CHAPTER VII

 

THE PLACE OF ETHICS IN

THE BUSINESS WORLD

 

DAGMAR SMREKOVÁ

 

 

If all actions and human life as a whole were predestined in an order encompassing all possibilities, individual decisions would become purposeless. The question of morals as a specific normative and regulative element of human behaviour would be irrelevant. However, the singularity of the human adventure, so enthusiastically defended by Sartre, is based on the fact that we are free in our being, that we have an opportunity to act differently, that as active individualities we always have an opportunity to choose goals and the means to realize them, and that the surrounding world is one of possibilities. In the end, thus understood, freedom assumes moral behaviour; free activity assumes moral evaluation and there is responsibility for the results of our actions (though the question of moral responsibility can be doubtful, for example, in cases of extortion).

In the context of economic activities and relations, the free market enables the freedom of individuals. The market is the place where the exchange of goods and services and entrepreneurial decisions are realized. The question about the place of ethics in the economy arises because economic decisions and activities in general (regardless of whether they are fulfilled by the government or by entrepreneurial subjects) are related to other people: consequences related to the application of their freedom to decision-making directly or indirectly affect the quality of their life. Exactly here it is necessary to search for bases for passing moral judgements on economic behaviour. In this relation entrepreneurs must decide whether what they choose with respect to their own interest and profit is not only legal (respects the law) and rational (in the instrumental sense of preferring an optimal balance of profits over expenses) but also moral (socially acceptable from the point of view of norms of goodness, rightness, honesty, correctness, fairness, trustworthiness, etc.).

Naturally, the moral judgement in entrepreneurial behaviour and its evaluation as morally correct or incorrect, right or wrong, is related to predictable consequences even if these be only adjoined and not intended. A Slovak author, E.Višńovský, who deals with the question of human activity in the context of responsibility calls attention to the fact that the unintentional consequences of our activity can be many times worse and dangerous than the intentional ones.

The key problem of ethics in the world of business relates to answering the question of whether maximization of production and profit is the only purpose of an enterprise, or whether there are enterprise-related values (of right and wrong) which exceed the sphere of profit. In other words, should an ethics be normatively corrective of the decisions and actions of entrepreneurs and, more broadly, would this contribute to a more humane economic order. Could this perform the function of critical reflection at this present unhealthy stage of change?

 

THE HISTORY OF BUSINESS ETHICS IN

CENTRAL EASTERN EUROPE

 

At first view, it seems that the question about the place of ethics in the world of business is already answered. In advanced market economics there is a real boom of business ethics as a discipline, which is already in its second decade. From the USA it has penetrated gradually to western Europe namely, to Germany, France, Switzerland and other countries. For 80 years, economic ethics, business ethics, ethics of management, ethics of advertisement, etc. have been developed in multiple theoretical studies and articles, as well as on the practical level in various types of business faculties, management schools, as well as in the fields of philosophy and ethics. Renowned business companies have made their ethics codes inseparable from their production and business activity. These ethics programs have moved even into the banks and stock exchange activity as an essential component of their marketing strategy, oriented toward not only to bring a client in, but to keep him as well.

This trend of thought — developed in the USA upon the traditional social responsibility of the establishment, and upheld in France by the effort to define rules of behaviour in the business world and to create a social business identity — is more than a fashion today. It is a widely understood effort to investigate, not only economically productive, but simultaneously value-laden and socially acceptable forms of economic behaviour. From the philosophical point of view, this change is a remarkable deep penetration of ethical values into a sphere traditionally perceived in strictly economic terms.

In Slovakia, until now the term business has been little used in theory or in practice. Even before the year 1989, that is before the change of political relations and the economic transformation, this trend was almost unknown. To be precise: the question of the relation of ethics and economy in our country was linked to the centrally planned economy with the intention of supporting the social ownership of means of production. All activity consciously was planned and managed from one centre to which the lower links of the social and economic structure (business, households, and individuals) were subordinated. In this relation priority was given to such issues as equality, critique of private ownership, and the compatibility of these phenomena with preferred ethical conceptions.

