It is impossible to definitively prove an obligatory code of
ethics. All sources of ethical
code have logical weaknesses. However, there is one human sentiment that can be
the basis for ethical conduct: empathy, i.e. the ability to understand and
share the feelings of another being.
Empathy may be the only thing that spurred our race to
develop a sense of right and wrong. It is the reason that when we see someone
wronged, we intervene. If empathy is, thus, the only basis for a human
individual ethical code, it must also be the basis for a system of corporate
ethics since corporations are simply collections of human individuals. In the
most basic form, corporate actors consider the rightness and wrongness of their
actions by understanding and sharing in the feelings of the people those
actions affect. For instance, a manager may resist a reckless decision because
it may cause a capital loss and force him to lay off his employees, with whom
he will empathize.
But, two corporate realities get in empathy’s way: 1) lack
of human interaction and 2) the narrowly defined goal of a corporation.
Empathy is most strongly felt when a person directly senses
another’s feelings, when one sees the pain, or joy, in someone’s eyes. However,
a large class of corporate actors may not have the direct interaction necessary
for them to feel empathy. For instance, Wall Street traders may not have
subordinate employees or know the people who own the money they are trading. They
cannot directly sense the feelings of the individuals who bear the brunt of the
results of their actions.
Systematic lack of human contact is exacerbated because the
corporate goal is, most often, defined too narrowly. Overwhelmingly,
corporations exist to make money for shareholders. The result being, corporate
actors, who may only have an abstract rational concept of the results of their
actions, are given a rational justification to ignore those effects. Outcomes
incidental to the paper chase may be ignored and prohibited from triggering
one’s conscience.
The resulting loss of empathy by individual corporate actors
means that corporations themselves lack a natural basis for ethics. This void
should be filled, although a cure may be near impossible to develop. Government
intervention is the obvious suggestion, but an imposed code of ethics rings of
totalitarianism. A possible
solution could be to consult the business world’s elders. Such tried and true
corporate veterans, at the end of their careers without aspirations of further
profit, might develop a tome comparable to the American Bar Association’s Model
Rules of Professional Conduct. If the business community set forth guidelines
for productive and ethical action, corporations could attain a higher form of being
where action is not taken in a void without consideration for its effects.
A Tribe Called Quest, “Can I Kick It”
I tend to agree with your indication of “empathy” as the underlying human moral, which I’d usually refer to as “compassion”. What I think we need to be careful about in trying to extrapolate individual morality up to the organizational level is equating the two subjects, i.e. treating organizations too much like individuals, corporations too much like people.
ReplyDeleteThe fact is, though made up of individuals, corporations are not people. On the aggregate, corporations are actually much more like computers than humans, where you punch in a bunch of algorithmic inputs (capital, labor, management, innovation), from which you get a bunch of outputs (products/services, profits). The more automated this process becomes (i.e. the more finely we divide labor and responsibility), the more myopic the vision of each piece of the machine and the less tangible the aggregate impact is to the individual actors involved. I think your point about relative lack of human interaction (which I’d broaden to include basic real-world interaction beyond the factory/office/cubicle) being the root cause of corporate im-morality is spot on.
Unfortunately though, I don’t see this changing. The corporate computer is one with a simple, mechanical mission: to make profits. Sure we have gotten more sophisticated in our programming by giving newer versions of the old machine multiple bottom lines and nice informal mottoes (ala Google, “Don’t be evil”.) Nevertheless, I can personally speak to the realities of which bottom line must come first from the inside of what is basically a social enterprise: if you are not making profits, even the best-hearted firm will not survive. Google doesn’t bother saying “Be profitable” because the world already knows this is a corporate necessity.
It may sound redundant, but it’s worth highlighting that most organizations that have a mission other than profits fall under a not-for-profit heading, and while they may be “incorporated”, there’s a reason why we rarely refer to them as “corporations”.
In a lot of ways I think I agree with you. Corporations are such well oiled machines in pursuit of profit that no one really stops to think about the ramifications of their actions.
DeleteI am not sure I agree with you, though, that groups of people have different levels of morality than individual people. Within a group, there will always be individuals making choices. The most stark example of this is a riot, looting stores and destroying property. As an example, let's say a riot destroys a city block. Under that situation, the individuals who flipped over cars and threw stones into store windows had the choice at any given moment to not partake. The fact that they are overcome by the emotions of a group doesn't mean that they aren't responsible for their actions.
Corporations are obviously more organized than riots, but their actions are still made up of the collective decisions of their members. Just because those members are acting as a group doesn't mean they aren't responsible for their decisions.
