of human fulfilment, such as health, knowledge, integrity, and harmony with others (we called them "intelligible goods"), and the sensible motivation provided by our feelings and emotions. We also pointed out that it is a common human experience that the fact that I experience a strong feeling of attraction for something in no way ensures that my following its lead will lead to my overall fulfilment. That is why we normally resist urges such as those pushing us to have a second drink when we are about to drive, telling our boss that we cannot stand his sight any more, or stealing a beautiful car somebody has left parked with the keys on. We also explained how it is not a question of trying to kill our feelings and emotions, but rather of controlling, educating and channelling them, so that they will contribute to a fulfilling life, rather than become a source of constant internal disharmony within us, forever at odds with the way we would like to live. The problem, of course, as all of us constantly experience, is that our feelings and emotions are rather strong and tenacious and integrating them into a reasonable pattern of life is not an easy task. And it is at this point that rs may manifest an unethical disregard for the well-being of others. A rather common, and often successful, advertising strategy consists precisely in stimulating some powerful basic urge such as the sexual drive, the desire to dominate others, or the drive to be ired, and then trying to create a connection in the potential customers' minds between one's product and the satisfaction of that urge. Pursuing such a strategy is unethical because it is manipulative and because the r shows itself ready to harm the customer so long as this succeeds in getting him or her to part with his or her money. This is the opposite of an attitude of service to the customer. At the same time it is important to preserve a sense of balance. Some critics of advertising have claimed that the solution lies in advertising being "purely informative," eliminating from it all appeals to emotions. This prescription should be firmly rejected. It is based on a false dichotomy between intelligence ("good") and feelings ("bad"). As we have been at pains to emphasise, feelings, far from being "bad," have a very positive role to play in our lives; it is just a question of not allowing them to become the managing partner in the firm. Referring specifically to advertising, it is necessary to rely on feelings at least for two ends. In the first place, given the very many messages that compete for our attention, an effective advert has to be catchy: if it does not address some clear interest of ours it will fail even to be "seen." Secondly, very often even after we have come to the conclusion that doing something is in our best interest we still need a push to overcome lethargy. It is our felt wants, stimulated by messages from

142 the seller,29 which provide this needed push. How are these considerations balanced in practice? Usually, not by trying to apply a set of rigid rules; it is rather a question of applying common sense criteria to ascertain whether the autonomy of the customer is respected or whether there is an attempt at more or less disguised manipulation. We may consider a few examples to see that in practice it is not all that difficult to tell which is which. A rather obvious example of unethical manipulation of feelings would be that of the undertaker who takes advantage of the emotional distress of the widow of a recently deceased man to push on her the most expensive possible funeral, perhaps one far beyond her means. It is not so difficult to subtly manipulate the guilt feelings she may be experiencing ("even if it was not possible to give him the best medical care while alive, there is still the opportunity to give him the best funeral") or those of affection ("the coffin he deserved") or even her need for status ("that cheaper hearse is the one usually used by families of less means"). Another clear example is provided by the shoe ad which shows a couple embracing in the back seat of a car while the woman starts taking off one of her shoes. At the bottom of the add, in very small type, the ad contains the barest reference to the shoes' fit, suppleness and comfort. Still another is the producer of toy helicopters that promotes them through violence-filled TV spots which get children to identify with commandoes showed blowing up a jungle village and then shooting at survivors while the village burns. On the other side of the dividing line between ethical and unethical appeals to feelings would be the salesperson in a department store who tells the client who has tried six different jackets, seems to have chosen one, but is still procrastinating and looking undecided, "This jacket really fits you very well." Nobody of even minimal competence as a buyer is likely to be swayed by this into buying a jacket that he really does not need, and on the other hand, this may well be the nudge the client just needs to overcome his inertia. Collateral effects of advertising on society Adverts are means of public communication. They are seen by many people, and collectively they tend to create a certain atmosphere in the society, emphasise certain values and promote certain lifestyles. A responsible firm cannot avoid asking itself what type of influence are its adverts having on the society. Nowadays, among the most common ways in which adverts can do harm the following ought to be mentioned: a) Promotion of materialistic attitudes through a general emphasis on accumulation of possessions as the way to happiness and fulfilment; 29

It is especially important at this point to that, as we pointed out at the beginning of this section, we are dealing here with all the communication messages from the firm to the customer, up to and including personal selling, not only with advertising.

143

b) Promotion and stimulation of casual attitudes towards sex through a generalised use of sexual themes to attract attention, or to create a positive aura around products or services. c) Promotion of sexist stereotypes through a frequent depiction of women in subservient roles: as sex objects, as subordinate to men, as weak and needing man's protection, and so on. As in practice, with effort, professionalism and creativity, it is almost always possible to get adverts that do their job of communicating effectively without exacerbating society's problems, normally there will not be a sufficient reason to accept adverts that have harmful collateral effects on society. A responsible firm will simply reject them and ask the advertising people to just produce other adverts that have the same or better communication effectiveness and do not harm anybody. VI. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES It is only too obvious that being ethical imposes restrictions. If one is trying to get one's company to act responsibly "not everything goes," one accepts constraints that unethical competitors do not respect, one has to invest additional resources and make greater efforts. However, there is more to ethics than restrictions. After all the effort to be physically healthy also imposes restrictions of exercise, diet and lifestyle. However, these restrictions are not the essence of being healthy; fundamentally a healthy person is a person who can function better and live life at a higher pitch, who can do things that are far beyond the reach of sickly people. Similarly, an ethical firm is a firm that is capable of doing things that are unattainable for less principled organizations. As we pointed out in chapter 1.IV, a very important characteristic of those capabilities of an organization which depend on its being ethical, is that they are difficult to replicate by its competitors, and that makes them especially interesting from a strategic point of view. Precisely because it usually takes years, if not decades, to instill ethical values throughout an organization, the organization that has made the effort can be confident that it will also take years or decades for its competitors to catch up. If being ethical can constitute a precious competitive capability, it will be especially important to exploit it fully. We certainly would think it very poor management for a firm which has succeeded in developing a special capability for attaining, say, consistently high levels of excellence in design, not to take this core competence into when framing its strategy. It would be a sad waste for that firm to decide to compete in markets and to develop products for which such a capability is irrelevant while leaving unexploited product/market combinations for which excellence in design is critical and in which the ability to provide it gives a special competitive advantage. Similarly, developing an ethical character in an organization is only the first step. Once that ethical character is there, it has to be exploited, and in doing so the first requirement is being clearly aware of the areas in which such culture is critical and will provide a special competitive advantage.

144 What are then the special opportunities which open up to a firm which manages to be consistently ethical in its dealings with its customers? The following is a list of business arenas in which a firm with a solid reputation for high ethical standards will have a very considerable competitive advantage. a) Providing products and services which combine the following two characteristics: i) they are important to the customer either for their high price of because of what they do for her, and ii) their quality cannot be ascertained by the customer at the moment of purchase. Examples are petrol, many types of professional advice, drugs, and large-scale integrated projects such as a steel mill. b) Providing products or services in which the customer becomes dependent on the continued presence and of the supplier for a long period of time. This factor is present, for instance, when a company chooses the supplier of important pieces of equipment, especially if the equipment is subject to rapid technological change. The customer needs to be able to trust that the supplier will honour its promises of staying around and providing maintenance and continued help in upgrading the equipment, even if it becomes financially unattractive for the supplier to continue doing so. But this factor is also present, although less obviously, in a company's decision to choose a commercial bank. Can it be trusted to provide financial in difficult times? Can it be trusted to make available foreign exchange even when it becomes scarce and it could be more profitable for it to make it available to the highest bidder? c) Providing products and services in which trustworthiness and reliability are part of the product itself. An example is audit services. It has become a commonplace that audit services nowadays have become commodities in which there is no room for differentiation and in which margins are minimal. Accordingly, most ancy firms are putting greater emphasis on more glamorous services like tax advice or management consultancy. However, a firm which has a high reputation for integrity and is committed to preserve and nurture it in the future has here a clear opportunity for providing a higher value product, of which at present there is obviously short supply: audit reports which are truly reliable. Other examples of products in which trustworthiness is part of the product are insurance and inspection services. We can also include here all these business relationships in which the client needs to be assured of the confidentiality of the information that will become known to the supplier in the course of the relationship. d) Providing products or services in which there is an in-built conflict of interest in the position of the supplier and in which, therefore, its trustworthiness is especially important. An example is consultancy services on organizational redesign. Most recipients of such advice have to ask themselves, "Am I being told that I need this because I really need it, or because the consultants want to increase their billings?" Similar thoughts must often cross the minds of those who, after a routine check up, are told by their optometrist that they need glasses, which of course the optometrist is ready and willing to supply. The common theme in all of the above observations is that a firm committed to acting with high ethical standards in its relations with its customers will be wise to move towards those markets in which reputation and trust play a prominent role.

145 The attentive reader may have detected that a majority of the examples given relate to the area of services. There is a simple reason for this: generally speaking it is easier to ascertain the quality of a physical product at the time of buying it, while trust plays necessarily more of a role in service relationships. There is no need to conclude from this that ethical companies should stop producing things and become service organizations. Speaking generally, however, the conclusion one can draw is that manufacturers who are committed to a high level of ethical responsibility will be well advised to study the opportunities available to them of building higher levels of service into the products they sell as in that way they are likely to be able to exploit better their ethical competence. Finally, a firm which has high ethical standards in its relations with its customers also has the chance to generate competitive mileage in relation to the motivation of its own employees. One of the deeper needs we human beings have is that of feeling useful, of understanding that our efforts produce something valuable. A person with a sense of mission, who has interiorised the value of what he or she is achieving, finds it much easier to sustain the effort and overlook the many small pinpricks and differences that only too easily spoil relations among people engaged in a common project. The company which is committed to providing a real service to its customers and which continually es this message to its own employees is likely to be able to generate higher levels of motivation in the latter.

VII. SUMMARY For the relationship between a firm and its customers to be ethical (i.e., consistent with the principles of intelligent action and solidarity) the main requirement is that it be based on a true attitude of service, that is to say, on trying to contribute, through its products and services, to its customers living richer and more fulfilling lives. This approach to a firm's relationships with its customers can be called the "Service Paradigm" and can be contrasted with the "Warfare Paradigm." In this latter paradigm firms see themselves in a form of competition with their customers rather than in co-operation with them. Besides the basic responsibility enunciated above, a firm must also either provide products whose safety lives up to the common expectations of its customers or give them a clear warning whenever, for the sake of attaining other valuable objectives, safety has had to be compromised. Charging market prices for products or services is consistent with the "Service Paradigm." A certain price can be unfair, even if the customer has agreed to pay it if a) special need or ignorance lead the buyer to accept a price above market price; b) monopoly or collusion allow the seller to force upwards the market price; or c) in the absence of a market, the buyer has been led to agree by substantial information differences or by a situation of special need. Advertising is not inherently socially harmful, but of course this does not mean that every single advert is ethical. Adverts that seek to deceive or mislead or that, without a proportionate

146 cause, are susceptible of being misunderstood, are unethical. So are adverts which seek to manipulate the customers' feelings. An ethical firm will also seek to minimise the negative side effects of its advertising activity. Being scrupulously ethical in respect of one's customers can become a source of competitive advantage. This advantage will be more significant if the firm is involved in marketing important products or services whose quality cannot be ascertained at the time of sale, or for which the continued of the seller is necessary, or in which trustworthiness and reliability are part of the product itself, or, finally, in which there is an in-built conflict of interests in the position of the seller.

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CHAPTER 6.- RESPONSIBILITIES TOWARDS EMPLOYEES I. INTRODUCTION The ethical principles which govern sound relations between a firm and its employees1 derive from a consideration of the special nature of the "human resource." Ethical treatment of employees is based on the following fundamental principles: a) Because of the value and dignity of human beings they should be treated with respect and concern. Human beings are not just a resource to be exploited or a cost to be controlled but persons with a high intrinsic worth which derives from their capacities to choose, love and understand, and corresponding potential capacities for personal fulfilment that radically exceed those of any purely material beings. As we have already considered at several other points in this book a person's dignity is not respected when one directly chooses to harm him or her, even if this is done as a means to attain some desirable objective. When harm to a person results as a collateral effect of an action which pursues other objectives, the dignity of the person harmed is not respected if that action has been performed without a serious, proportionate reason. In a more positive vein, it also follows from the very special status of human beings that it is not enough, in order to justify the activities of a firm, that the needs of the firm's customers are satisfied; a firm's activities must also be compatible with, and contribute to, the full human development of the firm's employees. Of course, the employees' are not the only interests which deserve protection, and therefore questions of apportioning available means and of balancing these interests with those of others (e.g. of shareholders, or of other employees) will have to be realistically addressed. But the essential point is that advancing the interests of employees will not be seen purely in instrumental ("we treat them well in order to get even more out of them") but as a worthwhile end in itself. b) Another basic ethical demand is for the firm to discharge in good faith its obligations under the contracts into which it has entered with each employee. The work relationship has its origin in an agreement between the parties to it and respect for the of that agreement is thus a basic ethical requirement. While this is clear and widely recognised, what is sometimes overlooked is that most agreements, and certainly most employment contracts, contain not only explicit but also implicit . What is special in the employment contract is that the two parties stand in a hierarchical relationship to each other and as a consequence it will often fall upon the employer to interpret the implied conditions of the contract in handling unanticipated situations. Obviously, this presents special opportunities to make unilaterally decisions which give much more weight to the 1

In this chapter, the term "employee" should be taken to embrace both managers and rank and file employees when the contrary is not explicitly indicated.

154 interests of the employer than to those of the employee. c) Finally, as we saw in chapter 4 when discussing the priorities among the different responsibilities of business firms, employees are more than strangers with whom the firm has entered into contractual relationships for the supply of labour. Ideally they should be, and feel that they are, valued of a human community who are able to identify with its objectives. In the colourful image of Bartlett and Ghosal, "it is the difference between hiring out as a mercenary and becoming a Marine2." When a firm seeks to structure relations with its employees in this way it becomes especially important to observe carefully standards of fairness in dealing with them, as any perceived unfairness quickly erodes community among human beings. As was also pointed out in chapter 4, the fact that employees are considered full of the firm, and not just third parties who have entered into contractual relations with it, will have consequences in three main areas. In so far as they are of the firm the employees (and not only the shareholders and their agents) will have a right to participate in decision making; a right to have their interests (and not only the shareholders') protected in times of adversity; and a right to share in the value created by the firm. The concrete ways in which these rights can be recognised and implemented can legitimately be different in different firms. The fact that a firm is a human community in which employees are also brings into the picture mutual duties of loyalty between employer and employees: ideally the employee should be committed to the attainment of the organization's objective and the organization should be similarly committed to the personal and professional fulfilment of the employee. The vogue of restructuring, delayering, and downsizing, often with very scant regard to the past services which employees had rendered to their companies, has exacted a heavy toll in this respect. Not surprisingly, employees who in many cases were already feeling distanced and uncommitted, have become even more cynical in their view of their employers. The preceding considerations are ittedly abstract. Their objective is to bridge the gap between the general ethical principles discussed in the first part of the book and the specific ethical responsibilities towards employees which we are about to examine. It is in the context of these specific responsibilities that more immediately practical issues will be examined. But a general point can already be made here. Firms have important responsibilities towards their employees and these responsibilities demand that management take specific steps to protect the employees' interests in the face of powerful demands from customers and investors. II. STABILITY OF EMPLOYMENT If it is a firm's responsibility to be concerned with advancing the interests of its employees, then it will be essential to consider the issue of stability of employment, as it is quite apparent that this constitutes one of the paramount interests of most employees. 2

BARTLETT AND GHOSHAL p. 86.

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At the very least, losing his job is quite likely to cause grave inconvenience to an employee: he will go through a period of uncertainty and anxiety, will face a period more or less long without stable income, will incur search costs in looking for a new job, and at the end of the day may be forced to move to a different locality. At worst, losing one's job can lead to a prolonged period of unemployment. In present day Nigerian circumstances that is almost certain to entail severe economic deprivation, but even in countries which have generous welfare programmes in place, the unemployed is liable to suffer in other ways. Work is not only an instrumental means to get income, but something with intrinsic value. In working human beings bring many different skills and abilities into play, further developing them; they also play in greater or smaller measure a creative role, becoming the authors of something that was not there before; finally work provides an essential link of union with other people and the wider community. As De George put it "An able-bodied, competent member of society has and plays a role in it...work involves the taking of one's place in the community...One's self-respect as well as the respect of others is closely linked with what one does, how a person expresses himself through his actions, and the extent to which one assumes the full burden and responsibility for one's life and one's part in the social fabric. If one is not allowed to work, one is not allowed to take his or her rightful place in society as a contributing, mature, responsible adult3." For these reasons, it is not surprising that the right to work is one of the few human rights selected for inclusion in the Universal Declaration of Human Rights (Art. 23) Obviously, under modern conditions, no employer can bear single-handedly the burden of guaranteeing a job to all his or her workers, far less to everybody who is ready and willing to work. In many ways this is an issue that can only be solved at the level of a whole country, and in some aspects even demands international co-operation. Still, in so far as this is an issue that affects in crucial ways the well-being of its employees, the individual firm will rightly factor their right to work in its decisions and give great importance to it. A firm seen to be truly committed to do its best to provide stability of employment will be sending a very powerful message to its employees: that it is really concerned for their interests. The firm is thereby laying the foundation for a two-way commitment. It is very well known that the guarantee of life-time employment constitutes one of the bases of the extraordinary loyalty that Japanese employees traditionally exhibit towards their companies. But one finds the same reaction in other countries. A wll-known case is that of Andy Grove, the near-legendary chief executive of Intel, who "built an enormous reservoir of credibility and goodwill when he took extraordinary measures to retain employees during the memory-products bloodbaths of the mid-1980s. Grove tried to retain as many of the people as possible who had built this business for Intel, recognizing them as genuine company assets. To avoid lay-offs, he first chose to sell a 20% interest in Intel to IBM in order to 3

DE GEORGE (2) p. 311.

156 finance the company through its crisis. Next, he implemented the "125% solution" by asking employees to work ten hours more a week without compensation. Then followed the "90% solution," a 10% across-the-board pay cut to minimise separations. Only after that did Grove resort to layoffs in the face of a $200 million loss."4 Not everybody is like Andy Grove. Policies of restructuring, delayering and downsizing have been very popular over the last years. Perhaps Jack Welch, the chief executive of the General Electric Company of the United States, carried such policies farthest. He summarised his tenure as chief executive of the company in the following words5: "We started out with 411,000 employees. We acquired an additional 111,150 employees. Through divestitures, we reduced 122,700 employees. We restructured or downsized to get more efficient, reducing some 123,450. Now we have 276,000. Enormous in and out." He would not have had to change the tone at all if he had been speaking of potatoes instead of human beings. Whether or not such actions are unethical cannot be determined with certainty without taking into consideration the specific circumstances of each company. What is clear in any case is that the foundations of employee loyalty can easily be destroyed by policies that seem to be based on a consideration of the employees as so many costs to be cut. How could any employee of GEC who is aware of the figures cited above think that an attitude of loyal commitment to the company is required of him? Still, it is important to keep a sense of perspective and make it clear that there is no question of arguing that terminating an employee is intrinsically immoral. It will not be so if the direct objective sought by terminating an employee is something good in itself, as would be the case in situations in which management seeks to preserve or enhance the long-term viability of the firm, improve the cost structure of the firm, or (in the case of an unproductive or disruptive employee) remove a cause of lower morale or a potential source of danger to other employees. As a matter of fact, terminating some employees may not only not be unethical, but in some cases may well be a definite ethical duty. We may find it emotionally repugnant to dismiss an employee who has a large family; yet managers are not paid to follow the courses of action that they personally find congenial, but to protect the common good of the firm. When preserving the jobs of some employees becomes incompatible with the health or even the survival of the whole firm -as it eventually happened in the case of Intel- then failing to take the necessary measures can easily amount to gross irresponsibility. This will be much more so in the case of individual employees who through persistent misconduct erode the standards of the firm. But even if terminating an employee is not necessarily intrinsically unethical, in many specific cases it may well be unfair. This will be so when a serious effort has not been made to avoid 4

5

BARTLETT AND GHOSHAL p. 87. Quoted in KAY, p. 339.

157 what, as we have seen, can well constitute a catastrophic blow to the individuals affected6; when the burden of the adjustment to more difficult economic conditions is placed exclusively on the shoulders of the weaker of the firm, while shareholders and those working in the executive suite go unscathed; and when the firm fails to take whatever steps it can in order to minimise the harmful effects of its decision. Examples of actions that may be helpful in this regard would include the giving of sufficient notice if this is possible, the payment of adequate compensation, provision of opportunities for retraining, help in relocating, and so on. The point is often made that rigid or overprotective employment policies may actually be counterproductive from the point of view of creating employment. This is certainly the case at the macroeconomic level. Many recent studies have contrasted the situation in European countries with that obtaining in the United States. In Europe firms find it very difficult to dismiss employees7, and in any case have to pay high levels of compensation to do so. Also, high minimum salaries and payroll taxes, used to finance generous welfare provisions, have driven up the cost of labour. In the U. S. labour costs are relatively lower and it is much easier to dismiss redundant employees8. Intuitively one might expect that where the workers enjoy greater protection the level of unemployment would be lower, but as anyone familiar with the facts knows, this is not the case. In 1960 the U.S. unemployment rate was more than twice as high as that of Europe. Since then Europe's economy has grown faster than the American one. However in these thirty five years the total number of jobs in America has grown by 84% (a net increase of eighty million jobs) while over the same period the number of European jobs has risen by a paltry 6% (a net increase of only seven million jobs). The end result has been that by early 1995 the unemployment rate in the US was 5.8% while that in Europe was 11.8%9. The reason for the above figures is not far to seek. Precisely because labour in Europe is expensive and difficult to reduce when times are bad, employers have had a great incentive to reduce employment and invest relatively more in labour-saving equipment, while the lower cost and greater flexibility of labour in the U.S. have provided an incentive for American firms to expand employment. In increasingly open and competitive markets employers, large and small, will hire only if they know they can fire when the going gets tough. 6

HAMEL AND PRAHALAD pp. 8-11 have argued that in many occasions massive layoffs are little more than panic measures and a manifestation of management incompetence. 7

Thus, in Spain or Italy it can cost more than two years' pay to retrench a worker in a large company.

8

Thus, the pay of European Union workers increased at an average of 4 per cent a year in real during the 1980s while in the US it was virtually static during that period (it actually declined for the workers with lower skills). Payroll taxes on employers add on average 30 per cent to European wage costs, but in countries like , Italy and Belgium the average figure is 45 per cent. 9

A source of many basic comparative statistics on this issue is The OECD Jobs Study, OECD Publications, Paris, 1994.

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But while at the macroeconomic level making it easier to fire people may actually be an effective way to reduce unemployment,10 it would be wrong to draw conclusions from this as to what is the appropriate behaviour at the level of a firm. At this level much will depend on factors such as what is customary in an industry, how easy or difficult it is likely to be for retrenched workers to get work again, and the sacrifices that the workers have made for the firm in the past. But given the imperatives of loyalty, and the fact that in many occasions the costs of retrenchment to the affected employees are likely to be severe, retrenching staff will be always a course of action that an ethical firm will take quite reluctantly and after alternative avenues have failed to provide a solution, and even in that case serious efforts will be made to soften the harmful effects of the measure as much as possible. III. FAIR COMPENSATION Very few people are likely to object to the statement that employees should be paid a fair compensation. The problem arises when one asks how that fair compensation should be determined. Payment of a living wage Some people, implicitly or explicitly, think of labour as just one more commodity. For them a worker's salary is simply the price to be paid for that labour and it will be fair if it responds to the of the contractual agreement accepted by both parties. However, as we saw in our discussion of the issue of fair prices in Chapter 5, it is not possible to conclude from the fact that two parties agreed to a price that that price is fair. It may be that a party agreed to a price that is below market value because of his ignorance or special situation of need; in such situation the agreed price could be substantively unjust. The market price itself of a commodity could not provide a satisfactory standard of fairness if it was not the result of the operation of a free and competitive market. Such considerations also apply to market salaries. A market salary would not be fair either if it reflected a serious structural injustice in social arrangements. There are countries, for instance, where a whole class of the population has been systematically deprived of educational opportunities. As a result there is now a large number of unskilled labourers and the market salaries of such people are extremely low. In such a situation11, the general presumption in favour of the fairness of market prices breaks down. Whether a given employer would have a moral obligation to pay a salary higher than those prevailing in the market will depend on further considerations which will be explored presently. But certainly that employer 10

As was pointed out before, reducing labour costs, and especially payroll taxes, can be as important or more than increasing labour flexibility. 11

We are not entering at this point into deeper considerations which derive from the special nature of the human resource and which we will discuss in Chapter VII. We are now focusing exclusively on the fairness of some overall arrangements which result in a certain price (salary) for a resource.

159 would not be able to justify his paying only market salaries on the basis that they can be presumed to be fair. But, even more radically, one should challenge the assumption that labour should be priced just like any other commodity. Both the very special respect and concern that human beings deserve and the fact that, as was argued in chapter 4, employees should usually be treated as of the firm, rather than as external suppliers, introduce new considerations that affect the minimum salary payable in a firm as well as the spread between lowest and highest salaries. Definitely, there should be a minimum salary payable, sufficient to satisfy the needs of employees. In the absence of special considerations affecting the very survival of the firm, paying any full time worker a salary which is below that minimum would be substantively unfair, irrespective of market levels and of the fact that the worker (probably prompted by urgent need or by ignorance) has "agreed" to it. The reason for this thesis is that the ultimate purpose of any economic system taken as a whole is to provide for the needs of the participants and their dependents. All who contribute their fair share to the operation of that system should receive enough to meet their needs. Obviously, the content of the "needs" to which reference is made in the last paragraph requires further definition. In the first place, a human being's needs exceed the purely material plane. The needs that a minimum salary should be adequate to satisfy include also the employee's social, cultural and spiritual needs. Secondly, human beings are not isolated individuals; it makes no sense to say that somebody has his or her needs satisfied if his or her dependents are in want. Therefore a fair salary will have to be able to provide for the needs of the worker and his or her family. Finally, the level of satisfaction of such needs will vary from a society to another, according to the prevalent level of wealth and to what it takes to be a respected, functioning member of that society. We have stated that it is a fundamental ethical demand that every full time worker should earn enough to cover that worker's basic needs and those his or her dependents. However, the burden of providing enough income to satisfy such needs should not necessarily fall exclusively on the employer. In countries where social security safety nets provide for the satisfaction of some basic family needs out of general tax revenues (e.g. through family allowances, free medical care, etc.) the employer would not have a responsibility to take such needs into in determining a fair minimum salary. However, in countries where such provisions do not exist, or are inadequate, it is the employer who will have that primary responsibility. Still, the responsibility to pay such a "living wage," while real enough, does not constitute an absolute moral duty. It could be justified to pay a lower salary, for instance, if paying a full living wage were to have the effect of bankrupting the business, or were to make it impossible to pay market level salaries to more qualified workers, with the foreseeable consequence that many of them would abandon the firm. In such cases the firm would be paying insufficient salaries because it is truly unable to do better and because the alternatives are even worse, for the very workers concerned: it is preferable to have an inadequate salary than no salary at all.

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Non-discrimination Another possible ethical shortcoming of a system of employee compensation is that it may fail to be fair among the different employees of the firm, in the sense that considerations of partiality or favouritism may lead the management to discriminate against some of the workers. Also in this issue it is not enough to argue that every worker has agreed to the of his or her contract. The firm constitutes a human community engaged in performing economic functions. Providing to all its a minimum standard of living sets a floor on salaries. Beyond this floor it will be unfair if differences among the rewards received by the are based on anything but their respective contributions to the success of the firm and on the objective demands of that economic function. Such unfairness is unethical even if the employees who are being discriminated against have been forced to agree to it. This ethical requirement is sometimes expressed in the slogan "equal pay for equal work." This expression, however, fails to do justice to the full complexity of the problems that may arise. It is not required, for instance, that a multinational company should pay the same salary to all its employees worldwide who do the same work, irrespective of where they live. The fact that the cost of living and market levels of remuneration for different jobs vary across countries are relevant considerations in fixing salary scales. Otherwise a firm would be obliged to pay worldwide the remuneration that it pays in the place with the highest cost of living, or the salary it is forced to pay in the place where a certain skill is most scarce and the competitive remuneration is highest. Similar considerations apply to different locations within a country. There is nothing wrong therefore if a company pays different salaries in Lagos and, say, in an upcountry rural location, in order to reflect the differences in living costs. Pay differentials One can find firms in Nigeria where the chief executive earns more than two or three hundred times the salary of the lowest paid workers. One assumes that it will be difficult for such chief executives to proclaim with a straight face that "we are all associates in a common enterprise." Precisely because in most situations ethics demands that all the employees in a company see themselves as sharing a common hip in a human community, an ethical approach to business management will tend to reduce pay differentials among the different employees. However, the issue is far from straightforward12. While common hip in the same community provides a reason for endeavouring to reduce pay differentials, there are also valid, not self-serving, reasons that push in the opposite direction. The more important ones are the following. 12

For useful preliminary conceptual clarifications on the concept of fair salary (especially useful for discussion of the fairness of very high salaries) see WALUCHOW.

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It is a demand of fairness that people be rewarded according to their contributions to the success of the common enterprise. And in fact there are many cases in which the contribution of a star performer is measurable and in actual fact can turn out to be extremely high. Think for instance of an artist whose reputation can ensure that millions of records will be sold; or a treasury specialist with a large and diversified pool of s who can attract tens of millions of naira to the bank employing him, on which the bank will be able to earn a substantial interest; or a chief executive with a consistent track record of turning around mediocre businesses, who moves a moribund company from a profit of N2 million the year before he takes over to N37 million in his first year of work and to N135 million in his third year13. It is not only that in fairness such high-contributing individuals are justified in demanding millionaire remunerations. The fact is that if a firm refuses to give them such levels of compensation they are likely to move to another firm which will do so. A firm which is unwilling to pay competitive salaries to its star performers will soon find that it has no star performers left; in the medium term such firm is bound to either change its policy or hit the rocks. At the other end of the scale, one can find marginal contributors who are paid whatever a firm has established as minimum pay and who, if they were to lose their present job, perhaps would have trouble securing another that would pay them up to one third of their present salary. In so far as the contributions of different individuals can be estimated one can find tremendous differences between the excellent, the ordinary and the positively mediocre. And this should not come as a surprise; it is precisely a consequence of the spiritual nature of the specifically human capabilities that makes them potentially unlimited and allows top performers to attain dizzying levels of achievement. As a matter of fact the lower the level of economic development of a country the larger the gap between top and bottom performers is likely to be. In every poor country there are significant numbers of people who have just ed the modern sector of the economy and who have very low levels of education and motivation. But such countries always have a number of individuals who are operating at levels of professionalism comparable to those obtaining anywhere in the world. Therefore many firms find themselves in a situation in which both considerations of fairness and competitive realities force them to pay very high salaries to some employees. At the same time, if they were to try to keep all their salaries within a spread of say one to twenty, they would be 13

In many areas of modern business the impact of individual performance on a firm's results is similarly easy to assess. Think for instance of individual researchers, football players, bond traders, salesmen, professors, plant managers, lawyers, consultants, treasurers in banks, stockbrokers, among innumerable others. In other occasions the reaction of the stock market can provide an indication of how many informed and experienced analysts assess the likely impact of an individual on the performance of a firm. As an example among many, it is pertinent to mention that the news that Walt Disney Co. had hired famed Hollywood agent Michael Ovitz drove Disney's stock price more than two points, adding $1.1 billion to the market value of the company. (Business Week, August 18, 1995).

162 forced to pay large numbers of low productivity employees extremely high salaries compared to their competitors. Such policy would very quickly render a company uncompetitive14. What is the solution? There is none. All one can do is to keep in mind all the different considerations and try to steer a middle course that attempts to be sensitive to all of them. In the end all that can be said is that one has to try and reduce differentials in order to preserve the unity of the company and reward top performers according to their contribution and to the pay levels they can command in the market and avoid burdening the company with a structure of overheads that will render its competitive position untenable in the short or the long term. All of these are significant ethical responsibilities. IV. JOB DESIGN AND PARTICIPATION Work is the single activity to which most of us devote the largest number of our waking hours. Because, as we discussed in the first chapter, we shape ourselves through our activity, work has a very high potential to contribute to the development and self-realization of human beings, or, if it has a negative impact, to stunting their humanity and frustrate them. Few have expressed the negative potential of work better than the nineteenth century writer John Ruskin, in a age in which he comments on Adam Smith's well-known description of the minute division of labour in a pin factory15: "We have much studied and much perfected, of late, the great civilized invention of the division of labour; only we give it a false name. It is not, truly speaking, the labour that is divided; but the men: Divided into mere segments of men - broken into small fragments and crumbs of life; so that all the little piece of intelligence that is left in a man is not enough to make a pin, or a nail, but exhausts itself in making the point of a pin, or the head of a nail. Now it is a good and desirable thing, truly, to make many pins in a day; but if we could only see with what crystal sand their points were polished - sand of human soul, much to be magnified before it can be discerned for what it is we should think there might be some loss in it also. And the great cry that rises from all our manufacturing cities, louder than their furnace blast, is all in very deed this -that we manufacture everything there except men; we blanch cotton, and strengthen steel, and refine sugar, and shape pottery; but to brighten, to strengthen, to refine, or to form a single living spirit, never enters into our estimate of advantages." Certainly, conditions have much improved since the days of John Ruskin, but the same cannot be said of the prevailing diagnosis of the ethical issue involved in human labour. Indeed many contemporary writers could greatly benefit from the simple insight contained in this age: 14

It may cause no economic problem for a company to pay a star performer, say, the naira equivalent of $100,000, and in fact this may be strictly necessary in order to attract a good expatriate engineer. But paying 3,000 labourers the equivalent to $2,000 each would quickly put any construction company out of business. 15

J. Ruskin, "The Stones of Venice," cited in DUSKA (2) p. 167.

163 the issue is not primarily one of "satisfaction" but one of the real effects work has on the people who perform it. At bottom the issue is simple. Some work engages the highest abilities of those who perform it: it demands attention, thought, prudence, initiative, creativity, responsibility and social skills. Other work does not demand the exercise of any of these qualities; and, of course, there are an infinite number of gradations between the two extremes. A man whose skills and abilities are constantly engaged and challenged by his work will develop them. The man who only has to contribute his presence and physical energy will at the very least not succeed in developing these higher abilities in the process of working. At worst, if he has no unusual opportunities outside his work or is not endowed with unusual qualities, he will be positively stunted by the deadening effect of his dominant activity. This negative effect of unchallenging work was already perceived by Adam Smith, the founding father of economic science, and he put the point with stark clarity: "The man whose whole life is spent performing a few simple operations...generaly becomes as stupid and ignorant as it is possible for a human being to become." In this issue, as in many others in ethics, it is important not to concentrate our attention on an ethic of minimal demands: "not to harm others." Specially in the issue of work, it is very important to pay attention to the great positive effect that the right kind of work can have on the development of an individual, rather than restricting our attention to avoiding the most obvious types of harm. Many writers on human behaviour in organizations, usually with the best of intentions, have taken as their point of departure the issue of "work satisfaction" and claim that people like better the more skilled type of work. This is shaky ground on which to base general prescriptions on job design. Some people like more demanding work, but others do not. In fact, some researchers have presented powerful empirical evidence to the effect that many people like best the more mechanical type of work.16 To add to the embarrassment of this type of writers, hundreds of research studies on the issue have failed to show any simple, direct linkage between job satisfaction and job performance.17 But here, following the example of John Ruskin and Adam Smith, we are not concentrating on what people, conditioned in part by their past experiences, may happen to like or not like18. This 16

See, for instance, FEIN and HACKMAN AND OLDHAM.

17

FISHER and IAFFALDANO AND MUCHINSKY.

18

On this see, for instance, TURNER AND LAWRENCE. This research studied the relationship between job content (rated according to factors as variety, autonomy, responsibility, learning time and opportunities for interaction), job satisfaction and absenteeism. High scores in the factors listed above were associated with low absenteeism. But no simple correlation was found between them and satisfaction. As a matter of fact they found that urban workers tended to be more satisfied with low rated jobs while rural workers preferred higher rated jobs. Their conclusion was that cultural factors intervened between satisfaction and the characteristics of the job. People may come to like what they feel they cannot escape. Many other researchers have obtained similar results. See, for instance, STRAUSS pp. 40-69.

164 issue, not being unimportant, is secondary. The main issue is whether certain type of work harms people and whether a different type of work helps them develop their potentialities. This last set of considerations has much more importance from an ethical perspective and on this issue there is very little room for doubt: the more the abilities of people are engaged by work the more people will develop in that work.19 Other writers on human resources have chosen a different tack. Also with the intention of espousing richer and more meaningful work, they have concentrated on claiming that job enrichment leads to higher productivity. However, once again, their claims are contradicted by other researchers, who have presented evidence to the effect that while richer and more demanding ways of deg jobs are more productive in certain tasks, other types of work are more effectively organised on the basis of de-skilled, monotonous and repetitive jobs. Here, however, we do not have to argue that point. We can grant, at least for the purpose of this argument, that in some occasions giving people very undemanding jobs could well be more productive, in the sense that, continuing with Adam Smith's and John Ruskin's example, it will lead to the production of the largest number of pins. The ethical argument is different. It is basically, that, to paraphrase Ruskin, "to brighten, to strengthen, to refine, or to form living spirits, ought to enter into our estimate of advantages." What is then specifically the ethical responsibility of a business firm in relation to the design of jobs and the fostering of participation by its employees in decision making? Is there a duty never to design a job that does not allow for the exercise of initiative and independent thought? Is there a positive duty to maximise at all costs the characteristics of jobs that contribute to the full human development of the workers? It should be plain by now that the basic principles to which we are making constant reference throughout this book do not lend themselves to such absolutist interpretations. Work has deep and lasting effects on those who perform it; accordingly, there is a serious ethical responsibility to take this issue into . However, this is a positive responsibility, and as such it does not constitute an absolute duty, but rather will have to be exercised in the context of all the other responsibilities of the firm. Therefore, there is no question of sacrificing blindly everything on the altar of "job enrichment." It is rather a matter of taking advantage in a serious, committed and systematic manner of the opportunities available to design work in a way that will stimulate the full human development of the workers, according to the real opportunities which exist at any given time. Whenever it happens that progressing along that line will create other problems -e.g. of productivity, costs, or even resistance on the part of some workers- there is no duty to charge blindly ahead. What will be required is to assess the harms and benefits in question in a fair and impartial way. In this issue, an illuminating question that one can ask is "If it were somebody dear to me who had to 19

KORNHA.

165 perform this job, would I be satisfied that it is actually impossible for the time being to enrich it further?" VI. SIGNIFICANT SERVICE TO CUSTOMERS It is not enough for the professional fulfilment of an employee20, that his work is such that it gives him opportunity to develop his capacities. If the end result of his labours is meaningless the important portion of the employee's life that is spent at work will have been wasted, irrespective of whatever wonderful levels of skill went into that meaningless work21. In well-known words of Shakespeare, we could describe such highly skilled work as "a tale told by an idiot, full of sound and fury, signifying nothing." Consider of a bank manager. Perhaps she can feel proud that she has made a significant contribution to the economic development of Nigeria and to the satisfaction of the economic needs of her compatriots through an effective mobilisation of economic resources. But perhaps she has to confess to herself that at the end of the day all that her bank has done is to make money by cornering a proportion of the foreign exchange that the Central Bank had available for distribution. Whether it is the former or the latter will make a great difference in regards to her professional fulfilment. In one case she will be able to think that her life has been useful and meaningful; in the other she will only have emptiness to show for her efforts, at least in the professional sphere. The point is that by embracing what in the last chapter we called the Co-operation Paradigm and seeking to provide truly significant service to their customers, business firms are discharging an important responsibility towards their employees. They make it possible for them to have professional lives that are meaningful and useful. And this, by the way, makes it possible for us to assess correctly the position of customers in business organizations. Defenders of the stakeholder conception of the firm22 have correctly perceived that it is important for firms to provide real service to their customers. However, they have conceptualised this valid insight in the wrong way. Customers are not part of the firm; they are truly outsiders to it. They are, however, the group of outsiders who provide meaning to the work of the organization. Without service to the customers a firm becomes pointless. Therefore, it is extremely important for a firm to serve its customers, not because they are insiders but rather because, being really outside the firm, it is through serving them that the of the organization realise themselves professionally. 20

Of course, it is essential to keep in mind that a business organization can help an employee attain fulfilment in the professional sphere. It would be idle to expect such an organization to be able to give meaning to the whole of the employee's life. 21

For the concept of "task-significance" - the degree to which a job is perceived by the employee as having a substantial impact on the lives of other people - and its connection with "job enrichment" see HACKMAN AND OLDHAM. 22

See chapter 4.V.

166

VII. PRIVACY What is privacy? Basically it refers to the fact that some aspects of our being and life are not open to everybody. When we speak of a right to privacy we usually want to insist on the right of people not to have these aspects invaded by others against their will23. For our present purposes we may distinguish three types of privacy: a) Psychological privacy. It exists when people are actually able to keep to themselves their intimate thoughts, opinions, beliefs and emotions and reveal them only when they choose to do so. Means to invade that sphere of privacy are intrusive questioning, istration of psychological tests, and use of polygraphs (popularly known as "lie detectors"). b) Physical privacy. It exists when a person has an ambit within which his physical activities are protected from the gaze of others. This privacy is invaded, for instance, through the use of hidden microphones, wiretaps, telephotos, personal searches etc. c) Behaviour privacy. It exists when people are able to make decisions on how to conduct themselves without pressure from others. This privacy is invaded, for instance, when one's employer forbids one from being a member of a certain political party, or when she objects seriously to one's smoking, drinking, or belonging to a certain church. In order to appreciate what is the extent of a firm's responsibilities in relation to the privacy of its employees, it is necessary to start by having a sound appreciation of the value of privacy.24 Is it actually a good thing? Perhaps the best way to appreciate the value of privacy is to consider what would happen if it were to disappear completely. As for psychological privacy, it would obviously be a major disaster if all our thoughts and emotions were transparent to others. First, it would often cause us shame and embarrassment. Secondly, it would make it radically impossible to have intimate relationships; the reason for this is that such relationships are actually constituted by the fact that one shares one's intimacy with the other party or parties to it; but once there is no intimacy left to share, it is simply impossible for such relationships to exist. Thirdly, many jobs would become simply impossible: if they could not trust that what they said was to be kept confidential people would just refuse to be candid with their lawyers, doctors or other advisers. In the fourth place many relationships would be seriously jeopardised if we all knew in detail every single thought that everybody else has ever entertained . 23

24

FRIED (1) ch.9, THOMSON and PARENT are good discussions of privacy.

For a different approach to the right to privacy, complementary to that pursued in this book, see LIPPKE.

