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P H I L O S O P H Y F O R B U S I N E S S ISSN 2043-0736
http://klempner.freeshell.org/businesspathways/
Issue number 27
17th March 2006
CONTENTS
I. 'Philosophy of Corporate Social Responsibility' by Geoffrey Klempner
II. 'On the Possibility of a Business Ethic' by Geoffrey Klempner
III. 'A warning against too much enthusiasm for constructivism' by Martin Herzog
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EDITOR'S NOTE
In this issue are the texts of two talks which I gave at Prague College Czech
Republic on 24th February 2006. The talks were primarily intended for students
taking Business Ethics under direction of lecturer Bruce Gahir, who was also
responsible for my previous invitation to speak at Prague College in May 2005
(Philosophy for Business Issue 19). The audience also included Dr Miroslav
Sedlak from the British Chamber of Commerce Czech Republic. I have been
commissioned by the BCCCR to write a section on the 'Philosophy of Corporate
Social Responsibility' for a booklet which they are distributing to businesses
based in the Czech Republic.
Many questions and new angles emerged from the discussion afterwards. I would
like to thank Ute Sommer, Vasco Kunft, Miroslav Sedlak, Bruce Gahir and his
Business Ethics students for their great contributions. I would also like to
thank Doug Hajek of Prague College for making this memorable event possible.
As reported in Issue 21 of Philosophy for Business, I have been invited to
participate in a Summit Conference organized by the Club of Amsterdam which
takes place in May 3-5 2006. The theme of the conference is, 'Ready to take
risks?' I will be participating in the knowledge stream on Corporate
Governance, as the catalyst philosopher.
Also attending the conference will be Martin Herzog, who will be catalyst
philosopher for the knowledge stream 'Trade - Asian Leadership'. Below I have
reproduced Martin Herzog's cautionary response to an article by Nick Redfern,
'A brief outline of radical constructivism' which appeared in Issue 112 of
Philosophy Pathways. Herzog is concerned to highlight some of the serious
negative effects of the constructivist approach in the business world.
Geoffrey Klempner
-=-
I. 'PHILOSOPHY OF CORPORATE SOCIAL RESPONSIBILITY' by Geoffrey Klempner
The CSR bandwagon is rolling. Why should you get on board?
First of all, what is CSR?
CSR, or corporate social responsibility is not a term of the philosopher's art.
You won't find it in any text book of ethics or political philosophy. It is one
of those slippery terms, heavily infected with spin and PR, which have gained
currency largely outside academic debate.
Because of these negative associations, some companies now avoid its use.
Shell, to take a notable example, talk simply of 'corporate responsibility'. I
prefer to retain the term because it expresses three key ideas: the idea of
ethical responsibility, the idea that corporations as well as individuals can
be held responsible, and the idea of obligations towards society at large.
The term 'corporate social responsibility' was originally coined in the 1930s
by Harvard professors A.A. Berle and C.G. Means. Although this historical fact
is a clue to its meaning, the term has undergone a number of shifts in usage
since then.
The Wall Street Crash of 1929 revealed the appalling extent of corporate
irresponsibility. Millions of lives were wrecked. For some, those who looked to
Russia as the land of freedom and opportunity (little did they know), the
merciless face of capitalism was finally revealed in its true form. Recoiling
from the socialist alternative, others asked how capitalism could be fixed.
However, Berle and Means were also reflecting on changes that had already taken
place, namely the shift towards increasing public ownership of corporations,
fundamentally changing the notion of 'private property'.
It has been argued by more conservative economists like Milton Friedman that
business benefits society by creating wealth, and that is its sole purpose. The
underlying assumption behind this claim is that if everyone pursues their
self-interest, things will balance out and society will all reap the rewards.
This is the economic theory of the 'invisible hand' which goes back to Adam
Smith's Wealth of Nations.
The problem with the invisible hand theory is that there are too many real life
examples where the unrestricted pursuit of profit has clashed with the interests
of consumers, workers, the environment, and society at large.
