Business Ethics

There is little guidance on how to treat the new syllabus addition of Business Ethics, nor as to whether the Environment should be inlcuded with Bsiness Ethics or dealt with as a separate topic.  So I prefer students to study case studies, some of which bring both of these themes together (see Trafigura and Erin Brokovitch below).  Don’t be too worried about the Economics of all this, but try to focus on the ethics.  Some fascinating issues emerge, such as the separation thesis, that business leaders manage to compartmentalise their lives and separate out business from morality.

Some terms:

• Bank bailout
• Bonus culture
• Consumer sovereignty
• Corporate responsibility
• Fraud
• Insider dealing
• Profit motive
• Stakeholders
• Tax avoidance
• Whistleblowing

 

 

Introduction

1. Thinking about ethics statements

Hands on: in the computer lab do the toolbox self-assessment at:

http://www.ethicsandbusiness.org/toolbox.htm

Film Clip: The Constant Gardener (Pfizer drugs company, Nigeria and drug trials) Independent April 6th 2009

Three ethical issues in the Pfizer case:
1.

2.

3.
Research: what goes in a business ethics statement?

http://www.ethics.org/resource/common-ethic-code-provisions

 

Activity: choose six values from this list and write your own corporate statement.
My corporate values
1.
2.
3.
4.
5.
6.
http://www.ethics.org/resource/definitions-values

My value statement:

 

 

3. Go to the Good Corporation website and review their criteria for ethical business practice.

http://www.goodcorporation.com/documents/Standard_000.pdf

 

2.Is business ethics a contradiction in terms?

Powerpoint:  Basic Business Ethics http://www.andygustafson.net/business/powerpoint_presentations.htm

There is one way, after all, that “business” and “ethics” do not necessarily go together. Succeeding in business is largely about advancing private interests – aggressively competing against other people, beating them out for the same prize, and having unlimited ambition for money, position, and power. The moral life, by contrast, focuses on our duties to others (deontology) or the consequences (teleology). For example, Kantian ethics teaches us not to hurt anyone (deliberately or accidentally), to place other people’s interests ahead of our own when necessary, and always to treat others with the dignity and respect they deserve. Yet being scrupulously honest and caring in our business dealings with others can sometimes cost us sales, deals, money, and promotions. Refusing to go along with other people’s unethical behaviour can even cost us our jobs. When taken too far in business, even healthy self-interest, competitiveness, and ambition can go turn into selfishness, aggression, and greed -traits that are clearly at odds with the moral life.

http://www.ethicsandbusiness.org/toolbox.htm
Activity: do you agree that business life and the moral life are separate things?

 

 

 

 

Construct an argument from your ethics toolkit from a deontological and teleological perspective that business decisions need to be ethical decisions.

 

Ethical Egoism and Market Economics

Issue: is market economics really a theory of ethical egoism?

Friedrich Nietsche wrote:

“What is strong wins. That is the universal law. To speak of right and wrong per se makes no sense at all. No act of violence, rape, exploitation, destruction is intrinsically ‘unjust’, since life itself is violent, exploitative, and destructive and cannot be conceived otherwise”. (Genealogy of Morals 1966 pg 208)

Ayn Rand has argued in the Virtue of Selfishness that we seek our own good first regardless of how it affects others. The highest goal is our own self-preservation, and so this is our first duty. Louis Pojman criticises Rand:

Rand ambiguously slides back and forth between selfishness and self-interest. But these are different concepts. Self-interest means we are concerned to promote our own good, although not necessarily at any cost. I want to succeed, but recognise that I will sometimes justly fail to do so. I accept the just outcome even though it is frustrating. But selfishness entails that I sacrifice the good of others for my own good, even when it is unjust to do so. Self-interest is a legitimate part of our nature, whereas selfishness is an aberration. A failure to accept the moral point of view.
Pojman 2004 pg 296

 

Explain the difference between selfishness and self-interest.

 

 

 
According to market economics, rational consumers try to maximise their own satisfaction. Where there are external costs, such as pollution, noise, congestion, it is up to the Government to make good the deficiency. Business cannot be expected to perform this social role. Professor Milton Friedman has argued something similar.

Economist Milton Friedman articulates this view in an essay that is quite popular with business students, “The Social Responsibility of Business Is to Increase its Profits.”1 According to Friedman, corporate officers have no obligation to support such social causes as hiring the hard-core unemployed to reduce poverty, or reducing pollution beyond that mandated by law.

Their sole task is to maximize profit for the company, subject to the limits of law and “rules of the game” that ensure “open and free competition without deception or fraud.”

Friedman advances two main arguments for this position. First, corporate executives and directors are not qualified to do anything other than maximize profit. Business people are expert at making money, not at making social policy. They lack the perspective and training to address social issues.

Second, and more fundamentally, corporate officers have no right to do anything other than maximize profit. If they invest company funds to train the chronically unemployed or reduce emissions below legal limits, they in effect levy a “tax” on the company’s owners, employees and customers in order to accomplish a social purpose. But they have no right to spend other people’s money on social welfare projects. At best, only elected representatives of the people have such authority. Sole proprietors can spend the company’s money any way they want, since it is their money, but fiduciaries and hired managers have no such privilege. If they contribute corporate money to arts or community development, it must be with an eye to increasing profit, perhaps by attracting better employees or improving the company’s image. If they want to contribute to other social causes, they are free to join civic organizations and donate as much of their own money as they please. John Hooker
http://web.tepper.cmu.edu/ethics/whybizethics.pdf

Evaluate Friedman’s argument.

 

 

 

However, there is a problem here. Suppose we have not passed adequate laws to prevent pollution. Or suppose business can suppress the truth, so escaping justice, or move to another country with laxer laws. Is there a sense in which ethical requirements are more universal?

 

 

 

 

 

? Whistleblowing is never in the individual’s interest, but always in the interest of the wider community. Construct an ethical argument for whistleblowing which counter-acts the theory of ethical egoism above.

 

Stakeholder Theory

A stakeholder is anyone who has an interest in the long-term future of a company.

R Edward Freeman Strategic Management: a Stakeholder Approach 1988
Hands on: draw a diagram below of the major stakeholders in a company.

 

 

 

Stakeholder theory does a better job of explaining and directing managerial behaviour in markets. Stakeholder theory claims that whatever the ultimate aim of the corporation or other form of business activity, managers and entrepreneurs must take into account the legitimate interests of those groups and individuals who can affect (or be affected by) their activities. It is quite natural to suggest that the very idea of value creation and trade is intimately connected to the idea of creating value for stakeholders. Business is about putting together a deal so that suppliers, customers, employees, communities, managers, and shareholders all win continuously over time. In short, at some level, stakeholder interests have to be joint-they must be travelling in the same direction-or else there will be exit, and a new collaboration formed (Venkataraman 2002).

The best deal for all is if managers try to create as much value for stakeholders as possible. There are, of course, conflicts among stakeholder interests but these conflicts must be resolved so that stakeholders do not exit the deal-or worse-use the political process to appropriate value for themselves or regulate the value created for others.

