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Thursday, September 5, 2013

Business Ethics Through Rose-Colored Glasses

That business ethics scholars are as though children playing in the clouds in claiming that the vast majority of business practitioners are good-intentioned, or ethical, is an empirical statement that is in need of empirical verification. I suspect the scholars' typical utopian perspectives, curiously coincident with prescriptive ideological "Thou shalt nots," suffer from not touching ground from gazes atop ivory towers. That is to say, the scholars are factually incorrect. Let us, therefore, sweep away the fog so at least we have a realistic picture of what is actually going on "on the ground."

Off the top of my head, two industries come to mind that are very likely infected by a sordid, unethical mentality: Wall Street banks and the hospitality industry  (i.e., hotels and motels). I am increasingly astounded at the sheer ease with which managers and employees working at low- and medium-class hotels blatantly lie or go back on their word to customers, or "guests" (a term whose misapplication is enforced by omniscient herd animals and their task-masters working not only in hotels, but also restaurants and retail stores, such as Target).  
Dwarfing particular unethical managers and employees, entire companies have unethical cultures. Enron and Arthur Andersen were two infamous cases. The sheer amount of wealth that vanished with Enron's demise suggests just how costly to us all even just one unethical company can be. Beyond the collateral damage to the Gulf of Mexico and Daiichi, Japan, respectively, the world was astonished to learn that both BP and Tepco added insult to injury as foremost on their respective executives' minds was to hiding from governmental and public eyes the extent of damage in order to minimize legal liability, even though lying about the extent of damage as it was unfolding hampered governmental responses to minimize the damage.

At some point, a severely unethical mentality becomes malignant, even sociopathic, narcissism. In Tepco's case, the company's public responsibility (typically mislabeled as "corporate citizenship," a legal fiction) meant lobbying the Japanese Prime Minister a couple years later to renounce his campaign pledge, which he promptly did just three days into office, to rid Japan of nuclear power. Private gain over public good is a hallmark of unethical business strategy.

At the industry level, entire systems, such the one that relates rating agencies to other institutions, and the way all-you-can-eat buffets are rigged lies are intrinsically unethical in their very design, by design (i.e., kein Zufall). The typical franchise agreement fails so miserably in terms of the corporation being able (or even willing) to hold a local franchisee/manager accountable for having lied to customers that the arrangement itself can be considered unethical (e.g., violating Rawls' justice as fairness--to the customer).  

Particularly problematic are the institutional conflicts of interest that undergird the design of entire industries, such as that of rating agencies and public accounting firms. We have become so accustomed to the legal-fictions behind the ethically-warped incentives that reside in these designs that we regard the institutional role-conflicts that are so easily-exploited by opportunistic, self-aggrandizing worker-bees and primped managers as necessary evils. What we presume to be necessary is often only mislabeled convenience that can be jettisoned if we as a society are willing to take the candy away from the spoiled children who pretend to be adults (e.g., Richard "tantrum" Fuld, who was both CEO and Chair--another conflict of interest--at Lehman Bros).

                                                                      Richard Fuld, formerly CEO and Chairman at Lehman Brothers.

If we are to seriously confront the epidemic of lying (or not keeping one's word) to customers [oops, I mean "guests," who strangely enough must pay for the privilege] and evading formalistic accountability-mechanisms, we only kid ourselves by doing so with rose-colored, idyllic glasses. Lest it be said that a company's corporate social responsibility program makes up for unethical conduct at the store-level, just try to convince an offended customer!  Does Starbucks' "profit-sharing" with coffee growers or support for gay marriage make up for a store manager over-charging customers in spite of a company policy to the contrary? Do Wal-Mart's CSR programs "in the community" make the company's atrocious labor practices, which include terminating employees who try to unionize, somehow acceptable?  
Moreover, to equate CSR with business ethics is to make a category mistake as well as to commit Hume's naturalistic fallacy. That is to say, norms and ethical principles are different things, and the "is" of social norms cannot justify as ethical principles can. To say that an existing social norm justifies a certain corporate culture or policy is not to justify the latter ethically. Alignment with society's norms and values is admittedly in a company's long-term interest (as a going concern), but such congruence does not justify the alignment ethically (i.e., in terms of should).