Point being, in the end, that while the machinations of a corporation may make it hard for individuals to understand the effect of their actions, it doesn't absolve them from taking responsibility for them. My intuition is that should be true the higher up the chain you get, as people acquire signing and budgetary authority.
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DeleteThe last part of your comment here is the most important....that individual responsibility gets heavier the higher up you go. This is true because, as much as the division of labor process inherently limits breadth of vision along the corporate ladder, individuals throughout the ladder also subordinate their responsibility upwards. To some extent it is the "I was only following orders" syndrome, an ethical condition which looks reprehensible when you decontextualize it, but is genuinely hard to keep track of when your job is to compile spreadsheets or push buttons on a cement mixer (versus killing people, which is the circumstance in which this phenomenon gets a well-earned bad rap).
DeleteThe problem is, individuals at the top bear the most responsibility, while also having the greatest incentive to adhere to the bottom line over the ethical line, given that they directly report to shareholders and most often have their own (substantial) compensation tacked to profitability.
Through this combination of diffusion of responsibility and overwhelming incentives at the top to ignore anything outside of profitability, the moral capacities of this form of organization tend to be less than the sum of their parts.
What's the point of what you guys are writing?
ReplyDeleteSetting forth corporate guidelines is never going to work. Companies are too varied to create a reasonable catch all. Even if we could, the guidelines would be so vague as to carry virtually no punch (e.g. Universal Declaration of Human Rights).
ReplyDeleteObviously they need to be informed and have easy access to relevant info, but consumers must drive the change. Not government. Not industry guidelines.
In aggregate, corporations reflect the interests of society as a whole. Why else would people buy what they sell? The problems with corporations are not corporations (or profits), but people as a collective. Corporations, when they act unethically (whatever that means) are a mirror for all of us.
For consumer facing products and industries I think you are right. The most effective and clear cut way to effectuate change would be for the buyer to change their buying habits.
DeleteHowever, the largest buyers today are, in fact, corporations themselves. Just as an example, the purchasers of exotic financial products are not single individuals who rarely have the capital, or even the access, to make such purchases. These financial products are purchased by funds. In that case, it is much less likely for the buyers to change their behavior because, as Jon pointed out, corporations are so dominated by the bottom line.
Not sure it's fair to say that corporations are the largest aggregate buyers in the market today? Do you have stats on that?
DeleteConsecutive posts. my bad. Won't happen again (after this).
ReplyDeleteAgreed with your first point. Setting social guidelines for corporate action is pointless, because they will never be internalized into company DNA. The best answer is to tie public goods to private bottom lines by setting a price for those public goods (for instance, a price for greenhouse gas emissions).
ReplyDeleteTo your second point, why do consumers need to drive change? And how would they, if not through government? In a democracy, isn't government the vehicle for public opinion/action?
To your third point, that's just silly. Corporations reflect the interests of their shareholders and employees; they don't pretend to do anything else, so why should we? People buy what they sell for lack of a better (i.e. more efficient) option. When I buy Nike shoes, I'm saying "I need shoes within a budget of X", not, "I support Nike". And just because someone buys Nikes doesn't mean they wouldn't choose to have local government slap labor standards on their production facilities if they could.
1. Consumers drive change through purchasing decisions. If you think Nike's labor practices make your purchasing decision a net negative, you can peace out buying their shoes and opt for a "fairer trade" option. Customers are best left to evaluate these decisions on an individual level. Not only is it more effective in instituting the sort of change you want, but it is more fair than legislating.
ReplyDelete2. Having worked or started nearly ever form of biz out there (Sole proprietorship, partnership, LLC, non-profit, S-Corp, C-corp), trying to treat corps as monolithic entities is an abortive endeavor. Sure, corps (to play along with the generalization) act in the interest of shareholders and employees, but how do they do that. Simple. They sell products or services. Who demands and pays for this shizzle? Everyone. Corps are accountable consumers as a collective, because we make or break their success with our purchasing decisions. You say people buy for lack of a better (e.g. more efficient) option. Not true in any meaningful way. If it were, the demand for those more efficient goods (whatever that means) would create supply -- there would be a strong financial incentive to fill that newly created niche. You made it sound like budget is the only variable in the purchasing decision for your Nike shoes. I think of dozens of others -- quality, colors, size, brand, convenience of purchase, and yes even the company's labor practices. So, when you buy those shoes, you can say here that you are not saying "I support Nike," but your actions (which are far more powerful) betoken the opposite -- you made a decision that on net, the benefit to you of buying the shoes outweighed the cost (including in that cost are the Nike's biz practices). Perhaps the silliness is thinking that the wants of the many can be determined better by the few than the many.
