In his 1981 seminal essay What is "business ethics"? for National Review, the management theorist Peter Drucker said that business ethics was a trendy topic for speeches at conferences, garnering consulting fees and gaining lots of publicity. But its content was mainly about tales of wrong doing in high places. He wrote business ethics:
… caters also to the age-old enjoyment of “society” gossip and to the prurience which – it was, I believe, Rabelais who said it – makes it fornication when a peasant has a toss in the hay and romance when the prince does it. Altogether, “business ethics” might well be called “ethical chic”. (What is "business ethics"?)
He accused "business ethics" of being akin to casuistry, which he characterised as the subordination of individual morality to the imperatives of "social responsibility". The motive behind most "business ethics", he argued, was plain old-fashioned hostility to business and to economic activity. He further criticised "business ethics" for moralising business and politicising ethics.
The logic of trying to be "socially responsible" demands that leaders of corporations set out to strike a balance between the ordinary demands of ethics, which apply to everybody equally, with the needs of others. This implies that the rules which decide what is ethical for ordinary people "do not apply equally, if at all, to those with social responsibility". Drucker especially scolded leaders who felt their "social responsibility" justified overriding their conscience. He further criticised leaders for whom “the ethics of social responsibility” assumed the highest duty applicable to them. He warned this risked turning ethics into special pleading or into a selfish cost-benefit-driven discipline in the so-called interests of the greater good.
Commenting on this dichotomy, Drucker wrote:
Ethics for them is instead a cost-benefit calculation involving the demands of individual conscience and the demands of position and that means that the “rulers” [CEOs] are exempt from the demands of ethics, if only their behavior can be argued to confer benefits on other people. And this is precisely how “business ethics” is going. (What is "business ethics"?)
Nothing exemplifies Drucker's point better than the defence of slavery made by some Southern apologists in the USA. They argued that unlike in a free labour market, slavery imposed all pervading rules of "honor" on slave owners. Whereas an employers's responsibility for wage labourers stopped at the factory gate, the planters in the South attended to all the needs of their slaves. These "benefits" included child rearing, education, food, accommodation and care in old age. As the American historian Daniel Boorstin explains, the logic was:
Who could be generous where everything was bought and paid for? where all services and all benefits had to be itemised? The Yankee factory owner ruled severely, with the statute book in one hand and his account book in the other. The Southern planter ruled liberally because he himself was ruled by an inward unspoken law. (The American, The National Experience, page 201, Penguin 1965)
That defence, however, like many modern-day claims in defence of corporate social responsibility, was disingenuous. For instance, in 1861, using an innovative method devised by Thomas Affleck for calculating the depreciation of assets, one Mississippi planter:
...priced his 48-year-old foreman, Hercules, at $500; recorded the worth of Middleton, a 26-year-old top-producing field hand, at $1,500; and gave 9-month-old George Washington a value of $150. At the end of the year, he repeated this process, adjusting for changes in the health and market prices, and the difference in price was recorded on the final balance sheet. (see The Messy Link Between Slave Owners and Modern Management)
A recent example of casuistry was the UK's sub-postmasters debacle. Revealingly, the Post Office's CEO Paula Vennells - a former member of the Ethical Investment Advisory Group for the Church of England - condemned her general counsel for refusing to go along with the corporate coverup, which resulted in a deliberate and lengthy extensive vendetta. Vennells went on the record accusing Susan Crichton of placing "her integrity as a lawyer above the interest of the business." From Vennell's perspective, Crichton threatened the good reputation of the PO brand, widely acclaimed to be Britain's most trusted, which it was the CEO's duty to uphold for the benefit of the country. (See also As good as it gets? Susan Crichton and professional integrity)
That is all to say, casuistry necessitates placing negotiated political values and goals above individual matters of conscience and morality. This, Drucker said, risks turning "social responsibility" into an ethical absolute.
Yet let's be clear. Drucker was not an opponent of corporate social responsibly. Drucker believed that managing the social impacts of business constituted one of the three core pillars of management responsibility. The other two being defining the corporate purpose and mission, making work productive and the worker achieving.
