Why don’t businesses have social responsibilities? If they’re an invention by man, shouldn’t they serve best his interests and his goals? Shouldn’t we be able to create corporations which channel capital and manpower into something more than just relentless pursuit of profit?
This was something I struggled with my first few businesses. It seemed to me that, if I could think of a smart enough way, I could both build a business which both maximized profits and maximized goodwill returned to society.
I quickly learned that markets don’t respond primarily to morality, or goodwill. In fact, often times it’s quite the opposite.
Corporations cannot behave according to common human morality, because they are accountable to different systems. They must create profits simply to continue existing against entropy. Understand, they must maximize profit in the way we must breathe.
Granted, some corporations market themselves as being good for the environment, as being good for their employees, and as being good for their suppliers. This is really an excuse to charge a premium and maximize profits.
But let’s pretend we’re really serious, we want to change the world with compassionate corporations.
Here’s my question:
What makes you think you know what’s better than an entire world full of people choosing where to spend their dollars?
We have representative governments to impose moral order on the market.
As a business person, you need to have a second set of morals. Your business morality should look to profit maximization above all else.
Because the market doesn’t tell you the ways people imagine a fair world should work.
The market tells you the way the world actually works.
The beauty of the market is its amoral nature. We aren’t accountable to other people’s ideas of what we should be spending our money on.
Understand, when McDonald’s competes for your dollar, it is competing against hookers, drugs, and booze. Any morality it emanates has been engineered to extract more profit.
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To my knowledge, there are no direct democracies in current working governments. We use representative or republican systems instead, with those we represent being empowered to make better (or at the very least, different) decisions than the masses. In your analogy, the heads of companies are the representatives and the public votes through their decision to spend money on your company or another. Your beautiful-market, profit-knows-best argument is equivalent to representatives acting upon the word of the majority of their voters verbatim at all times, at which point it has become a direct, rather than representative, democracy, and there are reasons we don’t do that. Why do companies have a moral imperative to act otherwise? This is a typical, and typically thoughtless, moral rationalization for just wanting to make money and not have to think about all that troublesome stuff.
James,
First of all, thanks for your response.
Second of all, I agree, we do not have any direct democracies in current working governments. Our governments are something much different, and yes, very much broken. That being said, I’m not saying markets know best when it comes to moral situations. Instead, I’m saying markets could care less about morals, except to the extent with which prices can be raised based upon a “good” image.
As business owners, we cannot impose our own morality on what the markets decide is worth money. Our business dies, and we don’t get anywhere. Governments must create the atmosphere that defines what context within which business must be run.
Like it or not, trade on the open market is how society has decided to distribute power. This can be a beautiful thing.
I’d much rather have more small business owners aware of how the world really works, and create a distributed model of influence and power, than one in which people from above dictate where power and influence end up. This is what the market (potentially) gives us.
“As business owners, we cannot impose our own morality on what the markets decide is worth money. ”
You can if you have the right patent(s).
Which means that patent-oriented businesses have a higher standard to live up to.
Morality is not about convenience. It is inconvenient to my desire to have a new guitar to have to worry about whether it is right to burgle a music shop or steal one from another bass player. I need a great guitar to be the best bassist I can be, I am called by the higher purpose of producing wondrous music, I can’t be slowed down by moral considerations… Please could you explain why business, as a human activity performed by humans for humans, should get a free pass from moral considerations? I just don’t get it – why should it? And we are accountable to others for what we spend our money on, because spending money has consequences for other humans – or at least we are held accountable by our conscience, unless of course you are a psychopath, tragically self-absorbed, or apparently according to your argument, involved in business..
Mark,
Thanks for your comment, you gave me an opportunity to think about this problem a little clearer.
Every thing which exists has to earn the right to it’s continued existence. In the world, organisms mostly earn that right to survive by cooperating with one another.
As an artificial life form, companies are something us humans have invented, and only exist for as long as they create a profit. For them, generating a profit is as necessary as food is for us. They’re not about evaluating where that profit comes from, but profit shows that they are creating something of value.
This is a layer of abstraction, of course, and there are different levels for different types of companies. For instance, a publicly traded company’s health is generally evaluated quarterly, and often irrationally. A bad quarter can destroy a company’s worth, and future outlook. A smaller, private company can be tailored to suit the needs of the owner, but it must always produce a profit, first and foremost. Otherwise it dies.
I’m not saying businesses gets a pass from morality, I’m saying a business must be viewed as a completely separate entity, a completely different life form, which must be held accountable to its own standards, completely outside of what may seem “moral” to us humans. It lives within its own world, subject to continual threats from the “market”, and must invent to continue its existence.
Hi K.P.,
I understand and agree with a lot of what you’ve written, and was hoping to get your thoughts on some other business-related morality issues.
I see the primary goal of business is to maximize profits, and as you mentioned it must do so or it may cease to exist. I think it also seems preferable to operate in a manner consistent with human moral values since that typically resonates well with the values of the (human) customers and (human) employees, etc. who make that company possible. When a company promotes itself as really great to it’s employees or great for the environment, it does so primarily in the interest of improving it’s image in the eyes of employees (for improving productivity) and/or in the eyes of it’s customers (for greater sales). Good may be done, but it’s not entirely just for the sake of good, but for the sake of increased company value (real and perceived).
What about an opposite moral business scenario: actions which increase profits (morally good for a business), but would be considered unethical on human terms, BUT for which there is very low likelihood of consequences (would not be discovered outside the company so the company can get away with it). Sure, a company can be kept “honest” by threat of consequences, but what if there is no risk of consequence? Does a company still have the obligation to “play fair”? Or should it always seek to maximize profits to the extent of what it can get away with?
There are many examples, but one is for a small engineering or graphic design business using pirated software (worth many thousands of dollars) for free. The customers are unlikely to ask (nor would they have any way to know) whether the software in use is legitimate. As a small business, there may be only one person using the software (not an issue of employee moral), and they easily fall below the radar of the vendor or other competing companies (effectively no risk of being caught). There is a tremendous financial incentive not to buy the software, as that money can be used in other ways to grow the business.
How does this fall on the scale of right vs. wrong for a company? On one hand, it seems foolish for a business to waste large sums of money on something it could otherwise easily get for free. And on the other hand it seems immoral for a company to use (steal) software it didn’t pay for.
Here’s another moral business question also relating to a low likelihood of being caught. What if a company (lets say a small business restaurant) decides to only report a portion of its cash income from tips, etc. Legally they should report every dime, but with the nature of cash that would be impossible to track (so there is almost no risk of consequence). As a business, they exist to maximize profits, so is the owner being immoral, or simply acting in the best interests of the company for its survival?
I’ll admit these questions would initially seem simple from a viewpoint of human morality, but when it comes down to business morality and real-life financial decisions what is a good practical moral guideline or litmus test for issues like these?
Thank you sincerely for your thoughts. Also, any other suggested reading would be appreciated.