167 Ambits of physical privacy are necessary in order to protect our psychological privacy. The reason is that outward performances such as our words, expressions and actions often reveal our inner thoughts. Therefore an invasion of our physical privacy is often a means to invade our psychological privacy. Beyond this, physical privacy also has a value in itself. We would feel seriously uncomfortable if forced to stand naked in the public view. Behaviour privacy is even more important. When this privacy is invaded in a weak way a person may have to listen to advice that she actually has no interest in receiving. At its worst an invasion of this type of privacy will take the form of a person's suffering pressure to refrain from acting on her convictions or to act in a way that expresses beliefs she does not hold. Because privacy has such value there are good reasons, other things being equal, to respect it. If invasion of privacy takes the form of positively forcing people, for whatever reasons, to act against their convictions, then it is intrinsically wrong because it constitutes a direct attack on a fundamental dimension of human good, namely that of integrity and authenticity, and such a directly willed attack can never be ethical. An example of this would be putting pressure on somebody to profess convictions he does not hold. But when less extreme forms of intrusion on somebody's privacy are involved, it cannot be argued that the duty to respect privacy is absolute. Our responsibility to protect or promote other human goods may provide a cogent justification for enquiring into the ideas, attitudes, actions or characteristics of somebody, or for requesting that she act in a certain way. Everyday examples, whose legitimacy nobody would dream of questioning, range all the way from requesting a prospective employee to provide a summary of his past employment history to carrying out daily body searches of diamond miners to insure against pilferage, and authorised telephone tappings of people suspected to be carrying out activities which endanger national security. Therefore, in most cases the ethical problems of privacy in employment situations revolve around articulating criteria to balance the value of privacy to employees with the legitimate needs of their employers. At the risk of being too general, the following considerations can be advanced: a) The more the goods that privacy protects, as indicated in the previous paragraphs, are damaged or threatened, the stronger the justification needed to enter into a private area. Thus, an employer will not need a very strong reason to request disclosure of items of outward behaviour of the employee or prospective employee which in fact are already known to many other people, such as whether or not he is married, the number of jobs he has held, place and date of birth, etc. On the other hand, stronger reasons will be needed to insist on an employee taking an intelligence test, even stronger ones to request a personality test, and strongest of all to insist on his discussing with his employer, say, how far he is being faithful to his marriage vows. b) The more the information about an individual or her behaviour has an impact on the activities of the employer, the more the latter will be justified in trying to acquire the information or insisting that the employee changes her behaviour. Thus, for instance, a gateman's hip of a certain political party is very unlikely to have an impact on the operations of the firm that employs

168 him; accordingly, the firm would not be justified even in asking him about such issues. On the other hand, the personal reputation of an executive director is likely to have a direct influence on the reputation of the firm. Therefore if such a director were to belong, say, to a strongly tribalist political organization, the firm could well be justified in requesting that she either severe her links with such organization or resign. To give a second example, if a firm comes to know that the use of drugs is spreading among some of its workers, it will have a justification, both on the grounds of safety and of its responsibilities towards its workers, to insist that all workers ought to take urine tests in order to identify drug s; but that organization would not be justified in insisting that all its clerks take similar tests to check that they are not consuming alcohol, when its consumption is not discernible on the basis of ordinary observation and it cannot be established that it is having any impact on job performance. Obviously, it is not easy to combine these two criteria, as there is no "objective" measure of what degree of invasion into an individual's personal sphere is justified by what degree of potential harm to the interests of the employer. As in so many other occasions, here also we come up against the problem of the objective incommensurability of different dimensions of human good. In order to act at least in a fair and consistent way, employers will have to take their initial bearings from the usual practices of responsible organizations. Thus, when they are considering the possibility of taking a certain measure, they will have to ask themselves whether measures of comparable or greater severity are usually adopted by responsible employers for reasons that have a comparable or lower impact on the welfare of the organization. If that is the case, there will be a presumption that the action could be justified. On the other hand, when the employer is proposing to invade an employee's privacy to a greater extent than is customary among other employers when protecting against similar harms, there will be a presumption that the action would not be justified. Of course, in the end such test can only have an orientative value and it has to be completed by asking oneself the question, Would I still accept that this degree of intrusion into a person's privacy is justified by the importance of the interests at stake if the person involved were myself or somebody near and dear to me? Velasquez has made the useful point that when "extraordinary" methods are involved, the above considerations will not suffice25. He defines as "extraordinary" methods which are not normally used to oversee employees, for example hidden microphones, secret cameras, wiretaps or spies. He then argues that unless circumstances are themselves extraordinary, gravely endanger the health of the organization and cannot be addressed adequately in any other manner, the use of such methods will not be justified. An example, for instance, would be a shop which has been suffering heavy losses from employee theft that ordinary supervision has failed to stop. He then goes on to state that for the use 25

VELASQUEZ pp. 399-400.

169 of such extraordinary means to be justified, the following conditions, among others, would also have to be met: a) there is a well founded expectation that the use of such extraordinary methods will solve the problem; b) the use of such methods is discontinued as soon as the problem is solved or it becomes clear that they will not work; and c) all information uncovered which is not directly relevant to the problem at hand is disregarded and destroyed. VIII. FAIR HEARING The concept of fair hearing has been developed by the courts. However, here we are not concerned with the legal requirement of fair hearing; we are simply taking this concept as a useful starting point to investigate the ethical requirement that employees be given an opportunity to defend themselves before being penalised. The basic conception is that when a person accused of wrongdoing has not been given an adequate opportunity to defend himself of the charges against him, there will be serious doubts as to whether he is indeed guilty of such wrongdoing. In many different contexts the courts have held that action taken against a person accused of wrongdoing without giving him the benefit of fair hearing is null and void. Fair hearing is usually held to include the following elements: a) the charge against an employee must be clearly stated; b) the employee must have an opportunity to face his or her accs, to refute the charge and to rebut the evidence; and c) there must be an opportunity for appeal. The stringency of the above requirements should vary according to the seriousness of the charge involved. Thus, while the possibility of appealing all the way to the board may well be justified when the dismissal for misconduct of an employee is at stake, it would not make any sense to provide a similar appeal for every minor disciplinary infraction. Similarly the formality and precision with which a charge should be formulated can legitimately be different for minor and serious charges. However, it is argued that, in a more or less formal way, the three essential elements referred to above should be present before an employee is penalised by the organization. Obviously, observing the requirements of fair hearing complicates the disciplinary function of supervisors. What is the point of observing them? There are basically three advantages that follow from their use. In the first place, they are valuable in themselves, as employees are appropriately treated like persons who deserve to be respected; obviously readiness to penalise somebody without taking any pains to guarantee that the accusation is well founded does not show respect for that person. In the second place, the discipline that fair hearing requirements introduce protect employee rights better as they minimise the possibility of errors and of arbitrary or malicious disciplinary actions by immediate supervisors. In the end these two reasons point in the same direction: a firm which truly sees its workers as partners in a community and is seriously committed to protecting their legitimate interests has no reason not to institute fair hearing requirements before any disciplinary action is taken. The third reason for observing fair hearing procedures has a more immediately practical character: an impressive body of psychological research has established that even when individuals

170 are convinced that the decision reached in respect of them by an institution (e.g., a court, or a business firm) is objectively unjust, for so long as they are convinced that the procedure by which the decision was reached was fair, they will still tend to maintain a favourable attitude towards the institution.26 An important conclusion of such studies is that perceptions of procedural fairness are essential in order to maintain organizational commitment.27 IX. PROTECTION FROM HARM There are many ways in which employees may be exposed to harm in the performance of their work. The following are some of the most common ones: a) The work may pose hazards to life or health. Thus construction workers may be exposed to falls, drivers to motor accidents, miners to lung sicknesses, radiologists to cumulative radiation, labourers to back injuries, and so on. b) Employees may suffer harassment from their co-workers or supervisors. In this area sexual harassment has received special attention lately28, but other types of harassment like being made a scapegoat, racial or tribal slurs, insults, and being taken advantage of in different ways, should also be kept in mind. c) Work arrangements can put a significant strain on the employees' family life. Most common reasons for this are the need to work long or disruptive hours, week-end work, frequent travelling, and postings to other cities or countries.29 In the face of such harmful effects for the employees the employers may try to avoid facing their responsibilities with several excuses. Among the most common ones are the following: a) It is not my problem. Such a response is radically unethical. If anybody (more so a fellowemployee to whom I am bound by special bonds as a consequence of our regular cooperation in a common enterprise) is suffering harm and I have an opportunity to ameliorate that person's situation, then prima facie I have a responsibility to do so. Now, it may be that the cost of intervention (whether in money or in other ways) is so high that it would be unreasonable to do so; or perhaps attention to more pressing responsibilities make it impossible for me to act. In such cases I may be justified in not intervening, but what one can never do is just take cover behind a blanket disclaim of responsibility ("Am I my brother's keeper?").

26

TYLER and DIPBOYE AND DE PONTBRIAND.

27

MARTIN and CROPANZANO AND FOLGER.

28

FEARY is a good discussion.

29

On organization of work and family rights of the employees see MELE.

171 As the issue has great practical importance, it may be useful to discuss a little longer the assertions made in the last paragraph. An example may be of help30. Let us think of a very small child who is drowning in a pool of water only a foot deep. An adult es by. Does she have a duty to rescue the child? The life of the child is at stake. We assume that saving the child would not prevent the er-by from attending to other responsibilities. Therefore the only possible reasons which she could offer to justify her inaction would be either that life is not something valuable, or that the life of that child is not valuable, or that the life of that child is less valuable than the avoidance of some inconvenience to her which would be associated to rescuing the child (e.g., dirtying her shoes), or that either arbitrariness or responding to one's feelings from moment to moment is better than trying to guide one's choices by a reasonable consideration of the goods that one can attain or promote and the harms one can prevent. Each of these putative justifications of the "do-nothing option" violates a fundamental principle of practical reasonableness. Complex issues arise here, some of which were treated in chapters 1 and 2. However, for our present purposes we can rest on the knowledge that very few people would like to have to argue openly in defence of any of the reasons suggested above for not rescuing the child. Even though it is possible for somebody to argue verbally in favour of one of them, or even all four, that person will be unable to avoid inconsistency for he or she will perform many actions which are only explicable on the basis of an implicit acceptance of the very same principles whose truth he or she will have to deny in trying to justify not rescuing the child. The result of this analysis is that, in the situation we are considering, the only reasonable way of acting is to rescue the child. Now if in a given situation there is only one way of acting which is rationally eligible then to act in that way is one's duty. The conclusion, which closely parallels our common-sense assessment of the situation, is that the er-by is under a strict duty to rescue the child. The case of the drowning child throws light on the similar but less dramatic case of the duties of an employer towards her employees who suffer harm in the course of performing their jobs, with the added argument, of course, that in this case there are special duties deriving from their common hip in an organisation and from the claims of loyalty which arise from past services. Without needing to overelaborate the point, the conclusion is simply that we are our employees' keepers and that we have a clear responsibility to do whatever we can -consistent with our other responsibilities- to reduce the hazards to which they are exposed. b) A second line of defence could be to claim that one has discharged one's responsibilities to protect one's employees from harm if one has complied with the relevant legal provisions on such issues. But this is not so. As we saw in Chapter 4, our legal duties do not exhaust our moral responsibilities. Legal duties may be light for a variety of good and bad causes such as the incompetence or venality of the legislators, the fact that the law necessarily reacts slowly to new situations, or because of the negative side-effects of relaying on legal enforcement of moral duties. 30

The example is discussed at greater length in ELEGIDO (4).

172 Often one will have to assume that our moral responsibilities go well beyond our legal duties. c) A third argument of an employer determined to disclaim a responsibility to take action in the face of harms suffered by his employees is that for so long as employees have agreed to work in certain conditions, they cannot possibly complain. However, as we have seen, this position is not defensible either. In the first place employees may have been forced to agree to the conditions of service offered to them for a variety of reasons, as for instance, that the conditions offered to them by others were even worse, or that accepting such conditions was the only way open to them of feeding their families. The radical issue at stake here is simple: the duty of fairness is wider than the duty to keep agreements, and goes beyond it. Thus, to give only one example, anybody who insists that others enter into agreements that he would not have accepted herself if placed behind "a veil of ignorance"31 is not acting fairly32. On the other hand, it cannot be claimed that it is my responsibility to do "whatever it takes" to eliminate completely even the slightest trace of any hazard facing my employees in the performance of their work. We are certain to face severe obstacles of practicability, cost, and competing objectives, and trade offs will be needed. In fact, one may often have sufficient reasons to accept bad side effects to one's own health, or psychological well-being, and therefore it cannot be necessarily unfair to accept such bad side effects in the case of others. The real responsibility of an employer is, first of all, never to lose sight of the intrinsic worth of all employees as human beings, a worth that far exceeds the usefulness that they may have for me; nor of the fact that they are full of the firm of whom loyalty has been demanded in the past and to whom accordingly loyalty is due. Once this is clear the principle is simple: nobody should be exposed to physical, psychological or moral harm at work without an impartially assessed sufficient reason. As in many other cases, it is not enough to approach this problem from the point of view of an ethics of minimum requirements. These problems should be approached in a proactive way, with the aggressiveness, imagination, creativity, and determination to achieve results that one puts when issues that have a direct impact on the bottom line are concerned. When this active concern for the well-being of one's employees is displayed, unconventional solutions are often found to many problems, and thus in companies for which such concern is a real priority one comes across solutions such as flex-time, possibility of travelling together with one's spouse at company cost ( at least some times), special programmes to prevent sexual harassment, employee safety goals being integrated in the basic goals of departmental managers, and so on. It is not a question of developing a series of "practices of the company concerned with the well-being of its employees." What the appropriate practices are will depend to a large extent on the 31

That is to say, in a situation in which she did not know whether she would have to comply with that agreement as an employer or as an employee. 32

For a brief description of the "veil of ignorance" as a test of fairness, see chapter 3.

173 specific situation of each firm. The issue is rather to foster a basic attitude of openness and concern in order to ensure that the well-being of the employees is not wantonly sacrificed to the achievement of economic results or, even worse, that it is not sacrificed out of sheer negligence or incompetence.

X. TRADE UNIONS The determination of the responsibilities of an employer in the face of the desire of some or all of its employees to a trade union or to continue being represented by one, is one which can be greatly complicated by the shortcomings of trade unions as they really exist, and by the different attitudes of different employees. To begin with it is clear that the right to form or trade unions is a basic human right of employees, which has been enshrined in many international documents and which is recognised by Nigerian law. It is also clear that in practice a country which does not have well structured and well directed trade unions lacks an important institution for the organization of economic life in a way that will respect the interests of all parties affected by it. It is a basic human right of employees to form or trade unions and in practice this means that they have a right to be represented collectively, if they so wish, in the discussion of conditions of service with their employers, in the defence of their legitimate interests, and in making decisions related to their participation in the life of their firms. If employees wish to form or a trade union which has such ends, it would be unethical for the employer to put obstacles in their way, to refuse to negotiate with such union or, much more, to threaten with victimization those employees who them. It is not unethical, however, for an employer to oppose the activity of an organization if he has good reasons to expect that such activity will not be geared to the defence of the legitimate interests of the workers, but rather to creating disruption or fostering conflict for ulterior motives, such as the advancement of a political agenda or, more crudely, the creation of opportunities of personal enrichment for the officials of the so-called union. In contending with such an organization the employer certainly has the right, which may well be also a duty, to protect the integrity of the organization she heads in the face of a threat of outside attack or disruption. From an ethical point of view, therefore, what matters is not the name that an organization which is trying to organise the employees of a firm may give to itself, but the reality of its aims and practices. While an employer has an ethical duty to allow its employees to bona fide trade unions and to negotiate with them in good faith, she will be justified in opposing with lawful means the activity in her company of organizations whose primary aims are not the defence of the interests of the employees in the workplace and who are likely to have a disrupting effect on the activity of the firm. At the same time, it is obvious that a firm cannot determine its policy towards trade union on the basis of purely ethical considerations. Legal and political factors, and considerations of sheer

174 expediency often play an important role in such decisions, and an employer may be constrained to accept the activities of a corrupt trade union without having a real ethical duty to do so. The above considerations may seem to adopt a very negative tone towards trade unions, but they simply reflect the live issues that are faced by some Nigerian employers. Nobody should read in them a blanket judgement on all the trade unions which operate in the country; they simply reflect a sober appreciation of the fact that some trade unions in the past have been deflected from their constitutive purposes and that whether or not this is the case with the specific trade union that a given employer confronts has an important bearing on her ethical duties in relating to it. Other ethical issues often discussed in relation to trade unions such as closed shop or union shop provisions, or the recognition of multiple trade unions, are not discussed here for, given the legal norms which govern the operation of trade unions in Nigeria, they are not live issues in practice. XI. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES A company that consistently strives to discharge all its responsibilities towards its employees is in an ideal position to implement some advanced ideas in the management of human resources. During the last fifteen years, as firms all over the world struggled to close the performance gap that leading Japanese companies like Toyota or Sony had succeeded in opening up and to assimilate the main lessons of Japanese productivity, concepts like empowerment33, flat structures34, high involvement organizations35 and work teams36 have been repeatedly touted as the solution to all management ills. The reality, however, has been that their application has produced widely different results: excellent in some companies, mediocre or temporary in others, disappointing in many. An important reason for the differences in the results obtained by applying these philosophies is the wide differences in the ethical standards of the different organizations applying them. Pushing down information and decision making power can produce excellent results in a firm in which most employees exhibit high commitment to the organization's common goals, but there is little reason to expect miracles from it in organizations where the employees do not trust their employers and are intent on advancing their own individual interests. As The Economist put it: "Companies are finding that employees are not always as trustworthy as they would have hoped. The Baring family lost their bank partly because they put too much trust in one individual. General Electric lost a small fortune at Kidder Peabody and Daiwa was kicked out of America for much the 33

BOWEN AND LAWLER.

34

See DRUCKER (2) and OSTROFF AND SMITH.

35

LAWLER.

36

WELLINS, BYHAM AND DIXON and KATZENBACH AND SMITH.

175 same reason. Japan's Sony handed over billions of dollars and oodles of trust to Hollywood's creative types — and got kicked in the teeth."37 As we argued above there is reason to expect a high correlation between the ethical standards of an organization, especially in relation to the way its employees are treated, and the degree of commitment these employees will exhibit. And for good reasons. A study of 96 highflying managers by Sandra Robinson, of New York University, found that managers put less and less trust in their employers the longer they stayed with them. As the years mounted so did the broken promises.38 In the absence of trustworthiness in the employer it is idle to hope for trust in the employees. The new concepts in management of human resources that have become so popular recently are really powerful and can lead to spectacular results, as the experience of many companies has shown. The firm which, through observing high ethical standards in dealing with its employees, has succeeded in winning their trust is in an ideal position to create really significant competitive advantages through the application of those concepts.

XII. SUMMARY In order to act ethically towards its employees a firm should be mindful a) of the respect and concern due to human beings; b) of the need to respect both the explicit and the implicit provisions of employment agreements; and c) of the fact that employees are truly of the firm, and not merely suppliers of labour, external to the firm as it were. An important responsibility of employers is to endeavour to provide stable employment for their employees. This does not mean that dismissing an employee is necessarily unethical; in fact sometimes it will be a moral duty. But it should always be something that an ethical firm will do quite reluctantly and after alternative avenues have proved impracticable; and even in that case serious efforts should be made to soften the harmful effects of the measure as much as possible. Employers also have the responsibility of paying their employees according to their contributions to the success of the firm, but at least an amount sufficient to cover the basic needs of a typical family; design the work in such a way that it will engage as much as possible the highest capacities of the workers and help them develop as human beings and that it will contribute significantly, directly or indirectly, to the well-being of other human beings; avoid intruding into the privacy of their employees without proportionate cause; provide a fair hearing before penalising any employee; and protect employees from work-related hazards. Finally, employers also have a duty to respect the freedom of employees to or form trade 37

The Economist, December 16th 1995.

38

Idem.

176 unions. It is not unethical for an employer, however, to oppose the activity of a purported trade union if he has good reasons to anticipate that such activity will not be geared to the defence of the legitimate interests of the workers, but rather to creating disruption or fostering conflict with ulterior motives A company that consistently strives to discharge all its responsibilities towards its employees is in an ideal position to implement advanced management techniques such as empowerment, flat structures, high involvement concepts, quality circles, and work teams.

177

CHAPTER 7.- RESPONSIBILITIES TOWARDS OTHER STAKEHOLDERS I. RESPONSIBILITIES TOWARDS SHAREHOLDERS Introduction It is often said that the shareholders "own" the company. This expression, which in is in some ways helpful and illuminating, can also be very misleading. The right of property is often understood as an unlimited licence to do as one pleases with the thing owned1. In some legal systems -by no means all- the owner has such a liberty in the eyes of the law. But from the ethical point of view, that is to say, from the unrestricted point of view of people trying to act as reasonably as they can, nobody has such a right, and certainly the person who wantonly destroys something because she has no further use for it, disregarding the fact that that thing could still be very useful for other human beings, has not acted rightly. If the above is true of material goods, it is much more so in respect of companies, which are essentially a group of human beings working together towards some common ends. Nobody has a moral right to "act as he pleases" in relation to a group of human beings whose lives are going to be deeply affected by his actions. Finally, speaking in legal , it is not accurate to say that shareholders own the company2. Even collectively they do not own the company nor its assets outright. Speaking with precision they just own their shares. What rights this will give them depends on the precise provisions of the memorandum and articles of each company. Because of these considerations, the widely misunderstood concept of property is not a very useful take-off point from which to try to understand the rights of shareholders and the responsibilities of firms towards them. It is more fruitful to start such an exploration by looking at the specific rights that the law grants to shareholders. In Nigerian company law, and subject to the specific constitution of each company, as is the case in the law of many other countries, these rights are basically of three types: a) a right of ultimate control over the company expressed in a right to vote in decisions having a bearing on the company's constitution; appointment and dismissal of directors3; and the size, organization and scope of the company; b) the right to receive information 1

The nature of property rights is discussed at greater length in ELEGIDO (4).

2

See note Error! Bookmark not defined. of chapter 4. In fact neither the U. K. nor the Nigerian Companies Acts, nor their predecessors apply to sharholders the term "owners." Rather, they call them "." And these acts do not apply to shareholders the usual obligations of a true owner, except in respect of unpaid capital. 3

In Nigerian company law, as in that of the U. K., the directors can be removed by ordinary resolution

182 on the affairs of the company, which will enable them to exercise knowingly their other rights; and c) the right to receive financial returns (a proportion of the dividends declared by the directors and a proportion of the firm's net assets in the event of liquidation). A business firm is ultimately a human group born of the agreement of specific individuals. For so long as there is nothing illegal or immoral in it, the agreement itself defines the subsequent rights and duties of the parties among themselves. Therefore, if, as is usually the case, the law allows the parties to agree to unusual provisions in the constitution of the company, there is nothing wrong in that, and it will be the company's constitution, as approved by the , that will define the responsibilities towards the shareholders of those who make decisions on behalf of the firm. However, for the rest of this section, we will assume that the company's constitution contains standard provisions, as indeed the immense majority of them do. Right of Ultimate Control Shareholders usually have the right of ultimate control over the affairs of the company, in the sense that they can appoint directors and in this way, if a sufficient number of shareholders are determined to implement a certain policy in the company they have the means to ensure that ultimately they prevail. In principle the law could have given that right of ultimate control over the affairs of the company to other groups, as for instance the top management, or a workers' council, or a combination of different interests. As a matter of fact the law of some countries, as for instance that of the Federal Republic of , has moderated the right of ultimate control of shareholders by ensuring that other interests beyond their own are represented in the supervisory boards of companies. However, the prevailing solution in most countries is to vest that right in the shareholders. Some people argue that as the shareholders are the bearers of the residual risk of the company it is only right that they be given the right of ultimate control. Saying that they are bearers of the residual risk means that they only have a claim against the company once all other claims (e.g., those of employees, creditors, etc.) have been satisfied in full. Accordingly it is argued that if any other group (e.g., the employees) were to be given the right of ultimate control, it would be equivalent to allowing that group to bet with other people's money: "heads I win, tails you (i.e., the shareholders) lose."4 This argument is defective. While shareholders have their money invested in the company, employees have their professional future invested in it (often in the form of knowledge—-human capital—-that cannot be easily transferred to another company); they also have a variety of moral rights under explicit or implicit non-legally-binding agreements, among which their rights as and this power cannot be restricted by the company's constitution. 4

FAMA AND JENSEN.

183 "" of the company5 feature prominently. Therefore the argument used in favour of shareholders can be used also from the point of view of employees. Giving the ultimate power of control to shareholders entails the risk that it will allow them to bet with other people's (the employees') money. And in the case of employees these are not idle fears. Nowadays downsizing is no longer the last resort of a company threatened by insolvency. It has been reported that in 1994, a year in which profits rose by 11%, American companies eliminated 516,000 jobs. In fact the list of the most prominent slimmers included some of the most profitable companies, such as Mobil, Procter & Gamble and American Home Products.6 This problem may be seen in operation most clearly during take-overs; it has been argued that an important part of the gains of take-overs are made at the employees' expense during the reorganization and dismissals that typically attend the integration of the acquiring and target companies7. Perhaps the ideal solution is the German one which gives legal protection to the moral rights of both shareholders and employees by including both in the supervisory boards of companies.8 However, strong practical arguments can be adduced in favour of the typical Anglo-American solution of giving legal rights of ultimate control to shareholders. Conventional economic wisdom says that in competitive markets the interests of shareholders and employees will be broadly coincident: firms which take good care of the interests of their workers will tend to make profits. On the other hand, when the interests of shareholders and employees clash, as when a firm needs to reduce labour in order to increase competitiveness, to be guided by the demands of profits (i.e., by the interests of the shareholders) will tend to give better results for the economy as a whole. Giving ultimate control to shareholders also seems to tend to put greater pressure for performance on managers through the operation of the so-called "market for control"9 and it facilitates the creation of entrepreneurial new companies which are essential for fast innovation in the economy.10 5

See chapter 4.V.

6

The Economist, December 16th 1995.

7

See SCHLEIFER AND SUMMERS and COFFEE (2) pp. 1333-4.

8

KISSLER.

9

An early discussion is MANNE (1). For a review see COFFEE (1). Monitoring effectively the work of management teams poses a perennial problem of corporate governance. Individual shareholders lack the incentive to make the required sizable investment of time and effort to monitor management teams' performance. The existence of an active market for corporate control and the ensuing constant threat of hostile take over constitutes a very effective means of disciplining management teams. In so far as managers and employees share in the legal power of ultimate control the operation of this crucially important market for corporate control will be impeded. This is an important argument in favour of giving, as a matter of practical organization in an imperfect world, rights of ultimate legal control to shareholders. 10

See, for instance, "IPO Capitalism: The Boom Spurring a Technological Revolution," Business Week, December 18, 1995.

184

Be that as it may, as we argued in chapter 4.V, it cannot be said that a conception of the company as formed essentially by shareholders is intrinsically immoral. Therefore a corporate governance structure which gives ultimate right of control to shareholders is not immoral in itself either, especially if other institutional safeguards provide some additional protection for the moral rights of employees. This type of structure will have an in-built bias to overlook the rights of employees, and accordingly there will be need in operating it for shareholders to exhibit special ethical sensitivity. But in so far as it is the structure chosen by the law of a country, and it is not radically unjust, it will be the source of true ethical responsibilities for the people operating under that legal system.11 The fact that the law gives to shareholders this right of ultimate control, and that their having this right is not in itself unreasonable, means that it would be unethical for other groups (especially managers) to take steps that significantly erode this right without the shareholders' informed consent. This observation could lead us to a detailed discussion of issues such as the organization of voting in general meetings, the machinery for the use of proxies in such meetings, some of the standard defences against takeovers, or procedural rules for the election of directors. We will not enter into any of these arcane subjects, but the general ethical principle which covers all of them is clear. In many countries, economic co-operation is largely organised nowadays on the basis of giving to shareholders an ultimate right of control over limited liability companies. It would be unfair to undermine that right covertly both because this would constitute a significant failure to comply with a very important set of laws governing economic activity according to their most basic intent, and because it would remove an essential element which underpins most other rights and remedies of shareholders and in this way changes radically the conditions under which they have agreed to participate in the economy. Right to Information The second essential right that most legal systems guarantee to shareholders is the right to the necessary information which will allow them to exercise meaningfully their right to ultimate control. The law grants shareholders access to some company s and, most importantly, regulates the issuance by the company of financial statements. While the trend in the law in most countries has been towards raising the standards of disclosure in the financial statements put out by companies, the truth remains that in most countries both legal provisions and accepted ing principles leave so much leeway that statements which comply fully with them may still fail to convey a true picture of the situation in a company. As the duty to provide essential information to shareholders is not only legal but also ethical, the essential point is that the financial statements must not only comply with the law but also have been prepared in good faith in order to provide a realistic and understandable picture (or, in the time11

On the ethical duty to comply with the law see chapter 9.I.

185 honoured phrase, a true and fair view) of the affairs of the company. In order to provide this picture, figures will often be insufficient; they will have to be supplemented by information in words giving a clear narrative of the setbacks and accomplishments of the company and of the environment which it faces. Of course, this information in words can easily be made so general and bland as to be practically meaningless (as so many chairman's statements testify). It is a clear ethical responsibility of those who control the affairs of a company to strive to make this information really meaningful. A widespread practice that is unethical by the above standards is that of "Earnings Management," that is to say, of endeavouring to provide over the years a picture of regular earnings growth, consistent with the expectations of the Stock Exchange and conducive to the company executives' attaining maximum levels of incentive pay. Towards this end in bad years the results are "enhanced" while in exceptionally good years they are adjusted downwards in order to make up for earlier corrective measures or in order to create a reserve of hidden earnings which can be brought to light in bad years. One example of the use of such techniques, for instance, is provided by the financial statements of General Motors in 1988. General Motors reported record earnings in that year, enabling its managers to realize huge bonuses. However, almost 40 percent of these "profits" did not result from operations, but from ing decisions. One such decision was an increase from 35 to 45 years in the life over which General Motors' plants are depreciated; this added $790 million to General Motors' reported profits, but nothing to its true income or cash flow.12 The problem with this practice, even assuming that it manages to avoid any outright infringement of legal provisions and accepted ing principles, is precisely that it does not seek to present a realistic picture of the affairs of the company. Right to Financial Returns It is a basic responsibility of those who control the affairs of a company to strive to provide adequate financial returns for the shareholders, and often enough this is the issue in which shareholders are more interested, sometimes to the exclusion of any other. Shareholders will get these returns in the form of dividends or by way of an appreciation of the value of their shares. It is essential to conceptualise this responsibility adequately. Perhaps the best way of approaching the issue at stake here is to compare the provisions of the ethical codes of two different companies on the duty of the company towards its shareholders: One company code provides: "We hold that the prime objective of management is to increase shareholder value."

12

BRIGHAM AND GAPENSKI p. 865.

186 The code of a different company states: "We are committed to providing a fair and attractive economic return to our shareholders." Even though the first statement more nearly reflects current intellectual fashions, the second is greatly preferable. The first simply reflects Friedman's view, which was already criticised in sections III and V of Chapter 4.13 The second statement, on the other hand, while recognising a responsibility to provide a fair return to shareholders, does not enthrone this responsibility into an overriding position. This second statement is readily compatible with the recognition that the firm owes responsibilities to many other stakeholders and, particularly, with the fact that ultimately managers and employees are of the firm at least as much as shareholders and are as entitled as the latter to share in its prosperity. But what does a "fair return" mean in more specific ? To begin with, as shareholders bear a significantly larger risk than lenders (shareholders only get a return after lenders have been paid in full) they should get a higher return. How much higher? There is no mathematically precise answer to this question, but on the other hand it is not so difficult to put a gross estimate on the extra risk of an equity investment in a given company as compared to a standard loan to an average company. Such estimate can at least give one an idea of the minimum return to aim at. Beyond this, as we argued in chapter 4.V ("Who Is the Firm?") in many cases shareholders clearly deserve to be considered full of the firm, entitled as such to share in the firm's prosperity, and, as we will see, the managers are in a fiduciary position with regard to them (not only with regard to them, but certainly also with regard to them). The meaning of this is that managers should not exercise their powers of decision in order to promote their own interests, but rather to further the interests of the firm, which in turn includes the interests of the shareholders, and it is at this point that the most important issues of ethical duties of management towards shareholders in relation to the financial returns the latter can expect to get, arise. Figures have been made public that tend to show rather clearly that often managers seem to be making decisions that favour them -i.e., the managers- rather than the firms for which they work, and specifically that shareholders are often shortchanged by managers. Thus, for instance, in a wellknown article published in 198914 Michael Jensen reported that "takeover and LBO [leveraged buy13

We may add here a short point that shows how asg to the firm as its all-encoming objective the enhancement of shareholder value is bound to be unfair to employees. Shareholders are usually diversified in their holdings: they have shares in many companies. Therefore it often may be conducive to the maximization of their wealth for the companies in which they have invested to undertake projects that are very risky for so long as they promise very large returns in case of success (ie. for so long as the expected return is positive). But, of course, such policy can be extremely unfair to the employees of a company: they are not diversified and therefore setbacks to their companies resulting from the failure of extremely risky projects will affect them most seriously. 14

JENSEN (2).

187 out] s average 50% above market price."15 When one reflects on it, this is a startling figure. It means that present managements are often managing the companies they control in such a lackadaisical way that a stranger can confidently offer to buy its shares for 50% more than their present price in the stock exchange -- a price that reflects the collective judgement of investors about the returns they can expect from that company on the basis of the present policies and practices of its present management --, then pay that price, and in the end still make money.16 To cap it all this is not a rare event but rather involves every year, in the U.S. only, tens of billions of dollars in assets traded. To say the least, many managers do not seem to be doing very well for their shareholders. Why are they obtaining such significantly lower returns than seem to be possible? There are many sources of slack in management, but the more common ones are the following: a) Outright laziness, that is to say, not working too hard when nobody is pushing. As Adam Smith already noted over two centuries ago "The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch their own...Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company."17 b) Failing to "make the assets sweat." That is to say, failing to search systematically for higher productivity, either by finding ways of obtaining the same results with the use of less resources, or by getting more work out of existing assets. c) Empire building. Expanding, hiring more people, entering into new businesses, not because it is in the best interests of the firm, but just because the prestige, status and pay of management increase with the size of the firms, divisions or departments they control.18 d) Failure to focus the firm. The fact that a given firm is involved in eight different activities today does not mean at all that it has specific competitive advantages in each of them and that it should continue doing all of them. It may well be that some of those activities could be better carried out by somebody else and therefore that the firm should divest them. This has been proved in countless takeovers in which a standard gambit is for the buyers of a company to sell parts of it at large profits thereby proving that the parts had much larger value unbundled than as parts of a single company. 15

(1).

The average bid in the U. K. during the period 1955-85 was 22%: FRANK AND HARRIS

16

Or at least not to lose money: the evidence is reviewed in FRANK AND HARRIS (2).

17

SMITH (2), cited in PARKINSON.

18

On growth as dominant management goal see MARRIS and BAUMOL.

188

e) Failure to distribute cash flow to shareholders whenever, as is often the case, they are in a better position to reinvest it than the firm. All the above points, and more that could be cited, reflect a common theme. There is often a conflict of interests between managers and shareholders and many managements have failed to identify it, or to do anything about it. They are just managing companies in the way that best suits them rather than in the best interests of their constituencies. That this is the case is proved by the tremendous opportunities for take overs that they have created in the process. The basic ethical responsibility of managers with respect to shareholders is precisely to work systematically to eliminate all those sources of slack, taking seriously the fiduciary nature of their powers. Another important way in which this duty can be breached is by making decisions that tend to favour the interest of an especially powerful shareholder or group of shareholders at the expense of the rest, thus reducing the returns available to some in order to especially advance the interests of others. The management of a firm will be under special pressure to do this when a shareholder or a group of them are in a position to exercise de facto control over the firm. This control may be exercised by an individual, by a group of individuals (e.g., by a family) or by another firm (e.g. a multinational firm owning 40% or 60% of the shares of a Nigerian company). In such situations the interests of the controlling shareholders are usually different from those that are common to all the shareholders. The basic principle here is quite simple, even though living by it may demand a lot of courage: A firm or, more specifically, the management of a firm, owes duties to all the firm's shareholders, and to all of them equally; it is therefore unethical to subordinate the interests of a group of shareholders to those of other shareholders. Responsibilities towards Shareholders in Relation to Mergers and LBOs Mergers and leveraged buyouts are not at present common in Nigeria. But it should be expected that as the liberalization of the financial market in the country proceeds they should become more and more common, as is already the case in many other countries. As some serious conflicts of interest between managers and shareholders can arise in relation to them, we will explore briefly the responsibilities of managers (assuming that they are the parties who often have effective control of the company) towards shareholders in relation to such financial reorganizations. In a leveraged buyout (LBO) the managers of a company obtain credit, make a tender offer to the shareholders to buy their shares and in that way "take the company private." Such LBOs have become extremely common in developed countries. An outstanding example of the conflicts inherent in such situations is provided by the $25 billion buyout of RJR Nabisco, a company which owns tobacco and food products brands like Winston, Camel and Ritz. In October 1988, when the company's shares were trading at $55, a group of managers led by F. Ross Johnson, the company's CEO, made a $75 a share tender offer. A few

189 days later Kohlberg Kravis Roberts & Company (KKR), the leading LBO specialist firm, entered into the fray offering the shareholders $90 per share. The tender battle went through several rounds until eventually KKR acquired RJR Nabisco for $106 a share. Actually, the final bids of the management group and KKR were similar, but the shareholders accepted KKR's offer in part because of a widespread feeling that management had tried to "steal" the company. There were very strong feelings in the matter because management had recommended its own initial offer as a very good offer, and then eventually proved ready to increase it by 50%. Management also had conducted a series of studies at company expense and then used this information in deciding how much to bid. In LBO situations executive directors find themselves in a clear situation of conflict of interest. How can the interests of shareholders be protected in them? It seems that a good approach is that which the American SEC has adopted. Management now has a duty to release all information that is material to the deal. Then a committee of non-executive directors has to seek other bids for the company and recommend to shareholders the best; such directors are forbidden to have any interest in the reorganized company. As for the duties of managers in relation to hostile takeover bids19, the situation is more complicated. Takeovers often result in dismissals in the acquired company. Thus, for instance, in the first year after acquiring RJR Nabisco, KKR dismissed more than 2,500 employees and sold several European food units to other companies, which in turn engaged in workforce reductions of their own. Managers can make a good case, therefore, that in trying to protect the company from hostile takeovers they are protecting the interests of of the company against outside predators who are trying to make money by breaching the company's commitments with its employees.20 At the same time, it is quite possible that in protecting a company from a takeover what management is actually trying to protect is its own easy life and perks, thereby preventing shareholders from realising more adequate returns on their investment. In the end, defensive measures which are taken with the knowledge of shareholders cannot be faulted as necessarily unethical, especially if one recognises that the company has responsibilities to its employees which go beyond the legally enforceable provisions of their contracts of employment. From an ethical point of view everything will depend on the real intention of management: if it is to protect the legitimate interest of employees they cannot be faulted; if it is to protect any illegitimate interest of their own, their actions will be unethical. Advantages of Ethical Behaviour Towards Shareholders

19

KUTTNER and NEWTON are articles antagonistic to hostile takeover bids and, by implication, ive of management's "right to resist." For a view strongly favourable to takeovers see JENSEN (2). TIERNEY reviews in a balanced way arguments for and against and reaches a favourable conclusion. 20

See note 7 above.

190 A management team which discharges scrupulously all its responsibilities towards its shareholders and succeeds in winning their trust will enjoy three important advantages: a) it will be more likely to have their backing during any battle for the control of the company; b) it will have an important source of additional finance available; and c) it will enjoy greater freedom to pursue programmes which promise long-term returns. While the first two advantages are easy to grasp, the third one may require some additional discussion. Managements often complain of the short term perspective of the capital market; they often feel under constant pressure to obtain results now, and therefore stymied in their desires to invest now in programmes that will only have a return in the long term. However, the capital market does not always have a short-term bias, as the very large price/earnings multiples earned by some firms which have yet to make a significant profit prove. It is true that if a company invests heavily in a research programme its short term results will be negatively affected. But if the capital market trusts management's protestations that the research programme is really worthwhile and is likely to show positive returns in the future, the price of the company's shares will go up in order to reflect the improved long term prospects of the company and current shareholders will have got a positive return now. The point is that investments in the future will only depress shareholders' returns, and will be resisted, if the market thinks that they are ill-judged because of its lack of trust in the company's management. But a management that over time has earned the trust of the market will have the freedom to invest in the future without thereby depressing shareholders' returns.

II. RESPONSIBILITIES TOWARDS CREDITORS The relationship between a firm and its creditors derives from the loan agreement. But it is essential to realise that agreements do not operate in a vacuum. When two parties agree on something, they do so against a whole background of beliefs, expectations and customary practices. There ar e many points about the future behaviour of the parties which they take for granted and do not bother to spell out, among other things because if every single potential future contingency had to be explicitly provided for the cost of each agreement in legal fees and in executive time would be prohibitive. An important consequence of this is that fair behaviour towards creditors is not only a question of complying with the explicit stipulations of the loan agreement, but also demands abiding by the implicit understandings of the parties which provided the background against which explicit agreement was reached on some .21 A very important background expectation of lenders is that they lent their money for it to be used in a certain business subject to a certain degree of risk. If borrowers were to use that money to engage in speculative ventures subject to higher risk, both because of the nature of the activity and because of the lack of specialised knowledge on the part of the person engaging in it, that essential 21

ELEGIDO (2).

191 expectation would have been unfairly defeated. That would happen in an obvious manner if, for instance, a manufacturer of electric cables were to borrow a large amount, ostensibly for use in his business, and were to use it to play poker. This is obviously wrong as one should not play with other people's money, less so if they do not know that that is what one is doing with it. Imagine now another cable manufacturer whose business is in serious difficulty. She conceives the idea of recouping her losses by buying forward copper or otherwise speculate in the future price of this metal. The important point is that this second manufacturer is gambling with other people's money as much as the first one. The risk faced by a speculator in metals is much higher than, and substantially different from, that faced by a cable manufacturer; and a manufacturer normally will not have the knowledge nor the techniques to manage adequately that risk.22 Of course, the temptation can be very strong when this last desperate throw of the dice looks like the only alternative to bankruptcy; what matters, however is that that throw of the dice is putting at risk money that belongs to others and was not lent to be put at risk in that fashion. In such cases it is wrong to think that once one is insolvent, things cannot get any worse. As a matter of fact a fraudulent (and therefore criminal) bankruptcy can be much worse for the debtor. And on top of this, from the point of view of the creditors, there is a very large difference between a bankruptcy in which creditors collect 85 kobo in the naira and one in which they only get 10 kobo in the naira. From the moment management is aware that their company has no reasonable prospect to avoid insolvent liquidation, they have a clear responsibility towards the creditors to take the necessary steps to minimise their losses. The point we have been developing is purely negative. It can be put in positive by saying that the main responsibility of a firm towards its creditors is to comply with the explicit and implicit of the loan agreement, both as to repayment , as to provision of information, and as to use of the money borrowed; and to ister the funds obtained responsibly and in good faith so as to make it possible to repay them in due course. The essential point here is that there are risks that one may be justified in taking with one's own money but to which it would be irresponsible to put other people's money without their informed consent. Of course, another term of the agreement which is very important to the lender is that which provides for the repayment of the loan at a certain time. It would be unethical for the borrower to delay payment unilaterally, more so if this were to be done as a matter of policy. As this issue arises most often in connection with trade credits, we will discuss it in the next section. The expectations of creditors could also be unfairly defeated if a borrowing firm were to engage in a totally unexpected restructuring which radically alters the riskiness of the creditors' 22

Of course, to engage in inventory cost hedging by buying future contracts is quite different from "speculating." Hedging needs not do anything else beyond locking in the cost of raw materials that the firm fully intends to use itself and for which, in most occasions, it already has an identified need.

192 position. We can illustrate this by referring again to the example of the leveraged buyout of RJR Nabisco. When Nabisco's management announced its plan to take the company private the value of RJR Nabisco's long term bonds went down by approximately 20 percent in a few days.23 The market realized that the implementation of the plan would cause RJR Nabisco's debt to increase dramatically and that the riskiness of its outstanding debt would soar. Of course, the market was right. By the end of the transaction RJR Nabisco ended up with total debt of $22.8 billion and being highly vulnerable to a recession, a prolonged strike or a sudden increase in interest rates. Of course, bondholders have learned their lessons and nowadays they usually protect themselves from such events through restrictions they write into the credit agreements. The point is that even when such contractual restrictions do not exist, if this is due to the fact that both parties had taken for granted that there would not be a significant change in the circumstances of the debtor, in most cases24 it would be unethical for the debtor to act in a way that radically alters the creditors' risk without compensating them for their losses. Earning its creditors' trust, through responsible behaviour in respect to them, can be an important asset for a company. In so far as a debtor is not trusted, creditors will attach very rigorous covenants to their loans, severely restricting the debtor's freedom of action and the room left to him to make mistakes. On the contrary, a debtor who is trusted will be able to obtain less onerous and restricting conditions, or at least a less exacting use of the formal powers that the credit agreements give to the creditors; and in case of unexpected trouble such debtor is much more likely to be given a second chance. Having the trust of one's creditors is especially important in relation to short-term bank credit, which is usually revocable on short notice. Usually, when the economy takes a downturn and some borrowers default on their loans, banks tend to toughen their credit conditions and refuse to renew credits even to solvent clients. The reason for this is that often banks cannot be sure whether a given client is solvent or not. Often all the bank has to go on is information provided by the client itself and banks generally have good reasons not to trust their clients. It is at this juncture that a borrower who has established a reputation for trustworthiness and reputation will have an important edge over other debtors. III. RESPONSIBILITIES TOWARDS SUPPLIERS A basic responsibility towards suppliers is similar in nature to some of those just described in relation to creditors. The reason for this, of course, is that very often suppliers are creditors. Buying 23

This translated into a $40 million loss for Metropolitan Life Insurance Company, which was a large holder of RJR Nabisco's bonds. 24

The qualification "in most cases" is added in recognition that in some agreements it is assumed that each party (usually well backed by competent lawyers) undertakes the responsibility of looking fully after his or her own interests. When this is the case it is not unfair to act on the basis that "anything that is not forbidden is allowed." However most transactions, even commercial ones, are not of this type.