All of this seems to us to be managerial common sense, dressed up in its Sunday finery for publication. Stakeholder theory is inherently managerial, as Donaldson and Preston (1995) argue and as countless executives have testified (for a recent example, see George 2003). As we argue elsewhere in this journal, stakeholder theory finds its justification in a pragmatist approach to management theory (Wicks and Freeman 1998).

Freeman, Wicks, and Parmar: Stakeholder Theory and “The Corporate Objective Revisited” Organization Science 15(3), pp. 364-369, ©2004 INFORMS

http://my.t-bird.edu/files/personalfiles/133488/10Corp_Obj_Freeman_Reply.pdf (for full article)

Activity: summarise Freeman’s view of the significance of stakeholder theory for business ethics.

 

 

 

Evaluate: can you see any weaknesses in stakeholder theory?

 

 

 
“Mitchell, et al. derive a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviors), and urgency (time sensitivity or criticality of the stakeholder’s claims). By examining the combination of these attributes, 8 types of stakeholders are derived along with their implications for the organization.” (source: Wikepedia) Are all business relationships ultimately relationships of power? Is this one difference between business and the moral life generally?
Source: http://www.andygustafson.net/business/handouts.htm

 

Business and the Environment

“We all share in the fate of the planet; the way we conduct business may significantly affect our quality of life-whether through increasing pollution or altering the climate…” Kevin Gibson

Reasons given to be concerned about the Environment:

1. Sustainability: Not using more resources than we can replace (consider future
generations)
Example: at current rates of consumption, no more oil in ? 25 yrs.

Critics of sustainability say that it is too conservative and even if we deplete some of our known resources, our resourcefulness will allow us to pursue other means of fuelling our needs.

2. Ecosystem/Animal life: Our practices impact animals and plants
a. This has impact on us (global warming via rainforest depletion, extinction)
b. Animals suffer, and suffering pain is bad. (Do animals suffer?)
c. Stewardship argument (This can be theistically based.)
“we must preserve Nature”

But What is Natural?:
a. Not artificial or manmade
b. Includes human: since humans are natural, our creations are natural, just like
badger sets

3. Values:
1. Intrinsic: Having value in itself, or inherent value. We value it for its own sake.
2. Instrumental: Having value because of what it can do.

4. Negative Externality:
Cost imposed on a third party, usually without their knowledge or consent.

Examples:

1. Oil Drilling-spillage which is not cleaned up. Cleaning it would add
to the cost of oil, and gasoline. (See case Study 2 Trafigura below)
2. Countries not having pollution control measures which add to cost of
energy or car manufacturing.
3. Companies which produce a product that causes health harm which insurance or public health coverage have to ultimately pay for (cigarettes, coal burning plants, Obesity through cheap fast food, etc).

Theses externalities seem a. unfair and unjust b. done as exploitation of the powerless or ignorant c. hidden and so hard to locate or notice.

 

Business and Deregulated Markets

Julian Simon was professor of Business Economics at the University of Maryland. He believes that free markets with minimum government regulation are the best way to protect our futures. The full text of his book can be found on the link below.
http://www.juliansimon.com/writings/Ultimate_Resource/

Raw materials and energy are getting less scarce. The world’s food supply is improving. Pollution in the developed countries has been decreasing. Population growth has long-term benefits, though added people are a burden in the short run. Most important, fewer people are dying young.

These assertions, publicly stated in 1970 and then in the first edition of this book in 1981, have stood the test of time. The benign trends have continued until this edition. Our species is better off in just about every measurable material way. And there is stronger reason than ever to believe that these progressive trends will continue indefinitely.
Indeed, the trends toward greater cleanliness and less pollution of our air and  water are even sharper than before, and cover a longer historical period and more
countries (though the environmental disaster in Eastern Europe has only recently  become public knowledge). The increase in availability and the decrease in raw  materials scarcity have continued unabated, and have even speeded up. None of the  catastrophes in food supply and famine that were forecast by the doomsayers have  occurred; rather, the world’s people are eating better than ever. The conventional  beliefs of the doomsayers have been entirely falsified by events during past decades.

When we widen our scope beyond the physical matters of mortality, natural  resources, and the environment covered in this book – to the standard of living,
freedom, housing, and the like – we find that all the trends pertaining to economic welfare are heartening, also. Perhaps most exciting, the quantities of education that  people obtain all over the world are sharply increasing, which means less tragic waste of human talent and ambition.

Many of the trends reported here are in fact commonplaces in among the scientists who study them. The consensus of agricultural economists has consistently been an  optimistic point of view about food supply, and the consensus of natural resource economists has never been gloomy. But the scientific consensus with respect to population growth largely changed in the 1980s. The consensus of population economists is now not far from what is written in this book; the profession and I agree that in the first few decades the effect of population growth is neutral. Such institutions as the World Bank and the National Academy of Sciences have recanted their former views that population growth is a crucial obstacle to economic development. (I am still in the minority when I emphasize the long-run benefits on balance of more people.)

The central issue is the effects of the number of people upon the standard of living, with special attention to raw materials and the environment. On balance the
long-run effects are positive. The mechanism works as follows: Population growth and increase of income expand demand, forcing up prices of natural resources. The increased prices trigger the search for new supplies. Eventually new sources and substitutes are found. These new discoveries leave humanity better off than if the shortages had not occurred.

The vision which underlies and unifies the various topics is that of humans beings who create more than they destroy. But even talented and energetic people require an incentive to create better techniques and organizations, and protection for the property that is the fruit of their labors. Therefore, the political-economic structure is the crucial determinant of the speed with which economic development occurs. In the presence of economic liberty and respect for property, population growth causes fewer problems in the short run, and greater benefits in the short run, than where the state controls economic activity.

In evaluating the effects of population growth, it is crucial to distinguish between the long run and the short run. Everyone agrees that in the short run additional people cause problems. When the pilgrims arrived in the United States, real problems arose for the Native Americans. (“There goes the neighborhood.”) And when some Indians pointed out that there would be benefits in the long run, each of the others said, “Not in my hunting grounds.” Babies use diapers and then schools before they become economically productive. Even immigrants need some services before they get to work.

In the short run, all resources are limited – natural resources such as the pulpwood that went into making this book, created resources such as the number of pages Princeton University Press can allow me, and human resources such as the attention you will devote to what I say. In the short run, a greater use of any resource means pressure on supplies and a higher price in the market, or even rationing. Also in the short run there will always be shortage crises because of weather, war, politics, and population movements. The results that an individual notices are sudden jumps in taxes, inconveniences and disruption, and increases in pollution.

But what about the effects in the longer run? What would life be like now if the Native Americans had managed to prevent immigration from Europe and there had been no population growth from then until now? Or if growth had stopped ten thousand years ago on earth when there were only a million people? Do you think that our standard of living would be as high as it is now if the population had never grown from about four million human beings perhaps ten thousand years ago? I don’t think we’d now have electric light or gas heat or autos or penicillin or travel to the moon or our present life expectancy of over seventy years at birth in rich countries, in comparison to the life expectancy of 20 to 25 years at birth in earlier eras, if population had not grown to its present numbers.