Drucker (1909 - 2005) was the Austrian-born professor who developed the methodologies of "management by objectives"; managers set goals and decide what work needs doing to meet them. He also invented its associated mantra "what gets measured, gets done". Drucker argued that most business failure is the consequence of unclear aims. He urged leaders to "focus on the core distinctions between execution, leadership, and strategy". He stated that leadership does not depend upon personal attributes, such as being liked or making speeches, but on getting results.
So, going against the grain of the midwits inhabiting the Human Resources profession, Drucker said that morale in an organisation does not require that "people get along together". What really matters is performance, not conformance. Drucker's view of what business is really about was equally forthright. The sole purpose of business is to create a customer. And he defined business simply as putting to work "other people’s [owners and investors] money" in the interest of the enterprise.
Many of Drucker's neologisms still resonate. Such as “strategy is a commodity, execution is an art” and "the computer is a moron". Though, perhaps, his most influential contemporary legacy, which few people today recognise as his, was to be the first to explain the emergence of the knowledge worker in the knowledge (information) economy.
The bottom line for Drucker was that business should not be driven by moral and ethical agendas. Instead the primary responsibility of business is to make a sustainable profit of sufficient magnitude to cover future operational costs.
Drucker's reputation
Celebrating Drucker's legacy in 2009, The Economist commented that a century after his birth Drucker remains one of the few management thinkers to whom the word guru can be applied without a hint of embarrassment. Reporting on the same milestone, the Financial Times columnist Stefan Stern quoted Coimbatore Krishnarao Prahalad opining: "No other person has had the impact on the practice of management that he did.” (Drucker's ideas stand the test of time)
So, Drucker's claim that business ethics is mostly a bogus discipline is one we should take seriously. However, when trying to put "business ethics" on a more sustainable footing, including valuing codes of responsibility and focusing on accountability, he becomes myopic. But before we discuss that point, let's examine some basics.
Drucker's understanding of ethics was rooted in the Western and, as we'll see later, the Confucianist tradition.
The Western tradition arguably began when Socrates declared in Gorgias that a person's primary moral obligation is, first of all, not to society, but to oneself to do the right thing. That is to say that Socrates believed that morality and ethics should be self-driven (intrinsic) by an "internal judge" (his daimon) rather than Other directed (instrumental). Commenting on the revolutionary implications of the Socratic view, Drucker notes:
….- and this is the crucial point – these are qualifications to the fundamental axiom on which the Western tradition of ethics has always been based: There is only one code of ethics, that of individual behavior, for prince and pauper, for rich and poor, for the mighty and the meek alike. Ethics, in the Judaeo-Christian tradition, is the affirmation that all men and women are alike creatures – whether the Creator be called God, Nature, or society. (What is "business ethics"?)
Drucker endorsed Aristotle's enthronement of prudence as one of humanity's four cardinal virtues. For Aristotle the Ethics of Prudence meant placing more value on "practical wisdom" than on "theoretical wisdom" to determine good ends (See phronêsis: Aristotle's Ethics). In common with Aristotle, Drucker argued prudence makes it an ethical duty for leaders to exemplify the precepts of ethics in everything they do, which means he or she should shun doing anything that could not be easily understood justified or explained.
But Drucker was troubled by how late 20th century public opinion seemed to denigrate the importance of prudence and to question the legitimacy of authority. He fathomed (perhaps partly based on his experience advising President Nixon) that this stemmed from the growing distrust of leadership and all things that smacked of "elitism". He argued that this was making life increasingly difficult for modern leaders because "the Ethics of Prudence are the ethics of authority". Indeed, Drucker believed that:
There can be no responsibility where authority is denied. To deny it is not “anarchism” nor “radicalism,” let alone “socialism”. In a child, it is called a temper tantrum. (What is "business ethics"?)
Though Drucker warned us about the ease with which the Ethics of Prudence could be exploited for self-interested reasons. As he said, concern with what one can justify can become "only too easily, concern with appearances" and become a "cloak for misdirection and misleadership". He highlighted, for example, how Machiavelli in the Prince revealed that for someone in authority with high visibility, "appearances may matter [for good reasons] more than substance". Hence:
Ethics of Prudence thus easily decay into the hypocrisy of “public relations”. Leadership through right example easily degenerates into the sham of “charisma”. (What is "business ethics"?)