193 on credit always includes an implicit warranty that one has a reasonable expectation to pay, as it is obvious that if he did not believe this the supplier would never grant credit in the first place, or at least he would extend it on very different . A clear example of an unethical action in this regard is the not infrequent practice of companies which are insolvent and in desperate need of cash-flow and which try and buy on credit and resell immediately at a loss, the real object of the operation being to obtain some much needed funds to stave off more immediately pressing demands. In such cases, in the absence of a miracle, the only thing that is accomplished is to delay a little longer the evil day, and this is done at the cost of increasing the ultimate deficit of the company as new finance is only obtained at the cost of increasing one's losses. Besides, in each case the new credit is only obtained on the basis of relying on the supplier's having a radically false picture of the position of the buying company, of what it intends to do with the goods bought, and of the risk of default. Many companies are also led into unethical practices by a desire to fund their working capital needs at their suppliers' expense. The typical example is the company that deliberately increases the average period for settling bills from thirty to forty five days. This will be unethical if it breaches a pre-existing implicit or explicit agreement to pay within a given period. It may be that the supplier is aware of the fact that a buying company is extending its repayment period. This may be so either through a formal notice or, more frequently, through its realising that the buying company is taking longer to settle its bills. Even if this is the case, the practice will still be unethical if the circumstances are such that the supplier has no option but to accept the unilateral imposition of the buyer, at least in the short term. This will be the case, for instance, if the buyer is much larger than the supplier, the latter depends on the former for a large percentage of its business, and much of its equipment is especially geared towards satisfying the needs of such a buyer. In the short term such a company is firmly locked to the dominant buyer and will be unable to move to alternative clients. Still, even if the buyer may have a dominant bargaining position, it will still have an ethical responsibility not to abuse that position by unilaterally imposing tougher to its own benefit. Ethically, it will be a very different situation if the buyer gives what in the circumstances amounts to a reasonable notice of its intention to terminate the former agreement and to either negotiate a new agreement on different or discontinue relations. It will be apparent that the key issue here is what amounts to a "reasonable notice" in view of the explicit and implicit past agreements between the parties An even worse abuse occurs when a firm makes a practice of taking invoice deductions that exceed those offered by the supplier, such as taking a percentage deduction for early payment even when payment is made after the prescribed deadline. The responsibilities we have been discussing are minimal duties. Some companies, especially large ones, may conclude that their most promising way of serving the community and discharging their general social responsibilities is precisely to help create and develop viable suppliers. In so doing they may be contributing greatly to develop the entrepreneurial capacities of

194 the community in which they operate. While it cannot be claimed on a general basis that all companies in all occasions have a responsibility to help their suppliers through difficult times, such a responsibility could derive from a long history of co-operative endeavours and claims on the loyalty of suppliers. Even if there is no formal agreement or explicit assumption of responsibility, one can easily understand that a person who has often relied on the help of her neighbour to take care of her children during her own periods of illness, would be behaving wrongly if she failed to assist when it is her neighbour who needs help. In a similar way, it may be an issue of basic loyalty and reciprocity for a company which has often relied on the help of some suppliers, to help them in times of trouble if this can be done without endangering its ability to discharge other basic responsibilities. Can any business reward be expected for being consistently ethical in one's relations with suppliers? Normally consistent adherence to ethical principles will create a reputation, and that reputation will engender trust. This trust in turn can become a significant source of competitive advantage. There are advantages to be gained, sometimes very large advantages, from a frank and fast flow of information between a firm and its suppliers. The more a supplier knows about the schedules of its client the easier it is for it to match its production and deliveries to the client's needs, thus minimising inventories and saving money. The more the supplier gets reliable data on the performance of its products the easier it will be for him to improve quality and adapt its product's specifications to the client's needs. The more reliable the intelligence that the client, who is closer to the ultimate consumer, es to the supplier the faster will the latter be able to adjust its operations. Things can also be much better if the supplier is frank in ing information to the client. Examples are timely information about problems he will have to meet schedules or quality targets (the client will be able to adapt better the more advance warning he gets); information about the popularity of different items with final customers (e.g. a record seller telling retailers which items of its catalogue are proving to be hits with other retailers); and information about the supplier's costs and what chances there are of bringing them down under different conditions. In all such issues, and only a sample have been mentioned, there are significant t gains that can be made by supplier and client if they co-operate frankly and try to share fairly the gains that result from this co-operation. This is the reason why so many leading companies are trying to put their relationships with their suppliers on a different footing characterised by having fewer suppliers, working more closely with them, focusing those relationships on the long term, attaining higher levels of trust and concentrating on identifying and achieving all t gains available. However, we are faced here with a relationship which has the structure of the "prisoner's dilemma25." Each party can be tempted to maximise its own gain by either refusing to share 25

See chapter 1.III.

195 information or by pretending to co-operate but actually ing misleading information. The usual result is that neither party can trust the other and large t gains that could be available if both cooperated are left unrealized. Obviously, the firm which has made a point of being scrupulously ethical and reliable in its relations with suppliers, and can back that with a good all-round record of ethical behaviour towards other parties will be in a special position to start relationships on a different footing and create value in a way that is not available to competitors without that ethical reputation. The main sources of the value which can be created through long-term and open co-operation with one's suppliers include: fast identification of new business opportunities, shortening of development cycles, improvements in quality and design of new products, reductions in cost26, reductions in stocks through co-ordination in the timing of production and delivery.27

IV. RESPONSIBILITIES TOWARDS DISTRIBUTORS It is significant that much of the research about channels of distribution carried out during the last three or four decades has revolved around the issue of "channel power." This refers to how different channel , like manufacturers, wholesalers and retailers, become able to impose their will on other in a given channel, and the ways in which that power can be used to the benefit of the channel which enjoy it28. The reason why this approach to channel issues has become popular is not far to seek. While there is some commonality of interests among channel , there are also significant issues in which their interests come into conflict; examples are the distribution of profit margins among the different firms in the channel, and their competing efforts to exercise control over marketing decisions. Traditionally manufacturers tended to be the most powerful channel . This has changed during the last decades in many economically advanced countries. Developments such as the proliferation of broadly similar products in mature markets, the introduction of private brands by many retailers, the phenomenal increase in information about consumer behaviour which is becoming available to retailers through the use of scanner systems, and the growth in size of many leading retailers, have led to a situation in which it is often the retailer who is in a position of power 26

Many opportunities for cost reduction become available when problems are approached from the point of view of t benefit: reduction in istrative and quality controls (avoiding duplications between supplier and client), t optimization of logistics and of packaging systems, reduction in financial costs by concentrating obtention of credit on the firm with lower credit costs. 27

On opportunities for t gains between suppliers and clients see BLENKHORN AND BANTING, CUSUMANO AND TAKEISHI and MORGAN AND HUNT. 28

See, for instance, GASKI.

196 in the channel. However, by and large, this is definitely not the case in Nigeria as yet. Here the prevalent situation is that of a large and sophisticated manufacturer with well established brands facing a large number of small and financially weak retailers. Moreover, in some cases these retailers sell the products of only one company. It is often the case that the knowledge, experience, capabilities and reputation that they acquire in doing so cannot easily be transferred to the sale of different goods and they may find that, at least in the short term, they have no option but to comply with the wishes of the manufacturer, however detrimental these may be to their own interests. What this amounts to is that such retailers are dependent on the manufacturers who supply them and that the latter have power over them. Responsible Use of Channel Power The basic ethical duty of those who have power over others is to exercise this power responsibly and in a manner which takes of the fair deserts of all those affected by their decisions, rather than exclusively in their own self-interest. Some practices constitute in themselves an abuse of power. Examples are sending damaged merchandise and refusing to take it back, or sending goods which have not been ordered. A powerful manufacturer may feel confident that its retailers have no realistic option but to put up with them. If the manufacturer were to discontinue or interrupt supplies they would suffer an even greater prejudice. Other practices are not intrinsically unethical but may be so when they are imposed unilaterally by a manufacturer in order to foster its own exclusive interests. Such unilateral decisions may be made in respect of issues like retail sales prices, minimum order sizes, mix of products in the orders, restrictions in selling products of other manufacturers, territories, servicing of some s directly by the manufacturer and pressuring retailers into opening additional outlets. In so far as the manufacturer is the member of the channel with the greatest channel power, it will have a responsibility to take the lead in organising affairs in the channel in the best interests of both channel and consumers. Exercising that responsibility may well demand that it insist on retailers taking certain measures in relation to areas such as those listed in the preceding paragraph. Ideally decisions in such issue should be taken by mutual agreement after full consultation. However, if some retailers or distributors are unwilling or unable to take steps that are necessary in the light of competitive realities, the fact that the channel leader uses its full negotiating power in order to get them to fall into line would not be necessarily unethical. In such a situation the manufacturer, as leader of that informal group of companies, would have a responsibility to exercise a leadership role and demand from the defaulting firms the necessary improvements on which the group's common prosperity depends. An unethical element will only creep in when unilateral decisions designed to serve only the narrow interests of the most powerful party are forced through.

197 Think, for instance, of the following example. Selling of advanced computers in an underdeveloped market usually requires high levels of service. Experienced sales personnel are required to explain to the customers the characteristics of the products and to train them in using them efficiently. Retailers must also be able to provide good after-sales service. Accordingly, such products are often marketed through retailers who offer high service, incur high costs and consequently have to build high margins in their prices. A given retailer, however, can come to realise that she can use a low-cost, low-margin operation and thus be able to undercut in price other retailers by free-riding on the service that they offer. Such retailer would expect that her customers would buy from her after having been educated in the use of the products by the high-cost dealers. Similarly, she would expect her customers to rely on the after-sales service provided by other dealers. Such practices are not only unfair to other retailers but detrimental to the whole channel and to the customers themselves29. The reason for this is that the other dealers lose their incentive to provide good service and little by little the whole system will lose its ability to satisfy the service needs of the customers. Faced with such situation a responsible manufacturer who has channel power has a responsibility to act. In such a case it would not only not be unethical for it to use its channel muscle to get the free riders to fall into line (e.g., by threatening to cut off supplies to them), but it could well be unethical to fail to do so. As was pointed out above, the exercise of power by the manufacturer can become unethical when it responds to a unilateral decision which only seeks to foster the manufacturer's own narrow interests. A good example of this is provided by the actions of Harold O. Johnson, head of the -lens unit of the multinational firm Bausch & Lomb, in 1993. Under heavy pressure to meet his annual targets he called about 30 of his U.S. distributors to a meeting. In it he told them that they were expected to take huge new stocks of old-fashioned Optima lenses -up to two years' worth of supplies- and he threatened to sever their distributorships if they refused. Such tactics allowed the division to book an extra $23 million in sales in the final days of 1993 and ensured a higher bonus for its executives.30 It is clear, however, that they did not help the company which, in part because other executives were also engaging in similar shenanigans, lost $1 billion in market capitalization between 1992 and 1995, lost market share in several key sectors,including lenses, alienated the goodwill of its distributors, and became the subject of a highly publicised Securities & Exchange Commission investigation. Refraining from Subverting the Ethical Standards of Distributors 29

Of course, a retailer may realise that some customers do not need high service and that they would welcome the opportunity to shop in a low-service, low-cost retailer. There would be nothing unethical in pursuing this strategy as no free-rider problem would arise. 30

Reported in Business Week October 23, 1995 and December 25, 1995.

198

As we will see in Chapter 11, it may well be unethical for a business executive to accept a gift from a supplier of his firm. In that chapter we will discuss in some detail the precise circumstances in which accepting such a gift would be unethical and the cases in which it could be acceptable. As we will see, the basic problem is that gifts may put the receiver in a position of conflict between his duty to serve the interests of his own firm to the best of his ability and his natural gratitude towards the supplier who gave him the gift (not to mention the expectation of possible future gifts). If it is unethical for an employee of a distributor to accept the gift, it is also unethical for the supplier to offer the gift in the first place, both because it is always unethical to knowingly induce somebody to do something unethical (in this case accepting the gift), and because giving such a gift would tend to subvert the ethical standards of the organization whose employee accepted it. It is possible that one's actions may tend to subvert the standards of a distributing firm as such, rather than those of some of its employees. This may very well happen, for instance, when a manufacturer imposes agreements whose make it extremely difficult, or even impossible, for the distributor to make a reasonable profit. Think of the manufacturer that offers unrealistically low allowances for the repair service offered by its dealers. In order to survive, the latter will always be tempted to inflate the service work done. Disclosure If often happens that a manufacturer tries to encourage people to set up in business as distributors of its products. This is typically the case in franchising organizations, but it is by no means limited to such companies. In such cases manufacturers have a responsibility not to mislead their potential distributors by painting too rosy a picture of what they can expect. This responsibility is especially heavy because such business people often sink into their business a very large proportion of their savings and a failure can easily have catastrophic consequences for them. Adequate information in such cases should include above all a realistic picture of initial and recurring expenses and of expected revenue. Realistic information about the financial health and future plans of the manufacturer or franchiser are also essential for a prospective owner of a new outlet to be able to make an informed decision. Finally, an honest firm which does not have anything to hide will also be ready to provide the names and addresses of other similar retailers nearest to the proposed new outlet in order to allow the prospective distributor or franchisee to benefit from their experience and their assessment of the prospects of the new business. Keeping to Agreements Another ethical standard of great importance in the relations of a firm with its distributors concerns keeping to the letter and the spirit of the agreements reached with them. This is especially

199 important both because mutual trust goes to the root of the effective long-term co-operation between two organizations, and because a situation in which a party is typically more powerful than the other creates many occasions in which the breaching of agreements can seem an attractive expedient when considering things in a narrow and short-term perspective. A typical example of a term of agreement which is often broken is provided by firms which grant exclusive distribution in a given territory and then sell directly in that territory. Due Process Garret and Klonoski offer an important suggestion in order to improve a firm's performance in discharging its responsibilities towards its distributors. We offer it in their own words, as they will allow the attentive reader to perceive that the principle these authors enunciate can have a more general application than the relatively narrow range of problems we are considering here31: "Actually, the solution may be in the provision for some form of due process through which dealers can bring complaints at a reasonable cost...As in other areas where there are no clear-cut standards to cover many problems, due process reduces the chances of the arbitrary application (sic) and assures that judgements will not be completely unilateral." Many leading companies are moving in that direction. Thus, for instance, General Motors Europe has created Franchise Boards with 50% representation from General Motors and 50% representation from its retailers. Among other functions they have that of dispute resolution in relation to problems that may arise between the company and its dealers. Strategic Opportunities for Ethical Companies As we pointed out at the end of the previous section significant t gains can be realised by two firms which do business with each other if they succeed in establishing a fast and frank exchange of information. We also pointed out that lack of mutual trust is the main obstacle to realizing such potential gains. A firm which has been consistently ethical in dealing with its distributors will be trusted by them and will find it easier to move towards such co-operative systems. An example of how important achieving great improvements in co-operation with one's distributors can be is provided by the Levi Strauss, the international leader in manufacture of jeans. Traditionally, in order to ensure they would have a given product, its retailers had to order it as much as four or five months in advance. That is obviously very inefficient in a market subject to strong fashions swings. A new movie could come out during that period and cause the trend to change from blue denim to black denim and force retailers to engage in costly mark downs of their old stocks, now obsolete. At the same time these retailers would not have in stock the products that customers 31

GARRETT AND KLONOSKI p. 131.

200 now wanted, thus losing sales and opening opportunities to faster competitors. The solution? Forging much closer links with retailers in order to manage the orderreplenishment cycle faster and more accurately. Levi Strauss eventually managed to have its retailers operating with 20% to 30% less inventory and achieving 20% to 30% increased sales. Of course, this required investment in new technology and systems, but what is most interesting are the concepts at the basis of the new arrangements. In the words of Robert Haas, Levi Strauss' CEO:32 "we are at the centre of a seamless web of mutual responsibility and collaboration...there is a seamless partnership, with interrelationships and mutual commitments, straight down the chain that would have been unimaginable ten years ago. You can't be responsive to end-consumer today unless you can count on those kinds of collaborations at each step along the way."

VI. RESPONSIBILITIES TOWARDS COMPETITORS: THE ETHICS OF COMPETITION The very notion of "responsibilities towards competitors" strikes some people as a sort of contradiction in . Even people who accept that the relationship with customers ought to be one of service rather than war, will still argue that the very notion of competition implies that one is at war with one's competitors. In spite of such commonly accepted ideas, we are going to argue in this section that the key concept in order to construe a viable ethic of competition is that of "co-operation through competition." What is the meaning of this apparent paradox? Basically the following:i) There is, and should be, competition with one's competitors and that competition is real, i.e. vigorous and determined. ii) But competition is not an end in itself. Basically, it is a means to serving better the customers, that is to say, it is a means to co-operation with one's customers. iii) Even in relation to one's competitors, competition is not the ultimate reality. Competition goes on within a framework of rules and constraints that limit and civilise it. That framework of rules is a co-operative endeavour involving all of the society, and specifically the competitors themselves. Finally, iv) competition is also a means for co-operation among competitors in the sense that it helps each of them to fulfil themselves better as business people, it enables them to perform better than they would without the spur to their imagination and energy that competition provides. These abstract claims may become more concrete and easier to grasp if one thinks of a sports example, such as a tennis match. There is certainly vigorous competition in such a match and it is perfectly correct to say that each player is doing his best not merely to play nice tennis, but specifically to defeat his opponent. On the other hand, it would not be accurate to describe a tennis match as chemically pure competition without any ixture of co-operation. To begin with the two players co-operate in 32

Harvard Business Review Sep-Oct 1990.

201 keeping to the rules and in helping each other during the game in different ways (e.g., in ing the balls to the opponent when it is his turn to serve). But the interesting point that needs stressing is that in a tennis match competition and cooperation are not in conflict; it would not be correct to say that the more competition there is the less the co-operation, and viceversa. The striking point is that competition is a means to co-operation. Specifically, in trying your best to defeat me you force me to stretch myself to the limit of my capabilities and you help me to play better, to have a more enjoyable game. Also, by fighting hard we both offer a much better game to the spectators who may be watching us. In this way vigourous competition is actually a means to our common goals as players to play the best possible game and to offer those watching the best possible spectacle. Can this sports example be applied to business competition? It all depends on the way in which business people conceive their business goals and their relationships with the customers. If one's primary objective in business is to make as much money as possible and one conceptualises one's relation to customers along the lines provided by the Warfare Paradigm, then quite obviously one is engaged in something very close to a zero-sum game with one's competitors: each kobo they get from my customers is a kobo I lose, and their activities do not help me in any way. On the other hand, if one has a real interest in providing first class service to one's customers, and obtaining profits, though obviously an important consideration, is not the ultimate end of one's exertions, then, at least when one steps back from the thick of the battle, it will be possible to realise that one's competitors are actually helping one to do better in these endeavours. Perhaps a bit of a personal testimonial may be helpful here. The present writer has been closely involved in the launching and the management of the Lagos Business School. This business school has enjoyed for several years a practical monopoly in some of the market segments it serves. Of course, in several ways this has been very helpful for the development of the School, and, above all, very pleasant. It became something of a regular joke among staff of the School to make cynical references to the "evils of monopoly" in a tone that clearly intimated a fervent wish for such situation to continue for so long as possible. And certainly the present writer ed wholeheartedly both in the jokes and in the wishes. And yet...the fact is that, thank God, many of us in the School had not ed in with the primary objective of having a good salary and a soft life. We really wanted to offer a very good management education and to carry out first class research. And what became more and more apparent was that our cherished situation of monopoly was a serious obstacle to the attainment of those objectives. However good everybody's intentions may be any organization develops a great deal of corporate inertia. One or more individuals may be aware that a certain way of doing things is not the best, many people individually might want to try out different things and pursue new opportunities. The fact is that in a situation of monopoly it becomes much more difficult to introduce any of these changes: they always disturb somebody, they are risky, they are different...and after all, what is the

202 need, if clients keep coming to us in gratifyingly large numbers? The fact is that when finally we heard in LBS that a credible competitor was seriously contemplating stepping into the market, the predominant feeling in a number of LBS people was not one of fear or disgust, but rather a happy realisation that at long last there was going to be an external pressure forcing LBS to move faster and that now it would be easier to get through the innovations that at each moment may be necessary for LBS to keep upgrading its performance. The point, of course, is that the existence of competition can really be a help for each of the competitors to perform better in its basic objective of improving its service to the customers. And what is the practical relevance of the preceding considerations? More than it might seem at first sight, as the behaviour that one adopts towards one's competitors is intimately related to the way in which one sees one's relationship with them. Garrett and Klonoski have put this best:33 "If competition is viewed as a form of warfare in which the object is not to serve the consumer but to destroy the competitor, we can expect a steady deterioration of standards. In war, after all, no weapon has been banned until obsolete, and every practice has been justified in some way on the grounds of survival." Specific standards Coming down to the specific guidelines that should govern ethical competition, perhaps we may start by quoting Adam Smith in his capacity as moral philosopher34: "...[a person] may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should jostle, or throw down any of them...it is a violation of fair play." Probably most people would agree with the basic insight contained in this age of Adam Smith, but that insight can perhaps be better understood by relating it to some of the more fundamental ethical principles discussed in chapter 3. As we saw there willing harm to anybody, whether as an end in itself or as a means to a further end, is radically incompatible with one of the attitudes which stand at the basis of an ethical outlook. This is precisely the reason why we took some space to clarify the relationship between competition and co-operation in the preceding paragraphs. If the point of business competition (or of sports, or even of war...) were precisely to destroy the competition, then business competition (and sports, and war...) would be a radically unethical activity, and writing a book on business ethics would be a sheer waste of time; the only ethical norm in relation to business competition would be: "don't." If engaging in spirited competition can be ethical at all it is precisely because the point of the 33

GARRETT AND KLONOSKI p. 118.

34

SMITH (1) II.ii.2.2. Quoted in PAINE.

203 activity is not to harm the competitor, but rather to serve the client and protect the prosperity of one's company35. However, all that we have established up to this point is that competitive activities can be ethical, not that they necessarily are ethical. And if they are going to be ethical the first condition is precisely that the objective of one's actions cannot be the harming of the competitor as such. On the other hand, according to the general principles we discussed in Chapter 3, the fact that one knows that one's activities are likely, or even certain, to affect negatively the prosperity of some competitors, or even drive them out of business altogether, does not make one's actions unethical. In a free market system, that result is a collateral effect of one's serving better the customer, and accepting such collateral effect can be perfectly fair in so far as it is part of the rules of a fair "game" which effectively fosters the common good of the society and which helps each of the participants to develop better professionally. According to these general principles hiring a key employee of a competitor because one needs her in one's establishment will not be unethical if no unfair means have been used, but hiring the same person only in order to deprive the competitor of her services would be unethical. Similarly, engaging in very active merchandising seeking to obtain more shelf space in supermarkets for one's products will not be unethical in itself, even if it results in the products of some competitors being crowded out. But using market power to convince distributors to stop distributing a competitor's products would be. In such cases the ultimate result for the competitor may be the same, but from an ethical point of view it is one's intention, plus the fact of the customer ultimately receiving or not a better service, which make the difference. The same principles make it clear that practices like promoting labour problems in a competitor's establishment or buying the soft drinks of the competition only to destroy the bottles and hamper its production, are also unethical. These principles have also relevance in order to evaluate the ethics of pricing practices. We discussed in the previous chapter the issue of when it would be unethical to charge too high a price. Here, on the contrary, we have to consider the issue of whether it could possibly be unethical to charge a price which is too low. From an ethical point of view the answer also hinges on the intention: it will be unethical to charge a price which is below one's costs if the intention is to drive out the competition in order to acquire a monopoly position which eventually will allow one to charge higher prices. What is unethical in this is not the fact of selling below cost in itself. That may often be justified if it is done in order to bring down inventories, to recover at least part of one's fixed costs 35

It may be useful to point out here that one of the main conclusions of Built to Last, the study of 18 especially succesful world-class companies, was precisely that, contrary to popular belief, such companies do not focus on beating the competition: "Visionary companies focus primarily on beating themselves. Success and beating competitors comes to the visionary companies not so much as the end goal, but as a residual result of relentlessly asking the question 'How can we improve ourselves to do better tomorrow than we did today?'" (COLLINS AND PORRAS, p. 10).

204 during difficult times, or simply to meet the competition. It would not be unethical either to sell below cost if the intention is to increase volume and put pressure on oneself to drive costs down, in order to eventually reach a situation in which one is again able to sell at a profit on the basis of a larger volume and lower costs. Competitive actions can be unethical not only because their only objective is to harm the competitor rather than better serve the customer, but also because the means used are unethical. Thus, for instance, efforts to gain better shelf space for one's products among retailers will be unethical if they involve bribery to the retailers' employees. Two areas of competition that often raise the issue of the ethical quality of the means used are denigration of competitors and information gathering. Obviously, it will be wrong to spread misinformation about a competitor, such as suggesting to clients that the competitor's products break down very often, if this is not the case. As for intelligence-gathering, the activity in itself does not have to be unethical: one is entitled to try to obtain information about the activities of competitors if such activities could have serious repercussions on the prosperity, and even the viability, of one's organization. For so long as one has a legitimate interest to protect and one does not use unethical means, there will be nothing wrong with gathering information about competitors, whether one does it casually or systematically. In fact, much of current strategic thinking is highly competitor-oriented36. In a highly competitive environment understanding the competition is an important part of running a business. The problems in this area arise from the fact that one may easily be tempted to cut corners and engage in methods that are unethical. According to a useful framework developed by Lynn Sharp Paine37, the most prevalent methods of unethical intelligence gathering fall into three broad ethical categories: a) Those involving deceit or some form of misrepresentation. Examples are gathering information by posing as a graduate student working on a thesis, as a head-hunter interviewing people for a very attractive position, or as a potential customer. b) A second category of questionable methods of gathering competitor intelligence comprises those methods which involve inducing people to reveal confidential information. If a breach of confidentiality is unethical, inducing somebody to divulge such confidential information is unethical also.38 Thus, for instance, Lotus succeeded in getting a court order barring an advertising 36

See, for instance, PORTER. The basic underpinnings of Michael Porter's framework, in so far as they are based on the premise of creating monopoly positions as a foundation for superior performance, would seem to be ethically questionable in the light of the approach developed in this book. 37

38

PAINE p. 265.

This statement would have to be qualified in relation to extreme situations such as war. But there is no need to qualify it in relation to the situations which will usually arise in a business context. As we have

205 agency from ing confidential Lotus information to Microsoft. The case arose as a consequence of an advertising agency which wanted to get Microsoft business by hiring executives from a rival advertising agency, who had worked on the of Lotus Development Corporation. The advertising agency wrote a letter to Microsoft in which it said: "You see, the reason we know so much about Lotus is that some of our newest employees just spent the past year and a half working on the Lotus business at another agency. So they are intimately acquainted with Lotus's thoughts about Microsoft.39" c) Finally, a third category of information gathering unethical practices are those which involve covert or unconsented surveillance. Methods may range from electronic eavesdropping to planting a spy in a competitor's company. Before ending we should say a word about the opportunities that ethical behaviour in this area can open up. The company that its trusted by its competitors has the chance of starting a number of co-operative efforts with them that will normally be closed to the unethical competitor. A significant feature of the competitive scene during the last twenty years has been precisely the multiplication of co-operative agreements among competitors through which significant value can be created for all parties. Some of the most popular examples include sharing of information for bench-marking purposes, co-operative basic research, and t representation of an industry's common interests before the public authorities.40

VII. SUMMARY Firms do not have a responsibility to "maximise shareholder value." They do have a responsibility, though, to strive seriously to provide to their shareholders returns commensurate with the level of risk they undergo, an efficient management of company resources, and the information needed for the shareholders to exercise the right of ultimate control that the law vests on them. The duties of firms towards their creditors include to keep the explicit and implicit provisions of loan agreements, and most especially to avoid taking actions that change unilaterally and drastically the nature of the risk the creditors face. Firms have similar duties towards their suppliers and distributors in so far as they are also creditors and/or enter into agreements with them. Firms also have a general duty to use responsibly whatever channel power they may have.

repeatedly stated business competition is very different from war. 39

40

Quoted in PAINE.

For a good discussion of possible avenues of co-operation with one's competitors see HAMEL, DOZ AND PRAHALAD.

206 Firms have also responsibilities towards their competitors. Indeed ethical competition can be a way of co-operating in the attainment of superordinate goals (e.g., better service to the customer, becoming better professionals) and is always conducted within a wider framework of co-operation. One's competitive activities, however vigorous, will be ethical if their primary objective is not harming the competitor as such, but rather to serve one's customers and protect the prosperity of one's firm. Of course, the use of means that are inherently unethical, such as spreading misinformation about competitors, is always unethical.

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CHAPTER 8.- RESPONSIBILITIES TOWARDS SOCIETY - I I. INTRODUCTION In the previous chapters in this part of the book we examined the responsibilities of business firms towards identifiable groups with which they come in in the course of their operations, such as employees, customers or competitors. In this chapter and the next we will examine the main responsibilities of the firm towards the society generally. In the sixties and seventies it was perhaps taken for granted that firms could easily perform their specific function of satisfying the economic needs of their customers. As a consequence great emphasis was laid on reminding them of the importance of their taking a wider view of their responsibilities and concerning themselves with the wider problems of the societies in which they operated. Business organizations used to be regularly onished during these years about, say, their responsibility to avoid damaging the environment or contributing, however indirectly, to consolidate in power unsavoury characters. If doing this happened to be costly, those preaching to the firms about their responsibilities did not seem to see much reason to worry. After all firms were supposed to have very deep pockets. Things have changed since that period. It has now become clear that business organizations, like any other organizations, have neither the resources nor the competence to do everything. In fact they seem to find it difficult enough to perform well enough their strictly economic functions to ensure that they will be able to survive the onslaughts of competition, never mind undertaking countless additional tasks. The spectacular reverses in the fortunes of a good number of companies whose competitive strength many would have believed immune to attack has driven home this point. Examples which readily come to mind include IBM, General Motors and Citibank at he global level, while the whole of the financial sector provides a spectacular enough example in Nigeria. Once it becomes clear that there are limitations to what companies can achieve, then it is easy to appreciate that not only business firms have to be responsible, but also their critics have to be responsible in articulating their demands. Think for instance of a well-known bank in Nigeria which, besides performing splendidly according to most economic measurements, has tried for several years to contribute to the development of the arts in the country. In the intellectual climate prevalent in the sixties very few academics, people in the media, or politicians would have been likely to be impressed by this effort. Their most likely reaction would have been to dismiss it as totally inadequate and haughtily demand that the economic commitment of the bank to this cause be increased several times over. In all probability they would not have stopped here but added imperious demands for the bank to contribute actively to many other favourite causes.

212 Many so-called intellectuals still dwell mentally in the world of the sixties, but they are no longer the leaders of thought. Many more people nowadays, including also many academics, people in the media, and politicians, realise that it is not so easy for a bank to perform competently its basic function of mobilising the savings available in the community and channelling them to those uses in which they are most needed and can be more effective, and this without these savings being lost in the process through misjudgment, incompetence or plain dishonesty. Knowledgeable people realise that as a matter of fact a majority of the financial institutions which have operated in Nigeria between, say, 1990 and 1995 did so lose the savings entrusted to them. People aware of these facts are not likely to take it for granted that anybody can run a bank successfully without half trying. Accordingly, they are apt to be far more circumspect in making demands to its management. In so far as they have this attitude they are likely to be much more appreciative of a firm which manages not only to discharge creditably its basic responsibilities to its investors, employees and customers, but also to find the resources, attention and energy to make a contribution, however minimal to the development of the arts. Finally, such people are likely to be restrained in demanding a better performance in the arts field and in piling up additional putative responsibilities on management. All the above is not to say that business firms, any more than any other organizations or individuals, would be justified in neglecting the problems of the society in which they operate. The point is rather to drive home that the performance of their economic mission is itself one of the responsibilities that firms owe to the society, and in fact by far the most important one. This is a straightforward application to business organizations of the principle of role responsibility which was discussed in chapter 3. Accordingly, a most important consideration in deciding how far a firm should be expected to contribute to the solution of this or that social problem is the impact that so doing is likely to have on its ability to discharge its primary economic responsibility. II. QUESTIONABLE PAYMENTS1 The generalization in a country of a climate of corruption is the source of many undesirable consequences. It will be useful to start this section by reviewing some of them. i) Where corruption prevails contracts, appointments, payments, sales, favourable judicial decisions, etc. are no longer obtained because one deserves them but because one has offered the highest bribe. This discourages honest effort. ii) More specifically, the prevalence of corruption tends to discourage economic initiative. As The Economist once put it: "The tip for a quickly issued licence encourages officials to invent new licences. The tangle of lucrative red tape strangles would-be entrepreneurs-and the economy

1

On bribery generally see NOONAN.

213 suffers."2 iii) The more corruption becomes common, the more people tend to mistrust the motives of others, especially of those in positions of power. "They want to increase the petrol price to pocket the money;" "they have appointed a so-called independent commission of enquiry because they know that they will be able to 'settle' the ;" "the trade union leaders are telling us to stop the strike because they were bought." As the credibility of the leadership groups declines resistance to authority mounts and it becomes impossible to secure the willing co-operation of the public or to persuade them to accept the need to make sacrifices, no matter how necessary they may be. iv) As corruption becomes prevalent, those in positions of responsibility lose the ability to implement policy. Thus, for instance, the government may ban the importation of clothing in order to stimulate local industry, but that only means that a new opportunity is given to customs officers to enrich themselves, not that local clothes manufacturers are going to face any less foreign competition. Generally, the easier it is to influence government officials the easier it becomes for people to buy for themselves dispensations from any laws or regulations they do not like and the more difficult it becomes to govern the country. v) A generalised climate of corruption makes it very difficult to raise the money needed to finance legitimate government activities. Thus, for instance, the money actually raised by personal income tax in Nigeria is not up to one twentieth of the amount that should be raised if there were general compliance with the existing tax laws. Of course, the problem is compounded by the fact that the same corruption that makes it so difficult to raise money afterwards leads to much of what is actually raised being diverted or squandered. The consequence is that essential projects cannot be undertaken and essential needs remain unsatisfied. vi) A generalised climate of corruption encourages officials to misdirect scarce resources to low priority sectors. As Shleifer and Vishny concluded in an economic study on corruption3: "Western observers often wonder about the preference for unnecessarily advanced rather than 'appropriate' technology by Third World governments. Overinvoicing provides the obvious explanation for this preference for advanced technology. The rational managers and bureaucrats in poor countries want to import goods on which bribes are easiest to take, not the goods that are most profitable to the state firms...As a result, very poor countries end up with equipment way beyond their needs. "...This argument might suggest why so many poor countries would rather spend their limited resources on infrastructure projects and defense, where corruption opportunities are 2

Empirical studies showing how corruption tends to slow down development include GOULD AND AMARO-REYES, UNITED NATIONS and KLITGARD. 3

SHLEIFER AND VISHNY pp. 614-15.

214 abundant, than on education and health, where they are much more limited. In light of the enormous returns on these forgone health and education projects, the social costs of corruption might be enormous." vii) Corruption is like a cancer which of itself always tends to spread and grow larger. Where once 10% was acceptable, soon 20% becomes necessary. Where once only some functionaries in key positions demanded special payments, soon every clerk demands his cut. Where once one only had to pay to obtain special favours or privileges, soon one cannot have even the most elementary rights upheld without paying for them, and only a little later every citizen becomes a regular victim of extortion by whomever finds himself in a position of authority. viii) Corruption cannot be kept outside one's own organization. How can one be certain that the money given to an employee to pay a bribe is used to that end? After all he is hardly likely to get a receipt. Before one knows it every employee is asking for funds to "settle matters" even if all that has to be settled is his own need for extra income. ix) No serious person or organisation that can avoid it will wish to operate in that kind of environment. Of course, foreign investors will shun such a country, but even those of its own nationals who have money will invest in other places as much of their wealth as they can if they find the means of doing so4. x) Finally, and most important, corruption corrupts. This is far more than a truism. As corruption becomes generalised a point is reached at which only a relatively small number of "moral heroes" manage -at the cost of great sacrifices and renunciations- to remain untainted by it. To visualise this think of the young policeman who, in his first posting, is told by his sergeant that he is expected to bring= N 50 every day. If he fails to do so his life will be made impossible until he is forced to resign. The alternatives this policeman now faces are either to drop by the wayside the moral principles he was taught in family, school and church or to lose his job and the means to his family. Of course, the chances are that our young man will turn out not to be a moral hero and we will have another corrupt policeman. The same point can be put in more personal : if corruption is generalised in my country it is likely that my children -not to speak of myself- will also become personally corrupt. And at this point it may be useful to remind oneself that business decisions are not an isolated part of one's life. A person who does "whatever it takes" to get a contract is unlikely to be a faithful husband, a devoted father, or a steady friend. Coming Down to Cases The aim of the preceding section was to provide a reminder of what one is contributing to 4

MAURO has presented empirical evidence that countries with higher corruption have a lower ratio of both total and private investment to GDP.

215 each time one makes a questionable payment, or what one is fighting against each time one refuses the request to make one, perhaps at heavy personal cost. Still, one has other responsibilities besides that of fighting against corruption in society. It would be simple-minded and exceedingly misleading to lump together the wide variety of situations with which one may be confronted in practice and attach to all of them the label "bribes" (= "forbidden"). It is precisely to avoid such hasty simplifications that the heavily loaded "bribe" and "corruption" do not appear in the heading of this section. The expression "questionable payments" has been chosen because it provides a more neutral way of denoting the many different situations which may arise. In order to bring the discussion down to earth from the start let us consider the following sample of cases. a) A wants to get B's land. The land has always belonged to B's family and A has no good claim to it at all. In order to get it, he starts building on the land and when B sues him he offers the judge a large sum of money for finding in his favour. In this way A obtains a favourable verdict which enables him dispossess B of his land. b) A contractor offers a minister a large sum of money in order to be awarded a contract even though her tender is 40% higher than that of a competitor and the quality of her work will not be better. c) Like b) but the contractor who offers the money will be forced to dismiss 100 of his workers if he does not get the contract. Many of these workers will find it very difficult to find alternative jobs. d) A contractor has completed her contract. Now that the time has come to be paid she finds that some civil servants keep causing delays. Eventually she realises that unless she pays some money the delays will continue indefinitely. e) A driver is involved in a motor accident. He is arrested and put in a cell with some common criminals who give him a very rough time. There is nothing in the law to prevent him from being released on bail, but in fact he is not so released. After a relative pays money to some policemen he is granted bail. f) A driver breaks a traffic regulation. A traffic policeman stops her and informs her that she will have to pay a heavy fine. The driver is aware that only a negligible proportion of people caught breaking traffic regulation are ever made to pay the appropriate fine. Eventually she gives a small amount of money to the policeman and the latter drops the matter. g) A young boy suffers an acute attack of appendicitis which necessitates immediate surgery. His father takes him to a hospital and there he is made to understand that unless he pays money to some employees the ission process of his son will be delayed unnecessarily.

