What the Law Requires: A Reply to P. Tittle's essay on Business Ethics

P. Tittle recently argued that those who teach and/or consult in business ethics ought to have degrees in philosophy.? Her thesis is that ?business ethics taught by business faculty, ethics programs run by managers, and so on ? any applied ethics course taught by non-philosophers ? is superficial at best.?

She cites a number of reasons for this, but I want to focus on only one of them; non-philosophers adopt a legal moralism perspective to define ?right? and ?wrong.? Of course, business people adopt a legalistic moral perspective to determine how we should act; legalism is the only game in town.? Business and markets are prior to philosophical issues that concern business/economics therefore the ?game is afoot? before philosophers enter the arena.?

Because of this, many ethicists are dealing with issues that, although interesting and probably relevant to questions of justice and fairness in the abstract, miss the important point that businesses are legal constructs operating within parameters codified in law.? The sanctions that control behavior, both positive and negative, that businesses receive are done so within this legal framework, not some theoretical normative framework devised and articulated by moral philosophers.? Within this legalistic framework, justice and fairness are achieved when businesses operate as Friedman noted, within the laws of the community that they are operating in.?

My thesis is that moral legalism is the appropriate framework for understanding business, economics, and human interaction within markets.? This framework must be the starting, and ultimately, the ending point.? If one wants to change the way business is done then one needs to change the law.? Philosophers have a role to play, but it is essentially advisory and one where they bring a certain set of skills in critical thinking and problem-solving to the discussion, not ready made solutions that we have to fit our practices into.

Before I left manufacturing, I had thirty-five years? manufacturing experience in positions ranging from hourly paid to Director of Operations.? I have had experience as a business consultant in organizational development and TQM.? In addition, I have over twenty-five years? experience as a professor teaching, among other courses, business and organizational ethics; so I have seen it from both sides.? My position is that business is a game that is already well-established and that in playing the game of business, good business people operate within a framework outlined by the laws of the community and specifically do not perform deceptive or fraudulent actions.?

In all my positions in business I was hired to increase the opportunity for the organization to create and/or increase wealth, both for owners/shareholders and other stakeholders. In reality, the question of who business should primarily benefit, the owners/shareholders or stakeholders, is moot.? I have never seen a business be successful over time that did not take into account the interests of everyone affected by the organization?s actions.? So whether we focus on ?Stakeholder Theory? or ?Shareholder Theory? the results are pretty much the same.? The same applies to which moral theory is favored; in practice, refining the art of compromising while trying to maintain individual integrity will be the issue, not which moral theory is correct.

No one wants to be deceived or cheated or otherwise needlessly and avoidably harmed; but we do not need a theory or a philosopher to understand this; we simply need to understand how we want to be treated and extend that to others ? The Golden Rule.? All of us can (and do) recognize good behavior from bad, even if we cannot explain why it is good or bad.? In fact, it is not that essential that we explain why (Socrates was wrong) if we can detect it when it occurs (Euthyphro was right) and we seem to have little problem doing the latter in practice.? If there is disagreement, it usually concerns how to address and solve the issues and this will not be solved in practice by argumentation trying to establish the superiority of one (my) perspective over another (yours).? Rather it will be solved through a dialogical process between the disagreeing parties designed to arrive at compromise and agreement on how to move forward.?

Here is where philosophers/ethicists can, and should assist the business person; help us become better critical thinkers and compromisers while enabling us to enhance and maintain our integrity.? Tittle, to her credit, does recognize this when she articulates her ?very rudimentary version of a philosopher?s ?methodology for ethical decision-making.?? What she fails to fully appreciate is that these issues occur after the fact and as a result of businesses operating within a legal structure that gives rise to these issues. Take for example two issues that of concern: employers paying ?sweatshop? wages versus paying a livable wage and outsourcing/relocating jobs to improve the bottom-line.?

