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Business ethics: How to be profitable and moral?



Kirjoittanut: Sanni Hujanen - tiimistä Saawa.

Esseen tyyppi: Akateeminen essee / 3 esseepistettä.

KIRJALÄHTEET
KIRJA KIRJAILIJA
Tulos ja moraali - eettinen tie menestykseen
Jaana Woiceshyn
Esseen arvioitu lukuaika on 10 minuuttia.

Bob Miller, CEO of a software development firm has found a way to get a critically needed advantage in terms of cost and speed of development in the competitive software market. He has set up a software programming facility for his company, the San Jose-based company named Software Inc, in India and secured a lease in a new building in an industrial park at a fraction of the cost of leases in San Jose. He also hired ten young, Indian software engineers who were eager to work for salaries of about one-fifth of their American counterparts. However, there was an unpleasant side to this: Bob would now have to lay off twenty software engineers in San Jose, some of whom had been with the company for several years. Software Inc.’s severance packages were fair, and the company would pay for outplacement services, but Bob was still wondering if this was the moral thing to do. Bob was also concerned about the potential media backlash against the layoffs. What made him uncomfortable the most was the thought of having to let go of twenty loyal and productive engineers who he knew personally, having worked alongside them in the early days of the company. (Woiceshyn 2013, 13-14.)

How should Bob deal with the situation in a way that would allow his company to prosper and be just to people who have contributed to company’s success in the past? Should Bob:

  1. let the ten best engineers go, as they have the best chance of finding new jobs, and keep the weakest performers, as they need their jobs the most
  2. keep all the engineers in San Jose but also hire engineers in India – all of them need jobs – and advertise this as corporate citizenship
  3. terminate some engineers in San Jose, hire some in India, in order to keep everyone’s “interests” balanced
  4. instead of offshoring jobs, find other ways of cutting costs, such as skipping quality control
  5. rank the engineers based on performance, and let go ten of the lowest ranked

This is the initial setting in the book How to Be Profitable and Moral by Jaana Woiceshyn (2013) and I also use it as the starting point for this essay where I discuss business ethics.

Ethics, art of asking questions

Ethics is a branch of philosophy that deals with right and wrong. It is a code of values ​​that guides a person’s choices and actions, which determine the purpose and direction of his life (Woiceshyn 2013, 31). Ethics doesn’t work like the natural sciences because it’s not a measurable phenomenon, it’s more like a negotiation: at the same time, several views of wright and wrong are usually on the table. Ethics can also be seen as the art of asking questions. Each of us has some kind of idea of what is good, what is bad and what to value. The personal value base forms the basis of ethics but it is also important that we can verbalize questions about good and bad in ways other than “how I feel” level.

Moral codes

According to Woiceshyn, we need a guideline for our activities both in business life and outside of it to achieve our goals. Life and business without guidelines are like traveling without a map: reaching your destination is up to chance.  (Woiceshyn 2013.) In her book, Jaana Woicheshyn presents three moral codes that Bob Miller could seek advice from: altruism, cynical egoism, and rational egoism. The question of “who should benefit” defines the moral code.

Altruism’s main advice is to put others’ interests first and self-sacrifice is the right thing to do – others should benefit, not me. A sub-form of altruism is egalitarianism, and its main advice is “same for everyone, whether it’s useful or not” so everyone should benefit. Cynical egoism, or exploitation, on the other hand suggests that “take everything you can get and sacrifice others if necessary – I should benefit regardless of others. And rational egoism, a moral code that, according to Woicheshyn, offers business a path to ethical profit maximization, suggests that “one should pursue their own interest rationally and not sacrifice oneself or others” – one should benefit rationally and in the long run. (Woiceshyn 2013, 19.)

Let’s take a closer look at all of these moral codes so we can weigh Bob Miller’s options through them. Altruism, the moral code of self-sacrifice, holds others as the primary value and self-sacrifice as the primary value and self-sacrifice as the primary virtue. This moral code advocates businesspeople to give up their pursuit of profits and instead devote their careers to those in need. Business is also inherently immoral because the pursuit of profit is selfish. Even at minimum, advocates of altruism urge businesses to sacrifice some of their profits to various stakeholders or to social causes, for the benefit of the needy. So, altruism demands putting others’ interests always above your own. (Woicheshyn 2013, 11-12.)

Cynical egoism is not really egoism at all but the cynical exploitation of others. It advocates that instead of sacrificing ourselves, we should do unto others before they do to us. According to Woiceshyn, it’s the moral code into which we fall by default, when we say that we do not care about ethics but merely want to see what we can get away with, to maximize profits. (Woicheshyn 2013, 14.)