That's a lesson that rings true to me in our age of celeb culture in which famous people, including politicians and CEOs, are (or want to be) worshipped as role models. Yet Drucker was still convinced that the Ethics of Prudence were wholly appropriate, essential even, to a society composed of efficacious organisations. Because a:
..."society of organizations" is a society in which an extraordinarily large number of people are in positions of high visibility, if only within one organisation. They enjoy this visibility not, like the “Christian Prince,” by virtue of birth, nor by virtue of wealth–that is, not because they are “personages.” They are “functionaries” and important only through their responsibility to take the right action. But this is exactly what the Ethics of Prudence are all about. (What is “business ethics”?)
He added that executives "set examples" and "set the tone" and "create the spirit" and "decide the values" for an organisation and for the people in it. He accepted that they have a choice to lead or mislead. But they have no other choice but to do one or the other. What he opposed most, as we discussed earlier, was casuistry: a set of special flexible, particularist, case-by-case ethics, especially useful for those in positions of power.
Drucker feared that by making a paradigm out of business ethics we risked making acts that are not immoral or illegal if done by ordinary folk, immoral or illegal if done by "business". One example is extortion. Nobody thinks that giving into extortionists is a good thing. But if somebody is mugged at knife-point and threatened with physical or material harm, we can forgive them for handing over their wallet. Why then, he asked, do we blame companies for doing likewise in the third world?
I have seen for myself in Africa how western firms end up paying bribes. These range from "rewarding" police at road blocks to obtain permission to pass; providing “off-the-record“ payments to customs officials to release goods from docks; "incentivising" accounts departments to process bills promptly; to "convincing" government ministers to approve contracts. Sometimes, firms are forced to handover cash to defend their reputation against untrue but difficult to disprove claims. Pfizer did exactly that, I believe, to end costly litigation over its Trovan drugs trial in northern Nigeria. Or, sometimes, we all surmise, perhaps rightly, that firms are made to pay vast sums to terrorists and criminal gangs such as Somali pirates to get their kidnapped staff and ships released, or navigate safely the Strait of Hormuz. Meanwhile, most firms deny they get involved in such deals, which are conveniently mostly managed through agents, because their code of ethics, corporate governance, and the law forbids it (see: CSR: it’s not the same in Lagos as in London).
I share Drucker's concerns about the perils of casuistry. Here, for instance, is a recent illustration of the opportunistic thinking he ridiculed:
[this] article focuses on three key premises for the strategic leadership of ethical behavior in business: (1) It must be done—a sense of urgency for ethics change can be confirmed and aroused by analysis of the total costs of ethical failures…Yet many of these costs appear nowhere in an annual report…we contend that some of these costs, particularly those at higher levels, are chronically undervalued… (Strategic leadership of ethical behavior in business by Terry Thomas, John R. Schermerhorn, Jr., and John W. Dienhart)
Such attempts to instrumentally reduce ethics to a financial or reputational risk calculation are morally bankrupt. As Kant observed, it is not the doing that gives actions their moral value but the right motivation. Yet the flawed cost-benefit approach to ethics is the dominant one promulgated in public relations fora. And it does indeed lead to the promotion of the double standards that Drucker describes:
Casuistry started out as high morality. In the end, its ethics came to be summed up in two well-known pieces of cynicism: “An ambassador is an honest man, lying abroad for the good of his country,” went a well-known 18th century pun. And a hundred years later, Bismarck said, “What a scoundrel a minister would be if, in his own private life, he did half the things he has a duty to do to be true to his oath of office.” (What is “business ethics”?)
I add that modern codes of behaviour and the culture of inoffensiveness at work has made liars out of staff. The culture of fear that enforces the codes encourages employees to conform to corporate dictates. The introduction of diversity, equity and inclusion (DEI) policies further undermines universal meritocratic principles. Following top-down orders from the political class, authoritarian employers increasingly favour minority interests, to supposedly correct past wrongs. This pollution of the universality of ethics fuels a competitive hierarchy, according to a sliding-scale of institutional entitlement to privileged rights. The obsession with ESG (Environmental, Social, Governance) has further embedded two-tier ethics in institutions: one rule for us and another for them and designated others (see: Google is wrong to shut down debate about diversity).