The longer run is a very different story than the shorter run. The standard of living has risen along with the size of the world’s population since the beginning of recorded time. And with increases in income and population have come less severe shortages, lower costs, and an increased availability of resources, including a cleaner environment and greater access to natural recreation areas. And there is no convincing economic reason why these trends toward a better life, and toward lower prices for raw materials (including food and energy), should not continue indefinitely.

Contrary to common rhetoric, there are no meaningful limits to the continuation of this process. (Resolving this paradox entailed considerable explanation in the early chapters.) There is no physical or economic reason why human resourcefulness and enterprise cannot forever continue to respond to impending shortages and existing problems with new expedients that, after an adjustment period, leave us better off than before the problem arose. Adding more people will cause us more such problems, but at the same time there will be more people to solve these problems and leave us with the bonus of lower costs and less scarcity in the long run. The bonus applies to such desirable resources as better health, more wilderness, cheaper energy, and a cleaner environment.

 

Activity: summarise Julian Simon’s argument for minimum intervention in the market.

 

 

 
What problems might result from the unregulated market?

 

 

 
Criticisms of Free Market Valuation:

1. Externality of pollution is often not accounted for.

2. Lack of markets for such goods as endangered species and scenic views.

3. Lack of tradable property rights for clean water, oceans, atmosphere.

4. Inability of future generations to represent their own interest in contemporary
markets.

 

Cost-benefit analysis

Steven Kelman argues that cost- benefit analysis is a flawed method of analysis. The extract below is from the article on the following internet link.

http://fiesta.bren.ucsb.edu/~costello/courses/ESM204/ESM204_2007/Readings/CBAEthicalCritique.pdf

Cost-benefit analysis assumes three things:

1. An act should not be undertaken unless its benefits outweighs its costs.
2. It is desirable to attempt to express all benefits and costs in a common monetary measure so that they can be compared.
3. Cost-benefit technique is the best method of decision making so it warrants the expense needed to promote and use it over other possible methods.

How do we decide whether a given action is morally right or wrong and hence, assuming the desire to act morally, why it should be undertaken or refrained from? Like the Moliere character who spoke prose without knowing it, economists who advocate use of cost-benefit analysis for public decisions are philosophers without knowing it: the answer given by cost-benefit analysis, that actions should be undertaken so as to maximize net benefits, represents one of the classic answers given by moral philosophers-that given by utilitarians. To determine whether an action is right or wrong, utilitarians tote up all the positive consequences of the action in terms of human satisfaction. The act that maximizes attainment of satisfaction under the circumstances is the right act. That the economists’ answer is also the answer of one school of philosophers should not be surprising. Early on, economics was a branch of moral philosophy, and only later did it become an independent discipline.

Before proceeding further, the subtlety of the utilitarian position should be noted. The positive and negative consequences of an act for satisfaction may go beyond the act’s immediate consequences. A facile version of utilitarianism would give moral sanction to a lie, for instance, if the satisfaction of an individual attained by telling the lie was greater than the suffering imposed on the lie’s victim. Few utilitarians would agree. Most of them would add to the list of negative consequences the effect of the one lie on the tendency of the person who lies to tell other lies, even in instances when the lying produced less satisfaction for him than dissatisfaction for others. They would also add the negative effects of the lie on the general level of social regard for truth-telling, which has many consequences for future utility. A further consequence may be added as well. It is sometimes said that we should include in a utilitarian calculation the feeling of dissatisfaction produced in the liar (and perhaps in others) because, by telling a lie, one has “done the wrong thing.” Correspondingly, in this view, among the positive consequences to be weighed into a utilitarian calculation of truth-telling is satisfaction arising from “doing the right thing.”

This view rests on an error, however, because it assumes what it is the purpose of the calculation to determine -that telling the truth in the instance in question is indeed the right thing to do. Economists are likely to object to this pointy arguing that no feeling ought “arbitrarily” to be excluded from a complete cost-benefit calculation, including a feeling of dissatisfaction at doing the wrong thing. Indeed, the economists’ cost-benefit calculations would, at least ideally, include such feelings.

Note the difference between the economist’s and the philosopher’s cost-benefit calculations, however. The economist may choose to include feelings of dissatisfaction in his cost-benefit calculation, but what happens if somebody asks the economist, “Why is it right to evaluate an action on the basis of a cost-benefit test?” If an answer is to be given to that question (which does not normally pre occupy economists but which does concern both philosophers and the rest of us who need to be persuaded that cost-benefit analysis is right), then the circularity problem re-emerges. And there is also another difficulty with counting feelings of dissatisfaction at doing the wrong thing in a cost-benefit calculation. It leads to the perverse result that under certain circumstances a lie, for example, might be morally right if the individual contemplating the lie felt no compunction about lying and morally wrong only if the individual felt such a compunction!

This error is revealing, however, because it begins to suggest a critique of utilitarianism. Utilitarianism is an important and powerful moral doctrine. But it is probably a minority position among contemporary moral philosophers. It is amazing that economists can proceed in unanimous endorsement of cost-benefit analysis as if unaware that their conceptual framework is highly controversial in the discipline from which it arose- moral philosophy.

Let us explore the critique of utilitarianism. The logical error discussed before appears to suggest that we have a notion of certain things being right or wrong that predates our calculation of costs and benefits. Imagine the case of an old man in Nazi Germany who is hostile to the regime. He is wondering whether he should speak out against Hitler. If he speaks out, he will lose his pension. And his action will have done nothing to increase the chances that the Nazi regime will be overthrown: he is regarded as somewhat eccentric by those around him, and nobody has ever consulted his views on political questions. Recall that one cannot add to the benefits of speaking out any satisfaction from doing “the right thing,” because the purpose of the exercise is to determine whether speaking out is the right thing. How would the utilitarian calculation go? The benefits of the old man s speaking out would, as thenexample is presented, be nil, while the costs would be his loss of his pension. So the costs of the action would outweigh the benefits. By the utilitarians’ cost-benefit calculation, it would be morally wrong for the man to speak out.

Source: Steven Kelman AEJ Jan/Feb 1981

Activity: outline the similarities between a cost-benefit approach and utilitarian ethics.

 

 
Think of three problems with utilitarian ethics which could also be applied to cost-benefit analysis.

A counter-view: Gerrard Butters of the Federal Trade Commission

In his article, Steven Kelman argues against the increased use of cost-benefit analysis for regulatory decisions involving health, safety, and the environment. His basic contention is that these decisions are moral ones, and that cost-benefit analysis is therefore inappropriate because it requires the adoption of an unsatisfactory moral system.