The reality is that the law allows businesses to pay whatever wages are agreed upon by the employer and the employee as long as we do not go below a minimum wage if legally required.? Additionally, we should not force or trick a person into accepting a wage ? they must be free to turn it down and walk away.? It is also the case that businesses can legally outsource or relocate jobs to improve economic performance.? One of my basic responsibilities as an employee is to produce a service or product at the lowest possible cost and sell it for the highest price I can get.? The fundamental issue is why would I increase my costs because ?it is the right thing to do? from some moral perspective when my competitors are not legally required to do so and there is no incentive for doing so? Why would I place my organization at a competitive disadvantage?

The problem is that if there are no laws that require that people earn a ?livable wage? or that we build the safest plants possible or that we keeps jobs where they are presently located, then why would businesses adopt those practices if there is no systemic and/or economic motivation to do so.? Imagine two companies, A and B that are equal in all respects.? If A wants to pay a livable wage and B does not, and B is not negatively sanctioned for not doing so, why would A pay that wage when it is going to put it at a competitive disadvantage? Because paying a livable wage is the right thing to do?

I thought the right thing to do in business was to remain competitive and to create wealth so that all might benefit. Paying a livable wage may be ?the right thing to do? (I think it is) but if we want business to do that then the law needs to reflect that.? As long as the game of business is defined by the laws and regulations of the community, and they are always going to be so defined, then if we want to change the way the game is played we must change the rules.? So, the idea that business adopts a legalistic perspective for understanding good and bad, right and wrong, is perfectly legitimate and praise-worthy.?

What Tittle and many other theorists and applied ethics practitioners fail to realize is that there is a systemic constraint that is embedded in the very nature of markets that will require people to make decisions that will harm people.? This constraint is captured by this equation:

P = X where X = (U x D x W)
? ? ? ? T ? ? ? R

P = People
T = Average hours worked
U = Units produced in a specific time frame
D = Sales dollars per unit
W = % of D going to wages and benefits
R = Average burden rate

I originally developed this equation when I was a Director of Operations and had been brought in to turn a company around and to keep it from going bankrupt.? I needed a tool to be able to play ?what-if? games so as to be able to meet changes and challenges in the market and/or manufacturing operation that affected the organization?s performance.? If a manager knows (as one should) the values of T, U, D, W, and R then one can determine how many people the organization can support.?

This equation addresses the issue of systemic equilibrium that I refer to as the health of the system; a healthy system/organization is one where the components that make it up are working together harmoniously to achieve organizational goals.? (Yes, I know that this is very Platonic, but that fact does not convince business people of its merits ? organizational performance/outcomes do.)? Whether one uses the word system or organization is of little importance, organization simply places it more readily into the business context.?

This concept has broad application to any system of components that need to be interrelated in a formalized structure so if they are to be optimally successful they must be optimally functional.? In order for the organization to be successful a manager must control the components that constitute the variables that go into the performance of the organization that affect production so that P is balanced to actual levels of production given a specific rate of distribution of wages and benefits relative to sales rates.? A healthy organization does not have more people than it can support given the established designates among the variables.? The meta-ethical problem is that this equation is amoral; it matters not whether the system is capitalistic, socialistic, or some variation on those themes, or if one is a deontologist, utilitarian, virtue ethicist, whatever.?

This equation places demands on managers that must be meet in order to establish and maintain systemic equilibrium and health; one must do what is required to maintain or re-establish the equilibrium and that often means that innocent people are going to be harmed.? Yes, different ethical perspectives may give different accounts on how to spread the harm, but in reality, the best that one can hope for is that the overall system of laws and regulations allows for some defensible distribution of harm, as the distribution of harm is one important function of markets that is often overlooked. If it does not have a defensible distribution of harm then the system needs to be changed because, regardless of the distributive schema, decisions will come down to cost versus benefit and this cannot be regulated by ethics, but must be done through law.