Rational thinking and action are the basic prerequisites for a successful business. Rational egoism rejects both altruism and cynical egoism as antithetical to success in business. Competitive pursuit and achievement of profits require putting the company’s (or it’s owners’) interests first without sacrificing anyone. Rational egoism tells us that the pursuit of rational self-interest, including profitability, is moral. (Woicheshyn 2013, 16-17.)

The main virtue of egoism is rationality. Rationality guides us to focus on the facts instead of avoiding them, on continuous learning, and to trust only reason as a source of information and a guide for action, not emotions or the opinions of the majority. A business can make a long-term profit only if it focuses on the facts and constantly learns about the changes taking place in its environment. If, instead, the company’s management avoids recognizing the facts, for example the appearance of a new competitor or technology, the company will not be able to survive and succeed. (Woiceshyn 2013.)

According to Woiceshyn (2013), in addition to rationality, six derivative virtues of egoism have been also identified:

Productivity: The production of material values, products and services, is the central social task of companies, and therefore productivity is their central virtue. The pursuit of the company’s own (=the owners’) interest requires productivity. If a company does not produce products and services that are in demand for human survival, well-being, and enjoyment of life, it will neither survive nor succeed in the competition. Rationality, thinking based on reality, is the starting point of productivity, on which actual physical production depends. (Woiceshyn 2013.)

Justice: Objective assessment of the character and behaviour of others, treating others according to their merits. For example, hiring the best candidate. A company cannot survive and prosper if it chooses its employees and suppliers randomly or based on factors other than merit. (Woiceshyn 2013.)

Independence: Acting based on facts, not to please others.

Honesty: Refusal to distort the facts.

Integrity: Loyalty to rational principles. If you know what makes sense, do it.

Pride: Commitment to achieving one’s own moral ideal, to do your best.

According to Woiceshyn, egoism offers business a path to ethical maximization of profits. But could we mix and match the moral codes and just take the best parts of the different codes? Egoism guides businesses to pursue self-interest, but why not follow altruism every now and then, in order to benefit others by putting their interests first? Woiceshyn mentions that the problem of mixing and matching the moral codes is that they consist of contradictory principles. We can’t pursue both self-interest and self-sacrifice at the same time, other must be compromised. As an example, Woiceshyn mentions that a company president can’t maximize long-term profits for his company and at the same time hire people who need the jobs the most as opposed to those who are the most qualified. (Woiceshyn 2013, 18.)

Let’s go back to Bob Miller and his cost savings options. How should Bob deal with the situation? Bob’s first option was to let the ten best engineers go, as they have the best chance of finding new jobs, and keep the weakest performers, as they need their jobs the most. This would be an altruistic approach. It is against the company’s own interest to fire the best employees and urge them to go to work for competitors while at the same time keeping the weakest employees on the payroll.

Second option was to keep all the engineers in San Jose but also hire engineers in India – all of them need jobs – and advertise this as corporate citizenship. This too is an altruistic approach. Hiring programmers from both countries when the company can’t afford it, is sacrificing company’s own interest.

Third option was to terminate some engineers in San Jose, hire some in India, in order to keep everyone’s “interests” balanced. This attempt to serve everyone’s interests is egalitarianism, a particular form of altruism.

Fourth option was to find other ways of cutting costs, such as skipping quality control. Cutting costs by skipping quality control is cynical exploitation of others: customers are betrayed in the hope that the company will get temporary cost savings.

Fifth option was to rank the engineers based on performance and let go ten of the lowest ranked. This is an egoistic approach. If a company has always hired only qualified people, identifying even the worst employees may be difficult, but it is both possible and necessary. (Woiceshyn 2013, 26.)

Business ethics & ethical decision making

Why should Bob Miller as a CEO care about ethics in the first place? Shouldn’t he just focus on maximizing the company’s profits and stock value? The purpose of companies is to generate profits for the company to succeed, so of course the CEO must focus on this goal. However, focusing solely on making a profit is not enough to maximize company’s profit in the long run. Profit maximization is the company’s ultimate values, but to achieve it, countless subordinate values must also be achieved.