He supports his argument with a series of examples, most of which involve private decisions. In these situations, he asserts, cost-benefit advocates must renounce any moral qualms about lies, broken promises, and violations of human rights.
We disagree (and in doing so, we speak for ourselves, not for the Federal Trade Commission or its staff). Cost-benefit analysis is not a means for judging private decisions. It is a guide for decision making involving others, especially when the welfare of many individuals must be balanced. It is designed not to dictate individual values, but to take them into account when decisions must be made collectively. Its use is grounded on the principle that, in a democracy, government must act as an agent of the citizens.

We see no reason to abandon this principle when health and safety are involved. Consider, for example, a proposal to raise the existing federal standards on automobile safety. Higher standards will raise the costs, and hence the price, of cars. From our point of view, the appropriate policy judgment rests on whether customers will value the increased safety sufficiently to warrant the costs. Any violation of a cost-benefit criterion would require that consumers purchase something they would not voluntarily purchase or prevent them from purchasing something they want. One might argue, in the spirit of Kelman’s analysis, that many consumers would want the government to impose a more stringent standard than they would choose for themselves. If so, how is the cost-safety trade-off that consumers really want to be determined? Any objective way of doing this would be a natural part of cost-benefit
analysis.

Kelman also argues that the process of assigning a dollar value to things not traded in the marketplace is rife with indignities, flaws, and biases. Up to a point, we agree. It is difficult to place objective dollar values on certain intangible costs and benefits. Even with regard to intangibles which have been systematically studied, such as the”value of life,” we know of no cost-benefit advocate who believes that regulatory staff economists should reduce every consideration to dollar terms and simply supply the decision maker with the bottom line. Our main concerns are twofold: (1) to make the major costs and benefits explicit so that the decision maker makes the trade-offsconsciously and with the prospect of being held accountable, and (2) to encourage the move toward a more consistent set of standards.

The gains from adopting consistent regulatory standards can be dramatic. If costs and benefits are not balanced in making decisions, it is likely that the returns per dollar in terms of health and safety will be small for some programs and large for others. Such programs present opportunities for saving lives, and cost-benefit analysis will reveal them. Perhaps, as Kelman argues, there is something repugnant about assigning dollar values to lives. But the alternative can be to sacrifice lives needlessly by failing to carry out the calculations that would have revealed themeans for saving them. It should be kept in mind that the avoidance of cost-benefit analysis has its own cost, which can be gauged in lives as well as in dollars.

 

Activity: summarise the Federal Trade Commission’s defence of cost-benefit analysis.

 

 

Evaluate: (a case study is available on this site) in 1971 Ford introduced the Pinto and soon realised that a design fault meant the fuel tank would rupture in the event of a rear end collision. A cost-benefit analysis revealed it would cost $11 per car to rectify the fault. Assuming 2,100 burnt vehicles, 180 burn deaths and 180 injuries over the model’s life, they valued the amount of benefit at $49.5 million of putting the fault right , and a cost of $137m involved in the recall for modification.

So it was rational on cost-benefit analysis to do nothing (Ford would save itself $87m).

What would a) a Kantian and b) a utilitarian say to the Ford management?

 

 

 

 

Is the example a serious challenge to cost-benefit analysis?

 

 

Critical Responses:

1. Certain decisions might be right even though its benefits do not outweigh its costs.
2. There are good reasons to oppose efforts to put monetary values on non-marketed benefits and costs
3. Since there are many situations where one would not wish to use cost-benefit analysis, and given that many non-market values should not be commodified and given a market value, it is best not to use this sort of analysis.

Pricing something decreases its perceived value:
a. Non-market exchange is non-market because it is not supposed to be able to be bought. It is thought to have a priceless value – not for sale.
b. When we try to price non-market ‘goods’ such as clean air, peace and quiet, or views, we run into two key problems:
a. People usually want more to give up what they have than they are willing to pay for what they don’t have.
b. Lots of factors go into price fluctuations, and to artificially single out one factor is misleading:

“To use the property value discount of homes near airports as a measure of people’s willingness to pay for quiet means to accept as a proxy for the rest of us the behaviour of those least sensitive to noise, of airport employees or of others who are susceptible to an agents assurances that “it’s not so bad.”

Mark Sagoff’s Questions: (Price, Principle and the Environment, CUP 2004)

1. Is it wrong to cause the extinction of a species which has no economic benefit? (A bird in Chile? A type of dog? A type of mosquito?)

2. Do we have a responsibility to maintain certain pristine environmental sites, such as the Grand Canyon or the ocean?

Traditionally when people talk about why to be environmentally conscientious, they talk about ‘moral values’ or judgments. “I just think this is wrong, so we shouldn’t do it” But some have tried to translate these judgments into an economic formula, specifically, the preferences people have for which they are willing to pay. (‘I would pay £1 per day to avoid the traffic delays on the A303, and so would probably 8,000 other people who use that route daily, so its worth it to build an overpass/bypass for £64 million’) When stated simply as values, we have no way to calculate or determine a course of action. When considered in terms of how much someone is willing to pay to, for example, preserve Gettysburg, then we can figure out more specifically what people want, by seeing how much they will pay. But some (Mark Sagoff, “Beliefs and Benefits-Gettysburg and Dollywood”) find this economic analysis flawed when it comes to environmental issues.
Sagoff’s point is that “Beliefs are not economic benefits. If economists believe that society should allocate resources to maximize welfare, they do not necessarily think this because they will be better off as a result. They are not simply trying to increase demand for their services. . . . people who believe that society should protect endangered species, old-growth forests, and other places with intrinsic value do not necessarily think that this will improve their well-being.”

Conclusion: doing cost-benefit utilitarian calculus based on financial considerations alone is superficial and does not capture all the relevant facts or reasons involved in our decisions.

What would your answers be to Mark Sagoff’s two questions above?

 

Triple Bottom Line

John Elkington: What is the Triple Bottom Line?
(Cannibals with Forks, Capstone, 1999)

Triple Bottom Line: Business concerns cannot be divorced from the environment and social concerns. Rather than be concerned only with profit, business should be concerned with a ‘triple bottom line’: a. Economic b. Social c. Environmental

A. Economic Bottom Line

Traditionally the economic bottom line is measured in terms of
i. Physical capital (e.g., plant, machinery, real estate)
ii. Financial capital (e.g., investments, cash in hand)

Elkington thinks that as we move to a knowledge economy we need to include
iii. Human capital (skills and knowledge-based assets)
iv. Intellectual capital (Brainpower of workers, value of relationships
developed by workers and agents)

Typical economic issues for business people are:
?Are we competitive?
?Is the demand for our products sustainable?
?Is our rate of innovation competitive for the future?
?How can we retain our human capital?
?Are our profit margins sustainable?

B. Environmental bottom line

Natural capital comes in two forms:
a. ‘Critical natural capital’ essential to the integrity of ecosystems
b. ‘Substitutable natural capital’ which can be renewed or replaced.

Elkington thinks that businesses should ask:
Which forms of natural capital will be affected by current operations and planned activities?
Are these forms of natural capital given the likely pressures?
Is the overall level of stress properly understood?
Is the ‘balance of nature’ or ‘web of life’ likely to be affected?