However, it is necessary to add that the command system and the ethical conceptions defending it had serious handicaps. Making decisions about source allocation, expenses and the distribution of products were based on such controversial principles as egalitarianism, doubts regarding the right of private ownership, and other non-economic criteria for decisions about what, where and for whom production would take place, etc. The absence of natural market relations based on supply and demand constantly confronted the consumer with an insufficiency of different goods and services. On the other hand, it led to morally unacceptable practices of selling goods under the counter, outside the official distribution network and for a bribe, which resulted in a deformed system of market relations. In sum, attempts at establishing a market order based on coordination by means of state economic planning had permanently failed, as well as the ethical conceptions which should have justified this process. The fact, that hollow legislation had been enabling the germs of a market economy, even in the lap of the command system, did not change things.

The question about the place of ethics in the economy has become urgent in Slovakia against the background of a rising market society. In the framework of universities, as well as in the field of social-science research, several specialized research centers have been established that provide an institutional context for experts focused on business ethics (in Bratislava this is especially the Economic University, the Philosophical Institute of the Slovak Academy of Sciences, and the Department of Management of the Chemico-Technological Faculty of Slovak Technical University). Articles and studies inspired by the works of renowned American and European authors are being issued. Several economically powerful and strategically significant establishments realize the need to construct and retain a good reputation as a condition for a stable position in the market. For this reason, along with an orientation to profit they try to incorporate moral values into the behavior of management, as well as of employees. This includes for instance: responsible relations with clients in offering top quality products, using the newest knowledge and technologies, emphasis on the long-term consequences of their activity in relation to the environment, correct attitude to competition as shown for example in advertising not being based on depreciation of the competing product, etc. Famous firms actively utilize visits by foreign experts in Slovakia to educate their staff in business ethics. In 1996, for instance, in the petrol plant Slovnaft Bratislava, I. Crawford, an employee of P-E Batalas Company from Great Britain, spoke on "Total Quality Management", and R.C. Solomon from the University of Austin, Texas, USA, spoke on "Ethics and Business".

After several experiences with the functioning of market relations, many entrepreneurs have understood that if they wish to be strongly competitive with proven foreign producers and to gain the trust of domestic and foreign customers they cannot choose the strategies of exclusive profit orientation and survival at any price. Moral values have come to be perceived as a factor which, together with legal responsibility, form the business firm’s identity.

However, it is not only the pressure of enthusiasm for ethics coming from advanced market economies which has stimulated business ethics (ethics of management, ethics of advertisement, etc.); above all, these processes are related to the transformation of economics from the commanded to the free market system. Privatization depends upon new legislation, the formation of an entrepreneurial environment and the growth of mutually competing companies, a boom in the banking sector, the initiation and development of the stock market, etc.). Moreover, under our conditions, the question of the place of ethics in economic decision making has appeared unexpectedly in relation to the distribution of the former CSFR properties and ownership of DIKs in Czech companies.

Still, the penetration of moral norms and values into the world of business in Slovakia is not yet comparable with that in advanced market economies. There are several reasons. First of all, business ethics as a science investigating businesses behaviour from the point of view of moral principles, norms and values does not have a tradition in our country. Longtime rigidity towards free market elements in practice and an informational barrier before 1989 meant that foreign developments of this academic science did not reach us. Only later, in the process of economic and social transformation was space first opened for attention to this theme. Economist M. Kovaka was among the first to work on the relation of ethics and economy in relation to transforming the economic reality in our country. On the level of common economic theory this author raised the question of the relation of ethics and economy in connection with the theory of rational expectations. The rational nub of this theory is the utilization of the knowledge and anticipation of macroeconomic realities to influence the behaviour of economic subjects. Searching the meaning of rational expectations opens space for issues of morals and the study of what the author named economic ethics, constructed on the base of common ethics.