216

h) A civil servant has to award a contract. Her minister instructs her to award it to a certain contractor. She knows that the contractor has promised the minister a large sum if the contract is awarded to him. The contractor has tendered at a price similar to that of his competitors but his quality is usually a little lower than theirs. i) A woman invests her life's savings in a small hotel. Now she finds that most of her clients are travelling business people and that many of them demand a bill ten or twenty per cent higher than the amount they actually pay. If she refuses to go along she is likely to lose many clients and the hotel may have to be closed at a crippling loss. j) Mr. A owns a plot of land in a commercial neighbourhood of a state capital. He has just been offered attractive by a contractor to develop the plot on the basis of a contractor-financed scheme. That property constitutes his only significant asset and he is counting on it to finance the education of his children and provide him with income once he retires. A prominent government official now threatens that the government will expropriate the land "for public purposes" (though no genuine public purpose really exists) with minimum compensation if he fails to pay him N50,000. Mr. A makes some enquiries and finds out that the threat is genuine.Mr. A decides to make the payment to protect his land. The payment of money features in all these examples, and in all of them the payment is "questionable" in one way or another. But our common sense tells us that morally they constitute a very mixed bag. Can we try to identify with precision specific factors which may enable us to assess ethically each of them? To begin with we can focus on the first and the last cases. The common sense assessment of most people would be that while the litigant who buys a favourable verdict in case a) is most certainly acting in an immoral way, the owner of the plot in the last example (case j)would seem to be a victim of the wrongdoing of others, rather than a wrong-doer himself. In common speech it would sound quite odd to say that he had "bribed" the government official; what most of us would be inclined to say is that the money had been "extorted" from him. These two extreme cases are helpful in that they provide two clear paradigms of "giving a bribe" and of "being a victim of extortion." If we had only common sense to guide us in our assessment of all the other incidents, we could get a rough guide by saying that the closer one of them is to case a) (i.e. to the clear case of "giving a bribe") the more immoral it is, while the more similar it is to case i) (i.e. to the clear case of "suffering extortion") the more justified the person involved would be in making the payment requested. There is no need, however, to remain at this level of imprecise common sense. More determinate criteria for decision can be obtained by engaging in a closer analysis of the cases described. The Paradigmatic Bribery Situation

217

Precisely what is wrong with the behaviour of the litigant with a hopeless case who buys a favourable verdict from the judge (case a)? Very briefly, we can say that for the judge to breach his judicial duty to decide without fear or favour and according to the law is wrong, and that to offer money with the precise intention of inducing another to do what is wrong is inherently immoral. Obviously it is also an injustice to B to deprive him of his land. Finally, it shows unreasonable contempt for the common good not to care about the effect that one's action is likely to have in spreading corruption in the country with the attendant bad effects which were described in the first section of this note. These three reasons why the litigant's action is immoral can be expressed a little more precisely by relating them to the general moral principles discussed in chapter 3. The action is wrong i) because the actor wills to harm a human being (in this case, the judge is encouraged to decide according to wrong principles, thus undermining his moral integrity); ii) because he offends against the principle of fairness (in depriving somebody else of a piece of land which fairly belongs to him); and iii) because he also violates the principle of solidarity (in spreading corruption). Many people find it difficult to reason directly from ultimate moral principles to everyday moral questions. Accordingly, it may be useful if we try and identify the specific moral norms which are derived from these principles and have a more direct bearing on issues of questionable payments. The norms in question are the following: i) "Do not induce a person to make a "wrong" decision." ("wrong" according to whichever standards he has a duty to apply). ii) "Do not intend to obtain for yourself anything to which you are not fairly entitled." iii) "Do what you can to avoid co-operating in spreading corruption." There is still another norm derived from the general principle of solidarity which is not applicable in this concrete case but which is often important in other problems of questionable payments. It is the following: iv) "Do what you can to fight corruption." i) and ii) are absolute moral norms, in the sense explained in chapter 2. Accordingly they are cast in the absolute form "Do not..." This is so because in the situations covered by the norms what is involved is the direct intention to attack a basic human good (integrity and fairness are the goods at stake). As was explained in chapter 3 that is inherently immoral. iii) and iv) are nonabsolute moral norms for, as was pointed out above, one has other responsibilities besides fighting corruption and avoiding doing anything which will have the effect of contributing to the spreading of corruption. Therefore an ethical person will do all he or she can to fight corruption and to avoid

218 contributing to its spreading for so long as this does not conflict with other responsibilities. But when other responsibilities are present they may have to take precedence. Applying norms iii) or iv) may well be a very difficult question. After all, it is not easy to be certain that one has done "all that one could" in the circumstances to fight against corruption. On the other hand, applying norms i) and ii) is fairly straightforward in most cases. Because of this, in analyzing cases of questionable payments the first step should always be to check whether either the element of inducing somebody to make a wrong decision or that of seeking something to which one is not entitled, are present. If any of them obtains we can already conclude that making the payment is wrong without having to enter into more complex discriminations among competing responsibilities. We can easily see that these elements are actually present in some of our original examples. The minister in case b) occupies a position of trust. Whatever power he has to award contracts has been given to him to be used for the benefit of society as a whole, not for his own benefit. The contractor who offers him a bribe is precisely trying to induce him to breach his fiduciary duty to be guided in awarding contracts by the good of society as a whole. Also, the contractor is trying to obtain something to which she is not entitled according both to the official rules which govern the awarding of contracts and to ordinary considerations of fairness. Accordingly, we can already conclude that the action of the contractor is intrinsically wrong. Case c) is very similar to b). The only difference is that we are told explicitly that the contractor ultimately seeks a good end, viz. the preservation of his workers' jobs. Still, the precise choice the contractor is making here and now, what he intends as a means to his good end, is "to influence the minister to reach the wrong decision." We examined in chapter 3 the reasons which underpin the principle that one should never will to harm a human being, even when it would seem ("It would seem," for as we argued there one can never truly know what is going to be the balance of good and bad consequences in the long term) that the bad consequences of doing so outweigh the harm one would do. Payments Made in Order to Protect One's Just Entitlements The contractor in case d) who pays money to a civil servant in order to be paid the money owed her is not inducing anybody to make a wrong decision; in fact she is trying to induce the civil servant to do what he should have done of his own volition all along. And she is only trying to get the money that is owed her. Accordingly, the behaviour of the contractor does not fall under the first two moral norms we identified. But what about the norms which direct us to do what we can to fight corruption and to avoid co-operating to its spreading? Even if the contractor is only trying to obtain that to which she is entitled, giving in to the request of the civil servant is bound to have a number of undesirable side effects. She will be setting a bad example to other people (perhaps including her own employees), will contribute willy-nilly to spreading an atmosphere of corruption in the society which, as we saw in the introductory section, has very harmful effects, and will confirm the civil servant himself in his immoral ways. Is it fair to

219 accept all these bad effects on specific people and on society as a whole? Does not a fair consideration of all the goods at stake rather suggest that one accept one's loss, avoid all these bad consequences, and, by setting a good example to all the people involved in the case, start taking positive steps towards the creation of a better social environment? This question does not it of a simple answer. In fact, as everything will depend on the specific circumstances of the case, it is impossible to give general rules for it. If one pays the benefits will accrue to oneself and to those who are near and dear to one (e.g. relatives, employees, etc.) while most of the harms will accrue to society as a whole and to third parties. The essential question one has to ask oneself in order to check whether one is acting with fairness is: would I still think that it is appropriate to pay if the roles were reversed and the harms were to be suffered by me and those I care for while the benefits were received by strangers? Speaking in general all that can be said is that the following considerations are relevant: i) If all one is likely to lose is money, which after all is only an instrumental good, one should be more ready to suffer the loss. In so far as basic goods will be affected substantially (e.g. by one's workers losing their jobs, one becoming unable to provide a good education for one's children or security for one's family, etc.) there will be more justification for submitting to the extortion. ii) The greater the chances that one's action will set a bad example to others and that that example will be followed the more reason one has to resist the attempted extortion. At which point do the different considerations balance each other? Well, this is the appropriate point at which one should that ethics is not geometry and that, as Aristotle already remarked almost 2,500 years ago in respect of a similar question, one should not demand greater precision than the subject matter will bear. The above are the relevant considerations. The final conclusion has to be reached by the person directly involved in the sanctuary of his conscience. Only he will know whether or not he has been a truly impartial judge of all the interests at stake and whether he was truly guided by a rational consideration of the goods involved rather than by the pull of his own emotions. As has already been pointed out whenever the principle of fairness has to be applied it is essential to consider all the specific circumstances of the case at hand. However, it seems clear that in cases similar to e) and g) one often will be not only justified but probably even morally required to pay. First, no question arises of one's act being wrong in itself, as obviously none of the two absolute moral norms which we expounded above applies. Secondly, in the absence of very special circumstances, impartial and reasonable third parties would agree that the harms which will result from refusing to pay (one's friend spending several days in a police cell, one's child failing to receive urgently required medical attention) are substantial, while the evils resulting from paying consist basically in the marginal intensification of the bad dispositions (which in all likelihood are already well set) of those who are subjecting one to extortion. Accordingly, to pay would not be unfair. If in some particular case matters are not so simple one will have to think through the case for oneself in the light of the general considerations advanced above.

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Case f), in which a driver pays some money to a traffic policeman to avoid having to pay a substantial fine, presents some special features. An essential issue is whether or not, if the policeman were to fine the driver he would be committing an injustice. As we will see in next chapter this in turn depends on whether the traffic regulations are in practice generally applied. This does not mean that all or even most people who break them are punished for this in practice is likely to be impossible to accomplish, but it means that at least, in the absence of truly extenuating circumstances, most of those caught are punished. If this were the case giving money to the policeman would constitute a case of inducing somebody to make a wrong decision. As we saw before this is intrinsically immoral and should never be done. But if, as seems to be indicated in the case, that traffic policeman, as well as traffic policemen generally in the community, almost never impose fines, but rather use their authority as an opportunity to enrich themselves, then we have abandoned the area of "bribery" and entered again into that of "extortion." If that were the case it would be actually unjust for the policeman to impose a fine in this specific instance and this case would simply constitute a variation of those just discussed. The key question would then be whether in all the circumstances of the case it is fair to give some money in order to avoid being unjustly fined. There seems no point in setting out in detail the questions which have to be considered in order to decide this question for they are very similar to those discussed in relation to the previous cases. Co-Operation In the Immorality Of Others Case h) raises the issue of co-operation in immorality, which in its general lines was already discussed in Chapter 3. Going by the data we are given it would seem that what the civil servant is expected to do is not immoral in itself: she will just award a contract which is within her powers according to instructions received from her lawful superior who, we assume, is also acting within his own powers. Of course, we know that in doing so the civil servant will be facilitating the immorality of the minister who will collect a hefty kickback. But this by itself does not necessarily make immoral the action of the civil servant. As we saw when we analyzed the general problem of co-operation in immoral actions, everything depends on the precise intention of the civil servant. If she approves of the action of the minister and wishes to facilitate it (perhaps because she himself hopes to benefit directly or indirectly from the payment) then she participates fully in the minister's wrongdoing and cannot excuse herself by claiming that she did not receive the bribe herself. If, on the other hand, she in no way wills or intends the success of the minister's scheme, then her own action is not intrinsically wrong. The only question to consider in that case would be whether in all the circumstances of the case fairness did not demand of her an active resistance to the corruption of the minister. This, essentially, will depend on how grave a harm to the community the minister's stealing is going to cause, on the seriousness of the measures that the minister can be expected to take in retaliation and on what the competing responsibilities of the civil servant herself are. A person whose salary constitutes the only means of of fifteen people would be here in a

221 very different position from an unmarried person of independent means who really does not need his or her salary. And what about the hotel proprietor in case i) whose clients request inflated bills? Some ethicists are of the opinion that this is a case of co-operation in immorality essentially similar to the one just discussed. These people reason that in giving inflated bills he is not engaging in deception, which would be something intrinsically wrong. The hotelier gives the bill to the client and in this there is no deception for both parties are aware of the truth; what happens is that in doing so he gives the client the means to deceive his own boss. According to this analysis this would be a case of co-operation in immorality and the essential issue would be that of fairness. A different analysis, which seems sounder and more realistic to the present writer, would hold that the bill is not a means of communication between hotelier and client. It is rather a document addressed "to whom it may concern." According to this analysis it is the hotelier herself who communicates to the boss of the client and deceives him when the latter reads the bill. As this is something intrinsically wrong the action of the hotelier is, according to this analysis, necessarily immoral. Which of the two alternative analyses just proposed is more convincing will have to be left to each person's responsible appreciation if and when they find themselves in the relevant circumstances. In any case, the example illustrates how the application of moral norms does not have to be a purely mechanical process. Very fine analyses of a given situation may be needed before one is in a position to apply any norm at all. A Final Point For Organizations Everything in this section is equally relevant to individuals and organizations. The latter, however, are specially vulnerable when making "questionable payments." Even in cases where making the payment would be justified for an individual an organization will have to take into the demoralizing effect of the payment on its own employees who in all likelihood will be unaware of the fine points of moral analysis which may render the payment justifiable. All they will know is that "here we give bribes." The next step in their mental process could well be, "If it is O.K. for the organization to give bribes, why should it be wrong for me to accept them?" And from there they might well progress to "If these things are O.K. why should I be 'loyal to the organization'?" Another important factor that those responsible for policy-making in organizations should keep in mind is that, as we pointed out above, questionable payments are very difficult to control. Because of these two factors organizations have specially strong reasons to put a determined resistance against bribery and corruption in any form.

III. SUMMARY The most important responsibility that firms owe society is to perform effectively their basic economic mission of providing wanted products and services.

222 The generalization in a country of a climate of corruption is the source of many harmful consequences. Accordingly, all firms have a basic responsibility to resist being forced in any way to co-operate in the spread of corruption and to do whatever they can to fight corruption. These responsibilities, however, are non-absolute, for firms have also other important responsibilities which may come into conflict with them. Firms do have, however, an absolute responsibility to never induce anybody to make a "wrong" decision ("wrong" according to whichever standards the person concerned has a duty to apply) and to never intend to obtain for themselves anything to which they are not fairly entitled. These responsibilities are absolute because breaching them would involve the direct intention to attack a basic human good. A different way of expressing the above points is to say that while "giving bribes" is always wrong, giving way to "extortion" is not necessarily wrong; one has a responsibility to resist extortion but this responsibility is not absolute. Finally, it has to be noted that organizations have especially important reasons to avoid making "questionable payments" (even as a consequence of extortion). They have strongly demoralizing effects on their employees and they are extremely difficult to control.

223

CHAPTER 9.- RESPONSIBILITIES TOWARDS SOCIETY - II I. COMPLIANCE WITH THE LAW Justice Holmes, a well known American jurist, used to refer to the attitude towards the law of "The Bad Man." This is the man whose only interest in the law is to know what will happen to him if he is caught breaking it. Whenever it is in his interest to commit a crime, if he reckons that he can get away with it, or that the penalties for being caught will be slight, he will cheerfully break the law. Should a reasonable person imitate the Bad Man of Justice Holmes? Should he rather be willingly law-abiding? Does the law deserve obedience and allegiance even when one is in a position to flout it with impunity? Many discussions of these issues are framed in of the right of the ruler to be obeyed. This approach is misleading for it can easily be understood as implying that the reason why I should obey a ruler lies in the ruler himself; that somehow he is entitled to the benefit of my obedience. We are going to defend here a very different thesis. I have a duty to obey the ruler because all the of the community are entitled to the benefit of my obedience to the ruler. An example may make this point clearer. Let us imagine that we are engers in a sinking ship and that the captain is issuing instructions on how to man the lifeboats. Reasonable engers in the ship have excellent reasons to obey the captain for in all likelihood disobeying him would result in confusion. It is not enough for me to say: "I want to be helpful; I will do whatever is useful in order to save as many lives as possible." If I do what I believe is most helpful, Mr. A does what he believes is most helpful and Messrs. B, C, D, E and F each does what he believes is most helpful, the result is apt not to be helpful at all. More likely than not we will just be getting in each other's way. On the other hand, if instead of doing what I believe will be most helpful, I carry out the instructions of the captain, and at least some of the other engers do the same, we will be likely to do something constructive and actually contribute to saving some lives. Perhaps the ideas of the captain are not the best possible ones in the circumstances, but the fact is that if the actions of the engers who are willing to help are not co-ordinated they will achieve even less than by following the imperfect plan of the captain. It should be plain from this simple example that the reason one has to obey the captain is not the captain's own benefit. One obeys him so that as many engers and crew - including the captain - as possible should be saved. One has reason to obey the captain, but not "because of the captain;" in a traditional phrase, one obeys the captain "for the sake of the common good." A society is in some respects like a sinking ship. In a society there are many goods which

226 can be promoted better, or even only, by co-operating in common action. In almost any area of human endeavour, whether science, arts, medicine, economy or religion, men can achieve incomparably more by co-operating with each other than by their isolated efforts. But a man of good will who is ready to co-operate in the promotion of the common good cannot "co-operate on his own." The only way of co-operating effectively in many areas of common life is to follow the dictates of somebody in authority which will unify the efforts of everybody.

The Duty To Obey The Law We are now in a position to identify clearly the basis of the moral duty to obey the law. In some cases the fundamental moral principle which prescribes that one should never directly intend to harm a human being is at stake. Thus, for instance, there are laws which forbid committing murder or misrepresenting intentionally the qualities of goods which one offers for sale. Any person breaching these laws will be "willing to harm a human being" (in the good of life in one case, in that of truth in the other). These laws merely reinforce pre-existing moral duties not to do things which are intrinsically wrong. However, the laws which protect basic human goods from direct attack are relatively few. The great majority of laws are similar to the instructions of the captain trying to direct how a ship should be abandoned. They prescribe ways of acting which in themselves are not morally obligatory. Thus, for instance, a law prescribes that vehicles should circulate on the right side of the highway (even though in some countries they manage perfectly well circulating on the left); another provides that the first N5,000 of personal income should be tax free (even though there is no decisive reason why the amount should not be= N 4,500 or= N 5,500). Somebody who breaches such laws obviously is not harming a person in a basic aspect of his or her well being. What fundamental moral principle is he then violating? The principles at stake are two: solidarity and fairness. Laws like those we have just mentioned, if they are not clearly inept or unjust, promote some common goods for the society, for they determine specific patterns of action which make possible for the of the society to cooperate effectively in promoting these goods. Thus traffic laws promote health and life (intrinsic goods) and easy transport (instrumental good); many commercial laws facilitate trade (instrumental good); and so on. Every just law also helps to establish a system of fair relations among the of the community, which in itself is also an aspect of a basic human good (harmony among people). All these goods are "common goods" of the community, in the sense that they benefit, at least potentially, every member of that community. People who breach such laws betray irrational insensitivity to the aspects of the common good at stake, thus violating the principle of solidarity. They are also unfair to the citizens who make the effort of complying with the law as they take the benefits of their compliance but avoid the reciprocal burdens. We can now summarize the argument:

227

1. In many areas of the life of a community great goods can be attained and great harms can be averted only by general co-operation. Accordingly, a reasonable person, who values the wellbeing of that community, will be ready to do his or her share in that general co-operation. 2. In many of these areas co-operation can only be effective if the individuals who wish to co-operate follow the directions of a central authority. These directions will usually be conveyed by means of laws. 3. Therefore a reasonable person, willing to be guided by the principles of solidarity and fairness, has good reasons to obey the law. Unjust Laws The above reasons to obey the law do not generate absolute moral norms in the sense given to that expression in Chapter 2. There are some situations in which a fair person who has the good of the community at heart may have good reasons not to comply with the law. Such a situation obtains, for instance, when the law is unjust. A law can be unjust in several different ways. In the field of business ethics the types of injustice which one faces more often are those caused by distributing in an unfair manner the benefits and burdens of common life, or by prescribing regulations which in no conceivable way can serve any aspect of the common good and which are prompted by ideological prejudice or partisan interests. We saw before that obeying the law is morally obligatory by virtue of the principles of solidarity and fairness. But if a law is itself unfair it will not be unfair to fail to comply with it. Thus, for instance, in a country where the tax laws lay the same burden on the poor as on the very rich, it would not be unfair for the poor citizens not to comply with these tax laws.1 Similarly, obeying an unfair law cannot be a duty of solidarity, for solidarity consists precisely in readiness to serve the common good of the community and an unfair distribution of benefits or burdens rather hinders than fosters that common good. As was indicated above, the establishment and preservation of a system of fair relations among the of a community is an essential aspect of the good of that community. Exploiting some of a community can be in the narrow interest of other , even of a majority of them, but it can never foster the good of that community rationally considered. We can now conclude the argument. A citizen's obligation to obey a given law derives from 1

Actually, in this case, although the poor citizens would not be under a moral duty to pay the amounts provided in the tax laws, they would have the duty to pay a "fair share" of the tax burden of the country. A rough standard to determine such a fair share can be borrowed from the tax systems of many countries: the total tax payable should increase more than proportionately as income increases.

228 the fact that doing so is the only way of promoting the common good in the area of social life regulated by that law. But if a law in fact prescribes actions which are damaging to the common good (because they are unjust) then there cannot be any moral obligation to obey it.2 Determination Of the Injustice Of a Law When confronted with the thesis that one is not morally obliged to comply with unjust laws some people ask: "But who decides whether a given law is unjust?" In the last analysis each person has to do that for himself or herself. But three important caveats should be entered at this point. In the first place, one should not jump lightly to the conclusion that a given law is unjust. For as long as there is room for any reasonable doubt one should give the law the benefit of that doubt. What this means in practice is that one should disobey a law only if one is morally certain that the law is unjust. Secondly, for it to be justified to disobey a law on the basis of its being unjust, the injustice of that law should be substantial. A certain degree of imperfection is unavoidable in human affairs; but from the fact that a law is less perfect than it could be it does not follow that everybody will be justified in flouting it, for if that were the case hardly any law would be morally obligatory. Thirdly, it will usually be prudent to ask for the opinion of reliable people before concluding that a given law is so unjust that one is justified in refusing to obey it. There are two reasons for this. The first is that only very rarely will the injustice of a law be immediately apparent. If the law has been enacted at all there must be at least some reasons for it. In such a situation it will be rare for a single person to have a deep enough knowledge of all the aspects of the problem to be able to reach confidently the conclusion that the law is seriously unjust. The second reason is that one has normally a vested interest in concluding that the law is unjust, so as to be free from the burden of complying with it. It is elementary that one should avoid being a judge in one's own cause. A final point of great practical importance is that in order to assess the duty of a citizen to obey a law what matters is not the "law in the books," but rather the way in which that law is applied in practice. A clear example of this is provided by the operation of personal tax law in Nigeria. In principle there is nothing obviously wrong with the Personal Income Tax Decree 1993; many of its provisions could be improved but none is clearly oppressive, discriminatory or unfair. However it is common knowledge that very many taxpayers evade to a large extent their obligations under this law. Under these circumstances many citizens could reasonably conclude that if they pay personal income tax as provided by the law they will in fact be paying significantly more than their 2

In the author's experience many business executives on first hearing of this thesis tend to think that it must be a very idiosyncratic view. The fact is that, in its general outlines, this position is virtually unanimous among contemporary legal philosophers of all schools. See, for instance, DWORKIN (1) pp.326-7 and 341-3, DWORKIN (2) ch. 3, HART (1) pp. 203-7, RAZ p. 233, FINNIS (1) ch. 12.3. It is also a very old thesis that had already been defended, among many others by PLATO IV 715b, CICERO II, v, 11, ST. AUGUSTINE I, v, 11 and AQUINAS I-II, q. 92, a. 1 ad 4.

229 fair share of the common expenses of the country. Such citizens would not be morally obliged to comply with the provisions of that law but only to pay what they conscientiously believe it is their fair share, determined in as impartial a way as possible, of these common expenses.

Obedience To Unjust Laws In spite of the preceding considerations, reflection on the effect that one's example can have on others may provide good reasons to obey an unjust law -at least to a certain extent. Thus, for instance, one may be rightly convinced that a certain law is unjust. However, one may also foresee that if one flouted that law others would not realize that one had acted in that way because of the law's injustice and might feel encouraged to disregard all laws generally. This would provide a reason to comply with the law. The reverse situation may also arise. One might live in a society where many people disregard certain laws (e.g., tax laws). As we have indicated, a person faced with that situation would not have a duty of fairness to obey those laws. However, an upright citizen might consider that somebody has to lead in the effort to promote a general attitude of respect for the law and that the best way to do this is for herself to comply with the law. In the last paragraph we considered the importance of not giving bad example; here what is in issue is the convenience of positively setting a good example. Just laws should be obeyed fully and in good faith.3 But how far should one go in obeying unjust laws for the reasons just given depends very much on the circumstances of each case. Thus in some cases it may be enough in order to avoid giving bad example that one complies outwardly with the law while evading its true intent. Again, how far one should go in abiding by an unjust law in order to give good example will depend on one's competing responsibilities. For instance, it would not be reasonable for a man who is not able to pay for the education of his children to insist on paying taxes which are generally evaded "in order to set a good example." But a well to do person could do so. Other Reasons Which May Excuse From Obeying a Law For the sake of completeness it may be useful at this point to make a brief reference to the possibility that in some rather exceptional circumstances one might be morally justified in disobeying a just law. One such situation may arise out of "equitable considerations." One may find oneself in a situation which was not anticipated by the law-maker. In an emergency, if one is confident that if the law-maker had anticipated the situation in which one now finds oneself an exception would have 3

There are some narrow exceptions to this rule which are discussed briefly in the next subsection.

230 been provided in the law, one would be morally justified in not complying with it. In such a situation one violates the letter of the law to preserve its spirit. Traditionally this way of acting has been called epieikeia (a Greek word) and "equity." Perhaps a country has a traffic law which provides that in certain areas vehicles should not cross to the opposite lane in the highway. It may also happen that the law does not provide for any exceptions. Still, a person who comes to a point where the whole right lane in a road is occupied by an overturned trailer will rightly think that the legislator could not have intended that she remain stationary for 36 hours, until the trailer is removed. This person will rightly conclude that after looking carefully to ascertain that there is no oncoming traffic she can enter briefly the left lane. Even if she does not know classical Greek, what she is doing is precisely applying epieikeia. "Desuetude" can also provide a good reason not to obey a law. It sometimes happens that a law which was entirely proper and reasonable at the time it was made becomes pointless due to a change in circumstances but it is never formally repealed. When this happens it would be unfair of the authorities to insist on its application and, correspondingly, citizens are not morally obliged to comply with such law. An example of such situation would be a war-time regulation providing that no light should be visible at night in order to avoid helping enemy bombers. Once the war is over, conscientious citizens need not feel obliged in conscience to obey such regulation even if it still remains in the statute book. Finally, a conflicting duty can also provide a good reason not to comply with a just law. Thus, in a country it may be a legal duty to vote in general elections. In spite of this, a woman would be justified in giving preference to taking her son to hospital if he were suffering an acute attack of appendicitis. In order to avoid misunderstandings it may be useful to emphasise that we have been reviewing in this section cases in which one would be morally justified in not complying with the law. It may often happen that there is no legal provision exempting people from complying with the law in these circumstances. In such cases one might become liable to suffer legal penalties even if one's action was fully justified from the point of view of ethics. II. RESPONSIBILITIES IN RELATION TO THE ENVIRONMENT Economic activities can have an effect on the environment in many different ways. The use of chlorofluorocarbons as propellants in aerosol sprays can damage the ozone layer with potentially serious consequences for human well-being; factory and vehicle emissions can cause acid rain that in turn can harm forests; ment boards along highways can spoil natural landscapes; the countryside may be littered by beer cans and plastic wrappings; oil spills can destroy animal life and make farming impossible; dumping of industrial residues and garbage into the sea or rivers can make them useless for swimming and other recreational activities and destroy fish life. The list of possible problems is very long. These problems have gained a very special prominence during the last thirty years. An important reason for this is that as the scale of economic activity has increased, its potentially

231 harmful side effects on the environment have also grown, often more than proportionately. A small fishermen's village may have been dumping its garbage into the sea for centuries without any ill effects as the volumes dumped were always minute by comparison with the immensity of the sea. Nowadays that village may have become a vast tourist resort which receives hundreds of thousands of visitors each holiday season and both the quantity and type of refuse it generates may have changed drastically. The result of this vastly increased scale of operations is that without careful management it would only take a very short period for its beaches to be covered with litter and for the water of the sea around it to be fouled to the point of constituting a health hazard. In similar ways in many places small scale economic activity whose side effects were easily assimilated by the ecosystem, has recently exploded to acquire a dimension well capable of causing lasting harm. As this process has gathered momentum concern for the environmental effects of economic activity has mounted. Growing wealth has also contributed to a greater interest in the quality of the environment. To put it bluntly, citizens of developed countries can now afford to be much more finicky. People who are not certain of getting the next meal are not likely to spend scarce resources on improving the level of purity of the waters in the nearby stream nor worry overmuch about that issue. But as more immediate needs are satisfied people in rich countries now demand standards of environmental quality which would have been unthinkable for their great grandparents. Anybody who wishes to satisfy himself on this point has only to read any contemporary description of life in a large English city around the middle of last century. The problems posed by the impact on the environment of economic activity are often extremely complex and defy easy solution. A hypothetical, but in certain respects typical, example may help to understand this point. Imagine a sixty year old paper mill sited by a river. It always has discharged the byproducts of its operations into the river. This always produced bad smells and an unsightly foam, especially in the vicinity of the mill, but the river seemed well able to cope and two kilometres downstream from the mill no ill effects were perceptible. Over the last thirty years five new paper mills have been opened in the vicinity. They all use more advanced and environmentally more benign processes. In consequence the volume of toxic substances per unit of production which they dump into the river is less than one third that of the old mill. Only one of the new mills, the third one to be built, has a production capacity similar to the first mill; all the others produce between one third and one half the volume of the older one. As new mills were added the river became dirtier and more unsightly. Matters came to a head a short time after the last mill commenced operations. Suddenly dead fish started

232 floating down the river. Experts were called in. They carried out studies and their main conclusion was that in order to restore the life-carrying capacity of the river and to ensure that there would not be harm to humans, the dumping of toxic effluents would have to be reduced immediately by at least 30% in order to bring the concentration of a particular substance in the river waters below the level of five parts per million, above which it was certain that it was harmful to fish and likely that it could also have harmful effects for humans. In such situations it is peculiarly complex to decide what should be done. Should the last mill be ordered to close? Should all the mills be required to reduced toxic discharges proportionately? Would it not be easier and more efficient just to close down the older and more heavily polluting mill? The main reasons for the complexity of the problem are that it concerns harmful side effects rather than intentional harm; that the harm is only caused once a certain threshold has been crossed, rather than at all levels of the activity concerned; and finally that the harm is caused by the interaction of several independent agents. All of these complicating factors are present in many environmental problems and they tend to make it unclear whose responsibility it is to do what. The Fulfilment of Human Beings as Ultimate Standard of Assessment An ethical approach to environmental problems which recently has received much publicity is that of "animal rights4" and even "plant rights5". For those who favour this approach the basis of our ethical duties in respect of the environemnt lies on the interests of animals and plants, which would deserve as much protection as those of human beings. In the view of the defenders of some such approaches the traditional attitude of giving primacy to the well-being of human beings would be an example of "speciesism," a form of unreasonable partiality in favour of the human species, which would be fundamentally similar to vices like "racism" or "sexism.6" Our approach to these problems is not based on any such premises. All the fundamental ethical principles discussed in the first part of this book are squarely based on the value of promoting human fulfillment. The reason for this is neither "speciesism" nor any other type of "ism." It is the fact that there is a clear difference of degree between the fulfilment possible to man and that of animals. The highest experience available to animals is being the subject of pleasant sensations. Because of their intellectual capacities, human beings can achieve fulfilment in areas like knowledge, aesthetic experiences, skillful performances, authenticity, integrity, friendhip, social 4

E.g., SINGER and ROLLIN.

5

E.g., STONE (1).

6

The view that a sound environmental ethic demands a widening of the boundaries of the moral community beyond man is articulated by LEOPOLD, NAESS and WENZ. For cogent criticisms of this view see RUSSOW and GUHA.

233 harmony, and harmony with God. Whenever there is a real conflict between the fulfillment of a human being in any of its substantive aspects and the welfare of some animals or plants, it is this radical difference in the type of fulfilment available to each that, in accordance with the principles discussed in part I of this book, justifies giving unhesitating preference to human beings. In these principles there is no room for "balancing" the fulfillment of human beings with that of any non-intelligent life forms. It very often happens that the well-being of human beings depends indirectly on the protection of animals, plants or natural systems. In such cases there can be a clear responsibility to protect such beings or systems. But the foundation of such responsibilities is not the interests of those beings, but those of the human beings whose welfare depends on them. As a matter of fact our usual concepts of environmental harm and other related notions already incorporate the idea of harm to human beings. Richard T. De George has made the point well in respect of pollution7: "As far as nature is concerned, there is no strict sense of pollution. When the volcano Mount St. Helens, in the state of Washington, erupted in May 1979...[it] spread its emissions in measurable amounts across the United States. In one sense the eruption polluted the air. But the eruption was natural, and the larger amount of sulfur in the air was no more unnatural than the smaller amount in the air prior to the eruption. In a literal sense, nature did not care about the amount of sulfur in the air. Human beings did, because they were adversely affected. What we often mean by pollution is the contamination of air, water, and land with substances which harm us or our interests." The point is that in assessing environmental harm, and how far human interests and projects should be curbed in order to avoid it, the ultimate reference should be the well-being of human beings: both those who are directly involved and those who are likely to be indirectly affected; both those already alive and the of future generations. Of course, there is no justification for the wanton destruction of any animal or plant as, for that matter, there is no justiffication for the wanton destruction of anything. It is wrong to destroy something merely "for kicks," or to satisfy a craving or desire which is unintegrated in any intrinsic aspect of human fulfilment, even if, by hypothesis, the interests of no other human being were affected by such destruction. But in case of a true conflict between the welfare, or even the very existence, of an animal or plant, and the fulfilment of a human being, there is no question of engaging in any form of balancing. The only reasonable course of action is to give preference to the human being or beings involved. Cost-Benefit Analysis

7

DE GEORGE (2) pp. 186-87.

234 When analysed from a moral point of view, the typical environmental problem usually resolves itself into a question of determining whether, in the particular circumstances of a case, it is justified to accept some harmful side effects. Somebody is carrying out an economic activity whose clear and primary objective is economic —never the fouling of the environment as such. However, as an inseparable side effect of such an activity there follows harm to the environment, and from this results harm to the interests of some human beings. The question then arises, of how far pursuing such an economic activity is compatible with an ethical attitude of rational concern and respect for all the human beings who are likely to be affected. This issue cannot be reduced, as some extremists try to do, to a "conflict between profits and the well-being of human beings." The truth, of course, is that the cost of protecting the environment is not ultimately "money." If that were the case the problem could be solved with a printing press. Ultimately, in order to protect the environment, one has to sacrifice in some way the fulfilment of human beings. Thus if a manufacturing facility causes environmental pollution, avoiding the pollution may require that the plant be closed down. Of course, this means that real, flesh and blood human beings will lose their jobs and perhaps be forced to move to another place, away from relations and friends. Or perhaps expensive equipment will have to be installed; this means higher costs to consumers, lower salaries to employees, and lower dividends to shareholders. The ultimate result is concrete human beings who are less able to satisfy their needs. The examples could be multiplied, but the basic point is very simple: in assessing the right thing to do in an environmental issue we ultimately have to compare the human harms which will result from harming the environment with the human harms which will result from curtailing the activity which damages the environment. From an ethical point of view the precise question one faces can be formulated as follows: "Is choosing to carry out this activity compatible with a fair appreciation of the interests of all the people affected?" In other words, the issue is not one of absolute value, but one of fairness. The issues involved can probably be better appreciated with the help of an imaginary example. Consider the following scenario. A manufacturer of chemical products is coming under pressure from environmental activists. They argue that a by-product of his activity which is being regularly released into the ground has carginogenic effects and may be responsible for one extra death per year among the population of a nearby town. In order to eliminate completely that by-product the company would have to spend N250 million and about eighty workers would lose their jobs. If the question were, "What is more valuable, one human life per year or the good that can be accomplished with N250 million plus the avoidance of the harms consequent on the dislocation of eighty families?" the answer would have to be: "Nobody knows. In fact, nobody can know, as speaking of more and less in this context, with the implicit asumption that one can add and substract the values involved, is probably stark nonsense."

235 But we are not considering the direct killing of one person per year. That could only be justified if the calculation referred to above could be carried out and it were possible to conclude with certainty that the good consequences which would follow from the killing are definitely, and in absolute sense, more valuable than the lives to be sacrificed. Here nobody is choosing to actually kill anybody. What we face in this example is rather a question of trying to decide whether declining to assume the economic and personal costs which have to be incurred to eliminate an environmental hazard is unfair. In this issue there would be unfairness if the plant owner argued that the incidental loss of life should be accepted in order to preserve the attendant large economic and job gains which benefit a large number of people, but actually would not have argued like that if he did not stand to gain personally from the operations of the company. In other words, there would be unfairness if the conclusion were driven by the personal interests of the decision-maker rather than by a detached consideration of the benefits and gains of all those affected. It is precisely at this point that techniques of cost/benefit analysis can be helpful in carrying forward the discussion by providing a way of considering impersonally the benefits and harms at stake. Cost-benefit analysis does not do this by comparing in an absolute way the different benefits and harms, something which as we have repeatedly argued in this book just cannot be done when different basic aspects of human fulfilment are involved. What cost-benefit analysis can do, at least when it is used in a clear-headed way, is to compare harms and benefits within a framework of socially accepted preferences and objectives. Let us assume, for instance, that, by analysing decisions on construction of new hospitals by both Government and voluntary agencies, it can be shown the maximum amount spent is usually N900,000 for each potential life saved, and that when the cost of a new facility per potential life saved is higher than that, the proposed hospital is usually not built. Perhaps it can be shown also that when people have to pay for safety features in their cars they on average seem to be ready to pay only around N8,000,000 for the equivalent of avoiding a certain death. If this were the case, it would be difficult to argue that our plant owner ought to be ready to spend over N20 million per life saved (not to mention the jobs lost). For some more details of how the cost/benefit analysis would proceed the reader may refer to chapter 3.X. What has to be emphasised here is that while the technique can be actually very useful in deciding what costs, economic and otherwise, it would make sense to accept in achieving given environmental objectives, it should never be used in isolation from more ultimate moral considerations. Its results do not provide an absolute comparison of value, and therefore cannot legitimately be used to justify the decision to intentionally inflict harm on anybody. Also, if there are sound reasons to believe that a society tends to put an unreasonably low value on certain goods, the results of the analysis would have to be corrected accordingly. But, this said, there are good reasons to conclude that for as long as the technique is used as our servant rather than as our master it can be of help in making impersonal choices among heterogeneous values. Protection of the Environment and the Law

236

We mentioned above that, given the multiplicity of parties whose actions typically contribute to causing environmental harm, it is usually difficult, not to say impossible, to assign on the basis of purely abstract argument, specific responsibilities to each party involved. As we saw in the previous section of this chapter, that is the typical situation in which the law is especially useful. Whenever we have a situation in which: a) It will be very much for the good of all parties involved that they co-operate in achieving a given objective; and b) each of these parties clearly has a responsibility to do something for the attainement of that objective; but c) in order to promote the attainement of that objective there are many alternative things that each of the parties concerned could do, and many alternative schemes of co-operation among these parties, but none of them can be shown to be definitely better or preferable to the others on the basis of abstract arguments, and therefore, left to themselves the parties cannot concretise their general responsibility to "do something" in of "to do this and that;" then we have a strong prima facie case for the intervention of authority in order to determine a common way to attain the desirable objective. In modern circumstances often the way in which authority will intervene will be by enacting a law. Circumstances a), b) and c) above undoubtedly obtain in many environmental problems such as the fictional example of the paper mills located by the banks of a river which we discussed above. In any such situation it is unprofitable to try and decide abstractly what would be the best possible solution to share the burden of cleaning up the river. Normally there will be a law or an authoritative regulation. If that law is not clearly unfair in the way in which it distributes the relevant burdens, the ethical duty of the companies concerned is simply to comply with that law. In some situations a firm may have very good reasons to go beyond the law, that is to say, to impose on itself more exacting standards than those imposed on it by the law. The following are the main such situations: a) Where the law is clearly insufficient. Where the law fails to protect the environment sufficiently, the firms involved will still have a general ethical responsibility to avoid taking unfair advantage of the shortcomings of the law to promote selfishly their own interests while inflicting an unjustifiably extensive damage to the environment. In doing this the general principles on the priorities among a firm's various social responsibilities, which were discussed in chapter 4, are relevant. Of course, it is also important to stress that in such situations a given firm could be subjecting itself to a serious competitive disadvantage if other less scrupulous firms will not assume

237 similar costs. In such situations the obvious option is to try and lobby in order to get the law to impose similar regulations on all competitors and in this way secure the two objectives of having a level competitive field for all players while still avoiding an unfair harm to be caused to the general public collectively by all the of the industry.8 b) Breaking new ground. A good example of this is provided by the actions of the British "do-it-yourself" retailing firm B&Q.9 This firm has been devoting special attention to the effect of its operations on the environment. It appointed a well qualified scientist as environmental co-ordinator; it has sought systematically to improve the ways in which it deals with waste (e.g. by recycling more and collecting left-overs of dangerous products from customers for safe disposal); it has put pressure on its suppliers to improve their own environmental policies; and it has paid special attention to the effect of its operations on tropical deforestation (e.g., by refusing to stock timber from unknown sources and by phasing out gradually the use of wood from unsustainable sources). B&Q's board meetings regularly include an hour's briefing on a green topic. B&Q has several reasons to place such a special emphasis on the protection of the environment. An important one, according to a spokesman of the firm, was that they expected environmental rules to become stiffer. When the British government came to propose new environmental laws, B&Q wanted to be prepared and have an authoritative view on what is practicable in order to have an influence in the process and avoid the imposition of unrealistic standards which could prove quite harmful to the company. c) Company's Own Area of Special Emphasis. At several points in this book we have argued against a view of ethics according to which everybody would have exactly the same duties. On the contrary, we have emphasised the crucial role of one's special "vocation" (or "chosen mission", or "commitments"). If the essential point of acting ethically is the promotion of human fulfilment, it is obvious that the best way to do so will vary according to each person's different talents and opportunities. Each person's special opportunities to promote human fulfilment will in turn determine his or her special responsibilities. If one keeps that general point in mind one will not find anything strange in a firm's explaining its greater than usual commitment to care for the environment by saying simply: "This is what we have chosen to do for the community; we are good at it and we thought we would be able to make a special contribution." In just the same way as some firms go far beyond their legal duties in treating well their employees, and others take special care in helping a certain community, some are especially committed to high standards in relation to their environmental impacts. There would seem to be little doubt, for instance, that this type of special commitment to environmental issues, and the 8

Voluntary collective business action is always a possibility to be kept in mind. In the environmental field the Valdez principles are a good example of this approach. This is a voluntary code of conduct which spells out the environmental responsibilities of business firms. On the Valdez principles see SANYAL AND NEVES. 9

The essentials of this example were reported in The Economist, 2nd-8th November, 1991.

238 fact that they see it as their own special way to serve the community, plays an important role in the environmental programme of B&Q. III. RESPONSIBILITIES TOWARDS THE LOCAL COMMUNITY Every firm operates in one or more local communities. At an extreme a little restaurant has a negligible impact in the affairs of a city like Lagos, although it may play a somewhat larger role in the neighbourhood where it is located. At the other extreme a whole community may be dependent for its economic viability on a single factory located in it. Of course, the primary responsibility for promoting the common good of any given community lies with the local authorities, who are the ones who have, or should have, the legal authority and the tax revenues to enable them take appropriate action. However, it may often be that the local authorities are unable or unwilling to take effective action in all areas and as a result some important aspect of the common good of the community in which a firm operates is left unattended. Even if there is no breakdown in the operation of local authorities, for a community to have a flourishing life it is necessary that all citizens, including corporate ones, be ready to make their own contribution. As a result of this there will usually be pressures of one type or another for business organizations to get involved in solving problems of the local community in which they live. Often firms will be required to contribute financially to different local needs and different local events or initiatives. In principle, there is good justification for business organizations contributing their share to community activities and needs in the fact that the firm is really a member of the community that benefits from the existence of a healthy community and from the voluntary contributions of other . Thus, for instance, it is likely that many other of the community, both individuals and organizations, will be going beyond their legal duties in performing many actions that benefit community life such as making voluntary contributions for local schools, cleaning public areas through voluntary work, participating in clubs such as Rotary, in charitable activities conducted by religious organizations, and so on; and such activities often are undertaken purely out of good will, without there existing any law that makes them mandatory. All such activities benefit all neighbours, also the corporate ones, in an indirect way by providing a more conducive local atmosphere. If a firm were to benefit from such voluntary work by its neighbours but were to follow a policy of limiting itself strictly to comply with its legal duties without ever going beyond them that firm would be free-riding. Of course, there will be limits to how far a firm can be expected to engage in such voluntary work and donations, as there are in the case of any other neighbours. In the case of busines firms these limits derive basically from the fact that they have responsibilities to many parties, such as shareholders, employees, customers, creditors and so on, who often live in many different communities. Accordingly, it would be unfair to demand of a firm that it conduct its affairs in a way that suits precisely the needs of a single geographical location.

239 A special issue in which decisions taken by a firm may have a severely negative impact on the fortunes of a local community is that of closing a factory or branch10. Many local residents are likely to lose their jobs as a consequence of such a decision. Their families and many small local businessmen who depended on such families for their custom will also be affected. The local council will also be deprived of the taxes that were paid by the factory or branch, while being left with more personnel and infrastructure than is needed. Schools, churches and other institutions in the area may all find themselves with expensive unused capacity as a consequence of the closure. Finally, property values in the area can be depressed as a consequence of the dimming of the prospects of the community caused by the factory closure and that may have a severe effect on the finances of the residents of the area. It would be unreasonable to conclude that closing or relocating a factory or branch is something intrinsically unethical. The reasoning here is strictly similar to that which obtains in the case of dismissing an employee. Even though the decision may have very hard consequences for him, it will be justified if its objective is not to harm him, but rather to preserve the health of the company; the benefits to the company are proportionate to the harm that will be caused to the individual affected; and the firm takes the measures it can to minimise the negative effects of its decision. Even though the scale may be many times larger, the fundamental considerations are the same in the case of terminating many jobs at the same time. However, precisely because the scale of the bad side effects following a plant closure can be very large, a responsible firm will have to take special precautions and measures before taking such decisions. A first precaution that an ethical and far-sighted firm will take is to try to do its best to avoid becoming the single or dominant employer in a given community. Whenever such an employer is forced to close down or curtail drastically its activities, it will be causing the downfall of a whole community. It will be irresponsible to place oneself in such a position. A second basic point is that, precisely because the effects of closing down a whole plant, especially when it is a very large employer in a given community, are so large, firms should avoid as much as possible to do so. Normally it will not be appropriate to close down a whole plant that is a dominating employer in a community simply as a measure to cut costs during a temporary downturn in the business cycle. For so long as it is possible, it will produce much less negative side effects to reduce 100 jobs in each of ten plants, than to close down totally a plant with 1,000 workers that is a major employer in its local community, although it is itted that more significant savings can be achieved with the second alternative. If the need to reduce size eventually becomes permanent then the decision to close down a plant may be justified, but that cannot be a first option. It is also congruent with the severe harms that may follow from the closure of a plant that is a dominant employer in a community that the company be genuinely open to consider alternative 10

This issue is well treated in KAVANAGH.