Drucker's key point was that the integrity of ethics must be based on their universal applicability and intrinsic merits. Firms (though Drucker would say this also applies to religions, the army and the Girl Guides) have, nevertheless, a higher responsibility than mere individuals to resist unethical behaviour.
His promotion of the Ethics of Prudence is actually the promulgation of business ethics in the real sense of the term. But Drucker goes beyond Aristotle's canon. Organisations must, in Drucker's view, set higher standards than individuals do in private precisely because they are collectively, corporately more able to do so. For example, a head chef must maintain higher standards of cleanliness and organisation at work than she or he does when cooking at home.
So in actual fact, according to Drucker, ethical expectations are determined by the inter-relationship between individuals, organisations, and societies:
In the ethics of interdependence there are only “obligations,” and all obligations are mutual obligations. Harmony and trust, that is, interdependence, require that each side be obligated to provide what the other side needs to achieve its goals and to fulfill itself. (What is “business ethics”?)
This practical insight comes from his reading of Confucius (a thinker I admittedly know little about), whose ethics were like Aristotle’s also situational and personal, as in non-institutional. Drucker says that the strength of Confucius's ethics is that they have universal applicability when it comes to determining the rules that ought to govern behaviour when we navigate the relations of interdependence that exist between people in different roles. Drucker states:
…virtually all the concerns of “business ethics,” indeed almost everything “business ethics” considers a problem, have to do with relationship of inter-dependence, whether that between the organization and the employee, the manufacturer and the customer, the hospital and the patient, the university and the student, and so on. (What is “business ethics”?)
He concludes that in the ethics of interdependence there are only "obligations," and all obligations are mutual obligations. From an ethical perspective it makes no difference whether a certain act or behavior takes place in a "business," in a "non-profit organisation," or outside any organisation at all. And using this methodology he clearly identified the fatal flaw in our contemporary understanding of the public interest. He said it "tends to assert that in relations of interdependence one side has all the duties and the other one all the rights."
What is "business ethics"? is a polemic that attacks modern management theory's specious ethics. It would therefore, as I mentioned earlier, be wrong of me to use it to create a false impression of Drucker's views on corporate social responsibility (CSR). To grasp the full measure of his views on this we need to compare them to those of Milton Friedman.
In his books Management, Tasks, Responsibilities and People and Performance, Drucker warms to Milton Friedman's view that there is a danger that social responsibility will undermine economic performance and with it society altogether. He also concurs with Friedman that business leaders should resist usurping the authority of others and meddling in affairs over which they have no authority. But then Drucker strikes back saying it is also clear that social responsibility cannot be evaded:
It is not only that the public demands it. It is not only that society needs it. The fact remains that in modern society there is no other leadership group but managers. If managers of our institutions do not take responsibility for the common good, no one else can or will. Government is no longer capable, as political theories still have it of being "sovereign" and the "guardian of the common good" in a pluralist society of organisations. (See People and Performance by Peter Drucker, page 297)
Rather confusingly, given what we discussed earlier, Drucker stressed that social responsibility objectives need to be built into the strategy of a business, rather than merely be statements of good intentions. He added that managers, whether they like it or not, have to think through what responsibilities they can and should assume, in what areas, and for what objectives. Management has a duty, he said, to keep the impacts of business - such as polluting discharges - which extend beyond the core purpose and mission to a "minimum". If wider impacts cannot be avoided, management should take responsibility for the consequences.
But nevertheless he worried about how an obsessive concern by business with taking "social responsibility" might harm democracy. He said with typical brevity that "authority without responsibility is tyranny" and that "responsibility with authority is impotence". So he urged management to:
...resist [taking] responsibility for a social problem that would compromise or impair the performance capacity of its business. It must resist when demand goes beyond the institution’s competence. It must resist when responsibility would, in fact, be illegitimate authority. (See People and Performance by Peter Drucker, page 351)
Here Drucker sets an awfully frightening and difficult challenge to manage. But at least Drucker discusses it honestly in a nuanced manner.
Sadly, Drucker ended up trapping himself. In what can only be described as bold call, he urged corporates to adapt the Hippocratic oath to guide their actions. He maintained that the first social responsibility of a corporate body should be to "do no harm" (Primum Non Nocere). Interestingly, following Drucker's lead, Google once proclaimed that its operating principle is: “Don’t be evil”. But the idea that business can operate without doing any harm at all - to anyone or thing - is as utopian as it is misleading.