If we want to change outcomes or change the game than we need to change the rules (laws) that negatively or positively sanction business behavior.? Business ethicists need to realize that, as Marx pointed out, if one wants to improve people then focus on improving the system wherein people interact, do not focus on the individual person.? Most of what I read in business ethics is irrelevant to how decision making is actually carried out within the system as defined by the law and economic conditions.? The morally interesting issues (and they are socially important ones also), such as paying a livable wage, CEO compensation, outsourcing/relocating jobs, sweatshop and exploitation, autonomy and respect, environmental sustainability and stewardship, etc., that do arise are problems that arise because of the laws and practices that exist which we, as business people, are required (compelled by sanctions) to comply with.?

Ethicists/philosophers can help clarify these issues, but solving them will require a balance between cost and benefit, both short-term and long-term.? We simply cannot operate as if the equation that I outlined earlier does not exist and places obligations and responsibilities on us on how we operate our businesses; sometimes resulting in great harm to innocent people.? Businesses must operate utilizing the Principle of Lessor Evils because of the nature of the system where people interact economically.? We can and should, discuss whether or not we should pay a ?livable wage,? etc., but this discussion will occur after the problem arise, not prior to them arising.? But, after the discussion is finished, what the law requires will still set the parameters of the game.

I agree that business is constrained by the law, in theory. In reality a great many corporate people will ignore the law or spend a great deal of time and effort to force a favourable change in the law. An example is the number of ?accidents? in the oil industry - investigation will show that the large majority of these ?accidents? were preventable if the people involved had followed the regulations governing safety measures and inspections etc.

From personal experience I can relate that many supervisors ignore the law of the land and their own company policies in favour of a methodology that makes them feel powerful. Thus there are a larger number of human rights and other complaints against employers than there needs to be.

The law constrains the corporate body, but the actual work of the business is implemented by people who may or may not know, or care to follow the law. Teaching philosophy and ethics to those individuals is essential. Most of these people are not at the top echelons of business, but are the people who are the interface with the workers. I would add another element to your equation.? Subtract L which is the cost of the time lost to ineffective supervision, down time caused by employees not following procedures they don?t understand (or don?t know about) and loss of sales due to lower public opinion because of damage done to the community by the result of cutting corners to save money.

We need the law for corporations, but we also need education and personal responsibility for people at all levels of business to make the laws meaningful and effective.

As Alex says, the law does not provide such an even and impartial constraint in practice as it does in theory. On the other hand, public pressure and branding issues does provide some constraint on business behaviour, alongside the constraints imposed by law, especially in societies with relatively empowered citizens, free press and a robust civil society. Both these observations undermine the empirical aspect of the author?s argument. Furthermore, even if laws do provide the most meaningful constraint in practice, this does not justify people conflating ethics with legality in principle.

As I argued in the comment thread of Peg Tittle?s article, ethics is more than anything to do with whether those involved have good intentions. I agree that compromises have to be made, and that philosophers can most usefully play a role in facilitating critical thinking and compromise-without-loss-of-integrity, but (i) ths requires that the philosophers concerned take a consequentialist, and preferably utilitarian (or something similar) approach to ethics, and accept the inherent subjectivity of moral questions, otherwise they are me likely to confuse than clarify the issues, and (ii) this still does not justify the idea that obeying the law is the same as being ethical.

A genuinely ethical business-person puts doing the right thing first. That will often mean making decisions that many will find ?unethical? in order to ensure that the business is profitable, but only to the extent that the business is providing a genuinely (socially) useful function that justifies whatever moral compromise is being made. It can?t be just a question of whether the behaviour is legal or not. At best, in countries with relatively sensible laws this might amount to more or less the same thing in most circumstances (though I am sceptical for the reasons given above). At worst, for example in countries where it is just impossible to do significant business without paying bribes, legality is likely to be of very limited relevance.

?The sanctions that control behavior, both positive and negative, that businesses receive are done so within this legal framework, not some theoretical normative framework devised and articulated by moral philosophers. Within this legalistic framework, justice and fairness are achieved when businesses operate as Friedman noted, within the laws of the community that they are operating in.?

True, but if the biosphere is in serious danger?using this century as the time-parameter?then environmentalism becomes an economic ?issue?, and not merely a scientific one. That is the real game-changer.

Source: http://ieet.org/index.php/IEET/more/alexander20121001

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