Is goodness good for business?

Ethics is all about seeing the wider context. batelman.com

In Switzerland, as elsewhere, it would be hard to find a company that admits to maximising profit by immoral or illegitimate means.

But some companies pay little more than lip service to ethical practices – and economists may sometimes overestimate the ability of market forces to sort out the good, the bad and the ugly.

In an interview with swissinfo, Ulrich Thielemann, deputy director of the Institute for Business Ethics at St Gallen University, says there is generally a strong business case for companies to act in an ethically responsible way.

However, he believes they often need a “helping hand” – and says a more integrated approach to ethical issues would also help them cope with situations where the bottom-line benefits of “doing the right thing” are not so evident.

swissinfo: In 1970, economist Milton Friedman said that the social responsibility of business is to increase its profits – and thus create jobs, tax revenue etc. Do we need a special discipline of business ethics?

U.T.: I think that to ask the question is to answer it. We always take some kind of ethical stance, so we should do this in a deliberate and reasoned way. Friedman also takes an ethical stance, but it is a rather strange one. He builds on the old argument that if everyone just acts according to their own interest, properly functioning markets will automatically impose optimal economic and ethical solutions.

Hardly anyone shares this view today. It is all too obvious that ethical considerations have an important role. To give just one prominent example: some companies today, despite being highly profitable, destroy jobs to further increase profits.

swissinfo: Assuming we need ethics to be imposed, is that the role of business itself or of government?

U.T.: I think everyone has his or her role. First, if business aims only to maximise profits, then it disregards all other aspects, or regards legitimate claims only to the extent that they are profit enhancing.

Second, there is the moral “free rider” problem. Other companies may not respect the same criteria. That is why we need regulatory policies, and this is a government task.

However, in a globalised economy governments can no longer control market players like before. States today are effectively viewed as big companies, whose main task is to become more competitive or risk investors withdrawing their capital. So there is a growing need for a global regulatory framework.

swissinfo: Should intervention be limited to cases where markets fail to function, for instance because of external costs such as pollution?

U.T.: External effects are not the only area where economic activity might lead to ethical problems. For instance, there are no external effects involved when it comes to the equitable (or inequitable) distribution of income. It is not just about how big the overall pie is, but about who gets how much – and how it is baked in the first place.

swissinfo: Could you not argue that management’s prime ethical responsibility is to its shareholders – they own the company and employ them?

U.T.: That would be a rather narrow, Friedman-type view. It is not only shareholders who have legitimate rights.

You could also ask: why should one group be privileged? Maybe in 100 years or so society will find it strange that people who gave this company money could then own it in the same way they own a car. Again, it is a question of regulatory policy.

Maybe one day we will realise that the legitimate claims of all stakeholders need some legal counterpart – a new stakeholder-based “corporate constitution”.

swissinfo: What should motivate a businessman today to act in an ethically responsible way?

U.T.: There is the theory that sound ethics is good business in the long run. This is both true and false. If it is true, why are there so few university chairs in business ethics and so few ethics consultants?

But a company can also be successful precisely because it honours legitimate stakeholder claims. Customers want to deal with companies they can trust, and employees want to work where they feel things are done the way they should be.

swissinfo: What would be a concrete example of an integrated ethical approach?

U.T.: We don’t need to look for exotic or strange companies. Just look at the mission statement and the code of conduct, and ask yourself two questions. First, where are the ethics in all this (and does this mission make sense with regard to society’s needs)? Second, do they act on it?

You can find this basis in many, even most companies. But we should do this explicitly and put business ethics in a position of primacy. If you view them as just one more factor, then you have not understood what this is all about.

swissinfo–interview: Chris Lewis

Key facts

St Gallen University has had a business ethics research unit since 1983.
In 1987, it created the first such university chair in a German-speaking country.
The current Institute for Business Ethics was founded in 1989. Financially independent, it depends largely on funding from companies, federations and public agencies.

In brief

Thielemann believes ethics must provide a framework for all actions in today’s business world, and cannot just be considered as an “add-on option”.

He says classical economic theory, which emphasises the primacy of the profit motive, is valuable but insufficient.

Thielemann says ethical behaviour does pay off, but many firms need a “helping hand”.