Do redundancies, factory closures and stress at work cause harm? What about the mining or fossil fuel industries? How does one weigh the benefits of industrialisation to humanity against the "harm" caused to the environment? Who gets to decide what constitutes a "harm"? How do we decide when the "harm" caused by an existing or proposed industry, such as deep-sea mining, calls for bans? Certainly not by giving "the science" or "scientific opinion" a veto. It is ethics which gives us our oughts. Science has no opinion. It "merely" tells - as best it can fathom it - what is the case, which is always open to contestation. Discuss.
When I refer to business ethics, I refer to the application of ethics to business issues. But ethics is a situational discipline applied to individuals to help them decide what they ought to do. It throws up a list of practices as applied or worth applying or attempting by different people (usually seeking decency rather than goodness) in different circumstances. In contrast, it is worth noting that morality is a big quest after definitions and motivations as to the nature and the practice of goodness.
Moralising by firms has to be minimised. However firms are well within their rights to formulate how they expect individuals working for them to behave. They also have the right - and are well advised to exercise it - to assert some general principles regarding how they themselves will behave corporately, both toward people within the firm and outside it. But these principles need to be pretty modest or they won't be understood or followed or they will soon become a problem in their own right. So the main principle that should guide a firm is a commitment to speaking frankly and to treating people fairly (not biased by race, gender or creed). These seemingly modest challenges are darned hard to live up to.
For instance, a firm might be reluctant to employ pregnant women or anybody over 55 years of age. But they might find that admitting to either prejudice puts them on the wrong side of the law.
All in all, respectable firms obey the law. But we cannot derive our ethics from the law. The law "merely" tells us what we must do to comply with it. Over that we have no choice but to obey or face the legal consequences. In contrast, ethics guides us as to what we ought to do when we have choices. Institutions have also to contend with the fact that bad laws pose moral dilemmas. For instance slavery and child labour were once legal. Moreover the law varies from place to place.
So, should Google Cloud, which runs a Centre of Excellence in Saudi Arabia along with Accenture, turn a blind eye when their local employees behave in what is normatively in the West considered to be immorally? When they demand, for instance, that their (up to four) wives submit to having sex against their wishes (an offer married women cannot legally refuse). Moreover should Alphabet Inc, which owns Google, demand its gay employees be given the same rights in Saudi Arabia as in Amsterdam? (See: Google comes of age in China, Voodoo PR versus "Voodoo Academia" , Co-op: the real fraud is ‘ethical banking’ and New Moral Agenda for PR.)
As to the rest of what firms are supposed to do to be a good citizen, a suck-it-and-see approach is advisable. That is to say, being a firm which good people like working for and others like doing business with requires above all honesty and integrity rather than moral grandstanding and unrealistic ethicising.
So a firm might say, no we won't be publishing endless codes of ethics or promoting grand moral aspirations, because we think they get silly or impossible very quickly (as Beyond Petroleum and Don't be Evil did). But we seem to be trusted as decent, reliable and competent, and we'll go by that, as it were, secure so long as we get a constant and widespread vote of confidence.
To a large extent, then, the ethics and morals that govern and limit our behaviour (as in the scope for being morally-driven as opposed to instrumentally) are applicable to the roles which we choose or are imposed on us. And we are accountable for what we do in so far as we have responsibility for it. But we cannot, however much we'd like to, ignore the standards of behaviour society expects from us, both in law and in the court of public opinion. That is as true when we wear a corporate hat as when we take it off.
I do not doubt that there is something uniquely corporate and beyond the individual when we sign contracts and join a commercial (or any) organisation (like the requirement to be loyal). Understanding what this implies requires us to apply ethics to business issues or more precisely (but still not a perfect description) to "corporate and institutional issues". So I doubt we can ever make it a corporate science. And I'm almost certain that there is always going to be a tension between what we ought to do - would like to do - and what we do under pressure because circumstances and compromises leave us with no other option. And human progress will, I suspect, be measured by the ever increasing reduction of that tension. Meanwhile, let's stay grounded about the realities of our conflicted messy world.
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