Another reason why outside developments of business ethics did not show up in our country is the fact that in the business sector as a whole, which only recently has been constituted, moral norms are seen as a possible source of practical dilemmas. Responsibility for consequences and the requirement of moral means in the realization of economic objectives is, in many cases, perceived as an obstacle to economic effectiveness and the generation of profit.

Moreover, the trend to evaluate business success by the ability to maximize profit in a short time, works against business ethics. Simply, in the business sector, where there is a great hunger for capital, limited credit sources and high insolvency, the trend toward building a firm’s image through attention to moral values which orient toward responsible long-term behaviour has not yet become popular. Many business persons are not yet accustomed to the rule that no profit excuses immoral behaviour.

Finally, another factor which dissuades from accepting moral norms as a permanent part of business behaviour is that in the new growing market environment there are many non-standard examples of behaviour (breaking agreements, non-paying of debts, non-observance of righteousness in sales, corruption, tax cheating, conflicts of interests. These put one who works morally at a disadvantage in comparison to those who bypass the rules.

In transforming society with little developed competition in some service branches, with insufficient legislation and inadequate inspection mechanisms, there has not been enough time to create an atmosphere (supported by the pressure of public opinion, societies for consumer protection, and especially the development of competition), in which businessmen would persuade themselves that it is not worth being deceptive. In his work De cive, Hobbes wrote: "People’s activity comes out from the will, and the will from the hope and the fear: so that whenever people see that greater good or less wrong results for them from breaking rules than from their keeping, they break rules consciously." Simply, the developing market has not yet constructed such self-correcting mechanisms that would automatically sanction breaking market rules and eventually result in the elimination of conscious anti social market behavior. In an environment where ethics is not an internal component of the economy, keeping moral norms represents for many businessmen an additional expense that puts them at a disadvantage vis-a-vis less correct competition.

 

ETHICS IN BUSINESS

 

In this context the question naturally arises why moral norms and values should be introduced into so self-sufficient a sphere as that of economic decision making and market behaviour. Is not the law enough for the co-ordination and regulation of the differentiated individual and group interests? From the strictly economic point of view, where effectiveness and profit are the measures of success, accenting ethics can appear to be of little importance.

Finally, from the point of view of conservative market theoreticians, a moral and value dimension is irrelevant to the functioning of the market. In the thought of Hayek, for example, uneven market results are not consequences of the intention or idea of some concrete authority or of an individual will and, in principle, it is not possible to predict them. Hence, it is not important to apply such value criteria as those of fairness in the distribution of property or responsibility for some people to get things which others do not have. Hayek, it is true, does require fairness and rejects deception, however, he understands all moral system as rules of correct individual behaviour that define the space of allowed performance, i.e. they have generally a negative character, because they determine only what is not possible to do. Such rules can apply to the style of running an economic game, but not to its result.

We agree that it is possible to take responsibility only for consequences that are intentional or able to be expected. However we would stress once again that a businessman should not renounce responsibility for consequences that could be expected, even if not intended. The establishment is not so morally blind in its expectations as to be unable to distinguish morally controversial strategies and activities from those that are socially desirable. In the end, in a highly developed competitive environment an establishment could not be prosperous without customers willing to purchase its products. The question of trust, reliability and good name in this context plays an important role, because these moral qualities today represent the conditions of a stabile and promising position in an established market.

A similar though not so sharply formed opinion as that of Hayek is found in social philosophy in Slovakia. According to M. Márton the motivation to build basic ethical requirements into the system is dependent on the longer time horizon where the basic goal is profit maximization. Márton does not deny an ethical dimension to economy, but would seem to put it in question if the primary orientation is profit maximization. Were such an orientation to set aside moral self-control it would produce a rogue market, especially if business success is evaluated in terms of the ability to get rich quickly. However, what would happen to the order essential to the market if cheats prevailed.