C. Social Bottom Line

Social capital is “the measure of the ability of people to work together for common purposes in groups and organizations. A key element of social capital is a sense of mutual trust.” (From John Elkington’s glossary in Cannibals with Forks)

Social capital also includes the human capital in terms of public health, skills and education. It is a measure of loyalty, honesty and dependability (i.e., the moral qualities).

Thus businesses will need to ask:
What are the crucial forms of social capital to become a sustainable corporation?
What are the underlying trends in terms of creation, maintenance or erosion of social capital?
What is the role of business in sustaining human capital?
To what extent are concepts such as environmental justice and intra- and inter-generational equity likely to change the ways in which we define and measure social capital?

What’s Wrong With the “Triple Bottom Line”?

Chris MacDonald and Wayne Norman argue that Triple Bottom line accounting compares apples to oranges, because you can’t do the comparison or value-translation necessary for the accounting to take place.
www.businessethics.ca/3bl

Attempts to do the right thing in business go by many different names: “Sustainability,” “Business Ethics,” “Corporate Social Responsibility,” “Socially Responsible Business,” “Corporate Citizenship” and so on. Each of these means something slightly different, or has a different ‘spin,’ but they’re all aimed at the same rough idea, namely the idea that businesses can, and should, behave better.
But to say that each of these names stands for roughly the same thing is not to say that each of them is equally good. Indeed, some of them may be downright misleading. We argue that that is the case with the so-called “Triple Bottom Line” (or “3BL”) approach: it is misleading, and should be done away with.

The 3BL has quickly become one of the very most popular terms being applied to attempts by business to do the right thing. There are consulting firms offering 3BL accounting services; investment firms promising to screen with 3BL analysis; Fortune-500 companies bragging about their 3BL approach in their annual reports; and various non governmental organizations encouraging more companies to do so. Indeed, in the last three or four years the term has spread like wildfire. Back in March of 2003, the Internet search engine, Google, returned roughly 25,200 web pages that mention the term. Just over a year later (June, 2004) Google returns more than double that number: 61,200.

So what is the “Triple Bottom Line”? The basic idea is that corporations should (and can) manage not just the good old-fashioned bottom line (i.e., the financial bottom line), but also their social & environmental “bottom lines,” too. On the face of it, this is an attractive idea: it is easy to agree with the idea that corporations have obligations that go beyond financial success. Unfortunately, we find that without exception the 3BL rhetoric fails to live up to its promises. Adding up the financial plusses and minuses is just a lot easier, as it turns out, than totting up, say, the ethical achievements and shortcomings of a firm. Any attempt to arrive at a calculation of a net social or environmental performance is likely to run head-on into just what it is that separates the management of finances from the management of social and environmental impacts. In the financial realm, money provides a common unit of measure that permits expenses to be subtracted from revenues. So while it makes perfect sense to take the costs of labour and materials and subtract those from sales revenues, it makes little sense to talk about (for example) taking a social “minus” such as a sexual harassment lawsuit and subtracting that from a social “plus”, like having engaged in corporate philanthropy. How big a charitable donation do you think it takes to off-set the social “cost” of a sexual harassment suit?

Of course there’s no obviously uncontroversial way to make this sort of calculation. In other words, there’s no real social “bottom line”. The kinds of issues that arise in social and environmental domains can be (and regularly are) managed , but they will never be reducible to the kind of common unit of measure that would allow for straightforward bookkeeping.

In practice, a commitment to the 3BL approach means one of two things. Either it means that social and environmental concerns are going to be assigned dollar values – a controversial (though sometimes useful) practice that in effect means managing, again, just a single (though admittedly now richer) good-old-fashioned bottom line. Or, it means simply paying attention to – without attempting to derive anything like a real “bottom line” for – the social and environmental impacts of your business. In that case, the concept of a Triple Bottom Line in fact turns out to be a “Good old-fashioned Single Bottom Line plus Vague Commitments to Social and Environmental Concerns.”
Why should advocates of responsible business be worried about perpetuating the 3BL rhetoric? Because it allows just about any business to claim to believe in the Triple Bottom Line, and even the best forensic accountant will not be able to prove that they are morally bankrupt.

Activity: explain in your own words triple bottom line accounting. What objections do the authors make of this?

 

Case study 1: Enron, people management and fraud

Enron was one of America’s leading companies prior to its spectacular collapse in 2001. It was frequently named as one of America’s top 10 most admired corporations and best places to work, and its board was acclaimed one of the US’ best five, according to Fortune magazine. As America’s seventh largest company, Enron experienced explosive growth through the 1990s. It had revenues of US$139 ($184) billion, US$62 ($82) billion in assets and employed more than 30,000 people across 20 countries.
Film clip: US documentary Enron

Activity: list three moral issues raised by Enron’s activities (think of customers, employees, managers).

 

 

 

Summary:

Background:

Energy Deregulation in the US in late 1970s
1985 Ken Lay (Enron chairman) former US Interior Dept energy economist Houston Natural Gas Merges with InterNorth to form Enron
1987 Enron’s Debt was 75% of its market Capitalization
1989 Jeff Skilling hired, with Harvard MBA
1992 3.5 billion deal for Nat Gas with Sithe in New York
1990 Andrew Fastow Hired
1991 DEC granted exceptional permission for mark-to-market accounting
1990’s International activities grow under Rebecca Mark, including
vast project in India to generate energy for non-existent Indian
market
1993 Plant in Teesside England – Lord Wakeham, a UK energy
minister.
2001 Blackouts in state of California cause energy prices to rise.
Executives and traders profit from this manipulation of
consumers and markets.

Issues to consider

Mark to Market Accounting: anticipated future profits stated on balance sheet.

Off Balance Sheet transactions: Multiple subsidiaries (set up by Andy Fastow, called raptors) to take debt or loans while Enron posted profit.

Auditor Arthur Andersen captured by Enron (subsequently went out of business).

Banks connive by buying Enron assets (for example, a gas barge – a huge ship), which are then sold back to them after the year end profits are posted.

Rank or yank policy: put pressure on employees to make up deals (15% fired every year).

Wall Street expectations: put pressure on managers to fulfil the legend.

Political links: Ken Lay (chairman) personal friend and contributor to George Bush’s presidential campaign.

 

Powers Committee Report – criticisms:

1. Board of Directors
2. Poor controls (Fastow’s activities never curbed; he was never disciplined)
3. CEO Jeff Skilling failed to guide Enron
4. Auditor Arthur Andersen failed to be watchdog and protect consumer interests
5. Creative accounting with ill intent (inflating profit figures)
6. Inadequate disclosure (continued optimistic PR to the end)
7. Lack of understanding of transactions, consequences, and risks
8. Insider trading (profiting from inside knowledge in share deals/ director stock options)
Federal Sentencing Guidelines

1. Having Standards
2. Assigned Responsibility – Adequate Resources
3. Due diligence in Hiring
4. Communications and Training
5. Monitoring, Auditing, Reporting
6. Promotion and Enforcement of Ethical Conduct
7. Reasonable Steps to Prevent Misconduct-Punishment clear and enforced

Ken Lay died in 2006 before sentencing; Jeff Skilling received 24 years; Andrew Fastow received 10 years reduced sentence in return for testifying against Lay and Skilling.