240 solutions proposed by labour or governmental organizations or private sector groups if they are genuinely feasible. The company itself should have seriously explored on its own less disruptive solutions, a main one being looking for another party who could use the facilities that are about to be vacated and hire all or part of the workers. Finally, if the more drastic measure has to be taken, it should at least be possible to try and minimise the harm it will cause. Measures that can be considered to achieve this would include giving as much notice as possible of the intention to close the plant, effecting a phased closure that may give a better chance for community adjustment, and helping with the retraining and relocation of affected workers. IV. STRATEGIC OPPORTUNITIES FOR ETHICAL COMPANIES How can a firm which is careful to discharge its responsibilities towards society integrate positively this concern into its strategy? We have already indicated some of the ways in which this can be done. At a minimum it is important to try to ensure that paying attention to the demands of the common good does not become a competitive drag on the firm. If a firm comes to the conclusion that the standards imposed by the law, or their enforcement, are unduly lax, often the best course of action will be to lobby for new standards, or for a more adequate enforcement of the existing ones, in order to get a level playing field for everybody. A company may not succeed, at least not immediately, in getting more adequate standards enforced, and for a while may be under a competitive handicap. However, later on this may become a positive advantage. This has been the experience of more environmentally-conscious firms in developed countries. When eventually tougher standards are imposed the companies that had been operating voluntarily under them find themselves further along the learning curve and have an advantage over later adopters of those more stringent standards. Another important advantage of being responsible and proactive in thinking of the impacts of one's firm on the wider society, is that firms that act in this way are better able to influence the regulations which are eventually adopted.11 Unfortunately, many public regulations are adopted as a response to some crisis or public disaster. Because of this, they are often designed in an environment of public censure of "greedy" business firms, and very little attention is given to the legitimate concerns of business. The firm which thinks carefully in advance of a sensible balance between economic and other concerns, gains experience of what is possible to achieve, and then takes the initiative in forcing a public debate of the issues, will ensure for itself a respectful hearing in that debate and is likely to obtain much more sensible regulation. Bright young employees tend to be idealistic. A firm with a well deserved reputation for 11

for a good discussion of contrasting approaches to corporate political activism see SETHI.

241 social responsibility is generally able to attract and retain more than its proportional share of such people, especially if these characteristics are emphasised during recruitment efforts. Consistent defence of public good standards can also provide a clear public image for a firm and a bond of union with its customers. The Body Shop is a prominent example of a firm which has succeeded in doing so. Finally, firms with strong track records of social responsibility are ideally placed to operate in areas which have a strong political component, either because of the need to obtain public licences (e.g., broadcasting), or because they are placed under the public glare (e.g., oil extraction, heavy chemicals) and need to be trusted by politicians, the media and the public. In fact, it is possible to build an aggressive integrated strategy around several of the above points. The American chemical firm Monsanto has done so over the years by pursuing demanding environmental targets in its operations, gaining experience in doing so, and then lobbying for the general adoption of such standards. Through this strategy it gained a consistently favourable public image; it recruited and retained brighter employees, who tend to be more environmentally aware than their peers; it made sure that it would be given a respectful hearing when the time came to decide the standards that should be imposed through public regulation; and it secured a competitive advantage over its rivals once the more stringent standards were imposed by having more expertise in operating under them. SUMMARY All citizens--whether corporate or individual--have a moral duty to obey the law, which derives from their duty to promote the common good of the communities to which they belong. This is so because the law provides an essential co-ordinating mechanism to ensure the effectiveness of common action. There is no moral duty, however, to comply with laws that are clearly unjust. A law may be unjust either by distributing unfairly the benefits or burdens of common life, by failing to promote any aspect of the common good, or by being enforced or istered in a manifestly unfair manner. In relation to unjust laws the only possible source of a duty to obey them is to avoid encouraging others, through one's example, to disregard all laws generally. Business firms have a responsibility to avoid harming the environment as a side-effect of their economic activity. However, in assessing the means one is required to take to avoid harming the environment, it is the well-being of human beings that constitutes the ultimate standard of assessment. In order to carry out these assessments the techniques of cost-benefit analysis are useful, provided that they are not used in isolation from more ultimate moral considerations. Of course, for so long as a law mandating protection of the environment is not clearly unjust one has a moral duty to comply with it. Finally, by virtue of the principle of role-responsibility (or "chosen mission") it may be quite reasonable for some firms to commit themselves to go to extra-lengths in their efforts to protect the environment, but this does not imply that all other firms have a moral duty to emulate their efforts.

242

Business firms, like any other citizen, have a responsibility to co-operate to the solution of the problems of the communities in which they operate; this responsibility goes beyond their responsibility to obey the law and pay taxes. A firm should be especially responsible in making the decision to close a given factory or branch, especially when it is a dominant employer in the locality, as this will usually have especially grave effects on the local community. Available alternatives should be carefully considered. Eventually, if closing down is considered necessary, measures should be taken to minimise the harm caused by such action.

243

CHAPTER 10.- INSTILLING ETHICAL STANDARDS IN ORGANIZATIONS I. INTRODUCTION It is not rare for the top decision makers of business companies to want to ensure that their subordinates behave ethically whenever they act on behalf of the company. But it is one thing to wish that one's subordinates behave ethically and quite another to achieve it. There are many obstacles on the way to getting an organization to behave ethically. The basic one is that managers are primarily judged and rewarded according to the results they obtain, often short term results. What happens when a manager feels that the most expedient way to attain the results that are expected from him is unfair to some people such as employees, customers or the local community, or otherwise unethical? In the first place such a manager is likely to have a difficult time trying to articulate her case. Economic results like market share, sales objectives, or cost levels are clear and specific, and their relevance to the success of the company obvious. On the other hand ethical standards tend to seem much more "woolly" and subjective, and therefore they are hard to defend. The manager will fear, and often reasonably so, that if she pleads ethical qualms to her superior as a reason for having failed to attain the results expected of her she will be perceived as offering lame excuses for nonperformance. What is likely to happen? Experience shows that in many occasions ethical concerns will take a back seat to immediate economic imperatives, the manager will swallow her ethical qualms and endeavour to obtain the results demanded of her. But did we not argue before that in the long term the erosion of ethical standards in an organization will not only cause harm to others but is also likely to undermine the capacity of the organization to perform? We did; in fact in many cases it is precisely the fear for such long term consequences for the organization which will have prompted the concern of top management to preserve high ethical standards. But long-term thinking is typically the province of the higher reaches within any organization. For middle- and lower-level managers Keynes' dictum that "in the long run we are all death" will seem more relevant. Therefore the problem that top management faces in trying to drive ethical values in an organization and in ensuring that they are adhered to is how to make such values and standards relevant in the short-term world of middle management. In a small company if top management is competent and is sufficiently committed to ethical behaviour, no special efforts may be required to achieve this. Top managers convey through their words and example the standards they expect others to live up to, and they are always at hand to ensure that appropriate procedures are followed and to give more specific guidance whenever this may be needed. In a large company, however, more formal efforts are needed to ensure consistent ethical

248 behaviour throughout the organization. Something that can be done is to draw up an ethical code which spells out the main ethical norms to which the company is expected to adhere in its operations. We will devote the last section of this chapter to a discussion of ethical codes. There are, however, many other ways in which top management can try to influence the ethical standards which prevail in a company, and we will discuss briefly in the next section the more prominent ones.

II. MEANS AVAILABLE TO TOP MANAGEMENT TO INFLUENCE A COMPANY'S ETHICAL CLIMATE1 Articulation of ethically sound beliefs and purposes. If the basic objectives of a firm are oblivious of ethical considerations, nothing that the firm's management can do will go far in producing ethical behaviour. This point should be intuitively obvious: nothing can be done to "moralize" an organization like The Mafia short of radically changing its ends. Perhaps in less spectacular ways, the same principle applies to many other organizations. A company which is run with the single-minded objective of serving the interests of its legal owners, or which follows the Warfare Paradigm in its relations with its customers, or whose policies systematically disregard the legitimate interests of any of its major business partners just has to change these basic attitudes. If it fails to do this no programme in the world will ever turn it into an ethical company. Very often the problem of a firm is not that it has clearly unethical objectives or beliefs, but rather that it lives in a short of mental haze in which popular ideas on the objectives and purposes of business firms (which often fall short to a greater or lesser extent of fully adequate ethical standards) are implicitly accepted. In such firms, often the most basic step that can be taken towards improving their ethical climate is for management to articulate some ethically adequate basic beliefs and keep repeating them until everybody in the firm realises that management is serious about them. Examples of this are statements about employees being truly of the firm, about the firm's determination to truly serve its customers, etc. Whether or not it will be necessary or appropriate to draft a formal statement of beliefs is a question that will be discussed later. The point being made here is simply that until there is a shared conception of the basic purposes of the firm which is ethically sound, any progress made in improving that firm's ethical climate will be necessarily partial and precarious. Management selection2. This issue is important from two points of view. In the first place, many important decisions lie beyond the effective supervision of top management. If the people who make them are appointed without a careful consideration of their ethical standards, it will be a 1

2

For a helpful and practical overall treatment of the issue of corporate ethics programmes see HALL.

For selection in relation to ethical standards see NORTHCRAFT AND NEALE and STEAD, WORRELL AND STEAD.

249 miracle for their decisions to conform to high principles in the face of the contrary pressures to which we alluded above. Secondly, as Peter Drucker has observed, there is no truer indicator of what top management really values than the type of people they select for important assignments.3 The rest of the organization typically scrutinises carefully such choices and draw their own conclusions as to what the real management values are. There can be very few things that are so damaging to the ethical climate of an organization as the prevalence within it of a conviction that the people on the fast track are those who obtain results, never mind the means by which they manage to do so. Beyond careful selection of managers, the creation of an ethical culture also requires that careful attention be paid to the ethical standards of professional advisers such as solicitors, tax advisers, management consultants, advertising experts, and so on. The reason is that such people can have as much or more influence on the firm's decisions as do the firm's managers.4 Management communication. A management which regularly and consistently reiterates the importance of being fair to all parties concerned, will make some progress in driving this standard into the organization. Conversely, it is important never to convey the message, overtly or by implication, "bring in profits at any cost." Many large ethical disasters have occurred as a consequence of top management trying to drive an organization to attain extremely difficult targets and in the process conveying the impression that obtaining the required results was the only thing that mattered. Thus, for instance, a serious scandal regarding the multinational company Bausch & Lomb, manufacturers of Ray-Ban glasses and Optima lenses, hit the business press in 1995. The company was accused of inflating its results through misleading ing practices. It has been reported that Dan Gill, the CEO and chairman of the company, used to put heavy pressure on his division heads to post double-digit annual gains in results. Once the numbers were set he rarely accepted excuses for shortfalls; at meetings of Bausch & Lomb's top two dozen executives those who had fallen even slightly behind would be mercilessly drilled. "Make the numbers, but don't do anything stupid" was a famous Gill line, but many executives reported that in practice they read the message very differently: "I'd walk away saying, 'I'd be stupid not to make the numbers,'" said one manager.5 As Warren Bennis has commented, the CEO "may believe he's telling them not to get into trouble. But if all the verbal and nonverbal signs sent out focus on making the numbers, he's giving them license to do unethical things." 3

DRUCKER (1) ch. 31.

4

This issue is well articulated in AGUILAR.

5

Business Week October 23, 1995.

250

It is also vital to make sure that when important decisions are explained to the organization, the role that ethical considerations played in arriving at the decision is also highlighted in the explanation. What often happens is that ethical considerations have actually played a role in the decision, but that factor is discreetly kept from view. There is certainly a lot to be said for the rule "let your left hand not know what the right hand is doing" at the personal level, but its undiscerning application at the level of the whole organization may easily result in the organization learning the wrong lessons and, for instance, concluding that ethical considerations have no place in business decisions. Writers on the topic of company culture have emphasised the important role that company rituals, heroes and stories play in the development of that culture. A company in which the story is often told with iration of how a certain executive once refused a very profitable deal because it conflicted with his high ethical standards, and how eventually this led to a stunning business success because of its having been instrumental in winning the confidence of a certain important customer, is a company in which similar standards are likely to prevail, especially if the punch line of the story is that that obscure executive eventually became the CEO of the company. A good example of this is the following story that is reportedly often heard in Armstrong World Industries, an American $2 billion manufacturer of building and industrial products. When Ralph Williams, a Lancaster quality assurance manager, discovered that one of the carpets being sold by a recently acquired company was flammable, he insisted that it be recalled from the trade and that any carpets already installed be replaced without charge. The operating managers were aghast at this directive and practically refused to speak to him. When Joe Jones [Armstrong's president 1983-1987] next visited the carpet plant, he called a meeting of the whole top management and said, "I've heard what Ralph Williams has done. If anyone here doesn't agree with that kind of action, it is probably time for that person to resign."6 Well, top managers can often do something to promote folk tales and folk heroes which are congruent with the values they wish to emphasise in the company culture. Appropriate means to do this are the contents of their own speeches (as Joe Jones did), company newsletters, annual reports, etc. Similarly, it is possible to create some rituals (Christmas parties and presentations of gold watches to long serving employees are familiar examples) which also tend to foster the desired values. Example from the top. Of course, giving example is essentially a way of communicating, in a particularly vivid and credible way, the values that one holds. Still, this means of communication is 6

Quoted in AGUILAR pp. 75-6.

251 so important that it is worth emphasising it in its own right. In the end, if the CEO and the other people who occupy the highest positions in the organization are not seen to be deeply committed to ethical values, nothing much will happen, irrespective of what other efforts the organization may make. If the management of a company is seriously committed to ethical practices it can expect that the use of means like codes of conduct, statements of values or ethical training will have a degree of effectiveness. On the other hand, if management lacks such a commitment, not even the use of the most sophisticated and expensive consultants in the world is likely to ave any positive effect. Communications and example from the top are especially effective because of the tendency of human beings to adapt their behaviour to what is expected of them in a certain setting. A striking example is provided by some well-known experiments on conformity.7 In the experiments groups of volunteers were asked to say which of three lines on a card (card A below) matched the length of another line on a second card (card B below).

In fact all the but one of each group were in league with the researchers and had agreed to make incorrect judgements in about two thirds of the cases in order to put pressure on the lone member of each group who did not know what was going on. The results were revealing. A large majority of the subjects changed their correct judgements in order to agree with the judgement of all their peers. Even subjects who managed to stand their ground later confessed to serious feelings of anxiety in bucking the views of the whole group. One 7

ASCH.

252 subject who did not give in was literally dripping with perspiration by the end of the experiment. In an even more dramatic experiment which was captured in film a researcher placed a helpwanted ment and arranged for candidates to attend an interview. "[The film shows] an interviewee as he is directed to a small office in which several other persons are already seated, apparently waiting. To the experimental subject, the others appear to be fellow interviewees, but we know that they are really confederates of [the researcher]. Responding to no apparent signal, the others abruptly rise from their seats and begin taking off their clothing. We are shown a close-up of the experimental subject, his face a mask of apprehension as he surveys what is happening. A few moments , then he, too, rises from his chair and proceeds to disrobe. At no point in the process does he ask any of the others why they are removing their clothing. As the scene ends, we see him standing there, naked alongside the others, apparently waiting for some clue as to what happens next.8" The point of the above examples should not be misunderstood. We are not arguing that men and women can easily be manipulated into becoming performing fleas; far less that business organizations would be well advised in following that route. The issue is simply that we are strongly influenced by our peers and therefore it is essential that the standards of conduct prevalent in our environment, which are bound to have an influence on us, be such as help us towards fulfilment and responsible action9. Ethics training. In order to move an organization of some size to internalize certain values and to adhere to certain types of behaviour, training is usually needed, or at least very useful. This is as true of ethical standards as it is of ing standards or of an appreciation for total quality. The real problem is how to structure that training. On this issue the author feels that he can do no better than to make available to his readers the results of his experience in teaching business ethics in the Lagos Business School (LBS). LBS has had a very positive experience in incorporating ethics topics both in long executive programmes lasting between four and six weeks and in shorter seminars which last between one and five days. The reaction of executives participating in executive programmes in which as many as 11 sessions out of a total of 130 are devoted to business ethics has been quite favourable and interested. In fact it is worth noting that a frequent comment about these sessions is that they are "very practical." In the present writer's opinion it is possible to draw from this experience of LBS two conclusions which can be generalised to the training programmes organised by a company for its 8

9

FRANK pp. 155-6.

Research showing how organizational hip encourages people to behave in ways which are not necessarily consistent with individual or pre-existing norms is reported in BAUM and JACKALL.

253 own employees. The first is that in the course of their work managers often face situations that pose to them difficult ethical dilemmas and that usually they feel they lack the conceptual resources necessary to start to grapple with the issues involved. The second is that a policy of covering the ethical angle in all training programmes, rather than confining the teaching of ethics to special ethics programmes, will tend to convey most effectively the message that ethics is not an exoteric issue which is sometimes superimposed on ordinary management decisions but an inescapable dimension of every such decision. In connection with this there is another policy of LBS that has proved very useful. LBS programmes included from the beginning a strong ethics module. However, it was soon realised that when an ethical issue came up during the discussion of a case the tendency was to shunt it aside with the observation, "you will have an opportunity to discuss this point in Ethics." During faculty discussions of this issue it was agreed that this practice not only tended to reinforce the "ethics in the ghetto" image, but also missed a great opportunity of teaching ethical standards precisely in a situation where the participants in our programmes were more likely to be especially receptive to them. It is now the practice of all LBS lecturers, whatever their area of specialisation, never to evade the discussion of any ethical issue that may come up during the consideration of any other topic. Of course, this demands a special effort of training of the lecturers, but we have found that it is a most effective policy from the point of view of instilling high ethical standards in the participants in our programmes. Still, in spite of this strong policy of integrating the teaching of ethics into ordinary management programmes, and even into ordinary management sessions, we believe that there is also room for specialised programmes in business ethics. LBS in fact has conducted a good number of business ethics seminars on an in-company basis. Perhaps the following extract from the brochure which describes them can succeed in conveying the approach that LBS follows: These seminars usually last two days and are attended by the management group of a company (typically between 10 and 25 persons at a time)... As for the issues covered, the Chief Executive chooses from a wide list four specific topics on which the seminar will focus [As an example, the four topics covered in the last seminar given immediately prior to writing this were, making of questionable payments, acceptance of gifts, conflict of interests and truthfulness and confidentiality]... Then for each topic chosen a case study is discussed in the seminar... This is followed by a short lecture which discusses in a wider setting the issues raised by the case... For each topic there is also a short presentation and discussion of relevant provisions of the ethical codes of well-known companies and professional associations... Finally, a member of the Management Team of the company presents a statement of the policy of the company in respect of each issue treated and the implications of that policy are discussed with the participants. Many characteristics of training programmes in business ethics that experience has taught are essential for their success are reflected in the above quotation: embedding ethics training into a wider effort to improve the ethical culture of the company rather than presenting it on a stand alone

254 basis; placing emphasis on the priorities of the chief executive (i.e. of the person who presumably is driving that company effort) rather than on those of a consultant or teacher; subject matter featuring a combination of general principles10, case studies for discussion, and materials immediately relevant to the participant organization; and perceived involvement of higher management. No element in this mix is sacred, but it is strongly suggested that the more of them are present in a given training programme, the more impact this programme is likely to have. Making Relevant Information Available to Managers. Acting ethically demands that we factor into our decisions their effects on other people. In practice that is not going to happen if we lack information on what these effects are; conversely, merely being made aware of the consequences of our actions, not being allowed to look the other way, is in itself likely to make our decisions more responsible. As Stone has pointed out one means of increasing corporate responsibility is to expand companies' "information nets."11 Thus, for instance, a Board which wishes to promote greater responsibility by company managers in environmental matters can hardly do better than start by requesting that the company collect systematically information about the environmental impacts of its activities such as environmental impact assessments in relation to new projects and quantitative data on the emissions of main pollutants as a result of its ordinary activities. Again, a more responsible conduct of plant managers with regard to the safety of their workers can be promoted just by making sure that they receive regular statistics of accidents and injuries. Of course, it is not a question of collecting data indiscriminately about all possible matters of ethical interest. There is need to define the areas of ethical concern that are more relevant or important in a given company, and then define the essential information that can be collected in respect of them. Setting Objectives. A natural follow up to the collection of information in key areas is to use that information to define objectives and measure their attainment. Ombudsmen It has become recently fashionable, especially among large companies, to appoint a person (in some cases a committee) to whom an employee can have recourse if he has misgivings about the ethical quality of some actions he has been ordered to take or of things which are being done in the organization. Normally the ethics ombudsman will be a senior and well known person in the company, often somebody who is nearing retirement, and who will have ready access to key decision makers if he thinks he needs it. The existence of the ombudsman is supposed to create an avenue for constructive complaint 10

At LBS we tend more and more to discuss general principles very much in the context of specific practical problems. In our experience the tolerance level of the average Nigerian manager for abstract discussions of the type "teleological versus deontological approaches to ethics" is very close to zero. 11

STONE (2) ch. 18.

255 for those employees who would feel intimidated by having to challenge openly their hierarchical superiors, and for people who have already approached these superiors and whose representations have been rejected, but who still feel they have a case. In other words, the ombudsman provides employees with a chance to blow the whistle inside the organization and still be protected from open victimization by their superiors. Sceptics point out that in practice, if an investigation is carried out, the affected manager will be able to pinpoint with a high degree of confidence who is the employee who has complained to the ombudsman. Once the complainant has been identified, there are many subtle ways for the superior to retaliate if she feels like doing so. In the present writer's opinion sceptics have a valid point. If there is going to be investigation into the complaints before action is taken, as certainly there should be, in the great majority of cases the identity of the complainant will be exposed. If the advantage of confidentiality is more theoretical than real, it would seem that it will be enough for an employee who seriously objects to a company policy or to a proposed action to have access, at least in writing, to of the top management, including the chief executive. For any company which is not extremely large and in which very special circumstances do not obtain, this much more simple procedure will preserve most of the real advantages of the institution of the ombudsman and will avoid creating still one more bureaucratic structure within the organization. Compliance reviews. Whenever a company launches a formal ethics programme, especially if it contains an ethical code as part of it, it will undoubtedly be useful to specify a review procedure to monitor how far the code is being implemented and to determine from time to time whether changes should be introduced in the original design. Some suggestions for such reviews are made below in the context of our discussion of ethical codes. But we are not recommending here anything as formal or structured as an "ethics programme." We are just listing a number of possible means for influencing a company's ethical climate. Therefore we will content ourselves with making the point that new measures introduced in a company will eventually be forgotten in the absence of some steps designed to follow up on them. Accordingly, if efforts to improve the ethical quality of decisions in an organization are not going to eventually wind down and leave no trace there will be need for undertaking special efforts in order to monitor the ethical standards of the organization and the degree to which steps already taken have been effective in order to orientate new efforts. But how formal or informal these monitoring efforts should be will depend much on the circumstances of the case. A simple and practical measure that can be adopted in order to create a mechanism for regular monitoring of adherence to legal and ethical standards is to appoint a non-executive director with specific responsibility for that issue which carries out regular audits12. Such director could be helped in his or her task by staff seconded temporarily from other departments, by a small staff of its own, or by outside consultants. 12

On permanent board-level committees see PURCELL AND WEBER.

256

Another way of making sure of compliance with ethical standards is to include them among the ordinary criteria for assessment. An example is the performance evaluation form for managers of Texas Instruments. Under the performance factor Motivation/Direction evaluators find the phrase "Insists on the highest standards of ethical behaviour." And the definition for the factor Judgement and Decision-Making contains the words "Makes decisions and takes actions based on the highest legal and ethical standards." Use of consultants. Whether a company will need to use outside consultants, or even whether it will be likely to benefit from their use, will also depend on a host of contingent factors, not least of which is the quality of consultancy services in the area of business ethics which are available to the company within a reasonable distance. In this respect the situation in the U.S.A. is not exactly comparable to that prevailing in Nigeria. Other important factors are the availability inside the company of people with a sophisticated understanding of business ethics and of the mechanisms through which ethical standards can be fostered in an organization, and the specific steps that a given company wishes to take. In the great majority of cases a company which wishes to undertake a serious training effort or draft an ethics code will benefit from using a competent outside consultant, at least to complement its own in-house efforts. III. ETHICAL CODES13 A survey carried out in 1987 in the U.S.A. among 300 major companies showed that over 75% of them had adopted written codes of conduct.14 Another study in 1990 reported comparable results.15 A study conducted among major U.K. companies in 1988 reported that 42% of the large British companies studied had installed corporate codes of ethics.16 There is no specific data about the percentage of smaller companies which have ethical codes but all observers are unanimous in estimating that they constitute a much smaller fraction. This confirms the point made above that ethical codes are probably less useful for smaller companies in which ethical standards can be set and ethical doubts can be cleared up by informal means. It is the larger companies that need formal means such as ethical codes. A survey carried out by the author in Nigeria showed that while most subsidiaries of 13

There is a very large literature on codes. See, for instance, INSTITUTE OF BUSINESS ETHICS, BOWIE (on industry-wide codes) and MANLEY. 14

"Survey Examines Corporate Ethics Policies." Journal of ancy (February 1988).

15

MATTHEWS.

16

SCHLEGELMILCH AND HOUSTON.

257 multinational companies operated their parent organizations' codes, only a small minority of indigenous companies had adopted ethical codes17. What is the point of having an ethical code? Basically a properly drafted code can do three jobs: drive ethical values into the organization's culture, provide ethical guidance to managers who face ethical dilemmas, and legitimise the use of sanctions for unethical behaviour. Influence On the Company's Culture. The need for having formalised means of instilling ethical values in large companies is well illustrated by the following statement of the vicepresident of a company which had been convicted for widespread violations of laws against price-fixing in the U.S.A.:18 When we were small enough and in a stable environment, people all knew each other by first names. We could communicate informally, and we were successful in moulding behaviour through modelling. People could resolve grey areas of decision making by reflecting on how their superiors would handle such an issue. But, with our very explosive growth of the last decade and a half, this old approach has become problematic. Can we still communicate corporate standards to a lot of people in the same way we communicated to a few? A written statement has a key advantage over personal example; it is there, and it has the same content when it is read by the top level manager and by the last employee. It is not liable to be modified and distorted as it travels down the corporate ladder. On the other hand, however, nice words by themselves are not enough to influence a company's culture. Words and behaviour must have a high correlation to be effective. Often the lack of effect of an ethical code can be attributed to the simple fact that the employees of the company have realised that top management do not take it seriously and regard it as a mere public relations ploy. But if top level executives are seen to take the code seriously, live by it and enforce it, then it is likely that lower level employees will internalise the standards spoused in the code and this will become a living reflection and modeller of the corporate culture. Ethical Guidance. Often employees fail to act ethically simply because they are not clear in their own minds over what ethics demands of them in a given situation. For these problems there is a simple remedy. While it is impossible to tell people in advance what is best to do in each of the million different situations with which they may be faced, there is nothing particularly difficult about specifying a number of things that must never be done. Thus, it can be an extremely difficult moral question to decide whether in all the circumstances of a given case one should reject a gift worth= N 2,000 even at the risk of offending an important customer. But if there is an ethical code in force in one's company which prescribes never 17

In fact the number of firms which had done so was less than ten in a sample of almost two hundred companies. 18

SONNENFELD AND LAWRENCE.

258 to accept any gift of a value over= N 1,000, the rule provides specific guidance and can be applied even by a very junior employee. Prerequisite for Application of Sanctions. If an employee is discovered to have stolen= N 2,000,000 no complex problem arises. He is handed over to the police and dismissed. His action is so clearly wrong that even if no penalty had been specified in advance for it nobody -including the wrongdoer himself- will be surprised that the most serious penalty is applied. However not all wrongdoing in a business context is so clear-cut. There are many situations which contain elements of ambiguity in which employees could plausibly claim that they did not know that what they were doing was wrong. In these situations the wrongdoer himself and other employees could complain that both the decision to impose a penalty and the fact that a given penalty rather than a lower one is imposed contain elements of arbitrariness. On the other hand, if no penalty is imposed management could appear to be condoning wrong behaviour. The best way of avoiding this type of problems is to specify clearly in advance both the actions which management will not tolerate and the penalties which will be imposed in case of breach. Types Of Codes. In deciding what type of code to have a company's management has to decide whether the code should be general or specific. This issue can best be explained through examples. Imagine a situation in which a purchasing manager has been sent an expensive gift by a customer. He has now to decide what to do. Compare the three following provisions taken from three different company ethical codes. Company A: Shareholders, employees, customers and suppliers all are people who live within a society. To provide for the interests of all these groups [company A] is obligated to preserve that which it considers good for society, and to take the necessary steps, including the commitment of corporate resources, to improve it when practical. Company B: The Group companies are required to pursue policies which exclude corrupt practices with regard to the giving or receiving of gifts or benefits and to prohibit the use of funds or assets of the Group for unlawful or improper purposes. It is expected that the standards set by a group company should be such that neither the Group's overall integrity nor its local reputation would be damaged if full details of the business practice in question became a matter of public disclosure Company C: It is an offence to accept or solicit any such gift or consideration from anyone as an inducement or reward for showing favour in connection with the company's business. To avoid any possibility of misunderstanding, all such offers should be politely but firmly declined. Gifts delivered should be returned to the sender with an appropriately worded letter and the matter reported to your superior. The only exception is that gifts of a trifling nature such as calendars or diaries may be accepted. It is clear that the rule of company A is so general that it almost fails to provide any

259 guidance. That of company C is the most specific (which is not to say that, as it stands, it is perfect). What is preferable, generality or concrete solutions? In so far as an important purpose of ethical codes is to provide guidance to people and to specify actions to which penalties will be attached, the present writer is very much in favour of being as specific as possible. Some people will object that by being specific a company may be committing itself in advance to a course of action which in certain special circumstances might not be appropriate. For instance, the policy of company C may perhaps work very well in the U.K., but is it not likely to cause serious problems if the company's employees try to apply it blindly in a country like Nigeria? In the present writer's view there are two different issues here that have to be kept separate. If a company believes that its employees need guidance in ethical matters and in order to provide it prepares an ethical code, then the code actually has to provide guidance, which means that the company has to commit itself and be specific. If the company believes that the best solution is to give discretion to the person on the spot then the best way to achieve this is not by having an ambiguous code, but rather by not having a code at all. As for the problem of how to provide for unforeseen exceptional cases, a better solution than drafting the code in so general that it becomes meaningless is to adopt the following two policies: a) Review the code regularly in the light of experience; in some cases it may be found appropriate to have different policies in different areas (e.g. one for the U.K. and another for Nigeria) b) Have a provision to the effect that in case of need any employee of a minimum specified rank has the power to approve a departure from the code provided that the fact that this has been done and the reasons for doing so are immediately communicated to top management. Matters the Code Should Regulate. The specific issues which are important and need detailed regulation vary from company to company. Still, the following list can be useful as a reminder of problems with which many companies have to deal: - Accepting gifts - Giving gifts and making payments to employees of customer companies or of government departments - Contributions to political parties - Compliance with the law -Conflict of interest issues -Insider trading -Employee privacy -Acquisition of competitors' confidential information -Price fixing and co-operation with competitors generally -Good faith in negotiations -Employee safety

260 -Security of employment -Environmental harm -Product safety -Other standards related to products -Moral standards in advertising -Standards of truthfulness in dealing with the company's various constituencies -Confidential information -Transparency and accuracy of s and financial reports -Price discrimination and other price issues -Hospitality -Discrimination on the basis of sex, race, religion, tribe, etc. -Sexual harassment -Investments -Competitive conduct -Relationships with suppliers -Interdivision pricing The above does not pretend to be a comprehensive list. However, it seems clear that to attempt to provide precise guidelines on all the above issues would be a formidable undertaking. In practice many companies would probably be well advised to choose half a dozen issues which are of greater importance to them and strive to produce regulations for them. Later on the code can be completed as experience is gained. This is in all probability a better option than trying to produce so comprehensive a code that in practice the task is never accomplished satisfactorily and the code is never made public. Drafting the Code. There is a basic rule in preparing an ethical code for a company: the person or group who have real power in the company have to agree with the provisions of the code and be committed to their implementation. If this is not the case the whole exercise will be a waste of time. It will usually be useful to involve a relatively large number of managers and/or employees in the drafting of the code. The exercise in itself has educational value as it forces those who participate in it to think deeply about the mission and identity of the company and the values that are especially important to it, as well as about their duties as a group and as individuals towards the main stakeholders of the firm. Generally speaking it is also true that the more the employees of the company are involved in the drafting of the code the greater their commitment to it will be. In case of conflict, however, those who hold ultimate power in a company should give preference to the code prescribing what they believe is right rather than what is acceptable to a majority of employees. It will often be found that a competent consultant can be very useful in helping to draw a code as consultants will usually have the time and the specialised knowledge which are necessary to provide a focus for the whole exercise. It is essential, however, that the whole matter be not left to the consultant or to some especially enthusiastic manager or member of the board. The code will ultimately be useful only if it becomes a day-to-day management tool and this will only happen if

261 the people who have real power in the company are committed to it. To this end it is essential that they be actively involved in its preparation and that in the end the code reflect their views rather than those of anybody else. If the above caveats are understood, probably the more useful arrangement in many cases will be to appoint a special task force to seek the views of a large cross section of employees and draft the code. An outside consultant can be attached to the task force. At least one or two of top management should be of it. Code Implementation. Writing an ethical code is not an end in itself. It is a means to the end of getting everybody in the company to take decisions in accordance with higher ethical standards. But in order to achieve this objective writing up a code is not enough. Once the code has been completed a number of follow up actions are necessary if the code is to become a real day-today management tool. The main ones are the following: Communication of the Code. Two different things have to be communicated to all employees of the company. The first is the contents of the code. This can be done by distributing printed copies of it, conducting orientation programmes so that people will become aware of its concrete implications, including sessions on the code in the company training programmes, featuring it in the booklet given to new employees, etc. A common practice that is useful is to request every employee to sign a statement to the effect that he or she has been provided with a copy of the code and that it has been read and understood. But, even more importantly, management has also to communicate the fact that it attaches great importance to the code. It is essential to understand that many employees are likely to view the introduction of an ethical code with a good deal of cynicism and that overcoming this attitude demands very clear gestures and a consistent commitment to it. In this respect it may be useful to make frequent references to the code in speeches by of top management, in the company annual report, in the company magazine, etc. Ethical Committee. If the provisions of the code are truly to be implemented there is need for a company organ which will monitor the way in which it is applied; report regularly on this to top management and the board; ister sanctions whenever necessary; interpret, refine and change the code as new circumstances and experience demand; and provide a channel of appeal for employees who believe that the company or some of its managers are breaching sound ethical norms. For this purpose it is useful to set up an ethical committee. Sanctions. This issue is crucial. If the code is to be implemented it must have teeth. If punishments for not complying with the code are not spelled out compliance will be low and management will be perceived as not being serious about the whole issue. The Conference Board study cited above indicated that 58% of the companies surveyed specified punishments for actions contrary to the code. Usual penalties include dismissal, suspension, demotion, probation, and filing of negative comments.

262 We may conclude this brief consideration of the issue of ethical codes by remarking that in order to obtain consistent ethical decision making in an organization it is not enough to have good desires. It is not enough either to preach about ethics from time to time. Quantitative objectives such as those on sales, costs or profits exert a constant pressure on every employee and when the attainment of these objectives conflicts with ethical considerations it is only too likely that ethics will take second place. Drafting and istering an ethical code constitutes an attempt to institutionalise countervailing pressures which at least will ensure that certain minimum ethical standards are observed at all times. IV. A FIRM'S DECISIONS SHAPE ITS CULTURE Many books on business ethics when discussing the steps a company can take to develop an ethical culture stress issues like the one we have been treating in this chapter. This is a serious mistake. In developing an ethical character all the above means are useful but secondary. The character of a decision maker, whether an individual or a group, is primarily shaped by the decisions and choices of the decision maker19. This point is extremely important: it is impossible to live our lives -individual or corporate-in one channel, while in the other we take some special measures to guarantee that we become ethical; we become ethical or unethical in the very process of living our lives. In a similar way as happens with individuals, group ethical or unethical actions are not isolated events; they always shape the future. In the case of an individual they shape his values and character. In the case of a group they shape its culture. Much has been written in the last years on how different companies develop different cultures20. A company's culture is usually understood to include the complex of common beliefs, values, norms, attitudes and behaviours that the employees of that company have come to share to a greater or smaller extent. Much remains to be understood about the very complex process of development of the culture of a company, but for our purposes it is enough to remark that corporate choices to pursue an objective rather than another, to behave in this way rather than that, to respect a certain moral norm rather than override it, all tend to shape to a larger or smaller extent the values and attitudes that are predominant in that company. In so far as a given choice has more impact and is more visible, it will logically tend to have a greater impact on the company's culture, but every action, however small, has some impact. Let us think, for instance, of a company which is facing difficult market conditions and 19

The clasic statement of this thesis is ARISTOTLE Bk II, ch. 1, 1103a: "...but the virtues we get by first exercising them, as also happens in the case of the arts as well. For the things we have to learn before we can do them, we learn by doing them, e.g. men become builders by building and lyre-players by playing the lyre; so too we become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts." See also GRISEZ AND SHAW p. 30. GRISEZ (2) pp. 53, 56-8. 20

On corporate culture see O'REILLY and HAMPDEN-TURNER.

263 whose management fears that, if drastic action is not taken in cutting costs, there will be a reduction in the reported profits of the company. Let us assume also that in the process of cutting costs management decides to dismiss a group of employees. Let us also assume that the decision taken by management was unfair in the light of all the circumstances of the case, that is to say, that it reflected an insufficient concern with the effects of the decision on those dismissed and failed to show them the loyalty that managers had regularly requested from all the workers of the company.21 If this were actually the case, the company would not be the same after that decision had been taken. The management group of that company, as such a group, would now be changed. From now on, as we saw in the first chapter, the managers who took part in that decision and approved it will be inclined to give less importance in their decisions to preserving a fair order of relationships in the company, giving to each his due, respecting the interests of all concerned, etc. But also the group as such will have the same tendency. A certain policy and a certain order of priority among objectives have been endorsed, if only implicitly, as constituting a valid standard of decision in that company and until that endorsement is withdrawn by making a contrary decision, it will remain there. It is also relevant to note that making a contrary decision will not be easy; it certainly will be less easy than it would have been not to make the original decision in the first place. When a similar problem presents itself there will be a tendency to apply the established precedent. If somebody now wishes to apply a different policy the spoken or unspoken question will be, if the situations are similar, why should we apply different rules? And if the situations are really similar in the relevant respects, the only valid answer to that question will be to acknowledge that a mistake was made in the previous occasion. Doing this, of course, is possible...but not easy. Groups do not find it easier than individuals to acknowledge that they made a mistake; in fact they find it more difficult. The practical point of this is very simple, but powerful. The main thing that a manager who wants her company to develop an ethical culture has to do is to try to ensure that all the decisions of the company in which she has any influence are ethical.

V. SUMMARY The main means available to a firm's management to influence that firm's ethical climate include careful selection of managers and consultants; the frequent communication to the firm's of the importance of preserving and nurturing high ethical standards; repeated and consistent example from the top; programmes of training in business ethics; appointment of company ombudsmen; carrying out compliance reviews; use of consultants in appropriate cases; and the preparation of a company credo or an ethical code. 21

It is not our intention at this point to try and summary judgement on the very complex issue of under what conditions a dismissal is justified. The brief description of the situation given in the text does not begin to provide any of the details that would be necessary to know in order to that judgement.

264 Generally speaking ethical codes should be as specific as possible. For most companies it is likely that the best option is to choose half a dozen issues which are of greater importance to the firm and strive to produce regulations for them. Later on the code can be completed as experience is gained. The essential rule in the preparation of a code is that the person or group who have real power in the company agree with its provisions and be really committed to its implementation. For implementation purposes there should be a company organ which will monitor the way in which the code is applied; sanctions should be provided in the code and applied in case of non-compliance. It is especially important to keep in mind, however, that while the above means of instilling ethical standards in organizations are certainly useful, the essential way by which organizations, like individuals, develop an ethical character is through the day to day process of making ethical decisions. Corporate choices to pursue an objective rather than another, to behave in this way rather than that, to respect a certain moral norm rather than override it, all tend to shape to a larger or smaller extent the values and attitudes that are predominant in a company. Accordingly, the most important means of developing an ethical culture in a company is to ensure that each of its day to day decisions is an ethical decision which tries to take into the legitimate interests of all the parties concerned.

265

PART III

RESPONSIBILITIES OF THE INDIVIDUAL MANAGER

CHAPTER 11.- FIDUCIARY RESPONSIBILITIES OF MANAGERS I. INTRODUCTION The second part of this book discussed the ethical responsibilities of the firm as such. In this third part we will examine the responsibilities of the individual manager. Business executives have many ethical responsibilities that are not especially related to their role as managers, but which simply derive from the fact that they are human beings and have similar opportunities to anybody else to affect through their actions their own fulfilment and that of others. It is unethical for managers, as it is for non-managers, to engage in detraction or calumny, tell lies, steal or breach promises. As this is not a book on general ethics we will not discuss further these general ethical norms; we simply will take them for granted. The ethical responsibilities of the firms for which they work generate responsibilities for business executives. In the most simple case, when a manager has full authority to decide on behalf of his or her firm, then the manager's personal responsibility is simply to make the decision that will discharge best the responsibilities of his or her firm. In such cases the responsibilities of the firm translate directly into responsibilities of the individual who decides on behalf of the firm. It is unfortunately common for a firm to make decisions which are unethical. What is the ethical duty of the individual manager who would wish to do what is right but who has no power to alter the decision of the firm? It is common for managers who find themselves in such a position to claim that they are only implementing other people's decisions, that they have no power to alter them, and that they have no responsibility for whatever the firm as such may have decided to do. Such arguments are obviously self-serving. Individual managers can actually have many valid reasons not to wish to risk their jobs by refusing to carry out the instructions of the firm's top management. Such are, for instance, the managers' responsibilities towards their families, and the desire to continue exercising whatever positive influence they still have in the firm. But such reasons do not provide a blank justification for contributing to implement whatever policies the top management of the firm decides upon. Certainly it is never right to put on hold one's conscience; in practice much will depend on the specific policies under consideration and the degree of personal involvement in unethical actions required of the individual manager. The most useful general framework for analyzing such problems is provided by the Principle of Co-Operation in Immorality, discussed in Chapter 3.IX. Besides their general responsibilities as human beings, and the personal responsibilities that are linked to responsibilities of the firms for which they work, managers also have personal professional responsibilities. Some of the most important ones derive from the fact that they occupy a fiduciary position. We will discuss them in this chapter. In the following chapter we will discuss other duties that, although similar to those of many other people, have special modalities in the case

270 of managers because of their special position in society. We will also discuss in that chapter the special problems that result from the fact that managers have to satisfy simultaneously the demands of several roles. Specifically, we will consider the issue of the harmonisation of the manager's responsibility to his firm with his responsibilities to his family and society.

II. FIDUCIARY RELATIONSHIPS The concept of fiduciary relationships has been discussed already in Chapter 3.VII. The central cases of fiduciary relationships occur when all the following elements are present: a) somebody has been entrusted with powers, opportunities or assets; b)these powers, opportunities or assets have not been given to him for his own advantage but for the benefit of others; and c) it is especially difficult to ascertain how conscientiously those responsibilities have been discharged. An example is that of the trustee who is given property to ister for the benefit of a beneficiary. Another is that of a Government Minister who is given a large number of discretionary powers which he is supposed to exercise, not on the basis of what is most beneficial to himself, but according to the demands of the common good. Very often the reason why it is especially difficult to ascertain how faithfully fiduciaries have discharged their duties is the fact that, precisely in order to carry out those duties effectively, it is necessary that fiduciaries be given large measure of discretion. Thus, for example, if I tell an employee to go and buy 10 gizmos in a certain shop for a certain price, there will be little scope for him to defraud me. But if I hire a high-powered manager to run a large business for me I will not be able to give her such detailed instructions. One of the main, if not the main, contributions I expect from her is precisely to decide what is the best way of advancing the interests of the business. Of course, when a person is placed in such a position, precisely because it is difficult to ascertain how conscientiously she has carried out her duties, it will be especially easy for her to subordinate the interests of the beneficiary to her own. It goes without saying that people would not be placed in such positions without an undertaking that they will not use them to further their own interests at the cost of their principals1. Such undertakings will very often be given explicitly, but even when this is not the case they can be implied from the circumstances of the relationship and, as a matter of fact, the law does not hesitate to do so. Once such an undertaking exists it is an elementary duty of fairness to keep it. In the rest of this chapter we will discuss more specifically the most important classes of fiduciary duties. It should be appreciated, however, that one's fiduciary responsibilities cannot be neatly enumerated. It is above all a question of realising that by accepting a position of trust one undertakes to act in a trustworthy manner, especially when one's own interest comes into conflict in any way with the responsibilities of one's position. 1

A standard definition of fiduciary relationships makes this point clear: "A fiduciary relationship exists whenever any person acquires a power of any type on condition that he also receive with it a duty to utilize that power in the best interests of another, and the recipient...uses that power" (SHEPHERD p. 35).

