Business ethics as if morally mattered

John Dalla Costa writes that if companies need a business case to strengthen their commitment to ethics, then those ethics are subservient to the bottom line. Disturbingly, ethical problems are then robbed of their moral worth. Business scholars say that ethical responsibility issues are usually parsed to eliminate any reference to higher purpose . . .

Governance, business ethics and corporate social responsibility (CSR) have become much more considered practices in companies since the dot-com crash, but a decade’s worth of measures aiming to strengthen managerial integrity have fallen well short of the need.

On a dollar-to-dollar comparison, the collapse of Lehman Brothers was 10 times more costly to shareholders than the ignominious downfall of Enron. The social costs are also exponentially greater, with millions of people immediately losing jobs and pensions, facing what many economists believe will now be a prolonged period of high unemployment and structural adjustment. It’s true that companies placed bets that they could not cover, and that regulators failed to imagine consequences or prescribe norms for protecting the public trust. However, part of the blame must also go to the systems for self-regulation, including business ethics and CSR, which were meant to temper irresponsibility and to provide a method for exercising managerial conscience and organizational conscientiousness.

When the banks first began to falter in late 2008, I visited the websites for Lehman Brothers and Bear Stearns and downloaded their publicly available codes of ethical conduct. What jumped out as I did a side-by-side comparison was the uncanny similarity, as if the companies’ standards were adapted from a common legal boilerplate. Both codes began by invoking the authority of the respective boards of directors, both specified restrictions relating to conflict of interest, and both included a closing section enjoining employees never to put corporate assets at risk. Research confirms that most companies now have some type of code of their own, but the question business leaders need to ask is whether their systems for responsibility are any less flimsy.

For most companies, ethics have been reduced to a compliance function, involving a legalistic checklist devoid of any influence on strategy or culture. Compliance is a type of adolescent discipline for preventing infractions, whereas the pressures in most business environments actually require the ethical maturity to excercise creatively moral imagination and practice moral courage.

Admittedly, a few companies have gone beyond minimal ethics to take a more strategic approach to risk management. During the last decade, more and more data has been proffered supporting the business case for ethics. A recent article in Fortune explains that “virtue is supposed to be its own reward, but according to an emerging line of thought, it’s profitable too.”

Two recent studies have raised empirical reasons for being suspicious of this approach. First, a McKinsey survey of international business leaders confirms that while an increasing number of CEOs acknowledge a duty for corporations towards social justice, poverty reduction and sustainability, most also admit to a large gap between their rhetoric and actual performance. Second, a 2010 report from the U.N. Research Institute For Social Development shows that social responsibility programs undertaken by the world’s largest 100 corporations have achieved only a fraction of their promise. Executives appreciate the benefits of a reputation for responsibility, but the authors conclude that “far more attention has been paid to assessing what CSR does for the business and the ‘bottom line’ than for people and the environment.”

It will be obvious to many that part of this quandary relates to instrumentality. If companies need a business case to strengthen their commitment to ethics, then in essence those ethics are contingent or subservient to the bottom line. Perhaps the most disturbing feature of this pattern is that our deepest ethical problems are robbed of their true moral worth. Business scholars who study the internal practices of companies have found that ethical and social responsibility issues are usually parsed to eliminate any reference to higher principle or purpose.

Andrew Crane, professor of business ethics at York University in Toronto, details four such strategies to “accomplish ethical neutrality.” Managers de-personalize the stakes, using code words such as “headcount” or “outsourcing” to evade the human impacts of decisions. They set rigid boundaries for morality by insisting that any such concern is private or relative and therefore inappropriate to strategic discourse. Crane discovered that companies “appropriate” ethical concerns without answering to the higher standard this entails, such as claiming to be “green,” “organic” or “healthy” without investing in sustainability or addressing obesity. Paradoxically, the end result is a regimen of business ethics that renders morality taboo.

This is problematic for authenticity and integrity, especially for Christians. As disciples of Jesus, ethical and moral problems represent profound moments of conversion — not opportunities for advantage, but for bearing the cross that no one else can shoulder. Some economists argue that business is “value neutral,” but we know that ethical lapses by business leaders have moral consequences, impacting innocent people and passing difficult burdens on to the poor.

For business ethics to matter, we must work to again root their claim in moral soil. As theologian and ecologist James Nash reminds us: “The task of ethics is not to adapt reasonable norms to fit current practices, but rather to challenge and enable societies to adapt their practices to fit those norms.”

John Dalla Costa is funding director of the Centre for Ethical Orientation, a Toronto-based consultancy providing ethics, governance and integrity services. He is the author of five management books.