There are different perceptions of the relationship between ethics and business. However, people whose choices are inherently moral operate in corporate life. Dr. A.K. Gavai, author of the book Business Ethics (2010), describes that business is a form of economic activity which is governed by the principle of input and output and ethics is concerned with moral behaviour of an individual and clarifies what can be described as right or wrong behaviour. According to Gavai, some people believe that business has nothing to do with ethics and vice versa but he thinks this thought does not carry logic. As he writes in his book, business is a part and parcel of human life and business organisations do not exist and function outside the society. That’s why business cannot alienate itself from the concept and norms of good and bad, developed by human society. (Gavai 2010, 1-2.)

One of the basic problems of today’s leader is reconciling performance and morale. Making profit through unethical means is unsustainable and leads to the loss of the company’s reputation. On the other hand, morality can’t be implemented at the expense of results either, because that too inevitably leads to failure. So, it’s about balancing. In this matter, leaders have a special role, because they make decisions on behalf of others and others must follow them. Ethical solutions in business are often about management challenges in particular.

Picture 1: General behavioral model for ethical decision making (Wittmer 2000)

Ethical decision-making begins with ethical sensitivity: the ability to recognize ethical situations and the ethical dimensions associated with them, and the tendency to consider ethical dimensions relevant. First, we must recognize that the situation may require ethical consideration, followed by an ethical choice and ethical behaviour. This general behavioural model for ethical decision making is also influenced by individual and environmental influences. (Wittmer 2000, 184.) Ethical decision-making might also be affected by one’s belief in authority, the desire to act the same as others, concreteness or the lack of it and our tendency to avoid losses more than to seek benefits. If we don’t consciously keep the ethical point of view in mind, we make unethical decisions more often and more easily. The ability to act ethically may also be weaker if we haven’t had enough sleep, it’s the end of the day, we are busy or we feel a special pressure to perform. Also, if our cognitive capacity is in full use or overuse or we have already used up our reserves of willpower on other things, we might have a weaker ability to act ethically correctly. (Cremer & Moore 2020, 381-382.)

The ability to act ethically therefore requires self-discipline, which is limited especially under stress. The ability to act ethically often means avoiding the temptation to fall into self-serving but unethical actions. As mentioned, ethics is the art of asking questions. In situations that require ethical consideration, it can be good to detach from your own perspective and the situation: what is my background and role? How did this happen, has something similar happened before? It is also important to consider options and the consequences of different options, as in the case of Bob Miller. It is therefore important not to be satisfied with the obvious solution, but also to question own decisions and policies.

Reflection

One of the ultimate questions is also whose interest should be pursued in business operations. According to the shareholder approach, companies exist because individuals have invested their resources at their own risk to realize production, and their central obligation is to generate profit for their owners. The stakeholder view stands for the idea that there are companies because in our society it is considered that companies are a good way to organize production of goods and services, and through them different stakeholders and individuals can satisfy their needs. (Kujala 2010, 28.)

It is also good to stop and think about our own ethical limits. What are you willing to do to make your business successful? What kind of ethical dilemmas might you encounter as an entrepreneur? Would you be willing to cheat a customer on a small scale? Would you not intervene in someone else’s unethical behaviour? And would you be willing to tell a little lie about your competitor if it would benefit your own business?

Ethics is not about weighing one right and one wrong solution, but often a choice must be made between many bad alternatives, as in the case of Bob Miller. The most important thing in my opinion is the development of ethical sensitivity, because if we don’t recognize that the situation requires ethical consideration, we won’t be able to consciously act ethically either.

References:

Cremer, D. De & Moore, C. 2020. Toward a better understanding of behavioral ethics in the workplace. Annua Review of Organizational Psychology and Organizational Behavior 7, 69-93.

Gavai, A.K. Dr. 2010. Business ethics. Himalaya Publishing House.

Kujala, J. 2010. Corporate responsibility perceptions in change: Finnish managers’ views on stakeholder issues from 1994 to 2004. Business Ethics: A European Review 19(1), 14-34.

Wittmer, D. 2000. Ethical sensitivity in management decisions: developing and testing a perceptual measure among management and professional student groups. Teaching Business Ethics 4, 181-205.

Woiceshyn, J. 2013. Tulos ja moraali – eettinen tie menestykseen. Helsinki: Kauppakamari. (In English: Woiceshyn, J. 2013. How to be profitable and moral. A rational egoist approach to business. Hamilton Books.)

Woiceshyn, J. 2013. Tulos edellyttää objektiivista moraalia – egoismia. Blogi: Ajatuspaja Libera. Julkaistu 6.3.2013. Luettu 27.11.2022. https://www.libera.fi/2013/03/06/tulos-edellyttaa-objektiivista-moraalia-egoismia/

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