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This can happen in very many different ways. A common situation, for instance, is that of executives whose bonuses depend on their performance. There is here an obvious temptation to try and misrepresent one's performance in order to make it appear that one has obtained better results than is actually the case, even if this may cause a harm to one's firm. An example, for instance, is the manager who, towards the end of the ing period, ships goods even before customers have ordered them and books the shipments as sales, in order to increase his sales figures. Another is the manager who extends unusually generous credit to distributors in exchange for big immediate orders; such tactics may be very costly for the firm but will tend to increase the manager's bonus. The attitude that such examples illustrate is one unfortunately only too prevalent: the manager who in the words of John P. Kotter "[spends her] time trying to figure out what kind of game to play to make the numbers, not how to satisfy the customer or save money."2 The more general point is that whenever a manager makes in her official capacity decisions whose primary purpose is to advance her own interests rather than the interests of her firm, she will be breaching her fiduciary duties. III. CONFLICTS OF INTEREST Perhaps a simple example will be of help in clarifying the concept of conflict of interest.3 The Services Manager of a bank has to sell a one-year old Peugeot 505 car which is no longer needed by the bank. Part of his responsibility in this task is deciding the price that the bank will accept for the car. As he needs a vehicle he decides to buy himself, in his personal capacity, the car that the bank is selling. In this situation there is clearly a conflict between the responsibility of the manager in his capacity as Services Manager of the bank (i.e., to get the highest price reasonably obtainable for the car), and his personal interest (to buy the car at the cheapest possible price). While most of the situations which arise in real life are not as helpfully obvious as the example just considered, it is the presence of the conflict between personal interest and official responsibility which creates the ethical problem that is referred to as a conflict of interest. A person placed in such a situation could take advantage of it to obtain a car at a much lower price than would obtain in an arms-length situation. Very few people are likely to entertain doubts about the ethical quality of such an action; it constitutes a clear-cut case of abuse of fiduciary powers and a close equivalent to a situation of outright theft. However, the mere fact that the manager finds himself in such a position already places him 2

Quoted in Business Week, October 23, 1995.

3

MARGOLIS, BOATRIGHT and CARSON are good discussions of conflicts of interest.

272 in a situation of potential conflict of interest, even if in fact he were to bend over backwards in order to avoid taking advantage of the situation and paid above the market value of the car. As we will see, there are strong reasons to avoid being placed in such situations of potential conflict. Conflicts of interest can appear in many guises. Think, for instance, of the following situations, all of which are relatively common in the Nigerian environment: a) A chief executive owns a dwelling house and he rents it to the company which he manages, to be used for the accommodation of senior staff of the company In this scenario the element of conflict of interest could be obvious. This would happen if the chief executive himself were to determine the rent which is payable to himself. Although in a slightly less obvious form an element of conflict of interest would also occur if the chief executive were to influence the decisions of the person who has to decide whether or not to rent the house and the rent to pay for it. The chief executive could do this either through direct instructions or through indirect suggestions. He could issue the latter, for instance, by making some general comments about how well his house fits the needs of the company, or about how much more valuable it is than other houses that outwardly look like it. Even if the chief executive does not open his mouth nor makes any gesture, there will still remain an element of conflict of interest which is built into the situation itself. The person who has to make the decision about renting the house is dependent on the favour of the chief executive. Therefore he is in a position of conflict between his personal interest to advance his career by remaining in the good books of the chief executive and his duty to the company to make optimal decisions on which house to rent and on what . b) A variant of the situation just discussed obtains whenever it is one or more of the directors of the company who rent their houses to the company, rather than the chief executive. Once again the element of conflict of interest is there. It will be obviously present if the directors take steps to ensure that the company rents their houses, such as sending a "please assist" note to the relevant official in the company or arguing in favour of the decision to rent the houses, and voting in favour of it, in the board meeting in which the matter is considered. But again, even if the directors concerned scrupulously refrained from taking any steps capable of influencing the final decision on the issue, and disqualified themselves from talking and voting when the decision came up for adoption or ratification in a board meeting, the element of conflict of interest would still remain, for it is embedded in the situation itself, as was the case in the example of the chief executive. Officers of the company are dependent on the favour of company directors; the chief executive himself will have an interest in preserving good relations with the directors of the company (among many other reasons, the directors usually determine the remuneration of the chief executive); other directors will at least be interested in preserving amicable

273 relations in the boardroom, and perhaps will be also mindful of the potential rewards to themselves attendant on a policy of "I scratch your back, you scratch my back." It may be useful to emphasise at this point that we are not asserting that it is necessarily wrong for directors to rent their own houses to the companies in which they are officers. All we have stated up to this point is that such an arrangement contains elements of conflict of interest, and that one has always good reasons to avoid such situations. Whether or not such reasons should necessarily be conclusive is a matter that will be considered later. Our concern at this stage of the argument is merely to identify common situations of conflict of interest. c) A relative of the chief executive, a director, or a manager of a bank, or a company in which any of them has an interest, obtains a loan from the bank. Essentially, this situation is similar to those already considered. The very serious effect that such practices have had on the solvency of many banks which eventually became "distressed" is familiar enough to require commentary. The point of saying this is to emphasise that conflict of interest issues do not constitute an obscure academic topic. How these problems are tackled in a given company is likely to have a very direct influence on that company's success or failure. d) A partner in a real estate firm learns that a client is looking for a certain type of house. Acting in her own name, rather than in that of the firm, and working during her free time, she locates an appropriate house, introduces it to the client and eventually receives the customary commission. The conflict of interest in this situation derives from the fact that the partner is now competing against her own firm. From now on each new business opportunity which comes to her attention will place her again in a position of conflict of interest. There will be conflict between her fiduciary duty to foster to the best of her ability the interests of the firm, and her personal interest to foster her own business. The only way open to her to avoid radically this type of conflict would be to have a clear-cut rule never to carry out personally business in the same field of activity as her firm.4 e) A credit manager in a bank receives a nice watch as a Christmas present from a businessman who has obtained credit from the bank. The element of conflict of interest in this situation derives from the fact that now the credit manager owes gratitude to the bank client. When next the policy of the bank towards this client comes up for revision there will be a conflict between the personal gratitude the credit manager is likely to feel towards him (not to mention his expectation of future gifts) and her duty to protect the interests of the bank even if this results in financial embarrassment for this client. It should again be emphasised that at this point we are not trying to determine whether it is 4

On the issue of corporate opportunities see BRUDNEY AND CLARK.

274 right or wrong, all things considered, for credit officers to accept relatively small gifts from bank debtors. This issue will be considered more specifically in the next section. All that concerns us here is that an element of conflict of interest is inherent in such a situation. Whether the conflict is serious enough to matter, and whether there could be reasons which, all things considered, make it advisable to accept the gift in spite of the presence of the conflict of interest, are not questions for present consideration. f) A departmental head in an insurance company has his sister working under him in his department. In this situation the element of conflict of interest will arise whenever an appraisal has to be prepared; decisions on discipline, compensation or promotion have to be made; and burdens or advantages have to be distributed among the staff. In all such cases the duty of impartiality of the manager will conflict with his natural attachment to his sister. g) Husband and wife work in the same bank although they are in different departments. The husband is a general manager while his wife is an assistant general manager. The element of conflict arises in this scenario in an indirect manner. Whenever the manager of the wife, who presumably will be a general manager, has to make a decision about her, there may be present in his mind the thought of how that decision is likely to affect his relationship with her husband, who is also his colleague. h) Many of the owners of the petrol stations which sell the products distributed by an oil marketing company are close relations of employees of the company. In some cases the retail outlets are owned by employees. The best way to visualise the conflict that may arise here is to think of one of those periods in which there is shortage of petroleum products and all the petrol station operators are clamouring for them. At this point the oil marketing company managers who have to decide the order in which these requests have to be satisfied will experience a sharp conflict between their natural inclination to give preference to satisfying the demands of those of their colleagues who own, or are closely related to those who own, retail outlets, and allocating the existing products according to the dictates of company policy (e.g., allocating products in a fair manner among all retailers) i) Mr. A is a director of two different construction companies A person in this position will find himself in many potential conflict situations. A clear example is the conflict he is bound to experience between his duty to company X to preserve the confidentiality of all information of potential benefit to competitors which he acquires when attending X board meetings, and his logical inclination and interest to contribute to the best of his ability to the deliberations of the board of company Y. Ethical Norms Applicable in Conflict of Interest Situations

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When it is a question of obtaining a personal benefit at the cost of the company in a situation of conflict of interest, the ethical issue is clear. In agreeing to work for a company a manager has implicitly, and often enough also explicitly, undertaken to dedicate her best efforts to advancing the interest of the company. It is on that basis that the company gives the manager certain powers of decision and the ability to commit the company in certain areas. If the manager now turns and uses such powers for her own benefit and at the cost of the company, she will be defrauding the company as clearly as if she were taking money from the till. It is perhaps worth dotting the i's and crossing the t's at this point, in order to forestall a possible confusion. There is nothing wrong in itself with somebody advancing his own interests and increasing his earnings through his professional work. In fact it is obvious that a very important reason why many of us enter into employment agreements is precisely to do so. If at the stage of negotiating such agreements one bargains hard and tries to secure as many advantages as possible for oneself, again there is nothing necessarily wrong in this, for so long as in doing so one acts fairly and keeps in mind the legitimate interests of others. The element of ethical wrongfulness comes in when one tries to supplement such legitimate, above-board earnings by means of exercising in one's favour and to the company's detriment powers of decision that were entrusted to one in the understanding and expectation that they would be used for protecting and advancing the interests of the company. In some occasions the situation can get a little confused by the fact that one's superiors, or at least some of them, may know what one is doing and condone it. It can happen for instance, and often enough it has actually happened, that a bank manager is giving loans to close relations or to companies which he controls, with poor security and even poorer prospects of repayment, and the chief executive of the bank and some or even all the directors know what is happening and let it go with a wink and a nod, probably because they are themselves busily engaged in similar activities. Does this justify the manager in his actions? Perhaps this question can best be answered with another question. Will I be justified in robbing A if B, who perhaps is also robbing him, condones it? The question answers itself. If A himself allows me to "rob" him, and this consent is given freely and with full knowledge of all the attendant circumstances, then ipso facto what I am doing stops being "robbery," but it would be a strange situation that in which B had the power to allow me to steal from A. Similar principles operate in the example of bank loans we are considering. The main victims of the practice will be the bank's shareholders, whose investment in the bank is dilapidated by such loans, and therefore they would have to give their consent to them for the loans to be ethically sound. That other managers and directors, who at most will only own a fraction of the shares in the bank, consent to the practice is irrelevant as they are not the main victims of it. If we turn now our minds to the issue of a manager placing herself in a situation of conflict of interest, but with no intention of using that opportunity to defraud the company, the main point to make is that, as we already indicated above, there are very strong reasons which make it advisable to

276 do everything possible to avoid placing oneself in such situation. In the first place, managers who place themselves in such a position will be eroding their ability to lead and inspire their subordinates. Leadership demands that the leader's subordinates trust both the leader's competence and her integrity5. Now, the fact is that situations of potential conflict of interest tend to erode trust in the person at the centre of the conflict. Think for instance of example a) above, in which a chief executive rented his own house to his company. Let us even assume that he did so in conditions more favourable than the company could have obtained in the open market. Still, human nature being what it is, many company employees who learn of the arrangement will take it for granted that the chief executive is taking advantage of the agreement to benefit unduly at the expense of the company. The old saying that "Cesar's wife must be above suspicion" applies here with full force. A second reason that militates strongly against placing oneself in situations of potential conflict of interest is that it is simply impossible to guarantee that one's judgement will remain unbiased once one's own interest is at stake. Who would be willing to be tried by a judge with whom one had had a strong quarrel the preceding week, even if one were convinced that he would avoid taking consciously advantage of the opportunity to settle scores? One would still fear, reasonably enough, that he would listen with less sympathy to one's arguments, that he would be less inclined to give one the benefit of the doubt, that less allowances would be made for common human weaknesses, and so on. Well, the same reasons that make it advisable to avoid being tried by somebody with whom one has had a quarrel recently, also recommend that the price of a car (as in the example with which we opened this section) not be fixed unilaterally by the buyer. In many cases an additional reason to avoid placing oneself in positions of conflict of interest is that they unfairly put those subordinates who are caught in the middle in a very difficult situation. Consider, for instance, a famous case in which the son of the chief executive of an oil company got involved in selling several ships to that company. The chief executive circulated an internal memo emphasising that dealings with his son's company were to be businesslike, without any regard to the family connection. Kenneth Goodpaster, a well-known professor of business ethics, at the time in the Harvard Business School, commented that it is naive to think it sufficient merely to tell employees to ignore the fact that they are dealing with the boss' son. It is "like telling them not to think about an elephant," he said.6 The fact is that, as we observed above, such a subordinate is placed by his own boss in a situation of conflict between his responsibility to defend to the best of his ability the interests of the company, and his own interest in not jeopardising his relations with his superior. These three reasons are very weighty and they explain the evident world-wide trend during the last fifteen or twenty years for the business community to hold managers to always more 5

6

On leadership and trust see KOUZES AND POZNER and GREENLEAF. Quoted in SHAW AND BARRY p. 388.

277 demanding standards in issues of conflict of interest. It cannot be concluded from such reasons, however, that there exists an absolute ethical norm which makes it wrong in all cases and irrespective of the circumstances of the case for managers to place themselves in positions of conflict of interest. The reason for this is that there can still be occasions in which, acting in the best interests of his company, a manager may not have a practicable alternative to accepting a situation of potential conflict of interest. Think, for instance, of a case in which X Ltd uses a raw material which is produced in Nigeria by Y Ltd only. Let us now assume that the wife of the managing director of X Ltd is a main owner of Y Ltd. The only alternative to X Ltd. buying that raw material from Y Ltd. is to import it from another country at a significantly larger cost. In such a case it would seem that, in spite of the strong reasons which militate against the managing director of X Ltd. placing himself in a position of conflict of interest - reasons which are true and weighty enough -, still, all things considered, it would be justified and consistent with the highest ethical standards for him to decide to buy the raw material in question from Y Ltd. Nevertheless, as the problems caused by the potential conflict of interest are quite real, it would still be prudent for the managing director of X Ltd to take measures to minimise the possible conflict. Two such measures would be to disclose to other directors and executives the situation of conflict of interest, and to disqualify himself from participating in decisions having to do with commercial relations between companies X and Y. It is important, however, to realise that these measures are only ways of limiting the damage, and that the basic problems remain. Other executives who have to make decisions in respect of Y Ltd will still find themselves in a difficult position, the objectivity of such employees and of the managing director himself in respect of such decisions cannot be guaranteed, and employees of company X will still be inclined to suspect that the managing director is favouring his wife at the cost of the company. Because of this one can be satisfied with such measures only when special circumstances make it impossible to avoid entirely the situation of conflict of interest. When this latter course of action is possible, as it is in most occasions, to adopt this other type of measures would be insufficient. In other words, whenever it is possible to do so, by far the best way of dealing with a conflict of interest situation is to avoid it entirely. When this solution is precluded by really weighty reasons, then second best alternative ways of dealing with the problem are to disclose one's interest in the matter and to disqualify oneself from participating in decisions relating to the matter in which one is in a situation of conflict. IV. ACCEPTANCE OF GIFTS Consider now the following situations: a) Each time an executive director of a large Nigerian company goes to Frankfurt, a German-based firm which often works for his company pays for his hotel accommodation.

278 This executive director makes on average four or five visits to London per year, which usually last about one week. The Nigerian company pays the director a daily estacode of $350 during his trips abroad. b) The managing director of a firm which is asking for a loan from a bank makes it clear to the credit officer with whom he is dealing that if the credit is granted she can expect N300,000. Moved by this expectation the credit officer pushes through the granting of the credit even though she privately has serious doubts about the creditworthiness of the borrowing firm. c) A contractor who has got a large contract from a local government gives the chairman of the local government a "thank you gift" in cash equivalent to 10% of the value of the contract. He does this after the contract has been completed and he has been paid. Nothing had been requested nor offered at the negotiation stage. d) A management consultant invites the managing director of a firm to which he has presented a proposal to have lunch together in order to have further discussions. He gives the managing director a good lunch in a first class restaurant. e) An operations manager receives several hampers during the Christmas period from suppliers and contractors. f) A company's purchasing manager often receives business gifts from suppliers such as diaries, calendars, and novelties. These examples should be useful in visualising the wide variety of situations which can be covered by the tag "business gifts." A basic principle is clear and, at least in theory, uncontroversial. There is an absolute ethical norm to the effect that it is always wrong to undertake, whether explicitly or implicitly, to breach one's fiduciary duties to one's employer. The fact that that commitment may sometimes be nonexplicit and of an uncertain content does not change its ethical character. Whenever one enters into such a commitment, even if it is only understood and no words are exchanged, an intrinsically immoral action will have been performed. Accordingly, this norm is absolute. This norm makes it clear why scenario b) above, in which a credit officer is moved by the promise of a cash payment to grant a loan against her better judgement, depicts a clearly unethical transaction. None of the other scenarios offends clearly against this norm, at least on the basis of the information provided, but this does not mean that all of them would be given a clean bill of ethical health by experienced businessmen. The reason for this is that there is another ethical norm that is also relevant in this type of situations. This is the general non-absolute norm which prescribes that conflict of interest situations ought to be avoided if there are no strong reasons to the contrary.

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As we already said before, accepting a gift from a party with whom one's company does business can easily create a situation of conflict between the pull of personal gratitude and the duty to defend the best interests of one's company. On the basis that the parties involved have placed themselves in such a situation of conflict of interest without any apparent real reason for it, beyond their seeking of personal advantage, scenarios a), in which a supplier takes care of an executive's accommodation during his visits to London, thus allowing him to save a large part of his estacode; and c), in which the chairman of a local government receives a substantial "thank you payment" from a contractor, depict clear-cut breaches of ethical conduct. And what about scenarios d), e) and f) in which people are given a good lunch, a Christmas hamper, and several business novelties? One would need more information (e.g., about the contents of the hamper) in order to speak with certainty, but the point can safely be made that where a gift is very small and giving and receiving such gifts is a common social and business practice, no real danger exists that a moral commitment to steer business to the giver, even if this is against the best interests of the receiver's company, will arise. If this is the case no conflict of interest will have been created. Still, determining in each case where to draw the appropriate borderline can pose extremely tricky problems. Probably the best solution is for each firm to have an explicit policy that presents above a certain value are to be rejected or, if this is not practicable, given to a named department (usually personnel) for appropriate disposal. V. INSIDER TRADING Preliminary Clarifications There has been recently a good deal of discussion on "insider trading."7 This expression can be used more or less widely. For our present purposes we will consider that insider trading occurs primarily when a director or employee of a company buys or sells shares of that company on the basis of confidential information which, once it becomes public, is likely to have a significant impact on the price of the shares.8

7

8

Of special interest are MANNE (2), CARLTON AND FISCHEL and EASTERBROOK.

This definition is significantly narrower than those used in most discussions of the issue. Many standard discussions have been heavily influenced by the evolution of the law on insider trading in the U.S.A. and this law has often sought to prevent trading in securities by many parties who are in possession of material, non-public information, even if they are not insiders in any strict sense of this term. When comparing our conclusions with those of other authors it is essential to keep in mind this difference in definitions.

280 An example of such a situation would be that of an employee of an oil company who learns that his company has made a large oil find. He immediately buys shares in the company; when later on the news of the find is made public the shares of the firm go up and he makes a large profit. Another example would be that of a director of a civil engineering contractor who learns that her company is about to lose three very large contracts that most people expected it to get. She quickly sells many of her shares in the company. Once the information about the loss of the contracts becomes public the price of the shares drops significantly and she is able to buy again the same number of shares she had before at a lower price; therefore she ends up holding the same number of shares she had originally, but having made a substantial cash profit. Much of the discussion on insider trading in the business ethics literature has centered around the question whether the practice of insider trading would still be immoral assuming that it was not illegal and assuming further that one's employer or the general body of shareholders were to allow it. This question is very interesting and it turns out to be extraordinarily complex. But it is not the question we will be addressing here. For our present practical purposes of providing guidance for the ethical considerations of working business executives, it has paramount importance that the law in Nigeria, as in most other countries, actually prohibits insider trading9 and that no company known to the present author allows insider trading by its employees; many simply have never addressed explicitly this issue. Wrongfulness of Insider Trading In these circumstances, which are the ones that actually obtain now and will most likely continue obtaining for the foreseeable future, and in reference to insider trading as defined above, it seems clear that the practice is unequivocally unethical. The reasons for this are that it unfairly causes harm to the shareholders of the company, to whom the insider owes fiduciary obligations, it also harms the company itself, and it hampers the efficient functioning of the stock market.10 a) Harm to the Shareholders and the Company A common type of harm caused by insider trading can be illustrated by considering a typical situation which attracts it. Imagine that company A is considering to announce a takeover bid for 9

S. 615 of the Companies and Allied Matters Act, No. 1 of 1990 prohibits dealing in securities by insiders who are in possession of unpublished price-sensitive information. S. 620 of that act makes any person so dealing liable to compensate the losses caused to any party and to forfeit to the company any profits he has derived from the transaction. S. 621 provides for a penalty of N5,000 fine, or two years' imprisonment, or both. 10

In evaluating the arguments that are offered here it is important to keep in mind that we are not discussing what would be the balance of advantages and disadvantages of the practice of insider trading if it were openly allowed. We are discussing the position in a situation in which the practice is disallowed but some people still persist in engaging in it, that is the situation which obtains in practice.

281 company B. Usually, if the shares of company B are trading at, say, N6, company A will offer a higher amount, say, N8, to those shareholders who agree to sell their shares to it, in order to provide an incentive for many of them to do so and guarantee that enough shares will be tendered to it to provide the degree of control of company B that it is interested in acquiring. Once that offer is made public the shares of company B will usually go up in the stock market, let us say to N7.50. This increase in price reflects the expectation that if the takeover bid succeeds those who hold them and accept the offer will be entitled to be paid N8 for them. The rules of most stock exchanges demand that if a shareholder is acquiring shares of a company, preparatory to making a takeover bid, once he has acquired a certain percentage of the shares -say, 10% of them- he is under a duty to make this fact public. Because of this rule a company that is contemplating making a takeover bid will start by buying discreetly a number of shares just below the proportion at which a public announcement has to be made. Among other reasons, this is done in order to buy as many shares as possible at the cheaper going price before the bid (N6 in our example) rather than at the higher price which will have to be offered in the public bid in order to ensure that a large proportion of the shareholders will accept the offer (N8 in our example). What happens if an employee of company A, who knows of the impending takeover bid plans, starts buying shares of company B before the offer is made public, seeking to profit from the very likely appreciation in the value of the shares which will ensue once the offer becomes generally known? Her buying activity will tend to drive up the price of company B shares in the stock market. Because of this, company A will have to pay a higher price for all the shares it buys during the period in which it is discreetly building up its position in company B. In fact the increases in price which result from the activities of insider dealers are typically much higher than the ones which could be ed for by her own purchases. This is so because other participants in the market frequently detect that insiders are buying -often merely on the basis of an increased volume of trading in a certain security-, correctly interpret this as a sign of an impending takeover and react to this by buying heavily in their turn.11 Also experience shows that a of a certain magnitude over the current price of the shares has to be offered to convince a sufficient number of shareholders to sell. If at the time of the announcement the price was N6, then an offer of N8 may be adequate. But, if as a consequence of the activities of the insiders, the price of the shares has reached N6.50 by the time of the announcement, then it is likely that, say, N8.50 will have to be offered for the remaining shares to make the offer attractive enough. Of course, this will result in a very substantial extra cost for the acquiring company. 11

Thus, for instance, MEULBROEK in a study of 320 cases prosecuted by the American Securities and Exchange Commission between 1980 and 1989 showed that on average, on the day the insider trading had taken place price rises occurred fully half as large as those which followed the publication of the information. Also the average volume of trading in a stock was five times larger than usual on the day insider trading was done, with trading by the insider dealer himself ing for only a small proportion of this increase.

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Yet another possible harm to the acquiring company can result from the target company becoming aware of unusual trading volume in its shares. This may lead this company to suspect that a takeover bid is impending and will give it additional time to organise its defences. Takeover situations often produce the most tempting occasions to engage in profitable insider trading; in consequence a large proportion of insider trading takes place in such situations. But the activities of insider traders will harm their companies also in cases not involving takeovers through mechanisms similar to those we have discussed in the context of takeovers, namely by increasing costs to their own company and by alerting others to the company's plans through their activity. Think, for instance, of insiders who buy shares when they know of good news that are likely, once they are made public, to drive up the price of the shares of their own company. Managers who engage in this type of trading activity appropriate to themselves gains that, in the absence of their activity, would have accrued to the company shareholders as a group.12 b) Impairment of the Stock Market Besides harming their employers, insider traders also cause a general harm to the functioning of the stock market, and consequently to all the participants in it. In the first place, in so far as potential investors generally believe that insider trading is common and that they are at a systematic disadvantage compared with the insiders, they will tend to refrain from participating in the market. As the former chairman of the American Securities and Exchange Commission, John Shad, put it, "if people get the impression that they're playing against a marked deck, they're simply not going to be willing to invest."13 Of course, the less people invest in the stock market, the less the liquidity of the market and the higher the cost of raising finance in it. Still another important way in which the practice of insider trading harms markets is by widening the spreads between the prices at which market makers are ready to buy and to sell securities. These market makers always quote two prices, the "bid price" at which they are ready to buy a security and the "ask price" at which they stand ready to sell it. There is a margin between the bid and ask prices which covers the risks of adverse price movements and provides the profit of the market maker. 12

The ethical issue at stake is confused when one focuses the analysis on determining whether this or that shareholder is likely to gain or lose. What matters is that insider traders as a group are appropriating profits that, but for their activity, would have gone to the other shareholders as a group, past and present. It is to the shareholders as a group, including past, present and future ones, that the insiders owe moral fiduciary duties, not only to the set of shareholders at a given point in time. 13

Quoted in MOORE.

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Insider traders are a source of losses to the market makers as they systematically sell to them shares whose prices will fall and buy from them shares whose prices will rise. The greater the proportion of insider traders in the market, the larger the bid-ask spreads demanded by market makers will have to be in order to make up for their losses to insiders. Of course, the higher the spreads, the more costly it is for everybody to trade in the market. At this point we can close the argument. An insider has been entrusted with confidential information, or with access to it, so that he may use it for the benefit of the company which employs him. But, contrary to his fiduciary duties, he uses it in ways that benefit him and inflict harm on the company, its shareholders and even the market as a whole. This is obviously unethical. Up to this point we have concentrated on the position of directors or employees who engage directly in insider trading. We can now apply to related situations the results of our analysis. Very often insiders benefit indirectly in the sense that instead of buying or selling shares for themselves they the information to other people either to buy or sell on their behalf, or for a fee, or just for the satisfaction of benefitting people for whom they feel affection. Of course, a similar breach of fiduciary duties is entailed in these actions. It is also often the case that the people who take advantage of confidential information are not directors or employees of the companies involved, but rather employees of other companies, such as merchant banks, which have been engaged in an advisory capacity. For these people, to try and benefit from the confidential information to which they have become privy in the course of their work by buying and selling in the stock market, is equally unethical. They are breaching clear implied, and often explicit, duties to respect the confidentiality of their clients' information. And often they also harm, or risk harming, their own companies. It is clear, for instance, that once participants in the market come to realise that whenever a merchant bank acts as an adviser in the preparation of a takeover bid, there are suspicious price movements in advance of the bid announcement, firms will stop requesting the services of that bank. Finally, the same features that make it objectionable for an insider to trade in the shares of her company will be often found if she trades in other assets on which her company is interested. Thus, for instance, the railway employee who hastens to buy land along a proposed new railway track while the information about the company's plans is still confidential, will usually be breaching her fiduciary duties as much as if she were buying or selling her company's shares.

VI. HONESTY The duty of honesty is especially strict in the case of managers: they often handle sums of money and goods which belong to their employers, and the discretionary powers which managers have make it relatively easy to take advantage of this situation for personal purposes. In order to bring the discussion down to specifics we will start by considering some

284 situations which arise often in Nigeria: A manager has to travel on company business. He is entitled to stay in a first class hotel at an estimated cost to his company of N10,000 per day. He stays in a cheaper hotel at a cost of N2,500 per day but claims from his company the cost of the more expensive hotel by falsely stating that he has stayed in it. To begin with, to lie to the company is unethical, and it is especially serious in somebody who occupies a position of special trust; each time a manager tells a lie to another manager the bond of trust among of the management cadre is weakened. It is something similar to the way in which each time a fake note is put in circulation the currency is weakened. In addition to this, claiming money as refund for expenses that were never incurred is a form of fraud. The manager acting in this way defrauds his firm by obtaining from it under false pretences money to which he is not entitled. The usual justification offered by managers who act in this way is that they actually are entitled to spend N10,000 per day; that in claiming that money they are getting paid for the extra discomfort they suffer; and that the company only spends what it expected to spend. This way of reasoning is fallacious, however. What is the basis of that so-called "entitlement"? The firm's agreement? The firm never agreed to pay money to its manager in compensation for the latter's suffering some discomfort; it agreed to refund to him money actually spent and the fact is that the money was never spent. The only way of legitimising this transaction would have been to obtain the agreement of the firm14 to pay to the manager any money he saved from a daily estimate of "normal expenses." Of course, if such an agreement had been obtained there would have been no need to lie to the firm about the place where the manager stayed. In practice, given the prevalence of this malpractice in Nigeria and the fact that so many people argue that they cannot see anything wrong with it, it is probably wise for a firm to have a stated policy offering their managers the possibility of either claiming actual reasonable expenses or claiming a certain daily allowance without having to justify any expenses. Such a policy has the merit of not encouraging managers to take the first steps down the slope of dishonesty and deception, steps which, given the prevalent social climate, may be difficult to avoid taking for long. The conditions of service of a firm provide for reimbursement of medical bills of employees and certain of their families up to a certain limit, dependent on each employee's annual salary. A manager is in the habit of obtaining false medical bills from a doctor and a pharmacist whom she knows in order to ensure that she exhausts her "medical entitlement" every year. 14

In this section we will refer several times to "agreeing with the firm." Of course, one obtains the firm's agreement when one obtains the agreement of the person or body who has authority to represent the firm in the transaction concerned.

285 This problem does not raise any new fundamental issues. The situation is basically similar to that of the preceding example, it raises exactly the same problems for companies, and the same principles apply in handling it. It seemed useful, however, to make explicit mention of the issue given how commonly it arises in Nigeria. A manager is in the habit of using one of the photocopying machines in her office to photocopy school material for her son. Again, this practice, and many similar ones like appropriating low-cost office supplies such as ballpoint pens, clips, paper, and so on, for personal use; making use of company employees such as drivers or maintenance workers to solve personal problems; and using company phones for making personal international calls, are common in the country. In consequence many people openly state that they see nothing wrong in it. As a matter of fact there may be nothing wrong with it in many places where such actions are performed openly with the knowledge and implicit acquiescence of the firm. In such cases this has become a sort of "benefit in kind" made available to the employees by the firm. We will consider first the case of appropriation of small items; it will only need a small extension of the observations we are about to make to apply them to the other cases mentioned. Whenever a firm does not accept implicitly the conversion of its property to personal use, such action amounts to outright theft. Of course, usually, given the value of the items involved, it will be a case of "small theft," but whether small or large, theft it is nevertheless. One is appropriating without permission what belongs to another . Of course, there is a difference with most cases of theft: the owner had placed the items concerned under the custody of the person who eventually misappropriated them. However, far from being an extenuating circumstance, this increases the seriousness of the action by adding to it the quality of breach of fiduciary duty, i.e., breach of trust. The duty of honesty is an especially important one for managers. The general basis of this duty rests on the importance of respecting property that belongs to others; without this respect life in common is made much more difficult. But beyond this, the special importance of this duty for managers derives from the fact that violating it erodes the level of trust in a firm, and trust is like the glue that keeps the firm together and allows it to function effectively. If it becomes impossible to trust managers with the organization's property there will be need to multiply controls and supervision, and this in turn will hamper the organization's smooth functioning. Certainly, an organization in which, through the voluntary self-restraint of its , it can be taken for granted that none of them will take advantage of their special position to enrich themselves at the cost of the firm, will be able to minimise bureaucratic controls and to act with greater spontaneity and sense of initiative, thereby being better able to serve its customers. It is this, more than the amount of money involved in each case, that is destroyed in each case of petty dishonesty.

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VII. CONFIDENTIALITY

The Foundation of the Duty of Confidentiality Usually people assume that a firm's employees owe it a duty of confidentiality. We fully agree with that view. However, in spite of its being uncontroversial, it is still useful to enquire a little more closely into the reasons that lie behind it. Convictions which are held just "because everybody thinks so" are apt to crumble precisely when they are most needed, at the time of pressure, when we see very clearly the price we will have to pay if we act on them. Views that are held because one knows the reasons for them are far more likely to be acted upon at the time of difficulty. A second reason why it is important to enquire into the reasons which uncontroversial standards is that only by knowing the former can we determine the limits of the latter. The person who just knows that "one has to keep the firm's secrets" is liable to assume that one ought to keep them always. The person who has examined critically the reasons why he should respect his employer's confidential information will also be able to appreciate that in some occasions such reasons do not apply, or are not strong enough to outweigh the reasons that he may also have to act differently. There are three main reasons why managers have a responsibility not to divulge their firm's confidential information. The first is that often such information relates to the firm's customers, shareholders or employees, and such parties would be harmed if it were divulged. The ethical duty to respect the confidences of one's client has been accepted by professional people since the earliest times of which we have notice. Thus, for instance, the doctors' Hippocratic Oath, which is almost 3,000 years old, asserts that "whatsoever I shall see or hear in the course of my profession...if it be what should not be published abroad, I will never divulge, holding such things to be holy secrets."15 Clients often assume that confidentiality over their affairs is to be maintained and it is only on that assumption that they agree to disclose them. It is wrong to disappoint this reasonable expectation thereby causing harm to the customers without previously obtaining their consent. Similar considerations are applicable also in relation to shareholders, employees or other parties related to the firm. The second reason which underpins the duty of confidentiality is that such confidentiality is needed in order to preserve among the of the firm an atmosphere of trust which will be 15

A typical modern statement of medical ethics, the 1974 British Medical Association Handbook on Medical Ethics, states: "It is a doctor's duty strictly to observe the rule of professional secrecy by refraining from disclosing voluntarily to any third party, information which he has learned directly or indirectly in his professional relationship with the patient." The ethical codes of the professional bodies of ants, lawyers, architects, engineers, psychologists, social workers, and many others, contain similar provisions.

287 conducive to easy and unrestricted communication. There is in all firms - indeed in all human groups - information whose disclosure to strangers could do harm; examples include past mistakes, special methods, trade secrets, financial reports, future plans...even the addresses of employees! However, this information must be available to many insiders if they are to do their work effectively. In so far as insiders can be trusted to be discreet the apparently contradictory demands of easy availability to insiders and non-availability to outsiders can be reconciled. But when this discretion does not exist far clumsier methods have to be employed. Such are, for instance, circulating documents only on a need-to-know basis, policing photocopying activity, and creating restricted areas. Some types of information are so sensitive that the adoption of some such methods in respect of them is imperative. It is clear, however, that such restrictions and barriers greatly hamper the effectiveness of work and tend to foster an atmosphere of mistrust. Generally speaking, the less they have to be used the better. It follows that a very serious harm is caused by people who fail to keep confidentiality of their own volition as they force the firm to adopt measures that are harmful to it and to all who work in it. Finally, a third reason why there exists a duty of confidentiality is that often employees have undertaken to practise it when g their contracts, or when accepting to abide by the provisions of the firm's ethical code. These three main reasons add up to a strong duty. Managers need to be especially aware of it and conscientious in keeping it because it can be very easily and casually breached, and because social pressures not to live up to its demands are often strong. It is necessary also to stress that it is not only a question of refraining from gossiping or from disclosing confidential information to others in exchange for material gain. Another way not to live up to one's responsibility to preserve confidentiality is by failing to take necessary care in protecting sensitive information, for instance by not taking adequate precautions in the storage and disposal of it. Still another aspect of taking due care in this area is to make sure, when talking with colleagues about sensitive matters relating to clients, that they need the information, and to remind them, when necessary, of their own duty to keep confidentiality about it. A final point to keep in mind is that, by the very nature of the case, this duty remains after a person has left a firm. The reason for this is that all the three reasons that underpin this duty (harm to clients, harm to the firm, keeping of promises) apply as much after the termination of employment as they did during its existence.

Limits of the Duty of Confidentiality On the other hand the duty to keep confidential information has limits. As was suggested above, information relating to third parties often has to be communicated to other employees of the firm and to other related professionals in order to do the work that the third parties themselves require. Thus a management consultant may have to disclose the affairs of a

288 client to his secretary when dictating memos to her; to a more senior colleague when seeking her advice on the best way to solve the client's problems, or when reporting to her on the progress of the assignment; and to an independent lawyer, who also works for the client, in order to co-ordinate their actions for the benefit of the client. Doing this is ethical because one can reasonably assume that the client realizes that these communications will take place and does not object to them. Legal requirements also place limits on the duty of confidentiality. For instance, banks are required by law to inform the tax authorities of the interest they have paid on certain s. Usually customers will be aware, or ought to have been aware, of such regulations. Therefore an implicit permission to disclose can be assumed. But if one doubts whether the client knows and the matter is important, he should be informed fully about the limits of confidentiality in a given situation. Even in situations in which the client cannot be assumed to have given his consent,16 in the absence of very strong reasons to the contrary one is justified in assuming that the law-giver has taken into the benefits and harms that will follow from requiring that breach of confidentiality, and that the benefits justify accepting the harms.17 Another limitation to one's responsibility to keep confidential information may derive from the responsibility that one may also have to protect others from harm. This limitation is recognized even in professions which acknowledge a strong duty of confidentiality towards their clients. Thus, for instance, the American Bar Association Code of Ethics permits lawyers to disclose a client's plans to injure or murder somebody in the future18, and doctors are required to report certain conditions or diseases, with or without the consent of the patient; this, for instance, applies to certain communicable diseases and to gunshot wounds. Even if the employee had explicitly sworn an oath to refrain from divulging confidential information, that oath cannot bind a person to do something that is immoral. If because of the circumstances the employee were to have a positive duty to prevent a harm, failing to do so would be immoral, and in that case his oath could never bind him to do what is positively immoral. It is a case similar to that of a soldier who has sworn obedience to his superiors and is then ordered to commit a war crime, as for instance shooting some innocent civilians; his oath of obedience in no way binds him to do what is immoral. The circumstances in which somebody has a positive duty to protect others from harm are discussed in chapter 13.III, in the context of our discussion of the circumstances which justify whistleblowing. Basically, somebody will be justified in disclosing confidential information in order to protect somebody else from harm when that harm is serious enough to justify, in the eyes of an 16

For instance when a new regulation which applies to past transactions comes in force.

17

On the duty to comply with the law and its exceptions see chapter 9.I.

18

Rule 1.6 Model Rules of Professional Conduct, American Bar Association.

289 impartial person, the significant harms which, as we have seen above, follow from breaches of confidentiality. It will also be necessary that nobody who is not bound by a prima facie duty of confidentiality should be able and willing to act to prevent that harm. It is worth remarking that normally managers will not be required to make an independent decision when they believe that any of the circumstances which we have just discussed justify not keeping confidentiality. They will usually be able to consult their superiors and doing so constitutes a serious duty in a matter which may seriously affect the interests of the firm. Even more, if a manager does not have serious reasons to believe that her superiors' decision in such an issue is immoral, she will be duty bound to follow it even if on her own she would have reached a different decision. This is so because of the existence of a duty of obedience which we will discuss in chapter 12.II; the manager must not forget that he is not an independent agent but a member of a group bound together by mutual relations of interdependence. It is only in special circumstances in which she may be unable to consult her superiors or when she has come to the conclusion that their decision is unethical that the individual manager may have to depend fully on her own views of the matter. Confidentiality in Relation to Know-How Another limit to the duty of confidentiality applies only to the special knowledge, formulae and skills that are developed in a firm and that allow it to do its work better. Examples are product designs, specifications, operating processes, special systems or procedures, lists of customers, knowledge of the special characteristics of different suppliers, and so on. The question is whether it is ethical for a manager who by working in a firm has acquired such knowledge, to use it for the benefit of a different firm. It may be useful to start by considering two examples. A is an engineer working for X Ltd In the course of his work with that firm he has become familiar with certain secret manufacturing processes that give X Ltd a significant competitive advantage over other firms which manufacture the same products. The processes have been developed within X Ltd and are patentable. X Ltd's management, however, has chosen not to patent them, but rather to keep them secret. B is an engineer working for Y Ltd In the course of her work with that firm she has become familiar with certain personnel management practices of the firm which give it a significant competitive advantage over its competitors. These practices allow the firm to attract and retain a higher calibre of employees and to foster in many of them a greater level of commitment to the firm and a greater sense of teamwork. Now both A and B have left their respective employers and have come to work for Z Ltd Is it ethical for them to disclose to their new employer and use for its benefit the special techniques they learnt in their old firms? The basic interests at stake are firms' interest in preserving for their own use the know-how they have developed and employees' interest in being free to use the knowledge they have acquired

290 without being unduly restricted in their professional mobility. This is why we introduced this issue by saying that a restriction to the duty of confidentiality arises when it would place an undue restriction on the individual manager's activities. What constitutes an "undue restriction" and what a justified one will be a matter of reaching a reasonable balance between the interests of firms and those of employees. There are also significant social interests affected. Society has an interest in fostering innovations and experience has shown that innovative activity is encouraged when the innovator is allowed a period of exclusive enjoyment of the benefits of his innovation; this is the essential justification for the system of patents. But, of course, society also has an interest in hampering as little as possible freedom of work and activity, and in fostering a quick spread of useful innovations so that their benefits may be multiplied throughout the economy. How are these conflicting interests to be fairly reconciled? In the first place, if the parties have reached an agreement on the matter, that should govern the issue. Thus, if either in A's contract or in the general conditions of service of X Ltd it is explicitly provided, as is often the case, that for a period of two years after an employee of a certain rank leaves the company, he should not work for any competitor, nor disclose to it any company procedures, and that provision is legally valid,19 then that settles the matter. If A were now to disclose to Z Ltd the secret manufacturing process of X Ltd, he would be breaching an undertaking he freely gave, and that is certainly unethical. It could be that from a fair construction of A's contract with X Ltd one could reasonably conclude that the fact that the duty is imposed only for a period of two years, implies that A will be fully free to disclose anything he wants after that period has elapsed. If such were the case, then the agreement between A and X Ltd would also govern this issue. However, in many other occasions it will not be possible to conclude fairly from the explicit mention of some duties in the agreement that the parties actually intended to exclude any other duties not explicitly mentioned in it. At any rate, this will be an issue of construction of the agreement according to the usual legal canons, and it is lawyers who are best qualified to suggest what is the best construction of any given agreement. From the ethical point of view the point is simply that, in so far as there is agreement on any matter, that agreement will also determine the ethical duties among the parties20. What happens if there is no specific agreement covering the issue? Most ethicists and legal theorists who have dealt with this matter have reached a general consensus on what is a fair reconciliation of the legitimate interests of employers and employees in such issues. Basically, it is considered fair that whatever could be described as general professional knowledge of a party, that is to say, knowledge that could be applied in many different companies and to many different situations, cannot be subject to a duty of confidentiality. According to this standard B should be free 19

In common law legal systems such a provision could well be legally invalid as being in restraint of trade, if it were "wider than necessary." 20

Of course, it is assumed here that there is not a case of coercion, fraud, unconscionability, or any similar vice that would render the agreement void, at least from an ethical point of view.

