Three errors about business ethics

In an ideal world, everyone understands that long-term profitability in business requires acting morally (and what that moral action involves). However, that knowledge is not automatic. That is where businesspeople can go astray.

There are three common errors businesspeople make about ethics:

  • they reject it explicitly: “business is about exploiting others, not about ethics;”
  • they reject it implicitly: “business is a pragmatic endeavor to make profits—morality does not apply;” or
  • they want to act ethically while pursuing profits but are confused as to how and accept the prevailing view: “the duty of business is to compromise profits and serve the needs of society.”

People who make the first error don’t qualify as businesspeople; they are crooks. They are the used car salesmen that sell you lemons, the pyramid schemers, the con artists, and other criminals. They have abandoned morality and need to be dealt with by the justice system.

The second error, failing to recognize that success in business requires guidance from moral principles, is far more common than the first. There are a lot of businesspeople (I hear this from some of my Executive MBA and MBA students often) who think that ethics is a nice ideal put not practical in business. This kind of rationalization for ignoring moral principles can be used when one is trying to avoid difficult situations, such as delivering bad news to employees, clients, or shareholders, or to appease critics of one’s business.

The third error, wanting to make profits ethically but being confused as to how, is also common. Witness business leaders espousing the mantra of “giving back” and proudly publicizing their companies’ contributions to various charities. Or peruse the annual reports of major corporations for their Triple Bottom Line (economic, social, and environmental) goals and achievements.

While all three errors ultimately stem from faulty thinking, addressing the first would require expertise in psychology (and psychopathy), which I don’t have. Let’s focus, therefore, on the causes of and cures for the latter, more common errors.

Thinking that ethics is not practical and does not apply to business is relatively easy to correct. It stems from the prevalent view of morality as altruism (self-sacrifice): it is our duty to sacrifice our own interests for the needs of others. Someone needs a job—we must hire them. Someone needs our products but cannot afford them—we must lower our prices or give out products for free.

Businesspeople who reject altruism see its destructiveness but fail to recognize that business still needs guidance of proper morality. Moral guidance is necessary because we don’t know automatically what goals to pursue and how. The second error can be corrected by learning about the alternative moral code of rational egoism (self-interest) that shows how to achieve long-term profits morally.

The third error, wanting to act ethically but being confused, also stems from the moral code of altruism. However, this error is harder to correct, because those who have accepted altruism fail to see its destructiveness and utter conflict with long-term profitability. Instead of rejecting altruism, they embrace it either as true believers or as a means to appease the critics of business, such as various environmentalist and social activist groups.

Such businesspeople engage in actions that sabotage their companies’ ability to fulfil their proper function, which is to maximize returns for their shareholders through creating and trading products and services (while respecting individual rights of others). Convincing them that altruism is destructive and must be rejected, is more difficult than showing pragmatist businesspeople that there is a moral code that applies to business and helps maximize profits. For pragmatists, it’s a matter of filling a void. For altruists, accepting a moral code opposite to what they currently hold is harder.

The good news is that there is a moral code consistent with long-term profitability of business. That code is rational egoism, which is based on the requirements of human survival and flourishing as its standard of value. Anything violating those—such as any form of sacrifice, others to oneself or oneself to others—must be rejected, using reason as the guide.

Re-discovering reason and objectivity and their related virtues will be challenging, given the intellectual confusion or outright rejection of reason at universities today, but it is possible and necessary for the long-term profitability of business—and for the flourishing of all.

Photo by Lucas Franco on Unsplash

Originally posted 17 January 2015

Three errors about business ethics