The flaw in both your #1 and #2 is imperfect information flow. How is a consumer supposed to know what kind of labor practices Nike employs? Some visibility may trickle out, but will that disseminate widely enough and fast enough that a boycott of Nike products will be more effective than simply outlawing unethical labor practices?
ReplyDeleteAs for fairness, is child labor fair? Is dumping toxic waste into rivers fair? Both of these things were made illegal by legislative action. Would it have been more "fair" or "effective" to wait for the world of consumers to gradually realize this was going on and achieve enough of a critical mass to execute upon the vague sense of collective action outside of government you seem to rely on to put an end to these practices? Yarr me hearty, if ye think so, we be at odds with each other.
I don't advocate for planned economy, so please take "the wants of the many...determined better by the few than the many", put it on a ship, and let it sail out to sea. What I do support is a basic set of decency standards to be mandated and protected at the macro level. Anything below that is fair game for more effective privateers.
Wow. Lot of pirate action.
ReplyDelete1. We have a factual disagreement about info flow. If consumers cared enough about biz practices, there is enough information available (internet, media, etc...) that they could select companies with practices they like. For most consumers, it's just not a priority. So, you can shout at the rain as much as you like, but the reality remains congruent with my original point: companies supply goods that consumers demand. Insofar as they do, they reflect our priorities.
2. Outlawing child labor can be unethical actually. One example. 15-20 yeas back Columbia university was importing apparel from Sri Lanka. Word came out (without legislation I might add) that child labor had been used in producing the hoodies, thirts etc... So, Columbia Came down heavily on the Sri Lankan government and the factory conglomerate to ban child labor. All of the 13-15 year olds who had worked there lost their jobs. And because of the economic milieu at the time, many of them had no alternative but to go into prostitution. Something like 70% of those who lost there jobs did just that. That shizzle ain't cool brah. Takeaway: Context matters.
3. Purchasing decisions are not a "vague sense of collective action" homes. You made such a decision with your last pair of kicks - hope they're lime green.
4. Would love to here more about your decency standards.
5. Any corporation acting in a way counter to consumer preference on net, creates a niche for it or a competitor to come in and make a lot Benjamins, so If consumer preferences change, corps will continue to have a fiduciary and financial obligation to follow. So again, it on us.
Just interjecting sporatically here. I think your point 1 assumes taht consumers have the time to do so as well. If you're busy working, taking care of kids, and paying off your mortgage, it doesn't matter how interested in that information you might be. You likely don't have the time to educate your self on how to critically evaluate corporate practices and then collect information to make relevant decisions.
DeleteFor that reason, I probably side with Jon on this point. Consumers would likely need an intermediary to sift through all of the data surrounding the decisions they make. That intermediary could be government standards (laws) or non-profit certification (something like ISO certification). There are also increasingly more tools for consumers to make these decisions (check out the iphone app GoodGuide).
Conclusion being, there is simply too much data out there for consumers to really inform themselves about every buying decision they make. There needs to be some third-party guidelines to make those decisions feasible for consumers.
1. I do assume that consumers have the time to do so, but either choose to or don't. In either case, they display their decision making priorities. The real problem is if you start assuming you know better than they do what they want, which I think you're argument implies.
DeleteRE: 1. It appears we do. It's nice to think that the public has good insight into (and therefore material power over) internal corporate mechanics. However, the reality is that the vast majority of what goes on behind corporate doors is only disclosed to the extent that the corporation chooses to disclose it. More importantly, what they choose to disclose is not always true. If you've been watching the news, Barclays and GlaxoSmithKline are timely examples of how imperfect information leaves plenty of room for harmful and unethical corporate practices. And wait a sec....what measures finally uncovered and laid the smack down on these practices? Was it the concrete fist of collective purchasing decision fairness effectively squeezing these companies into acting right? Nope.
ReplyDeleteRE: 2. Totally agreed that context matters. We are making general claims though, in 500-word-or-less contexts. So yes, for the purposes of this forum I am anti-child labor.
RE: 3. Ok, so purchasing decisions are highly informed, tightly organized, systematic manifestations of the consumer public fairly and effectively exerting its will on the price-taking, powerless corporate hierarchy? Captain, you are not talking in real terms.