How the Fraud Happened

The Enron fraud case is extremely complex. Some say Enron’s demise is rooted in the fact that in 1992, Jeff Skilling, then president of Enron’s trading operations, convinced federal regulators to permit Enron to use an accounting method known as “mark to market.” This was a technique that was previously only used by brokerage and trading companies. With mark to market accounting, the price or value of a security is recorded on a daily basis to calculate profits and losses. Using this method allowed Enron to count projected earnings from long-term energy contracts as current income. This was money that might not be collected for many years. It is thought that this technique was used to inflate revenue numbers by manipulating projections for future revenue.
Use of this technique (as well as some of Enron’s other questionable practices) made it difficult to see how Enron was really making money. The numbers were on the books so the stock prices remained high, but Enron wasn’t paying high taxes. Robert Hermann, the company’s general tax counsel at the time, was told by Skilling that their accounting method allowed Enron to make money and grow without bringing in a lot of taxable cash.
Enron had been buying any new venture that looked promising as a new profit center. Their acquisitions were growing exponentially. Enron had also been forming off balance sheet entities (LJM, LJM2, and others) to move debt off of the balance sheet and transfer risk for their other business ventures. These SPEs were also established to keep Enron’s credit rating high, which was very important in their fields of business. Because the executives believed Enron’s long-term stock values would remain high, they looked for ways to use the company’s stock to hedge its investments in these other entities. They did this through a complex arrangement of special purpose entities they called the Raptors. The Raptors were established to cover their losses if the stocks in their start-up businesses fell.
When the telecom industry suffered its first downturn, Enron suffered as well. Business analysts began trying to unravel the source of Enron’s money. The Raptors would collapse if Enron stock fell below a certain point, because they were ultimately backed only by Enron stock. Accounting rules required an independent investor in order for a hedge to work, but Enron used one of their SPEs.
The deals were so complex that no one could really determine what was legal and what wasn’t. Eventually, the house of cards began falling. When Enron’s stock began to decline, the Raptors began to decline as well. On August 14, 2001, Enron’s CEO, Jeff Skilling, resigned due to “family issues.” This shocked both the industry and Enron employees. Enron chairman Ken Lay stepped in as CEO.
http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel.html

Activity: outline the major ethical issues in the Enron collapse.

 

 
Discuss: Business ethics is about strong and open regulation and regulatory authorities like the Federal Trade Commission. Enron’s failure was really a failure of regulation.

Research: Enron was just repeating history of how frauds happen.

http://www.scu.edu/ethics/publications/ethicalperspectives/enronclass.html

 

Character ethics – virtue ethics and Enron

Read the extract below arguing for a return to character-based virtue ethics in business.

The culture of Enron played a role in its downfall, with an “unbelievably aggressive” approach to doing business – particularly in its trading operations. “Senior management was adamant was about sustaining a too-good-to-be-true performance, and there was a tremendous lack of focus, clarity and accountability. They were promoting that this was all a big mistake and convinced themselves that they couldn’t lose money. There’s an enormous amount of danger in believing your own press releases,” Cooper says.

Add to this…a tendency toward cronyism. Managers at Enron’s divisions grew arrogant, thinking themselves invincible. We see this insular tendency of the company to seal itself off from forces on the outside. They had something called a rank-and-yank performance appraisal system, which eliminated anyone who fell behind-a real Darwinist system that took care of anyone who might potentially disagree. All of the internal whistleblowers were rebuffed, humiliated, or treated in an intimidating way by the various players. And finally, one of my favorites-their 1999 annual report in which all of the members of the board of directors are listed by their nicknames, again suggesting that tendency towards cronyism….
In terms of fixing the system from a character viewpoint…, we need reforms that discourage cronyism-this insular tendency in too many American corporations to seal themselves off from the realities beyond themselves. Jeffrey Skilling, Andrew Fastow, and Kenneth Lay all live in the same gated community in Houston, which I think is a great metaphor for what happened at Enron.

It may be that we have here an example of the so-called “separation thesis”: an incident where individuals, for reasons tied to corporate culture and societal expectations, adopted as their own an ethic associated with their role as manager that was distinct (separate) from their individual ethics. In other words, these may be good people who acted wrongly because they thought their managerial roles demanded they act in a certain unethical manner.

Deontological explanations

In the Enron case, we see the result of a growing and pervasive winking at the letter of the law. This winking didn’t come out of nowhere. It built up in our society during the 1990s and culminated in 1995 in the Private Securities Litigation Reform Act-a law that eased some of the restrictions put in place after the Great Depression to prevent the sort of behavior we see with Enron. Both the behavior and the rules and laws to prevent it have been around for years. The laws were simply circumvented in the Enron case.

Corporate culture
One of my friends, a former executive at Enron who resigned in 2000, described what the recruiting process was like…. They recruited just at the major business schools. They wined and dined the prospects. They promised them huge bonuses and fed those young egos as much as they would take.

Once people were hired, it was an up-or-out culture. Those who survived began to think they were gods. And Jeffrey Skilling used to pit them against each other. He knew that as long as he could keep them scared of one another and competing, he would have control. When you create an environment in which, if you want to be among the best and the brightest, you’ve got to play the game the way the boss has set it up, that’s not a culture where people are going to challenge top management.

Source: Kirk Hanson

Is virtue ethics the best way of solving problems of business ethics?

 

 

 

 

To what extent can the Milgram experiment explain the behaviour of Enron traders in the exploitation if energy consumers in California in 2001?

 

 

 

Research: ten ways to stop having the next Enron.
http://www.ethics.org/resource/common-ethic-code-provisions

 

 

CASE STUDY 2 Trafigura (David Leigh, Guardian 26th September 2009)

In 2006 Trafigura dumped thousands of tonnes of toxic waste in the Ivory Coast, one of the most corrupt countries in the world. They then tried to cover-up the human tragedy with libel writs, even suggesting the House of Commons question time should be muzzled. In November 2009 the poor of the Ivory Coast were awarded £30m damages.

To clean up the dirty fuel, which they described as “crap” or “shit”, the traders planned to add caustic soda to absorb sulphur contaminants, despite being told this process was banned in the west.The “most difficult” problem, as they recorded, was how to dispose of the resultant stinking toxic waste.In December 2005, McNicol promised the company head, Claude Dauphin: “We will make it happen”. He told colleagues: “We should be talking to specialist chemical clean-up companies.” He wrote: “Claude owns a waste disposal company and wants us to be creative.”He reported to Dauphin: “Caustic washes are banned by most countries due to the hazardous nature of the waste (mercaptans, phenols, smell) … There are not many facilities remaining in the market. There is a company in Rotterdam that burns such waste in a high stack chimney and charges are approximately $200/kg.” That was considered too expensive.Trafigura’s London head of gasoline trading, Leon Christophilopoulos, suggested a desperate remedy: a floating refinery: “I don’t know how we dispose of the slops and I don’t imply we would dump them, but for sure, there must be some way to pay someone to take them.”