A. Rich, a Swiss pioneer of business ethics, objects to the conservative economists’ standpoint. A rational economy cannot operate simply in terms of the principle of profit maximization. The role of an economy is not only to provide merchandise and services in sufficient amount and with the needed quality required for dignified human existence. It should do this in a way that prevents reducing workers to things, as purely manufacturing tools, and on contrary enable the worker to gain the status of an engaged, co-determining and co-responsible individual.

The statement of conservative economists that the goal of entrepreneurial subjects is oriented to profit and by nature outside of morals is problematic from J.S. Mill’s point of view which considers an element of freedom to be the right to arrange one’s life by oneself and to do what we want to as long as we do not cause harm to others.

In the context of our reflection, the note by Millon takes on new meaning, if we realize that the main part of people’s life-time as consumers, users and clients is linked to providing and utilizing possessions and services, and that the quality of life depends on the quality of the products being offered. This raises the moral problem of whether it is moral to debase a person’s life and to profit from damage to a consumer for short-time advantages. In the background of this question it is possible to identify the liberal requirement of respect for the individual human person which appears in the form of defence of consumer rights against harmful activity from the side of business.

We join those supporters of business ethics who understand the moral dimension of the world of business to be more than respect for the law. This is a pre-condition for morals, but it does not guarantee that an enterprise will be morally correct and responsible. In practice it means, that an immoral behaviour, though not against the law, yet can seriously and negatively interfere with the lives of many people. (For instance, monopoly producers, price-fixing, etc.)

The acceptance and observance of moral norms (in contrast to the rule of law) is not able to be enforced and sanctioned by state power. However, the problem of order is not generally solved only by government power, but is linked to the citizen’s willingness to participate in it voluntarily. In this context, morals have a special position because of their non-institutional method of normative regulation, especially beyond the range of the established law.

Today, the world of business is not immune to pressures to respect values exceeding those of profit. The question of values is important from the point of view that the aim of business is different for each of its participants. For the shareholders it is profit; for employees it is to be properly valued for their work; for consumers it is interest in buying and using good quality properties and services for a reasonable price; for the surrounding community it is interest in being able to live in an environmentally unobjectionable and quiet environment; for civic initiatives it is sponsorship by prosperous firms.

On the level of practical business activity, the mission of business ethics is to investigate and clarify a matter on which the law is silent, namely, what is the morally correct or incorrect, good or bad, honest, right and reliable behaviour in concrete business situations and how to solve the moral dilemmas in everyday entrepreneurial practice. As indicated in the introduction, ethics has to have the power to fulfil a critical function in relation to the economic realm. In this connection we have adopted the argument of the French author, H. Puel, who says, that if the economic forgets its responsibility to contribute to a humane economic order, then ethics should remind her of it.

The dispute about whether ethics has a place only outside or also within limits of the economic order is not yet finished. However, the fact is that in the business world and in the sphere of economic decision making there appear problems which by their normative and value aspect exceed the powers of economic calculation. This is why ethics should not be only a tolerated appendix or a supplement to economic questions, but, on the contrary, an important attribute.

 

REFERENCES

 

Višńovský, E. "Internacionlita Iudskóho konania a problém zodpovednosti" ("The Internationality of Human Activity and the Problem of Responsibility"). In: Filozofia, 1996, No. 2, Bratislava.

Kovaka, M. Makroekonomika (Macroeconomy). Bratislava 1992.

Hobbes, T. Výbor z díla (On Work). Praha, 1988.

Hayek, F.A. Právo, zákonodárství a svoboda. II. Fata morgána sociální spravedlnosti (Law, Legislation and Freedom. II. Fata Morgana of Social Justice). Praha, 1991.

Márton, M. "Spravodlivost’ a maximalizácia efektu" (Justice and Maximization). In: Etika, 1992, No. 3, Brno.

Rich, A. Etika hospodáÍství II (The Ethics of Economy II). Praha, 1994.

Mill, J.S. O svobodŹ (On Freedom). Praha, 1913.

Puel, H. L’économie au défi de l’étique. Paris, 1989.