291 to apply in Z Ltd the personnel management practices he learnt in Y Ltd The reason for this is that holding that B should not be free to do so would put too large a restriction on her freedom to work where she prefers. On the other hand, there is also agreement that information that is specific to the operations of a firm, as opposed to general knowledge which could be applicable to many different firms, in the absence of contrary agreement among the parties, should be considered confidential information and as such not to be divulged to third parties. Such specific information would include not only patentable designs but also special processes, specifications, lists of customers' addresses, etc. The reason why it is unethical to divulge this type of information is that doing so will harm the firm, while refraining from doing so will still allow the employee full freedom to work wherever she wants and to apply all her general professional knowledge in her new job.

VIII. SUMMARY Managers typically occupy a fiduciary position. This is so because they are entrusted with assets and with powers of decision, but these assets and powers are not given to them for their own benefit, but rather on the understanding that they are to be used to advance the interests of the firm. Conflicts of interest exist whenever a manager is placed in a position in which he has to make a decision which will influence both his personal interests and the interests of the firm for which he works, and these two sets of interests are in conflict with each other. A manager's ethical duty in such situations is to focus on the promotion of the firm's interests. But beyond this, whenever the conflict of interests is substantial, a manager has a responsibility to try to avoid being at all in such a position of conflict, and only important countervailing reasons (in the interest of the firm) will overrule such a responsibility. Whenever it is not feasible to avoid being in such a position, the manager's ethical duty is to disclose his interest and/or to disqualify himself from decision. A specific situation of conflict of interests arises where third parties that are in business relations with the firm and whose interests are affected by a manager's decisions offer that manager special gifts or favours. Whenever such gifts go beyond very small customary (e.g., seasonal) presents or favours, accepting them puts the manager in a position of conflict of interests that should be avoided. Insider trading occurs primarily when a director or employee of a company buys or sells shares on the basis of confidential information which, once it becomes public, is likely to have a significant impact on the price of the shares. There can also be insider trading with other types of assets, and employees of firms which work for the affected company can also engage in insider trading on the basis of information acquired during their work. Insider trading is unethical because it unfairly causes harm to the shareholders of the company, to whom the insider owes fiduciary obligations; it also harms the company itself, and it hampers the efficient functioning of markets.

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Managers also owe their firms a duty of honesty. Typical breaches of this duty are to obtain company funds under false pretences, and using for personal purposes company assets without permission. Another important fiduciary duty is the duty of confidentiality. This duty, however, can be limited by relevant legal provisions or by the need to protect somebody from serious, proportionate harm. In relation to know-how there is an ethical duty to refrain from using knowledge acquired during a previous employment only in respect of knowledge that constitutes "proprietary information," but not in respect of general professional knowledge.

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CHAPTER 12.- OTHER ETHICAL RESPONSIBILITIES OF THE INDIVIDUAL MANAGER I. THE DUTIES OF DILIGENCE, COMPETENCE AND CONTINUOUS LEARNING Introduction As was discussed in chapter i.III, taking into the interests of others is something that stands at the foundation of the ethical attitude. It follows that whenever somebody's actions can have a significant impact on the well-being of others - whether harmful or beneficial - ethical considerations immediately arise. Managers evidently are in such a position. If they perform their tasks excellently and contribute to the success of their company, other employees of the company can expect more secure, more fulfilling and better payed employment; shareholders will obtain a better return on their investment; customers better products or services; and so on. On the other hand, managers' omissions and mistakes can also be the occasion of serious harm: they can put in jeopardy their colleagues' jobs, cause serious prejudice to customers, losses to shareholders, and so on. If a manager is the chief executive of a large multinational the effects of her actions can be very large indeed. If she is a junior manager in a small outfit her impact on the lives of others will be less dramatic, but still significant. In any case the way in which managers perform their job has significant impact on others and in consequence they have a serious responsibility to perform their job conscientiously. The Duty of Diligence Diligence is intimately linked to the idea of responsibility. Similarly, carelessness is a form of irresponsibility. The attitude of somebody who wishes to discharge a duty responsibly is precisely that of taking care, of doing all he possibly can to live up to his responsibility. A manager may have strong motives to take things easy and fail to exert himself: he may just be tired; he may dislike a particular task - or perhaps his whole job -, or find them dull and hard; he may feel that his efforts are not appreciated enough; he may find it difficult to get along with his superiors, colleagues or clients. As a result of some or all of these factors he may have a very low spontaneous motivation to do his work. It is important to realise, however, that all the motives indicated in the preceding paragraph operate at the level of feelings and emotions. All of them make somebody feel disinclined to work hard. However, the fact that for whatever reasons one finds oneself in that emotional state is still compatible with the existence of genuine reasons to do one's best. What are these reasons? In the

300 case of a manager typically they are of three types: a) Work has effects not only outside the worker (e.g., in the form of products or services) but also within the worker himself in the sense that it develops the worker's character, standards and capacities, including, for example, the capacity to work steadily even when feeling emotionally disinclined to do so. People always harm themselves in various ways when they fail to try to do good work. b) Managers occupy a position of special responsibility in their organizations. Whenever they fail to act responsibly the organization's efficiency and culture are negatively affected. The fact that by doing one's best one is contributing to the health of the organization and through it to the well-being of its provides another important reason to try to work well. c) Finally, one's work helps directly or indirectly the clients of the firm for which one works. One of the most effective ways we have to contribute to the well-being of other human beings is simply by doing our work conscientiously. The Duty of Competence The responsibility of managers to work diligently is universally recognised; very few people indeed try to argue that there is anything positive in being a lazy or careless manager. Many people, however, fail to realise that it is not enough for managers to try their best. There is a previous ethical responsibility to be competent to do the job one has undertaken to do. Let us think for a second of a situation in a company in which serious harm is caused to a customer. For instance, a consignment of urgently needed raw materials have arrived in the port, but the customer cannot clear them because the necessary documents are not ready in the bank. If this is due to some bank employees having failed to take pains in the processing of those documents (e.g., by not having followed things up in the Central Bank) it will be a breach of the duty of diligence which will be at the root of the mishap. But perhaps the employee of the bank concerned in the transaction has done his very best at all times. Perhaps the problem was not that he failed to exercise due care but that, through ignorance, he followed the wrong procedure. However, ignorance will not be an excuse, either in law or in ethics, if the employee was ignorant of things that a person in his position ought to have known. The customers of a company have a reasonable expectation that the firm's employees have the necessary expertise to perform the services that the company offers to the public. If that expertise actually does not exist it is very likely that the employee concerned is at fault through having accepted a job for which he or she was not qualified.1 Very often there will be at bottom an attitude 1

Of course, those who hired the employee will also be at fault, but that is a different story.

301 of lack of due consideration for the interests of the customer. The incompetent person's thought process in such cases will often run like this: "I need very much this job; it is true that I am not competent enough and therefore that I am risking causing a serious harm to some customer. But still, I very much want the money. So, let the customer take his chances..." There is very little difference between this attitude and that of a person engaged in actual theft, or that of the lazy worker who realises that his neglect of his duties is likely to result in serious loss to a customer but cannot be bothered to make the necessary effort. In all cases what we ultimately find is an unfair refusal to consider the interests of other parties when they conflict with one's immediate desires, and that is a very basic description of unethical behaviour. It is perhaps worth elaborating this point because it is a frequent cause of mischief in business life. A person is offered a job or position that is clearly above his abilities and one that he cannot reasonably hope to master in a short time. Thus, for instance, as has happened once and again, a schoolteacher is made director of a bank because of "connections." Due to his basic incompetence the man fails utterly to supervise the performance of the executive directors and in the end it is discovered that the bank is insolvent and has to be liquidated. Many people lose their savings and many employees lose their jobs. The schoolteacher is shocked at what has happened but consoles himself with the thought that he did his best. The implication of asserting that business managers not only have a duty of diligence ("to try their best"), but also a duty of competence ("to have sufficient knowledge and experience, so that their best will be enough"), is that the schoolteacher of our example cannot exonerate himself and that he bears a heavy responsibility in the bank's disaster: he ought to have refused the job for which he was incompetent in spite of the pay and status that went with it. When one accepts a job one implicitly assumes certain responsibilities that go with it. The person who is unable to discharge the responsibilities acts wrongly in accepting the job. The Duty of Continuous Learning Is it enough to be qualified for the job one does and diligent in attending to one's responsibilities? Perhaps this could have been enough in the past, but it is no longer so. The reason in that nowadays the world of business is everywhere highly dynamic and competitive. Because it is dynamic the methods that were adequate yesterday are often inappropriate today. Because it is strongly competitive, we do not have all the time in the world to adjust to the new realities. In this type of environment if one does not keep improving all the time, and doing so fast, one's competitors will, and one's firm's competitive position will be eroded, with consequent harm to the interests of the firm's stakeholders. The point is that in such circumstances a manager has not only a duty to be competent and diligent, but also a duty to constantly learn and improve. How important is this responsibility? Probably most readers of this book know some manager or professional whose skills and abilities were perfectly adequate 15 or 20 years ago, but

302 who failed to make any systematic effort to update his knowledge. Two minutes' reflection on how far such people sap the ability of their companies to compete will be of greater help to appreciate the importance of the responsibility to constantly update one's knowledge than twenty pages of abstract argument. How is this responsibility discharged? In many different ways: by reading regularly professional books and journals; by participating in conferences; by attending seminars and courses; by watching training videos; by sitting down in a bar with one's colleagues after work and analyzing the experiences of the day, and in a thousand other ways. There are many and probably those that are appropriate for one person will not be for another. The essential point is that managers cannot be happy with repeating the old methods but must have a concern with upgrading their knowledge and skills and set out to systematically do something about it. Final Considerations It may seem that the duties of competence, diligence, and study are humdrum and unimportant. That is far from being the case. One should not confuse the fact that they do not pose any complex intellectual challenge, as indeed they do not, and that therefore there is no need to introduce complex concepts and distinctions to elucidate what they require from us, with their not being extremely important in our lives. A person who is lazy and ignorant, and who moreover does nothing to improve her condition, is a very straightforward case of a failure as a human being, even if we do not need to use long words with latin roots to explain what is wrong with her condition. Another reason why many people fail to realize the importance of these duties is that they implicitly conceive ethics as a question of negative limits, of not harming others. As it is true that in very many cases incompetent and negligent people do not cause very grave harm to others - at least when compared to murderers, fraudsters or thiefs - such people tend to conclude that these defects are not too serious. But ethics is not just a question of refraining from harming others; as we saw in chapter 1.III, what is primary is identifying with them and seeking to contribute to their fulfilment. This is precisely the reason for the importance of the principle of vocation or personal mission: we have the responsibility of identifying a way in which to make an effective contribution to the wellbeing of others. From this point of view the seriousness of defects like incompetence or laziness emerges clearly: people affected by them, in so far as they do not change, are just dead weight, radically unable to make any serious and sustained contribution to their families, their friends or their communities. One final point which is worth emphasising in relation to these three duties is that in practice they are not so much a question of acting in a certain way (say, diligently or competently) on a certain occasion as of developing certain stable traits of character. Usually, although not invariably, the question whether a certain manager works very hard on a given afternoon will not be of earthshaking importance. What has very great importance, both for him and for his company, is whether or not he succeeds in becoming a hard-working and responsible individual who can be relied upon to handle responsibly the assignments entrusted to him. Even though this point is especially clear in relation to the three duties we are considering here, it has great relevance for all ethical issues.

303 Fundamentally ethics is not a discipline that tells us whether certain isolated actions are "right" or "wrong." At its core ethics is the discipline that explores the questions of how to live a successful life and how to develop a character which is both rich and integrated. All the ethical questions we have explored in this book are distorted if they are approached as if they referred primarily to isolated decisions which are unrelated to past commitments, do not have a bearing on future decisions, and make no impact on the character of the individual or group making them. II. THE DUTY OF OBEDIENCE Obedience is not a popular word nowadays, and is certainly not one which one finds often in management best-sellers, which rather like to apply to management heroes such as "creative," "independent", or "original." No matter; while these are undoubtedly fine qualities the fact stands that a manager is not an independent professional but a member of an organization whose effectiveness depends on the co-ordination of the efforts of all its . Mavericks who always strike out on their own and refuse to follow common policies and pursue common objectives are not an asset to the organization but a heavy liability. Of course, there are occasions in which a manager's refusal to follow the dictates from above turns out to have been prescient and saves the organization from serious harm. It is such events that keep giving plausibility to the figure of the "independent manager, obedient only to her vision." It is also true that, as we will mention below, on occasion a flat refusal to follow orders may actually constitute a definite ethical duty. However, that is only a very small part of the overall picture, and certainly not the most important part. For every occasion in which a manager going his or her own way saved an organization, or was ethically required, there have been one hundred times in which failure to follow instructions was caused by the maverick's need to bolster his or her own ego and it only served to dissipate energies, factionalise and demoralise the organization, and increase bad tempers all round. In other words, because the success of any organization depends on co-ordination of activities, and this can only be achieved in so far as its are ready to subordinate their own preferred policies to a common plan, readiness to obey superiors (or discipline, or team spirit, or whatever; what matters are the realities of people's behaviour, not the labels that are attached to them) is a necessary quality of any responsible manager. The ethical basis of this responsibility is basically the same as the basis of the duty of all citizens to obey the law which we discussed in chapter 9.I. In that chapter we stated that there are also limits to the moral duty to obey the directives of the leaders of a community. The duty of a manager to obey the superior officers of his or her firm is similarly subject to limits. But within these limits this is a serious duty, not something to be taken lightly or to joke about, for its impact on the culture and performance of the firm can be quite significant. As the duty derives from one's responsibility to promote the interests of the firm for which one works to the best of one's ability, it is not limited to obey only those fully explicit instructions which do not leave any room for evasion. It is rather a duty to obey intelligently. This demands that

304 one make an effort to understand the reasons and objectives behind the instructions one receives, and that one interpret the instructions in the light of those reasons and objectives (rather than in the way which brings them closer to one's preferences). Finally, it demands that one go beyond half-hearted and mechanical obedience, and that one try to adapt one's actions to the actions of one's colleagues in order to produce the best possible result.

III. THE DUTY OF LOYALTY We say that people are loyal when they are faithful to their commitments to others. Loyal spouses stick to their partners even when the latter become sick or disadvantaged. Loyal football fans sticks to their clubs even after they are relegated to the second division. Loyal managers stick to their companies if the companies need them, even when they could get a better deal elsewhere. The Foundations of Professional Loyalty Having defined loyalty in this way, does it make sense to be loyal? Will it not be more conducive to personal fulfilment to keep shopping around for the best one can get, and keep changing affiliation as one successively discovers better deals? And, even if loyalty is a fine thing in areas such as family life or friendship, does it make sense to be loyal in business? Some preliminary clarifications may be helpful. To begin with, it should be obvious that not all the loyalties to which we made reference in the first paragraph of this section have the same importance. Probably most of us would agree that the loyalty of football fans to their clubs serves less important purposes than that of parents to their families, which is not to say that the former may not generate a lot of emotional intensity. The point is that, rather than discussing the issue of loyalty in a blanket way, it is helpful to ask, loyalty to what? Loyalty to a firm, which is the type of loyalty in which we are immediately interested here, is not loyalty to an abstraction2. In the first place, and most immediately, it means loyalty to one's colleagues, that is to say, loyalty to specific human beings. Loyalty to one's firm also means loyalty to the firm's purposes: to what it stands for and to what it is trying to achieve. An immediate consequence of this last point is that a firm which defines its purposes in of return on investment or returns to shareholders should expect, other things being equal, significantly less loyalty from its than a firm whose purposes are defined in of meaningful service to a

2

Ronald Duska has argued in an interesting article that employees do not owe a duty of loyalty to their employers because companies are instruments, not persons; and that therefore companies are not proper objects of loyalty. Our argument in the text implicitly addresses this concern by showing how ultimately loyalty is not due to the company considered as an abstraction, but to other human beings. See DUSKA (1).

305 set of customers and/or the full human development of its employees3. The less significant the cause for which an army fights, the more it should expect its soldiers to turn and run as soon as things get sticky. If loyalty is ultimately fidelity to one's commitments to specific people and specific purposes, it should be clear that loyalty has a lot to do with the principle of vocation, or personal mission, which we discussed in chapter 3.VIII. The loyalty of people who are basically in search of things like money, status, and having a good time, is bound to be something so fleeting as to be almost invisible. As soon as such people are offered more of any of them in a different place they will be ready to move. On the other hand, people who seek to make their life meaningful by a stable commitment to certain values and persons will be loyal, almost as a matter of personal identity; they are just not the kind of people who abandon their commitments at the first hint of trouble or of greener pastures elsewhere. Think, for instance, of a business consultant. Perhaps what he seeks in life is basically "his" personal success, expressed in such things as lots of money, a sleek car, a beautiful house (with perhaps a beautiful wife and one or two beautiful children thrown in), an exciting job, and a good reputation. For such a person the very idea of loyalty to his firm is bound to be meaningless. (And so, one strongly suspects, will the idea of loyalty to his beautiful wife and his beautiful children also be). If he can get more money, prestige and satisfaction in a different firm, a person with such a perspective in life will just be unable to think of a reason why he should stick with the old outfit. It will be instructive at this moment to try and delineate the circumstances and character of a different consultant, one who would feel a strong commitment to his present employer. 1) Think of a consultant genuinely and strongly interested in having an impact on the performance of her clients and on pushing forward the standards of achievement in her area of specialisation. This consultant would have to keep in mind that her present ability to achieve superior results is likely to depend a lot on intangibles such as her familiarity with her colleagues and their familiarity with her; the knowledge of the of her team of how best to work together and take best advantages of the strengths of each while neutralising their weaknesses; the mutual trust among team ; and so on. All that is difficult to replicate in a different firm. At the very least it will take time, but perhaps it will never be achieved. For that very reason the professional who is truly committed to achievement (i.e., loyal to her profession), as opposed to merely interested in the external trappings of success, will be slow to move, provided that the firm in which she is already working is doing a good job of making it possible for her to make a real 3

In the article cited in the preceding note Duska also argues that a company does not deserve loyalty in so far as it is simply "...an instrument, and an instrument with a specific purpose, the making of profit." (at p. 298). In so far as this is true of some companies Duska has a point. But in so far as the purposes of other companies transcend the mere making of profit they deserve loyalty. On this see EWIN.

306 contribution. 2) Imagine further that our hypothetical consultant is not the type of person for whom human beings are just so many tools for the achievement of her own purposes, but rather somebody who appreciates and respects the intrinsic value of people and who has succeeded in entering into real relationships of co-operation and mutual trust with her colleagues (or at least with some of them). She will probably feel that she owes them for many favours, many acts of help towards her in the past. If that is the case, and further if (which does not have necessarily to happen) by leaving she were to hamper seriously their ability to perform and compete, that would be an additional reason which would make her reluctant to leave. In so far as one identifies deeply with other human beings one will not desire to do something that will harm them. 3) Continuing thinking along these lines we can still add a further feature to this imaginary scenario. Imagine that our friend the consultant, besides having significant bonds with a number of her colleagues personally, also identifies strongly with the firm as such. At the time of ing perhaps she already thought highly of the firm's vision and mission, and during the years of working to promote them she may have come to identify even more deeply with them. Do we find it difficult to believe that this second consultant could be reluctant to leave her present firm, even if a more attractive offer - financially and/or professionally - came her way? Probably not. What can we conclude from these two stories of consultants? We started by enquiring whether it made sense to behave loyally in business. What the preceding reflections indicate is that it indeed makes sense in so far as at least one, and preferably the three, following conditions obtain: a) You are interested in being a certain type of person, roughly similar to the second consultant rather than the first4. If your focus is on commitment to fostering certain values and to building substantial relationships with some people, loyalty is precisely the way to achieve these. On the other hand, for the person whose focus is on having things (including attractive human beings), loyalty is just a drag. b) But the example of the second consultant suggested that it is not only a question of the type of person you are and/or want to be. Loyalty made sense in that case in a significant measure due to the relationships the consultant had forged with her colleagues, which in turn depended in good measure on the way her colleagues had behaved in the past. She thought that loyalty was called for because she felt that she was owing them for the many ways in which they had helped her. If 4

In the end it is not just a matter of whether I happen to be interested in developing this type of character, although I would have equally good (or bad) reasons for developing the opposite one. As we discussed in the first part of this book, there are actually very good reasons to prefer the character of the second consultant to that of the first.

307 they had not behaved generously to her in the past that sense of debt would not exist and she would lack an important reason now for loyalty. c) The persons or groups concerned stand for valuable objectives and projects worthy of your commitment5. The Limits of Professional Loyalty However, even if the conditions which cause an attitude of loyalty to make sense are present, being loyal to a business firm does not have to result in a life-long commitment. That one is loyal to it only means that, rather than acting purely in the way that favours one's personal interests, one will take the needs of the firm seriously. But a loyal person may still have valid reasons for changing employers. In the first place, and very importantly, most people will have several foci of loyalty, not only one: loyalty to their family, to their profession6, to their country, to their church, to some voluntary organization in which they may be seriously involved, and so on. A person cannot treat the claims of any one of these persons or groups as if the others did not exist. This is generally well understood in practice even if just in an implicit way. Everybody understands, at least when their own interests are not at stake, that a key manager may have to resign because the health of his spouse makes it necessary to move to a place with a different climate, and that this in no way implies a lack of loyalty to his firm. In the same way his spouse understood before that the manager's loyalty to the firm made it imperative to accept a posting that meant that for some years the family was forced to live in less than ideal conditions. In cases of conflict among the claims of different loyalties one will have to weigh the strength of each. Obviously this cannot be done with any very precise scale, but there are several factors that should be considered. First, one should consider the possibility of dissolving false dilemmas. If one is considering whether to give precedence to taking one's son to school or giving the finishing touches to the firm's annual report, it will normally pay to stop to consider whether it could be possible for one's wife to 5

For the avoidance of confusion it may be opportune to note explicitly that in some relationships loyalty may be appropriate even if it is mostly one-way. As Larmer has pointed out "There are...many cases where loyalty is not entirely reciprocated, but where we do not feel that it is misplaced. A parent, for example, may remain loyal to an erring teenager, even though the teenager demonstrates no loyalty to the parent. Indeed, part of being a proper parent is to demonstrate loyalty to your children whether or not that loyalty is reciprocated." LARMER p. 126. 6

Thus, an ant working for a firm will owe loyalty both to his firm and to the ancy profession.

308 take the child to school or for one's colleague to finish the report. Or perhaps one could take the child to school and then finish the report tonight, even if this means missing one's favourite programme on TV. It is surprising how many conflicts of loyalty are in the end only a conflict between one's loyalties and one's petty attachments. When we are faced with conflicts that cannot be juggled out of existence in this way we have to take into the different goods that are served by different institutions and commitments. From this point of view if, say, there were a clash between the needs of one's family and those of the football club one s, it seems clear that in most situations those of the family should take precedence. Very often it will not be possible to establish an objective order of precedence between the values served by different objectives. It is easier, however, to assess the strength of our commitment to different groups of persons. Thus, for instance people do not commit themselves to their firms "for better, for worse..." in the way they do to their spouses. Often it will be useless to look to the letter of an agreement in order to assess how far one was supposed to have committed oneself in a given situation. Very often the contents of one's agreements are left implicit and depend greatly on the practices of one's society. The following quotation in which Akio Morita, for a long time the CEO of Sony, reflects on the different expectations which predominate in Japan and the U.S. is instructive7: "Right after we formed our American company, we needed a lot of people in a hurry to establish our sales organization because business got very good very fast. Some of our new employees were good and some, we realized later, we shouldn't have hired. We had trouble with one man and I was exasperated and constantly worried about him. Finally, I discussed his case with my American colleagues. 'What can we do with this guy?' I asked one day. They all looked at me as though I was slow witted. 'Why, fire him of course,' they said. I was stunned by the idea. I had never fired anybody, and even in this case it had never crossed my mind. But to solve a problem by firing the man was the American system. It seemed so clear and straightforward and logical. I began to think America is a manager's paradise; you can do anything you want to do. Then a few months later I saw the other side of the coin. "We had a district sales manager who looked promising, so promising, in fact, that I sent him to Tokyo on an extended trip to meet everybody at the home office and get acquainted with the philosophy and spirit of our organization. He did beautifully, impressing everybody in Tokyo. He came back to the States and went to work and continued to please us until one day, without any warning, he came into my office and said, 'Mr. Morita, thanks for everything but I'm quitting.' I couldn't believe my ears. But it was no joke. A competitor had offered to double or triple his salary, and he thought he couldn't refuse it. This is the American way, I realized. I was very embarrassed and embittered by this episode, and 7

MORITA pp. 151-2.

309 frankly, I didn't really know how to handle it. Months later, I went to an electronics show and there at the booth of one of our competitors was this traitor. I thought we should avoid each other, but instead of hiding from me, he rushed over to me full of greetings and conversation, as though there was nothing to be ashamed about. He introduced me around enthusiastically and demonstrated his new product, just as if there had been no breach of faith between us. Then I realized that for him, and in the American system, there had been nothing wrong with his departure with all of our marketing information and our corporate secrets. Apparently, this sort of thing happened every day, and that is a far cry from managerial paradise. I vowed that my company would do its best to avoid adopting that aspect of American managerial technique."

This story illustrates how different background conditions and assumptions can give very different meaning to two superficially identical agreements. One still can bring up the issue of what overall approach to professional commitments, the Japanese or the American, is more conducive to business effectiveness and personal fulfilment. From what he says in the above quotation, and from the rest of the book from which this extract is taken, there is no doubt that Akio Morita thinks the Japanese system clearly superior on this point. The arguments presented earlier in this section seem to clearly him. Still another important factor to consider in trying to assess the claims of loyalty of a group especially in the case of business firms - over us, is the length of our association with it. Obviously it is different to leave a firm with which one has worked for two years than one to which we have been associated for fifteen years. But in the end there is no formula for being loyal. One has to assess the strength of the bonds that unite one to different people and groups. One also will have to weigh different claims in case of conflict. In the end being loyal is not a question of mathematical calculation and different solutions to a given problem may all be right. What certainly is not right is to think only of oneself and one's own desires and disregard one's established commitments and the interests of others.

IV. SUMMARY Managers have duties of diligence, competence and continuous learning. They also have a duty to obey the legitimate instructions of their superiors, and to be loyal to the organizations which employ them. Loyalty to one's organization makes sense, and indeed can become a definite ethical responsibility, in so far as a) the employee is committed to fostering certain values and to building substantial relationships with some people, rather than just to maximizing income or personal success; b) his colleagues have behaved generously towards him in the past; and c) the employing organization stands for valuable objectives and projects worthy of commitment. However, even if the conditions which cause an attitude of loyalty to make sense are present, being loyal to a business firm does not have to result in a life-long commitment. That one is loyal to

310 it only means that, rather than acting purely in the way that favours one's personal interests, one will take seriously the needs of the firm. But a loyal person may still have valid reasons for changing employers. Such reasons can be provided by alternative responsibilities (e.g., to one's family). In cases of conflicts of loyalties, issues that will have to be weighed include the goods served by conflicting loyalties, the strength of the alternative commitments to different persons or groups, and the length of the respective associations.

311

CHAPTER 13.- HARMONIZATION OF RESPONSIBILITIES TO THE FIRM AND OTHER RESPONSIBILITIES I. INTRODUCTION Life would be easy if each one of us had one single responsibility and the only thing to worry about were how to discharge it to the best of one's ability. Reality, of course, and very especially the reality of the professional manager, is not like that at all. At the very least most managers have to accommodate the demands of both their firms and their families, but for very many Nigerian managers there is need also to find time for church, extended family, local community (i.e., "the village"), and perhaps one or more voluntary organizations in which they are actively involved. It is no wonder that many managers end up thinking of themselves as jugglers trying to keep a large number of pins in the air...and not succeeding. In the face of such a situation the temptation to withdraw into a sense of impotence and shrug off one's shoulders is very great; nevertheless it has to be recognized as a temptation. Any serious commitment to which one fails to pay sufficient attention means that specific people are going to suffer real harm or that concrete opportunities of advancing the well-being of some people are going to be wasted. It is precisely in such context that it is easier to understand that "acting intelligently," as opposed to following a blind urge (in this case probably the urge to flee from responsibility) is the very description of being unethical. Conflicts of responsibilities have to be faced and managed; closing one's eyes to the situation and just doing the first thing that comes to mind is just a form of selfishness and childishness for which other people, and ultimately oneself, are bound to pay a steep price. There are many "harmonization problems" in the life of a manager, as many as possible combinations of any two of this manager's responsibilities. We will single out for more specific discussion two especially important areas of conflict: the interface firm/society (concentrating on the issue of whistleblowing) and that of firm/family. In a final section, taking advantage of the preceding discussions, we will try to enunciate some more general principles for the harmonization of different areas of responsibility.

II. WHISTLEBLOWING The act of "blowing the whistle" on one's firm exemplifies dramatically the conflicts of responsibilities which a person may experience. Whistleblowing by an employee has been defined as "the act of complaining, either within the corporation or publicly, about a corporation's unethical

314 practices.1" We will concentrate here on an assessment of situations in which somebody blows the whistle outside a firm, as for instance when an employee discloses to the authorities or to a newspaper some practices of his company which are causing harm to the public or are likely to do so. A case of whistleblowing that has become famous is that of Kermit Vandivier and his report of questionable practices in Goodrich Corporation2. Vandivier was a technician in Goodrich and he was involved in the production of an airplane brake for the U.S. Air Force. The brake's design was faulty and repeated tests made clear that its use could endanger the life of airplane pilots. Goodrich's management however decided to have prepared a report with fake test results and issued it to the Air Force, in order to obtain the contract. Vandivier gathered incriminating evidence such as data, photographs, charts, films and notes of meetings. He smuggled them out of the plant each day, copied them at home at night, and returned them the following day. Having amassed over one thousand items of evidence he went to the FBI, reported the activities of Goodrich and eventually acted as a main witness against the company in Senate hearings. Vandivier was dismissed from Goodrich. Whistleblowing and Loyalty Whistleblowers are often accused of being disloyal to their firms and of breaching their duty of confidentiality in making public matters that they know by virtue of their positions and that their firms would wish to keep secret. As we saw in the last chapter, employees owe a duty of loyalty to their organizations. And because of the existence of this duty they should not adopt towards them the attitude of detached strangers. It is important to emphasize this point because much of the recent literature on whistleblowing has tended to encourage this activity wholeheartedly. The assumption often seems to be that anybody who discovers any wrongdoing anywhere has a clear duty to expose it publicly. Well, it is important to be clear that this is unequivocally not so. Often I may not have any positive duty to publicise wrongdoing, especially if it happened in the past; I may even have a duty not to disclose it, as for instance when doing so would amount to an unjustified breach of privacy. And even in situations in which it might be required for a stranger to publicise a wrong she has discovered, it might still be wrong for a son or a spouse of the wrongdoer, who is bound to him by ties of loyalty, to do so. This is reflected, for instance, in the marital privilege available in many legal systems according to which one spouse cannot be forced to testify against the other. Some legal systems went beyond this. Thus, for instance, in China traditionally relatives (and not only spouses) were actually forbidden to report on one another's misdeeds and such revelations were severely penalized3. 1

LARMER p. 125.

2

For a fuller of this case see, for instance, VANDIVIER.

3

BODDE AND MORRIS p. 232.

315

Thus, for instance, imagine a situation in which somebody had committed a crime which at the time was not discovered. Let us also imagine that the circumstances are such that now there is no possibility of effecting reparation to the direct or indirect victims. It may very well be that: a) if the discovery is made by a policeman he will have a duty to report the case to his superiors; b) if it is made by a newspaperwoman it may be morally permissible for her both to make the case public and not to do so; and c) if it is made by a son of the criminal he will have a positive moral duty not to disclose the crime. What is the reason for such differences? The simple fact that the three persons have different responsibilities towards the criminal and towards the public. The point is that the duty of loyalty that employees have towards their firms does make a difference. Having itted this, it is important to make two additional points. The first is that being loyal to somebody does not require that one does what that person would like one to do; it does require that one does what one seriously believes is in his or her best interests. Thus, for instance, as Larmer has pointed out, "I am not, for example, disloyal to a friend if I refuse to lend her money for an investment I am sure will bring her financial ruin; even if she bitterly reproaches me for denying her what is so obviously a golden opportunity to make a fortune.4" Therefore if the only practicable way to stop Goodrich from selling aircraft brakes which very possibly would fail to perform and would cause the loss of lives, was to blow the whistle on it, it is perfectly possible that Karmit Vandivier actually demonstrated great loyalty to Goodrich by acting as he did, while other employees who remained silent actually failed to act loyally as they stood by while the company was engaging in behaviour that was contrary to, and destructive of, all its best traditions and ideals.5 The second point that it is essential to keep in mind when assessing charges of disloyalty against whistleblowers is that, as we saw in the last chapter, the duty of loyalty is not absolute. An employee has also duties towards the people who may be harmed by the actions of the firm and such duties may be serious enough to demand action from the employee. Therefore while it is true that considerations of loyalty are very important, especially when the issue of preventing harm to others does not arise, and that they normally will demand that whistleblowers measure their actions very carefully and in so far as possible try to use internal channels, one cannot conclude that they make it necessarily wrong for an employee to denounce publicly the wrongdoing of his firm. Other Considerations Weighing Against Whistleblowing Something similar can be said in respect of the duty of confidentiality that employees owe to their company. We already argued in chapter 11.VII that this duty is not absolute and that, specifically, it may be overridden by the need to prevent serious harm to others, even in cases in 4

5

LARMER p. 127.

On the issue of how immoral behaviour is self-destructive both from an individual and a corporate perspective you may consult sections II, III and IV of chapter 1.

316 which an employee had promised to keep confidential information secret. It is very relevant to note in studying whistleblowing that it often carries heavy personal costs. Loss of job is the most common one. A study of whistleblowing in the U.S. found that all the whistleblowers surveyed who worked for private firms had been fired by their employers, 54 percent had been harassed by their peers at work, and in many cases the different stresses connected with the episode had affected so much their family life that 15 percent had had a subsequent divorce which they attributed to their whistleblowing.6 It is also common for other employers to regard a former whistleblower as a potential troublemaker who should not be hired. Serious harm can also ensue to the whistleblower's firm. Its reputation may be affected much beyond anything that whatever wrongdoing that was actually done could justify as others assume that what in fact was perhaps an isolated incident actually reflects the habitual behaviour of its . Above all, mutual trust within it may be undermined. After an incident of whistleblowing it is almost inevitable that security procedures will be tightened up, distribution of documents and information will be restricted, many will be reluctant to put their thoughts in writing ("How do I know that somebody else is not making photocopies?") and almost everybody will be less outspoken and more concerned with covering themselves. All of this affects greatly the level of performance of the organization and the quality of life in it. As Sissela Bok has remarked "there comes a level of internal prying and mutual suspicion at which no institution can function.7" Finally, people who are considering blowing the whistle against their own firm should give serious consideration to the possibility that their own motives might be less than wholly irable. Not all whistleblowers are entirely disinterested crusaders fighting to protect the common good. Among them there is a good proportion of disgruntled individuals who feel that their organization has not rewarded them as they feel they deserve, malicious people, incompetents, paranoids, and just plain cranks. Conditions for Legitimate Whistleblowing All the above considerations make it clear that managers who believe that blowing the whistle against their own firm might be indicated have to endeavour to be very objective in assessing the situation and in discerning their responsibilities in it. Generally speaking it is suggested that for whistleblowing to be ethically required the following conditions should obtain8: 6

New York Times, 21 February 1988. Cited in VELASQUEZ.

7

BOK (2) p. 332.

8

VELASQUEZ and DE GEORGE (2) argue that a question is whether whistleblowing is permissible, and a different one whether it is obligatory. In their view it may well be permissible in some occasions without being thereby obligatory, and they offer different criteria to approach these two questions. In our view, given the duty of loyalty owed by the whistleblower to his firm, and given the harm and trauma that blowing the whistle is likely to cause, it can be permissible at all only when it is a duty to do it.

317

a) The actions or omissions of the firm are causing, or are likely to cause, serious harm to other parties. As we saw in chapter 3.VIII, for an action that has harmful side effects to be justified, these side-effects should not be directly intended, and the good brought about by the action must be so significant that one can fairly consider that it justifies accepting the harmful side effects caused in producing it. As we have seen that the harmful side effects of whistleblowing can be expected to be significant, blowing the whistle will only be justified when it is undertaken in order to avoid serious harm. Very often the whistleblower has no certainty either about the actions of the firm or about the fact that they will actually produce the harmful consequences he fears, but only more or less strong suspicions or expectations. In such cases such lack of certainty will have to be taken into in weighing the appropriateness of acting. b) Reporting the matter internally has failed or can be reasonably presumed to be either useless or inappropriate. Some authors like DeGeorge have argued that employees should report their concerns or complaints to their immediate superiors and if this fails they should take the matter up the managerial line; they would be justified in blowing the whistle outside the firm only after having exhausted the internal resources for remedy9. This is generally required as a consequence of the duty of loyalty that the employee owes his firm, but not universally so10. It may be the employee's supervisor who is responsible for the wrongdoing to begin with. Or the employee may reasonably fear that if higher management learn of her intention to report the matter to the authorities they will destroy incriminating evidence or otherwise take steps to cover their tracks better without thereby ending the wrongdoing. It could also be that exhausting internal channels would delay taking corrective steps. This requirement also seems to assume that whistleblowing should always be performed openly, but this is not necessarily so. If the whistleblower anticipates serious retaliation by the firm she may well be justified in protecting herself by reporting the matter anonymously to some authority which may be relied upon to take up the issue. In such cases having reported the matter first internally is almost certain to result in giving away the identity of the anonymous whistleblower11. c) There must be a reasonable expectation that blowing the whistle will have a substantial impact on the harm caused by the firm. As we have emphasised whistleblowing is very likely to be accompanied by substantial harmful side effects. Therefore it is an activity that one should never 9

DE GEORGE (2) p. 211. See also DE GEORGE (1).

10

My discussion of this issue draws on JAMES.

11

Many people, understandably enough, find distasteful the idea of reporting one's firm anonymously. It is important to keep in mind, however, the strength of the unjust retaliation that sometimes may be brought to bear upon the whistleblower. The survey of whistleblowers which was reported in the New York Times article to which reference was made in note 6 indicated that in some cases that retaliation was so severe that 10 percent of whistleblowers reported having attempted suicide at some stage in the events.

318 engage in just for the sake of moral posturing, or "to get something out of one's system," but only for the sake of preventing or reducing serious harm. An important aspect of this requirement is that the whistleblower should make sure that he has enough documentation to be able to prove his charge. Without strong evidence the chances of his being able to sustain his charges and force the firm to make real changes are slim. Kermit Vandivier's case, described at the start of this section, provides a good example to emulate in this regard. Before going public with his charges he had patiently assembled the necessary evidence. If he had failed to do this the company could have discredited him by denying his charges and questioning his character, competence and judgement. d) One must have a moral duty to prevent the harm. The fact that somebody is about to suffer a harm, even a great harm, does not ipso facto imply that one has the duty to prevent that harm. Once again one has to keep in mind that because of the special relationship that exists between employers and their firms, harmful side effects result from the employer denouncing the firm publicly that would not result, at least to the same extent, if it were to be a stranger who took action. Therefore if there are other parties ready and willing to take action it could be better for insiders to remain inactive. However, a special duty to prevent the harm may arise from the profession of the insider. Thus, for instance, a professional engineer has a special duty to hold paramount the safety of the public. If he discovers that a product manufactured by the firm that employs him constitutes a serious safety risk for the s and the firm seems unwilling to do anything about it, he may well have a special duty to speak up with preference to anybody else12. One will also have a moral duty to prevent the harm if in practice nobody else is ready and willing to speak up in time to prevent the harm. e) In denouncing the wrongdoing of their firm whistleblowers still have a duty to try and minimise the collateral harmful effects of their actions. This means, for instance, that they should reveal only so much of the wrongdoing as is necessary to prevent the harm; that they should try to keep the negative publicity about their firm to the minimal level consistent with succeeding in preventing the harm. It is in taking measures like these that whistleblowers show that they are only doing what they must do, while remaining personally loyal to their firms and former colleagues (even in circumstances in which the latter may be repudiating the whistleblower) and are not actuated by feelings of revenge or personal aggrandizement. A final point needs to be made before concluding this section. We have noted that whistleblowing often carries heavy personal costs for the person who blows the whistle. It is only realistic to keep this in mind before deciding what to do. However, it does not have to be the end of the world. A study on ten prominent whistleblowers concluded that some years after the event, "virtually all the individuals discussed here have been able to rebuild their careers and belief in their 12

The Code of Ethics of the American National Society of Professional Engineers prescribes in its first Rule of Practice the "Engineers shall at all times recognize that their primary obligation is to protect the safety, health, property and welfare of the public. If their professional judgement is overruled under circumstances where the safety, health, property or welfare of the public are endangered, they shall notify their employer or client and such other authority as may be appropriate."

319 competence and integrity13. Many whistleblowers also report that they think the price they have had to pay worth it in of the changes they succeeded in forcing through and of the personal growth they themselves had achieved. Typical of the comments made in the survey reported in the New York Times article referred to above were the following: "Do what is right. Lost income can be replaced. Lost self-esteem is more difficult to retrieve" and "Finding honesty within myself was more powerful than I expected.14"

II. DUTIES TO THE FIRM AND DUTIES TO THE FAMILY Many managers experience a tension between their responsibilities to their firms and their responsibilities to their families. The areas of conflict are many. In this section we will adopt the point of view of those executives who feel that the demands of their work are preventing them from giving adequate attention to their families. This point of view responds to the way in which most executives experience that conflict15. A very common area of problems turns around the encroachment of time devoted to work into time that in theory should be devoted to the family: frequent travelling, late hours, work during week-ends and taking home additional work are all problem areas for many people. Another common area of problems is that of transfers which can cause either a family relocation which can be the occasion of serious difficulties for other family , or a family split, as, for instance, the type of situation in which a family remains in Lagos while the father works in Calabar and tries to visit Lagos with whatever frequency he can. It is not our intention here to suggest practical solutions to the problems that may arise; that would be more the province of a family adviser. This is a book on Business Ethics and therefore we will concentrate on highlighting the ethical principles relevant to the solution of this conflict of responsibilities. The typical situation we will have in mind is that of a firm making demands on an employee (e.g., a transfer or frequent travelling) that make it more difficult for him to discharge his family responsibilities; we will assume that in so far as the employee fails to agree to the demands of the firm, he may expect to jeopardize to some degree his prospects with that firm.16 The following points are relevant to making such a decision. a) A first consideration is that, generally speaking clear-thinking people should not give the same degree of commitment to their family and their work. A reason for this is that one does not 13

GLAZER p. 329.

14

New York Times, 21 February 1988. Cited in VELASQUEZ.

15

16

We already addressed in chapter 6.VII the issues that arise from the point of view of the company.

This is often the case. However, as we saw in chapter 6.VII that in itself may reflect a failure of the firm to act fairly towards its workers.