A chartered tanker, the Probo Koala, was anchored off Gibraltar. Between April and June, it took three cargoes, each of 28,000 tonnes of contaminated gasoline, and mixed them with caustic soda and a catalyst. Company emails show a highly concentrated 33% caustic solution had been used on board. This may have produced an even higher proportion of toxic compounds than in conventional refinery waste.

Ahmed booked a disposal firm, claiming the waste was simply routine “slops” from rinsing out petrol tanks. The plan failed. After uproar over the stench Trafigura reloaded the waste and sailed to Africa. Ahmed and Trafigura currently face prosecution in the Netherlands where they deny telling lies.What followed was an environmental and human catastrophe.

The waste ended up being tipped all around Abidjan. Those living and working nearby risked burns, nausea, diarrhoea, loss of consciousness and death from contact with such compounds.

The most sombre allegations concern the killer gas hydrogen sulphide. Sulphur compounds can break down in the environment and release it. The thousands of reports of casualties followed a pattern which appears consistent with an escape of hydrogen sulphide.

Inhabitants near the dump sites reported respiratory and eye problems, while further away, people reported nauseating smells.

Trafigura yesterday said that “there is no evidence to suggest that the slops would generate hydrogen sulphide at levels that could have caused the deaths and serious injuries alleged”.

As 31,000 Africans, many desperately poor, joined in an unprecedented group action for compensation organised by London lawyer Martyn Day, Trafigura tried repeatedly to give the impression that its ship had only pumped out ordinary slops from tank-cleaning: a completely different type of activity.Trafigura maintained this position as long as it could, muzzling the media with aggressive statements from the expensive lobbying firm Bell Pottinger and the equally expensive libel lawyers Carter-Ruck.

It was only yesterday afternoon, facing likely publication of their internal emails, that the firm announced it was suing for peace with the 31,000 Ivorians who have been trying to get compensation. After three years, the cover-up had collapsed.

David Leigh, Guardian 26.11.09

What ethical issues are raised by this case?

 

Using your ethics toolkit, assess the moral wrongs committed by Trafigura.

 

 

Research: what happened to the £30m paid in compensation?  http://www.guardian.co.uk/world/2009/nov/04/trafigura-ivory-coast-payout

 

 

CASE STUDY 3 Erin Brockovich: Pacific Gas and Electricity

The case alleged contamination of drinking water by Pacific Gas and Electricity Corporation (PG & E) with hexavalent chromium, also known as chromium(VI), in the southern California town of Hinkley.
At the center of the case was a facility called the Hinkley Compressor Station, part of a natural gas pipeline connecting to the San Francisco Bay Area constructed in 1952. Between 1952 and 1966, PG&E used hexavalent chromium to fight corrosion in the cooling tower. The wastewater dissolved the hexavalent chromium from the cooling towers and was discharged to unlined ponds at the site. Some of the wastewater percolated into the groundwater, affecting an area near the plant approximately two miles long and nearly a mile wide. In 1987 a report showed levels of chromium VI ten times the recommended safety level.
Erin Brokovitch was working for a law firm and became suspicious when the title deeds of house purchases had medical records attached. Eventually 638 plaintiffs joined the case in a collective action.The case was settled in 1996 for $333 million, the largest settlement ever paid in a direct action lawsuit in U.S. history.

Film Clip: Erin Brokovitch
What ethical issues are raised by this case?

 

 

 

 

Research: look at some of the details of the case and consider the company’s behaviour from different ethical perspectives.
http://www.lawbuzz.com/famous_trials/erin_brockovich/erin_brockovich_ch11.htm

 

CASE STUDY 4: Collapse of RBS, a study in greed

Plato in the Gorgias records a conversation between Socrates and Callicles. Socrates argument is that greed, deception, avoidance of responsibility and any other vice actually harms the doer. So the reason for avoiding these things is that they will ultimately destroy us.

Socrates argued that Callicles’ personality has been damaged. Indeed, Socrates describes two characteristics of severe addiction: the inability ever to be satisfied,and the use of lies and rationalizations in order to get the object of our addiction. Callicles’ vice has harmed him because he is losing control over his own life. Callicles’ boundless desires now control him, and they have even taken his mind captive.
What is especially interesting about Socrates’ picture of how vice harms the doer, however, is that the philosopher might just as well be talking about any number of people who were arrested for unethical behaviour in business over the last two decades. What is striking about such cases is not how shockingly unethical the behaviour was, but what led to a wrongdoer’s undoing. Invariably, these were very bright, talented, capable people who were brought down by carelessness, poor judgment, overreaching, and going to the well one time too often.
In particular, these individuals failed to assess accurately the risks they faced. Statistically, the more often you do something illegal, the more likely it is that you’ll be caught. Hence, the more careful you should be. Yet in these cases, the people involved apparently came to see themselves either as bullet proof or as involved in something so inconsequential that being caught barely crossed their minds. So they got less careful.(The lesson of these cases is almost as though serious wrongdoing makes you stupid!)

Thomas White http://www.ethicsandbusiness.org/toolbox.htm

 
What is Socrates’ argument?

 
Could this argument be applied to the UK banking sector?

 
Which ethical theory seems to agree most with Callicles?

 

 

Dominic Lawson defends the bonus culture
http://www.timesonline.co.uk/tol/comment/columnists/dominic_lawson/article6888959.ece

 

APPENDIX 1 Thomas White http://www.ethicsandbusiness.org/toolbox.htm

The most frequently told joke about business in this country is probably that “business ethics” is an oxymoron. Few people who use this one-liner actually mean to say that business is a fundamentally unethical enterprise. But the remark does reveal major tensions between business and the moral life – tensions that are as disturbing as they are important.

There is one way, after all, that “business” and “ethics” do not necessarily go together. Succeeding in business is largely about advancing our own private interests–aggressively competing against other people, beating them out for the same prize, and having unlimited ambition for money, position, and power. The moral life, by contrast, focuses on our duties to others–not to hurt anyone (deliberately or accidentally), to place other people’s interests ahead of our own when it’s called for, and always to treat others with the dignity and respect they deserve. Yet being scrupulously honest and caring in our business dealings with others can sometimes cost us sales, deals, money, and promotions. Refusing to go along with other people’s unethical behaviour can even cost us our jobs. When taken too far in business, even healthy self-interest, competitiveness, and ambition can go turn into selfishness, aggression, and greed -traits that are clearly at odds with the moral life.

It seems, then, that taking ethics seriously in business extracts a price and may make success more difficult to come by. But if this is true, why should any of us make the effort to do what’s right? In particular, what would we say to someone who asks, “Why should I be ethical? What’s in it for me?”