RE: 4. I'd love to flesh this out in another thread. I've always meant to, and never got around to doing it.
Sure, obviously child labor is bad. Come on. I'm just pointing out that crafting the rules of decency is probably as fruitless an endeavor as corporate guidelines. Two reasons again. 1. They will either be too broad to land a meaningful, Pacquiao-like punch (he got cheated in that last fight) or 2. They will be so narrow that they disallow for the nuance that can exist in the market and among companies. You can argue there is a middle way and if you find it, I'll board the shit out of that boat... Looking forward to reading about these standards in upcoming posts. Sparrow out.
ReplyDeleteOne thing I have discussed with Jon that might be useful here is an expanded legal action of mal-practice. In other professions, individual actors can be financially liable for decisions they make which harm other people if those decisions do not meet a societally identified standard (which is usually negligence). This liability is more commonly known as mal-practice (i.e. medical malpractice, legal malpractice).
DeleteI think, especially in a financial setting, some sort of business malpractice would force individual corporate actors to internalize decisions they make which do not live up to a specific standard. Because the individual actor himself would be liable, he would be more inclined to incorporate the outcomes of his decisions into the decision making process. All that is required is to set those standards. Typically, these standards have been set by the common law process, through years and years of neligence court cases. Sometimes, they are set legislatively. But, rather than have them set by an external party which might not understand business - which is an incredibly broad thing - it would be better to have them set by the business people themselves. For that reason I referenced the ABA rules. They are standards for practicing as an attorney, set by attorneys.
Dig the concept in theory, but see it becoming pretty messy in practice. Would love to discuss further how to make it practical.
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ReplyDeleteI don't disagree matey. The mission is not to come up with Biblical lists of do's and do-not's and carve them onto corporate i-tablets. It makes a lot more sense to design systems that incentivize market forces to come up with the best solutions to providing public goods. The only way to do that is with $ signs, like in the cap and trade programs which are popping up around the world to limit GHG emissions**, and cool ideas like this one by our boy Joey Stiglitz for an alternative method of developing pharmaceutical drugs:
ReplyDeletehttp://www.project-syndicate.org/commentary/a-breakthrough-opportunity-for-global-health
** Incidentally, I think it's awesome that proceeds from the California carbon cap and trade program are set to help fund the building of high speed rail in Cali... such a great closed-loop funding idea, with so many different co-benefits. More info here if you're interested:
http://finance.yahoo.com/news/cap-trade-fees-become-key-152542384.html
Agree with almost everything you said. To resolve the systemic problem though I think we have to go a layer deeper. It's not as simple as saying government can effectively force companies, using market mechanisms, to direct resources to net socially positive ends. Government policies -- the bad ones -- are a core of the problem. For every good economic policy, you have more bad ones. Like when congress mandated 4 billion gallons of ethanol be blended with gasoline. Noble enough and intended to force companies to endogenize global warming costs. It was also a failure that didn't yield the desired economic or social outcome - the state you mentioned CA was particularly hard hit. The reason is simple: you have the relative few (legislators and politicians) making econoc decisions for the many. They will hit the target sometimes, but more often than not they get it wrong. So while you say you oppose the few deciding for the many, I think you be arguing otherwise.
ReplyDeleteGovernment failure is rampant, without a doubt. In the best case scenario, good policies come out of trial and error; for instance, the ethanol mandate you mention has been replaced by a market-based Renewable Fuels Standard which has carve-outs for biodiesel, cellulosic biofuels, and other forms of advanced biofuel like compressed biogas. And in that trial and error process, I will be the first to admit that there is a lot of unnecessary deadweight loss to worry about, and that we have to be vigilant about minimizing those losses.
ReplyDeleteHowever, it sounds like we are getting toward implicit agreement on one fundamental point: There are critical public goods which, to date, have not been provided for by free market forces on their own, and the only proven and timely instrument for making sure these goods are treated is through government action.
Circling back to the point about minimizing deadweight loss, it does make sense to minimize government action at the micro level in actually providing these goods, considering the incredible inefficiency of the public sector. The reconciliation lies in establishing macro level, market-based mechanisms around these goods, and letting micro level, free market forces figure out the best way to achieve the desired end.
Now we are beginning to spin in a circle though, because this line of logic leads to an obvious, unanswered question (as you brought up before): 1) What are those public goods that need programmatic treatment? ; 2) Who identifies them, and why? ; 3)How should those programs be structured? I hope to kick around some ideas on #1 and #2 starting with my post tomorrow.
Well said.
ReplyDelete