320 a company "till death do us part." One's spouse has the right to expect that he or she will not be placed on an equivalent level with one's company, and the basis of that right is quite straightforward: one promised. Another basic reason for the difference in degrees of responsibility is the difference in the depth of the impact one has on people. Typically, through one's work one has the opportunity to affect at a relatively superficial level the well-being of very many people. Because many people are affected - and, everything has to be said, because money is involved - we tend to be very impressed by this area of activity. However, precisely because the level of involvement is relatively superficial, in practice we can be replaced with relative ease, and even if we are not, after everything is said and done, nothing much usually happens after our removal from the scene. In one's family one affects the well-being of few people, but this effect - while less spectacular, and therefore easily overlooked - is incomparably deeper. b) But while the preceding consideration is important, and it certainly should be brought to mind at the time of resolving conflicts between work and family, it would be too facile to try and resolve all such conflicts with the easy formula: "give priority to the family." While never forgetting the general priority that family demands deserve, one has to take into in each case the specific consequences on the family, and on other persons, of each alternative course of action. It is certainly a pity if the fact that a spouse has to work on a week-end wrecks a long planned family picnic, but if the reason for the overtime is the urgency to prepare the payroll of three thousand workers so that they may be paid on time, there is a lot to be said for postponing the picnic. c) Still another important factor is the existence of prior agreements, explicit or implicit, among the of the family, and especially between the spouses. Usually decisions on how to respond to an employer's demands are not made in a vacuum; previous understandings are very important to a fair resolution of current problems. Thus, for instance, it would be disingenuous for a woman who married a professional soldier with full knowledge of what such a career usually implies in the way of transfers, to insist on approaching the problem posed by her husband's latest posting exclusively on the basis of the "priority of her husband's family commitments." Conversely, the husband whose previous transfer both wrecked his wife's own career, and seriously dislocated the studies of his children, and who at that time got them to agree to move on the basis of a promise that it would be the last time that such a thing would happen, cannot now, three years later, forget about his previous undertaking when he gets the chance of a new promotion. d) It is also an important consideration that of itself the professional development of each family member to the full extent of his or her capacities, in so far as it does not interfere with other family responsibilities, makes a positive contribution to the good of the family both in psychological (a contented person is much easier to live with) and economically, and to the good of each family member. It is therefore a mistake to think that it is only the person whose career is affected by a decision that has an interest in fostering that career, while the interest of the other family lies exclusively on preventing that career from placing excessive demands on the individual concerned. A father who feels he is a professional failure is likely to be a worse father, no matter how much time he is able to devote to his family. Beyond this, whatever contributes to the well-

321 being of a person one loves is part of one's own good--that is precisely the definition of love. e) Conversely, it would also be a serious mistake for the family member affected to believe that his or her own interest lies on being able to devote as much time and attention as possible to the demands of his or her career, and protect the latter from the intrusive demands of the family. As we discussed in chapter 1.III, being involved in relationships of love and friendship is a basic aspect of personal fulfilment. Of somebody who is not a party to any such relationship one can say that he is radically alone, and that he suffers a basic deficiency in his personal realization. A family is a privileged environment for the development of this type of relationships; a person who fails to establish real and deep relations of love and friendship with his or her spouse and children is highly unlikely to be able to establish them with anybody else. In summary, a flourishing family life is an essential condition to attain that most important aspect of personal fulfilment which consists in establishing deep relationships of love or friendship with other people. f) Still another fundamental consideration is that the welfare of children is essentially dependent on parental attention and harmony. A flourishing family life is especially important for children to develop a healthy emotional make-up and for the transmission to them of social, ethical, cultural and religious values. In so far as the family becomes weaker the self-esteem of children tends to be weaker and their egoism and anomie (or lack of norms) stronger. An interesting survey in this regard compared the top disciplinary problems that U.S. public school teachers met in 1940 and in 1990. The results of this survey are reported in Table 13.1: US Public School Teachers Rate the Top Disciplinary Problems 1940

1990

Talking out of turn

Drug abuse

Chewing gum

Alcohol abuse

Making noise

Pregnancy

Running in the halls

Suicide

Cutting in line

Rape

Dress-code violations

Robbery

Littering

Assault

Source: US News and World Report. Basic data: Congressional Quarterly Researcher

Table 13.1 Researchers on these issues link these changes closely to the marked deterioration in the health of the family institution that has taken place in the U.S. between 1940 and 1990. Of course,

322 Nigeria is not the U.S., but it is easy to perceive a similar erosion of the family institution here and to see how it is producing similar effects on young people. In important respects children of managers and professionals are more exposed to such problems. In 1990 a Fortune magazine cover story titled "Why Grade A Executives Get an F as Parents" reported that the incidence of a range of emotional problems among children of successful executives is up to twice higher than among children of "less successful" parents17. The fundamental reason is simply that busy parents tend to devote less time and attention to their children. Although no similar figures are available in Nigeria, there is little doubt that similar phenomena are taking place here18. An important conclusion of several of the above points is that it is a short-sighted and narrow way of approaching the resolution of family/work conflicts to think of them as an issue subject to bargaining between the professional concerned (irrespective of whether it is the father or the mother) and the rest of the family. In this approach the interest of the professional would be to maximize his or her own opportunities for professional development while the interest of the rest of the family (usually defended by the other spouse) would be to maximize the time and attention that the professional concerned devotes to the family. Fundamentally, two things are wrong with such an approach. By the time such "my-interestsagainst-your-interests" approach comes to be adopted in a family, it is likely that there is little family left. Even more fundamentally, as we have argued, it is wrong to believe that the interest of the professional lies exclusively in his or her professional career: a flourishing marriage and happy and fulfilled children are very much a part of his or her own interests also. We have also argued that it is also wrong to think that the interest of the family has nothing to do with the professional development of its . The point is that it is hopeless to attempt to solve such conflicts by thinking of them as conflicts among my interests, my spouses's interests, and my children's interests. They can only be solved in so far as they are conceived as common problems for the family, which have to be solved in a way that best promotes the family's common interests, interests that include those of all the individual . A final, but very important point to keep in mind is that in practice many of the family/work conflicts are not mainly a matter of ideas, which can be solved through more careful reflection, but a problem of emotions and feelings which has to be attacked at a more basic level19. There is an important and well known psychological law according to which we tend to 17

Cited in SENGE, p. 306.

18

FUCHS documents the impact on children of their parents' concentration on professional concerns.

19

In this point I follow SENGE, pp. 307-9.

323 enjoy anything which we do successfully, and spontaneously we tend to crave doing more of it. A manager who is successful at her work will tend to enjoy that work, both because of the sense of accomplishment she will experience in performing it and because of the extrinsic rewards (other people's praise and iration, money rewards, etc.) that will accompany her success. Such factors will tend to produce a spontaneous desire to be engaged in the activity in which she is successful, and which she will tend to find intrinsically enjoyable. And of course, if a person is basically qualified for a task, the more time she devotes to it, the more successful she will tend to be at it. We have therefore the elements of a basic virtuous cycle, which is depicted in Figure 13.1. That figure shows that the more successful a person is at her work the more she will have a spontaneous desire to devote time to work; then the more time she devotes to her work, the more likely she is to be successful in that work. This is a self-reinforcing cycle, and it is important to realize that it operates independently of one's plans or objectives. Where this cycle operates, the person caught up in it will just like to work, will have a spontaneous inclination to devote time to her work. This reinforcing cycle also works in reverse: lack of success at work will lead to a diminished desire for work, which will lead to devoting less time to work, which in turn can lead to even less success in work, and so on in a downward spiral. Of course, the above mechanisms apply to any activity, not just to professional work. They apply, for instance, as figure 13.2 illustrates, to the inclination to devote time to one's family. "Success in family" means achieving a close relationship with one's spouse, and being effective in helping one's children and in transmitting to them one's core values. A person whose efforts in these spheres seem to be yielding results will find the experience rewarding, and from there on the operation of the virtuous circle is likely to take off. As in the case of work, this cycle also can operate in both directions and the circle could well be a vicious one in which failure leads to a felt repugnance to devoting time to the family, and the lack of dedication produces even greater failure. Of course, the expansion of the two circles is limited, among other factors, by the fact that the day has only 24 hours. Therefore time devoted to the family and time devoted to work limit each other; in fact, if other time commitments are held steady, as one goes up the other one will tend to go down. This is reflected by the swing that links the two cycles together in Figure 13.3

324 DESIRE FOR WORK TIME

TIME DEVOTED TO WORK

SUCCESS IN WORK Figure 13.1 DESIRE FOR FAMILY TIME

TIME DEVOTED TO FAMILY

SUCCESS IN FAMILY Figure 13.2 DESIRE FOR WORK TIME

DESIRE FOR FAMILY TIME

TIME IN WORK

SUCCESS IN WORK Figure 13.3 DESIRE FOR WORK TIME

TIME IN FAMILY

SUCCESS IN FAMILY

DESIRE FOR FAMILY TIME

325

TIME IN WORK

SUCCESS IN WORK Figure 13.4

TIME IN FAMILY

SUCCESS IN FAMILY

326 A casual inspection of figure 13.3 may suggest that the remedy lies in "balancing the demands of family and work." This message is sound but it is like the traditional advice given to the novice who wishes to succeed in business, "buy cheap and sell dear." The difficult part is implementing it. Actually the true message of figure 13.3 is more subtle. If one thinks about the factors depicted in it, it becomes clear that, at least in the case of successful managers, there will be an inbuilt tendency for the scheme to be chronically unbalanced. The major forces which create this imbalance are the following: a) "Successful managers" by definition already have success in work. b) There are very real pressures that, independently of any other factor, already tend to put pressure on managers to devote more time to their work. c) "Success in family" is in itself more difficult to achieve than professional success. It depends on more subtle factors and mere issuing of orders produces far less results. The combined effect of these forces will tend of itself to create a situation like that depicted in Figure 13.4. This type of situation will very often develop "on its own" for many nice people, who start with the best intentions trying to be as good fathers or mothers as they can. Eventually, and not quite knowing why, they find that they are devoting less and less time to their families, and enjoying less the little time they spend there, while more and more of their time goes to their work, which somehow they find a much more congenial occupation. People who find that this model provides a good description of what happens to them, should realize that this is in large measure the product of the reinforcing mechanism we have described operating mechanically on their likes and dislikes. Such people may still strongly believe that having a successful family life is very valuable and that certainly one ought not to sacrifice it for the sake of extra success at work, but in the absence of a clear strategy to regain control of their lives they are only too likely to find out that they are governed not by their beliefs about what is more important, but rather by the positive and negative feelings generated by the processes described above. And the solution? Nothing dramatic. The easiest point in the combined cycle where conscious intervention can be effective is that of "Time in Family." By creating some simple rules and, what is far more difficult, doing one's best to stick to them, eventually great changes can be achieved. What rules? Things like "At least one Saturday per month must be devoted fully to the family, no matter the work and social pressures," "To be at home at least three nights per week to have dinner with the children," "Except in absolute emergencies parents going to church with the children," and so on. What is possible and appropriate in each case can be determined only by the people concerned; the point is that in the absence of such extremely down-to-earth objectives the dynamics of the situation are such that one is almost bound to lose control. IV. GENERAL PRINCIPLES ON HARMONIZATION OF RESPONSIBILITIES

327

Can we now try to spell out some more general principles on how to harmonize the conflicting demands of different duties? Basically one has to do three things: a) refuse to assume responsibilities which one cannot attend to (and if one has already done so, shed them); b) define carefully one's precise responsibilities in each area of action; and c) share one's time and attention according to the objective demands of one's responsibilities rather than according to whim or to one's likes and dislikes.20 Limiting one's responsibilities Intelligent control of the responsibilities one assumes is critical. In few other areas is it so apparent that there exists a world of difference between the "goodish person" (i.e., the weak person who cannot bear the thought of saying no to any demand) and the ethical person (i.e., the person concerned with helping others in an effective way). Some responsibilities just fall upon one and there is nothing to be done but to attend to them to the best of one's ability. Thus, for instance, if somebody's spouse suddenly becomes an invalid, the only thing to do is to provide the necessary care for him or her. But a great majority of one's responsibilities are voluntarily assumed and it has to be said as clearly as possible that to assume a responsibility that one will be unable to discharge, or that will force one to leave unattended an existing responsibility, is immoral. It is just a case of causing harm to others - or depriving them of a benefit - either out of sheer thoughtlessness or of the unwillingness to face the embarrassment of a polite refusal. As we discussed in chapter 3.VII organising all of one's commitments in a coherent and manageable whole is a basic requirement of a primary ethical principle. In some occasions one's responsibilities become unmanageable not because of the irresponsible voluntary assumption of a new responsibility, but because old responsibilities have expanded or because a new responsibility which does not depend on one's choice has fallen upon one. As I suggested before, the thing to do in such cases is just to shed some of one's former responsibilities. Unfortunately this is not what most of us do on such occasions; we are apt to try to "manage" and in the process cause a good deal of harm. Again, this is clearly unethical for the simple reason that preferring serious harm to others to embarrassment to oneself is just a form of petty selfishness. Defining one's responsibilities with precision Sometimes two responsibilities seem to be incompatible not because they really are so, but rather because one has not defined properly one or both of them. One of the advantages of having reflected systematically on ethics is that one is more likely to spot such dilemmas as being of one's own making.

20

On harmonization of roles see COVEY, MERRILL AND MERRILL, ch. 6.

328 A very frequent source of such false dilemmas is to define as absolute an ethical duty that is not such. As we have seen when discussing whistleblowing it will be simply impossible to decide what to do in such a situation if one wrongly believes, as many people tend to do, that one's duties of confidentiality and loyalty towards one's employee are absolute. If that were the case one would be in a true dilemma, that is to say, a situation in which whatever one does, one is bound to act wrongly. However, outside existentialist philosophical essays, true ethical dilemmas do not exist. Once all responsibilities have been defined accurately one will have identified some things that it would be certainly wrong to do, and established an order of priority among all of one's responsibilities. Then it becomes possible to act. The point of the above statements is that one is never justified in throwing up one's arms in despair and give up trying to live up to all of one's responsibilities. Even if it seems that it is impossible to discharge all of them, that is never so; one will have to keep thinking, one should ask for advice, and in the end one should always be able to define a specific way of acting: this way may be difficult, it may demand sacrifices, it may include the need to resign from some appointments or otherwise shed part of one's responsibilities; but there will be always something specific that one can do. To act blindly is never the best solution. Acting according to objective criteria In harmonizing one's different responsibilities it is especially important to act according to objective priorities rather than just following the whim of the moment. It is perfectly possible, and distressingly frequent, for people to be exhausted at the end of a very busy day, and still not to have attended to any of their priority commitments for that day. It is a fact that some people waste time watching TV and gossiping, and others waste it while working very hard. The test is not whether one has kept busy, but rather whether one has done what had to be done. Many of the points made in our discussion of family/work conflicts can also be generally applied to other conflicts. It is especially useful to keep in mind the important role that our spontaneous inclinations may be playing in determining how much time and attention we devote to different responsibilities. It is essential not to allow blind impulse to play the leading role in such important matters. But it is also very important to that, as we discussed in respect of family and work, it is not enough to determine priorities according to our true values; in order to implement such values it is necessary to gain insight into what is driving our impulses, and take specific steps to redirect them in accordance with our values.

V. SUMMARY Whistleblowing by an employee can be defined as "the act of complaining, either within the corporation or publicly, about a corporation's unethical practices." An employee's duties of loyalty and confidentiality provide strong reasons against whistleblowing, but these reasons may be outweighed by competing duties towards parties that may be harmed by the unethical practices of one's employing firm.

329

These considerations, together with the heavy personal costs often associated to whistleblowing, and the harms that can be caused to the organization, demand that whistleblowing only be used a) in order to prevent serious harm; b) when reporting the matter internally has failed or can be reasonably presumed to be either useless or inappropriate; c) provided that there is a reasonable expectation that blowing the whistle will have a substantial impact on the harm caused by the firm; and d) provided also that there are no other parties ready and willing to take action which are not bound by similar duties of loyalty and/or confidentiality; finally, e) in denouncing the wrongdoing of their firm whistleblowers still have a duty to try and minimize the collateral harmful effects of their action. The resolution of conflicts between family and professional demands is difficult. Essential points to keep in mind in trying to resolve such conflicts include the priority of family commitments; the gravity of the consequences on the family and other parties of each alternative course of action; explicit and implicit prior family understandings; the identification of interests among family which has to be fostered if family unity is going to make any sense; the importance of family life for personal fulfilment; and the fact that the welfare of children is essentially dependent on parental attention and harmony. An important consequence, among others, of the above considerations, is that approaching these issues as an exercise in bargaining among conflicting interests is essentially wrong. In practice, managing effectively one's attachment to family and profession can be as important or more than having a sound abstract understanding of the issues involved. Finally, at a general level the most important principles that have to be kept in mind in order to harmonize one's different responsibilities are the need to limit one's responsibilities to those which one can effectively discharge, and the importance of acting according to objective criteria rather than just following the whim of the moment.

330

PART IV BUSINESS ETHICS IN A WIDER PERSPECTIVE

335

CHAPTER 14.- BUSINESS ETHICS IN A WIDER PERSPECTIVE It should be clear to anybody who agrees with the basic approach of this book that behaving ethically always demands an effort, sometimes a very great effort. Ethical behaviour demands a constant exercise of self-control in order to examine one's blind urges, desires, emotions and ambitions and to avoid acting on those that, on consideration, are destructive of human fulfilment. It is only rational to ask, what is the point of this effort? The answer that this book has offered in the preceding chapters is that the point of acting ethically is one's own personal fulfilment, contributing to the fulfilment of others, and, in the field of business, making it possible to achieve higher levels of business performance. However, if one is realistic one has to recognise that probably many important aspects of the fulfilment and achievement that one hopes for in acting ethically may never be realised. In the first place there is the general precariousness of the human condition: I may have acted according to impeccable ethical standards for the whole of the last year and still I may be run over by a drunken driver tomorrow. Despite my best efforts the firm I work for may become insolvent. Then there is the element of sheer luck which always looms so large in human affairs. A businesswoman may consistently uphold the highest values while her competitor is purely opportunistic. Still, if the opportunistic fellow gets all the lucky breaks while luck eludes the highly principled businesswoman, it is quite possible that the first will prosper while the second goes to the wall. Finally, there is the inescapable fact that often other people fail to reciprocate the efforts of the ethical person. Many will not be dedicated enough. Others will take advantage of the trust reposed on them to foster their own interests at the expense of the person who trusted them. Still others may fail to see beyond their own immediate interests. There are so many ways in which other people may let the dedicated idealist down. Because of such factors the person who tries to act ethically will always pay in personal effort the full cost of so acting, but often will be able to reap only a meagre portion of the harvest he or she hoped for. The history of peoples, religions, ideological movements, and institutions offers many examples of this. The above observations should not be misunderstood. The fact that circumstances often prevent one from attaining the full measure of human fulfilment and happiness - in oneself and in others - that one hoped to secure is no reason to give up pursuing whatever measure is available. And human fulfilment is always attained by acting as intelligently as one can, not by relapsing into following whatever impulse happens to be stronger at any given time.

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However, while to endure and keep on doing one's best is still the most reasonable reaction to the disappointments and frustrations one is certain to encounter in practice, the truth is that many people are only capable of putting up with so much. For almost everybody except a few exceptional moral heroes the moment comes in which the burden of discouragement becomes just too much. If disappointments become too frequent or too great many people just give up acting constructively and reasonably. And even many of those who have had to confront only the usual measure of bad luck and half-hearted colleagues, are at least likely to be driven eventually into a policy of tempering reasonableness with expediency and settle for playing for lower stakes. Their motto could read: "Be only a little self-destructive and a little exploitative of other people...except in especially hard situations in which you may have to go all the way." Many of us, however, do not depend exclusively on the teachings of ethical philosophers. Specifically, in Nigeria a very large proportion of managers believe the teachings of some religious revelation that they accept as having a divine origin. There is a problem, however, with special divine revelations from the perspective of Business Ethics. Different people in fact react in different ways to any purported revelation: some accept it, some reject it, and some are just not interested. This is especially the case for business firms because in our society such firms typically include who have different attitudes towards any one claimed religious revelation. In most Nigerian firms in fact one can find adherents of well over a dozen different religious denominations. If one is trying to develop norms of behaviour which can be accepted by all the of a firm one will be well advised, as a matter of prudence, to stay clear from standards of behaviour which can be accepted only on the basis of their being taught by a religious authority. This book is about Business Ethics. Sticking to Ethics, that is to say, to the knowledge that can be attained about how we should better conduct our lives without counting on any special divine revelation, certainly has the advantage that it more easily allows to secure agreement. Not, however, that anything remotely approaching universal agreement is in fact ever attained; but it is still a fact that people who hold very different religious views are often capable of reaching substantial agreement for so long as the discussion is kept within the realm of purely natural Ethics. One pays a price, however, for sticking to purely rational ethics. Religious belief regularly, and almost as a matter of routine, motivates its adherents to all sorts of heroic deeds, from dying for their faith to extraordinary works of mercy. On the other hand the person purely motivated by ethical convictions has to face the constant sapping of the strength of those convictions that results from the factors we discussed above. There is a middle way, however, which we will be following in this concluding chapter. Certainly, this book cannot hope to resolve all the religious differences that are likely to divide its readers. On the other hand, as this book is written primarily for Nigerian managers, it can be assumed that the very great majority of its readers will be followers of one of the major revealed religions. A short reflection on doctrines that are common to all such religions can add greatly to the motivating force of one's ethical convictions. And it is possible to provide the outlines for that

338 reflection while relying only on common beliefs and steering clear of religious controversies. As we have tried to explain above, the great weakness of a purely ethical approach, from an motivational point of view, is that it is practically certain that much of the effort of the person who tries to act ethically will be wasted, and that even in so far as fruits are produced, such fruits are certain to last only a relatively short time. By contrast, the great motivational strength of a religious perspective is precisely the certainty it induces on believers that ultimately none of their effort is wasted, even if the immediate results appear to be thoroughly discouraging. This may be better understood by using a specific example. Think for a moment of a manager. He is a normal human being and, accordingly, he is aware that he has been cheated and let down a good number of times in his life. We are not talking here of a starry-eyed young idealist, but of an experienced adult with a good grasp of realities. Our friend is now only two years from retirement and has been offered $100,000 if he manages to influence his firm to do business with a certain supplier. Let us assume also that in his position he could enter into that type of deal from time to time. Of course, he will think of the danger to his reputation, of the possibility of being caught, and so on. We can assume however that, as often will be the case in such situations, he concludes that if he had only to balance the monetary and reputation effects of refusing the inducement against those of accepting it, he would be ready to take his chances and accept it. If that is the case, the most important reason he has not to accept it is a consideration of the loyalty he owes to his firm and to his colleagues, of how he would be breaching these bonds of loyalty and friendship, and of the harm he would be doing to the of his firm. It is at this point that the motivational strength of a purely ethical approach may prove weak. Not that our friend is likely to put it to himself in such , but at the back of his mind he may well feel bothered by feelings that, if he were to put them into words, could sound as follows: "It's all very well to speak of loyalty and friendship, and no doubt they are very beautiful things. Certainly, if I could be certain that by my doing now the right thing in spite of this wonderful opportunity (there is a lot I could do with $100,000!) I could ensure that my firm and my friends there would always stick by me in the future and that 'we would live happily ever after' as in the fairy tales, I would do so without a doubt. After all I am not stupid and I can see that $100,000 is not worth more than a strong community of human beings, all fully loyal to each other, all dedicated to promoting the community's common good... "The problem is that all that really sounds like a fairy tale. In reality it is only too likely that if I reject the $100,000 I will find out later on that two or three other fellows were themselves on the take. In fact, I wonder where the Chief Engineer got the money for the new car he has just bought... Even worse, I might reject the money and two months later there could be a change in management and the new fellows might decide that I was ripe for "delayering" or "decluttering", never mind my over thirty years of faithful service to the company. After all, it is not that I am surrounded by angels in this place.

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"So, it is true that a strong human community is a great thing. As Shakespeare put it, 'Oh few, oh happy few, or band of brothers...' etc., etc. But as there is a very strong chance that if I miss the $100,000 I will still miss the 'band of brothers,' let us conclude that one bird in the hand is better than..." Again, the above musings should not be misunderstood. We are not trying to imply that it is not possible to reply to this train of thought without having recourse to purely religious arguments. On the basis of the general points we examined in the first part of this book it would still be unreasonable to take the money and influence the award of the contract: the fact is that doing so still would be a direct attack on the good of community and on a state of fair relations among the of the firm; it would harm the firm and its ; it would have a significant effect on the manager's self-esteem, on his ability to act intelligently in the future, and on the value he accords to entering into and preserving meaningful, non-exploitative human relationships, and therefore it would affect negatively his relationships with his wife, children and close friends. And it is also true that this way of acting would also affect negatively his ability to perform as a manager. All of these are powerful reasons not to take the money and if our friend is clear-headed and has a strong character he will not take it. And yet...if he is not so clear-headed and his character is not so strong, he may hope that the effect on his character will not be so significant (in which hope he will be deluding himself, but that is not directly to the point here) and that the ultimate effect on each of the of the firm will be relatively slight... and he may well end up taking it. An important factor in his deciding to do so will have been what he perceived as the relative pointlessness of not taking it. How would religious considerations change that? Fundamentally, in two ways. The first is generally well understood and therefore it will require little explanation. Whichever is his religion, something our friend will have learned from it is that God is not indifferent between honesty and dishonesty; He favours the first and abhors the second. Therefore even if our friend could delude himself that his relationships with other people will not be seriously affected, he cannot pretend that that will be the case with this supremely important relationship. It will certainly be very seriously affected. In fact, all the main forms of Christianity and Islam teach that, if our friend the manager were to take the money, his relationship with God could not be repaired until he repented from his dishonest action, that is to say, until he fully made up his mind to undo what he had done in so far as it is possible for him to do so, including making reparation for the harm he has caused. But it is not exclusively a question of our relationship with God. Our rendering of the basic reasoning process of the manager included a reference to the fact that if he could be certain that by renouncing the money he would be really and permanently strengthening and preserving the human community constituted by the firm, it would have been much easier for him to refuse the money. There are strong reasons to believe that this is the case with many basically upright people. At the point of difficulty, what is most demoralising is the fear that one's effort and sacrifice may in the end be for nothing because other people will fail to make similar efforts and sacrifices. And let us not delude ourselves; as we indicated above this fear is distressingly often quite well justified. However,

340 religious considerations are also directly relevant to this issue. At this point the writer hopes that non-Catholic readers will forgive him for introducing a doctrine of his own faith. This is done in order to make the argument concrete, and only because most readers will be able to find some analogous doctrine in their own religions or denominations. The Pastoral Constitution on the Church in the Modern World, Gaudium et Spes, of Vatican Council II, one of the most important and authoritative documents of Catholic teaching in this century, reads as follows in its point no. 39: "For after we have obeyed the Lord, and in his Spirit nurtured on earth the values of human dignity, brotherhood and freedom, and indeed all the good fruits of our nature and enterprise, we will find them again, but freed of stain, burnished and transfigured, when Christ hands over to the Father a kingdom eternal and universal: 'a kingdom of truth and life, of holiness and grace, of justice, love and peace.'" The relevance of this teaching to the situation of the manager of our example is that if he believes it, he will be certain that none of his upright efforts to promote the well-being of individual human beings and human communities will be in vain, even if the observable results of such efforts seem to be a complete failure. In "the kingdom" he will find every single one of his efforts bearing fruit, and in fact bearing much more fruit than he could have hoped. More specifically, the teaching of Vatican II is not just that after many failures and disappointments on earth we will be given a very good reward in heaven. What the text just quoted asserts is that in heaven we will find the very human goods which we struggled to promote on earth - "burnished and transfigured" no doubt, but still the very ones we tried to promote - and in fact we will be able to truly say: "this - for instance, this aspect of the richness of the community which we now form - is here because I refused to take those silly $100,000 in that occasion at the end of my career." Obviously, the psychological situation of the person who believes this at a point of difficulty is very different from that of the person who does not. It is not that the former will follow different ethical precepts than the latter; both may very well share very similar ethical norms. The difference is that the former has much more powerful reasons to adhere to them. We are not arguing here that every Christian denomination and every other religion with a significant number of followers among Nigerian managers has a teaching exactly like the one we have presented; obviously that is not the case. However, each one of them has something like it. More or less clearly, according to the richness of the doctrines taught by different religious bodies, the belief in a transcendent God who governs the universe and who has promised eternal life to men is bound to have an impact on the way men live their lives here and now. More or less clearly, all religions discern a continuity between what we do here on earth and what eternal life will hold for us.

341 Summarising, we can say that ultimately religious teachings add a further significance to business ethics in two main ways. First, according to the way in which our character is shaped by our actions we come, so to speak, closer to, or move away from, God. Secondly, our upright actions always have a point irrespective of whether or not the actions of other people and external events contribute to their earthly success; all of them are individual notes that will eventually be integrated into an infinitely rich symphony which will be played for all eternity. If it is precisely from the vantage point of such religious doctrines that business ethics makes the most sense, people who believe one of those doctrines would be truly shortsighted if they were to behave as if they lived in two separate worlds: the "ordinary" world of business on week-days, and the special world of religion on Fridays, Saturdays or Sundays, as the case may be.

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INDEX advertising and manipulation of desires and truthfulness collateral effects of ethics of social value of aesthetic experience, good of agency theory Aguilar, F. J. Allied Research International altruism reasons for Amaro-Reyes, J. A. American Association of Advertising Agencies American Bar Association American Home Products American National Society of Professional Engineers Angle, H. animal rights appeal, right of appropriate technology Aquinas Aristotle Armstrong World Industries Arrow, K. J. Asch, S. E. Ashford, S. J. Augustine Axelrod, R. B&Q Banting, P. M. Barry, V. Bartlett, C. A. Bausch & Lomb Baum, H. Baumol, W. J. Bennis, W. Bentham, J. Berkman, H. Blackman, S. A. B. Blenkhorn, D. L. Boatright, J. Bodde, D. Body Shop, The Bok, S. Bowen, D. E. Bowie, N. E. Boyle, J. M.

163-65 155-63 165-66 152-66, 303 152-55 37 31n, 72 288n, 290n 102n 11-21 245n 157 340 209 370n 27n 270-72 195 247 264n 255, 306n 290 26n 291n 26n 264n 13, 14 277 226n 99n 173, 176n 229-30, 288-89 292n 120n, 215n 289 10, 65 152n 120n 226n 316n 364n 283 367 203n 298n 51n

branch closings 280-81 Brandt, R. 51n bribes 248-53 Brigham, E. F. 212n British Medical Association 337n Brudney, V. 319n business ethics meaning 4 and business effectiveness 24-34 business firms hip 104-12, 173-74 goals 123-29, 286-87 Byham, W. C. 203n Carlton, D. W. 328n Carroll, S. J. 26n Carson, T. L. 316n channel power 226-30 charges 195 Charity Aid Foundation 121n Chonko, L. B. 27n Christie, I. 102n, 121n Cicero 264n Citibank 244 Clark, R. C. 319n Coase, R. H. 102n Coffee, J. C. 209n, 210n Collins, J.C. 25n, 28n, 124n, 137n 237n commitment 27-9, 30, 63, 69, 203-04 and fair hearing 196 communication 31-2, 288-89 with managers 295 competence, duty of 348-49 competition vs. co-operation 234-36 competitors, responsibilities towards 233-41, 303 compulsive action 42 confidentiality 240, 302, 336-44 and whistleblowing 364-66 conflict of interests 216, 217 302, 316-25 Consumer Product Safety Commission 143 continuous learning, duty of 349-50 Contractor, F.J. 26n cost-benefit analysis 78-88 corporate donations 119-21 corruption, consequences of 245-48 Covey, S. R. 65n, 381n creditors, responsibilities

towards Croponzano, R. culture ethical customers responsibilities towards Cusumano, M. A. Cyert, R. Danziger, Y. F. Davis, E. DeGeorge, R. T. Debreu, G. Den Uyl, D. J. desuetude dignity of human beings diligence, duty of directors discrimination in wages distributors responsibilities towards ethical standards of disclosure to division of labour Domini, A. Donagan, A. Donaldson, T. downsizing Doz, Y. Drucker, P. F. Dunfee, T. W. Duska, R. Dworkin, R. earnings management Easterbrook, F. H. Economic Value Added Elegido, J. M. emotions and family problems shaped by decisions employees as firm ethical responsibilities towards famaily life of interests and directors' decisions protection from harm respect and concern for employment contract

empowerment environment and human fulfilment responsibilities in relation to

219-23 196n 289-92 33-4, 306-08

epiekeia equity ethical climate ethical duties and legal duties ethical investment funds ethical norms absolute non-absolute application ethical principles solidarity rationality

132-71 226n 123n 106n 126n 175n, 271n, 367n, 368n 102n 153n 267 62-3, 172-73 346-47 207-09 182-85 226-33 230-31 231 185-86 25n 41n, 54n, 59n, 60n 56n 209 26n, 241n 203n, 288 56n 185n, 354n 264n 212 328n 126-28 119n, 134n, 198n, 206n, 220n 7-8, 164, 347 376-81 16-7 106-12 172-205 197 101n 197-201 172-73 173

203 270-72 268-78, 295, 302 267 267 283-98 99-100 25n 45-7 45-7 48-9

11-21, 49, 51-3 6-11, 18-9, 38 42-3, 50, 53, 62, 198-99, 362 fairness 50, 54-7, 85, 88, 194 tests of fairness 55-7 and human commitment 173 efficiency 50, 58-9,66, 85-6 non-harm 50, 59-65, 82-3, 115, 237-39 role responsibility 50, 65-74, 351, 355, 381-82 of managers 70-2 and resp. of the firm 121, 245, 277-78 acceptance of side-effects 42-4, 50, 74-6, 115-18, 138, 237-39 co-operation in immorality 50, 76-8, 257-57, 314 ethical standards and business partners 29-30, 33 and communication 31-2, and competitive advantage in community relations 281-83 in distributor relations 232-33 in human resources 203-04 in investor relations 218-19, 222-23 in marketing 166-70 in relations with competitors 241 in supplier relations 225-26 and employee commitment 27-34 and employee monitoring 30-1 and firm's life-span 32-3

and firm size instilling them in organizations shaped by decisions

32-33

ethical stock indexes ethics audits and business effectiveness codes consultants meaning programmes training Etzioni, A. example experience machine extortion Evan, W. M. Ewin, R. E. fair hearing fair prices fair returns fair salary Fama, E. F. family, responsibilities towards Farh, J. L. Feary, V. M. feelings and advertising and famaily problems shaped by decisions Fein, M. fiduciary duties

285-309 19-21, 306-08 25n 296-97

24-34 298-306 297-98 1-6 286-98 292-93 102n 290-91 11 250-52 104n 354n 195-96, 232 146-52, 238-39, 303 212-14 117n, 179-85 208n

371-81 27n 197n 7-8, 164, 347 164 376-81 16-17 187n 71-2, 214, 216, 253, 313-45 financial statements 211-12, 303 Finnis, J. M. 8n, 11n, 36n, 41n, 44n, 51n, 58n, 59n, 62n, 67n, 264n Fischel, D. R. 328n Fisher, F. M. 126n Flanders, S. 126n flex-time 200 focus 215 Fogarty, M. 102n, 121n Ford Pinto car 144-46 Fox, A. 26n franchises 231 Frank, R. H. 16,17, 292n Frankena, W. K. 6n Franks, J. 214n Freeman, R. E. 104n Fried, C. 44n, 59n, 67n, 116n, 190n

Friedman, M. friendship Fuchs, R. fulfilment pleasure as Galbraith, J. K. Gambetta, J. Gapenski, L. C. Garrett, T. M. Gaski, J. F. Gauthier, D. General Electric Company General Motors Ghoshal, S. gifts acceptance of giving Gill, D. Gilson, C. Glazer, M. Goodpaster, K. E. Goodrich Corporation goods incommensurability intelligible intrinsic vs. instrumental

96n, 96-103, 97n, 99n, 213 18 375n 1, 7, 37-8, 163, 270-72 10-11, 163 153n 26n 212n 232n, 236n 227n 102n 176, 203 212, 232, 244 173, 176n 230, 302, 325-27 245-58, 302 288-89 152n 371n 6n, 99n, 324 363-64, 365 61-2 40-2

7-8, 36-8, 39 objective 39-40 religious significance 395 Gordon, D. D. 25n Gould, D. J. 245n Grant, C. 99n Greenleaf, R. K. 323n Grisez, G. G. 17n, 36n,46n, 51n, 54n, 60n, 62n, 65n, 67n, 74n, 306n group responsibility 21-4, 100-01 and individual responsibility Grove, A. Guha, R. Guiltinan, J. P. Haas, R. Hackman, J. R. Hadden, T. Hall, W. D. Hamel, G. Hampden-Turner, C. harassment of employees Harcourt, G. C. harmony with others, good of harmonization of commitments Harris, R. 214n Hart, O. Hart, H. L. A.

313-14 176 270n 139n 233 187n, 189n 101n 286n 26n, 177n, 241n 306n 197-201 126n 38 358, 362-85 26n 264n

Hartman, G. hedging Holmes, Justice honesty Houston, J. Hume, D. Hunt, S. D. Iaffaldano, M. T. IBM impartial spectator test inner integration insider trading Institute of Business Ethics Intel intelligence gathering Jackall, R. Jackson, M. James, G. G. Jenkinson, T. Jensen, M. C.

44n 220n 260 333-36 298n 56 27n, 226n 187n 176, 244 56 9-10 302, 327-33 298n 176 239-41 292n 160 368n 106n 31n, 125n, 208n, 214n 218n 229 185-89 188 32

Johnson, H. O. job design job enrichment just-in-time Kahneman, D. Kant, I. 55 Kavanagh, J. P. 280n Kay, J. A. 25n, 125n, 126n, 176n Kelman, S. 83n Keynes, M. 286 Kinder, P. 25n Kissler 209n Klitgaard, R. 245n Klonoski, R. J. 232n, 236n Knetsch, J. L. 147n knowledge, good of 37 know-how 341-44 Kohlberg Kravis Roberts & Co. 217-18 Kornha, A. 187n Kotter, J. P. 316 Kouzes, J. M. 323n Laczniak, G. R. 137n, 139n, 157n Lagos Business School 235-36, 292-94 Larmer, R. A. 357n, 363n, 365 law, compliance with 210, 260-68, 275-78 302 Lawler, E. E. 203n Lawrence, P. R. 187n, 299n Lawson, G. 152n Leiser, B. M. 156n, 157n, 163n Leopold, A. 270n leveraged buy-outs 214-18 Levi Strauss 233

life, good of Lippke, R. L. living wage local community, responsibilities towards Lorange, P. Lotus Development Corporation love 18 loyalty employer/employee and whistleblowing MacIntyre, A. Macneil, I. R. Mahoney, J. management selection Manley I, W. W. Manne, H. G. March, J. Margolis, J. marital privilege market for corporate control marketing communication, ethics of Marks & Spencer Marriott, J. W. Marriott Corporation Marris, R. Martin, C. L. Marx, G. Matthew Jr., J. B. Matthews, M.C. Mauro, P. Mayer, C. McGowan, J. J. Meckling, W. H. Mele, D. Merck mergers Merrill, R. R. Merrill, A. R. Metropolitan Life Insurance Company Meulbroek, L. Microsoft Mishan, E. J. misinformation about competitors Mobil Monitoring of employees Monsanto Moore, J. M. moral character shaped by decisions Morgan, R. M. Morita, A. Morris, C. 364n

37 191n 179-82 278-81 26n 240 174, 176, 177, 353-61 364-66 83n 26n 161n 287-88 298n 210n, 328n 123n 316n 364 209-10 152-66 25n 28 28, 32 215n 196n 32 99n 298n 247n 27n, 106n 126n 31n 197n 28, 136-37 216-18 381n 381n 221n 330n 240 78n 239 209 30-31, 210n 283 332n 17-20 226n 359, 360

Mowday, R. T. Muchinsky, P. M. Mueller, D. C. Murphy, P. E. Naess, A. Neale, M. A. Neves, J. S. Newton, L. Nigeria Noonan, J. T. Northcraft, G. B. Nozick, R. obedience, duty of Odagiri, H. Okun, A. Oldham, G. R. ombudsmen O'Reilly, C. 306n other consitituency statutes Organ, D. W. Ostroff, F. Ouchi, W. G. Ovitz, M. ownership Packard, V. Paine, L. S. Parent, W. A. Parfit, D. Parkinson, J. E. participation pay differentials Pepsi-Cola Perry, J. Peters, T. J. plan of life planned obsolescence plant rights Plato play, good of Podsakoff, P. M. political contributions Porras, J. I. Porter, L. W. Porter, M. Pozner, B. Z. Prahalad, C. K. 26n, 177n, 241n prisoner's dilemma privacy Procter & Gamble profits and loyalty as firm's objective

26n 187n 51n 137n, 139n, 157n 270n 287n 277n 218n 29-30 245n 287n 11n 341, 352-53 125n 147n 187n, 189n 295-96 101n 27n 203n 26n 184n 206 153n 237n, 239, 240n 190n 51n, 63n, 75n 99n, 215n 185-89 183-85 160 27n 25n, 28, 119n 67-70 139-41 270-72 264n 37 27n 302 25n, 28n, 124n, 137n, 237n 26n 239n 323n 12-5, 29, 226 190-95, 302 209 354-55 123-29

maximization of

96-128

products harmful responsibilities in relation to Purcell, T. V. Quelch, J. A. questionable payments Rappaport, A. Rawls, J. Raz, J. religion and ethics good of reputation residual risk Ricardo, D. right to work Robinson, S. Rollin, B. Rushton, J. P. Ruskin, J. Russow, L. M. RJR Nabisco safety, responsibilities in relation to Sagoff, M. Sanyal, R. N. 277n Schlegelmilch, B. B. Schleifer, A. Schoell, W. F. Schoorman, F. D. Schumpeter, J. A. Sears self-esteem Sen, A. Senge, P. M. 375n, 376n sensible motivation Service Paradigm sexual harassment Sethi, S. P. Shakespeare shareholders not owners rights of Shaw, R. B. Shaw, W. H. Shepherd, J. C. Sidgwick, H. Sieff, M. Simon, H. A. Singer, P.

137-38 136-41, 303 297n 152n 245-258 125n 56, 67n 11n, 264n 390-96 38 25-7, 29, 33-4 208-09 126n 174-79, 302 204 270n 17n 185 270n 217, 218, 221-22 141-46, 295, 302 83n 298n 209n, 246n 139n 27n 126n 143 19-20 51n 40-2 132-5, 138, 140, 142, 148, 190 197, 303 282n 189 101, 206-07 100-102, 206-19 17n, 36n, 51n, 54n, 60n 62n, 65n, 306n 99n 315n 65 25n 123n 270n

Smith, A. 56, 185-86, 215, 237 Smith, D. 203n Smith, D. K. 203n Smith, K. G. 26n Smith, N. C. 152n social responsibility 95-131 and legal duties 99-100 and shareholders' rights 100-02 and the invisible hand 102-3 Friedman, M., on 96-103 limits of 103-4 society, responsibilities towards 243-84 Solomon, R. C. 1, 2n, 4n Sonnenfeld, J. 299n Sony 203, 359 Sparkes, R. 25n speciesism 270 stability of employment 174-79 stakeholders theory 104-06, 190 Star, J. 126n Stead, W. A. 287n Stead, J. G. 287n Steers, R. M. 26n, 27n Stone, C. D. 99n, 270n, 295n Strauus, G. 187n Stuart-Mill, J. 65 Summers, L. 209n supervisory board 209 suppliers, responsibilities towards 223-26 Takeishi, A. 226n take overs 209, 216-18, 329-30 task significance 169-70, 189-90 tax laws 246, 263, 265 Texas Instruments 297 Thaler, R. 147n Thomson, J. 190n Tierney Jr., P. E. 218n tit-for-tat strategy 13-15 Toyota 203 trade unions, duties in relation to 201-02 trust 25-7, 29, 30-33, 31n, 204, 219 and whistleblowing 366-67 Turner, A. N. 187n Tyler, A. R. 196n United Nations 245n unity 71 universalizability 55-6 unjust laws 263-66 utilitarianism 65-7 Valdez principles 277n Vandivier, K. 363, 365, 369 Vatican Council II 395 Veblen, T. 153n

veil of ignorance test Velasquez, M. G. Veljanovski, C. G. Vishny, W. A. vocational principle Waldron, J. Walt Disney Co. Waluchow, W. Warfare Paradigm Waterman, R. H. Weber, J. Welch, J. Wellins, R. S. Wenz, P. S. whistleblowing willing Wood, V. R. work satisfaction work, significance of work teams Worrell, D. L.

56-7, 199-200 194, 366n, 367n, 371n 102, 103n 246n 65-74 101n 184n 183n 132, 151, 235, 287 25n, 28, 119n 297n 176 203n 270n 296, 363-71 41n, 42-4 27n 186-87 175, 185, 189-90 203 287n