The demand for such a blatantly self-interested defence of ethics might seem surprising, even unsettling. As we noted above, the moral life traditionally focuses on our duties towards other people not on how we can get something for ourselves. But this is a perfectly reasonable request. After all, there’s little question why someone might be drawn to master the arts of deceit: money, sex, the admiration of others, the power to control other people, freedom to do whatever you like.

Moreover, every day we cooperate in making this society one in which we as a people say: “What’s ‘good’ is what’s ‘good for me.'” If the moral life cannot provide as strong a case for itself as vice, we have to be honest enough to admit that and reassess what ethics is all about. [Perhaps, as some thinkers have suggested, conventional morality is just the product of weak people making virtues out of their failings.]

But what would we say? How do we give a selfish defence for the moral life?

The best self-interested argument for the moral life is to be found in the claim that there is a direct relationship between ethical behaviour and the strength and health of the human personality. In short, in some critical ways, unethical behaviour weakens the personality.
The idea that there is a direct relationship between ethics and the human personality actually has a long history in ethics. It was first advanced by Socrates, who claimed in the dusty streets of ancient Athens that “vice harms the doer.” Even if we know we can get away with doing something wrong, claims Socrates, even if no one ever discovers what we’re up to, our vice harms us more than it hurts any of our victims.

Socrates’ idea may seem rather odd. But Socrates was so convinced of its truth tha the not only lived by it, he died by it. Socrates spent his days in Athens exhorting his fellow citizens to a life of virtue, but at the end of his life he was falsely accused of two capital offences: impiety and corrupting the young. Tragically, Socrates was found guilty and sentenced to die. While he was in jail awaiting execution, however, his friends tried to persuade him to escape. He refused because he became convinced that escaping would be morally wrong. And even though Socrates was faced with dying for a crime he didn’t commit, he chose death because he was convinced he would be harmed more by intentionally doing something wrong than he would by suffering an unjust death.

What could Socrates mean? How does vice harm us that badly that it could lead to Socrates’ decision?

The most specific account of what Socrates has in mind is found in an encounter between the philosopher and the character Callicles in the Platonic dialogue, the Gorgias. Callicles is portrayed by Plato as a very talented and ambitious young Athenian who has decided that a conscience only gets in the way of success. He thinks that Socrates’ idea that “vice harms the doer” is laughable. He sees no evidence of being harmed by his selfish and aggressive pursuit of money, power, and pleasure–quite the contrary. He sees himself as a truly strong individual, superior to the people who obey the rules of traditional morality. They do so, according to Callicles, only out of weakness and an inability to best other people in life’s great competition. How does Socrates respond to the challenge?

Socrates has no trouble pointing out how Callicles’ unethical behaviour has hurt the young Athenian. Socrates points out two particular dimensions. First, by Callicles’ own admission, his goal in life is to let his desires and ambitions grow without bounds. The truly strong person, in Callicles’ mind, will find ways to satisfy them. To Socrates, however, Callicles is describing a scenario in which he will slowly but inevitably lose control of his own life as he is enslaved by his growing–and ultimately insatiable–desires. Second, Socrates observes that the young man will say anything he has to in order to get what he wants. But Socrates is claiming more than that Callicles is a clever liar. The philosopher’s point is that the power of Callicles’ unbridled hunger is so great that even the young man’s mind has been brought into the service of his desires.

Now to Socrates – and, I hope, to us as well – there is little question that Callicles’ personality has been damaged. Indeed, Socrates describes two characteristics of severe addiction: the inability ever to be satisfied,and the use of lies and rationalizations in order to get the object of our addiction. Callicles’ vice has harmed him because he is losing control over his own life. Callicles’ boundless desires now control him, and they have even taken his mind captive.

What s especially interesting about Socrates’ picture of how vice harms the doer, however, is that the philosopher might just as well be talking about any number of people who were arrested for unethical behaviour in business over the last two decades. What is striking about such cases is not how shockingly unethical the behaviour was, but what led to a wrongdoer’s undoing. Invariably, these were very bright, talented, capable people who were brought down by carelessness, poor judgment, overreaching, and going to the well one time too often.

In particular, these individuals failed to assess accurately the risks they faced. Statistically, the more often you do something illegal, the more likely it is that you’ll be caught. Hence, the more careful you should be. Yet in these cases, the people involved apparently came to see themselves either as bullet proof or as involved in something so inconsequential that being caught barely crossed their minds. So they got less careful.(The lesson of these cases is almost as though serious wrongdoing makes you stupid!)

These very bright people got caught because they did something foolish-they couldn’t restrain themselves when they should have, and they weren’t careful enough. That is, they behaved exactly in line with what Socrates lays at Callicles’ feet. Their appetites were out of control. And their minds fell into the service of their desires. These men and women couldn’t even do basic risk assessment. They stopped seeing the world the way it really is. And as harm goes, this is all very serious.

In fact, we even have agreement with Socrates from a twentieth-century businessman, Conrad Hilton. Hilton ends his autobiography, Be My Guest, with some recommendations for the “art of living” and reflections about the negative affect of dishonesty. In his exhortation that we should “be honest,” Hilton writes,

Once you start it, there’s no place that deception can stop–and of course it has to start with self-deception, even if it’s only the self-deception of believing that we can get away with it. True, sometimes we are not “discovered.” But all of modern psychology and psychiatry is based on the belief that our self-deceptions drive things into our subconscious where they make all kinds of trouble.

The self-deception that Hilton points to is an example of how Socrates thinks that the mind is harmed by vice. A pattern of seriously unethical behaviour increases the extent to which we distort reality. If we get into the habit of lying, manipulating, ignoring the impact of our actions on others, and ignoring our duty to other people, we will start altering the way we look at the world. We will minimize the significance of what’s at stake, or we’ll rationalize the behaviour. And the more we distort reality, the more likely it is that we’ll continue to act unethically, and the less likely it is that we will be happy.

Take the example of lying, for instance. Everybody’s first lie is difficult to tell. But if we get away with it, we see that there are benefits to lying, and it subsequently gets easier. If we lie often enough, we start changing the way we see things. We become convinced that lying doesn’t really hurt anyone. We wonder why we ever thought that there was something wrong with lying in the first place. We see ourselves as having gained an important skill in life (not as having lost an important allegiance to truth and honesty). We naturally assume that other people lie, and we act accordingly. We may even start believing our own lies–more than the people around us do. And all of this will surely make it harder for us to be happy. Our relationships will be founded on distrust, we will end up surrounded only by predators like ourselves, and our distortions will only increase the likelihood that we will be uncovered as the cads that we really are.

So in answer to someone who asks, “What’s in it for me to be ethical?,” we can reply, “Quite a bit -a more accurate perception of the world around you, greater control over your behaviour, a stronger personality, and greater likelihood of being happy in life.”

Being careful not to hurt other people, accepting full responsibility for what we do, helping others, and always treating them with the dignity they deserve may indeed in business, as in life, cost us money, power, and the like. But that’s considerably cheaper than costing us our hearts, souls, and happiness.