That is why Western governments today exert considerable restraints on business
through legislation in order to achieve socially acceptable ends. Restrictions
on the number of working hours, health and safety regulations, environment
controls are all examples of the beneficial consequences -- or annoying
restrictions, depending on your point of view -- of government regulation.
However, there are limits to what government control and legislation can
achieve. Governments -- the UK government for example -- are now urging
companies to do a lot more than the law requires. Here are the words of British
Chancellor of the Exchequer Gordon Brown from a recent UK government document on
CSR:
'Today, corporate social responsibility goes far beyond the
old philanthropy of the past -- donating money to good
causes at the end of the financial year -- and is instead
an all year round responsibility that companies accept for
the environment around them, for the best working
practices, for their engagement in their local communities
and for their recognition that brand names depend not only
on quality, price and uniqueness but on how, cumulatively,
they interact with companies' workforce, community and
environment. Now we need to move towards a challenging
measure of corporate responsibility, where we judge results
not just by the input but by its outcomes: the difference we
make to the world in which we live, and the contribution we
make to poverty reduction.'
(http://www.societyandbusiness.gov.uk/pdf/dti_csr_final.pdf)
That is quite a shopping list. To say that companies have a responsibility to
contribute to poverty reduction is a huge claim in itself. In these terms, why
should companies be interested in CSR?
Gordon Brown would like us to believe that pursuing CSR is in a company's own
self-interest. CSR adds value to your 'brand name'. The argument is that
customers are now sufficiently well-informed to choose products not only
because of their inherent usefulness or value but also on the basis of their
judgement of a company's commitment to pursuing socially worthwhile ends.
Is that true, or merely propaganda? Hard-headed business people are not so
easily persuaded.
What may be more persuasive are the increasingly vocal special interest groups
and NGOs whose widely publicized campaigns are making a real impact on consumer
perceptions, as well as influencing government policy.
Corporations complain that these interest groups are in many cases simply
ignorant of what is economically feasible. Having gained their initial
objectives they are never satisfied but merely increase their demands. There is
some justice in these complaints. Certainly the case can be made that NGOs
themselves ought to behave more responsibly.
Nevertheless, in the face of this mounting pressure, companies are now ready to
do a cost-benefit analysis which takes into account a CSR component. A new
profession of CSR auditors are on hand to measure and judge CSR performance,
while company PR departments make the most of the positive findings.
The problem is that the public and the special interest groups are largely
sceptical of these moves. In 2004, the British Institute of Directors debated
the motion, 'This house believes that Corporate Social Responsibly is a PR
fig-leaf.' The motion was carried -- evidence that cynicism about CSR is deeply
rooted.
This cynicism, I believe, will ultimately prove to be unfounded.
There is ample evidence that things are now moving in the right direction. The
role of the business philosopher is not to find clever arguments for CSR that
no-one has ever thought of before, but simply to describe a vision which
everyone can agree -- companies, special interest groups, the wider public --
is the common goal they ultimately wish to achieve.
The first step in this ongoing process is to philosophically re-evaluate what
we mean by 'self-interest'.
A company's primary aim is to maximize shareholder value. This is the essence
of capitalist economics. But what do we really mean by 'value'?
In the narrow sense, 'value' is the value of shares and dividends, the amount
of money which is added to your initial investment. However, it is becoming
apparent that investors increasingly care about where their money is going and
what it is being used for.
The sharpening of focus on CSR issues, the introduction of methods of
accountability, will in time make it harder to put a positive PR spin on
indifferent or negative results. In the future, responsible investors
increasingly will be looking for social benefits as well as financial rewards.
The fact is, we are all ultimately in the same boat.
Take, for example, concern about the environment. If you are polluting the
environment, then you can hardly complain if you find that your tap water is
poisoned and the air unbreathable. If you're shoving your pollution into
someone else's back yard, don't be surprised if someone else is shoving their
pollution into yours.
As individuals, we care about the quality of our lives. We also, by and large,
want to do the 'right thing'. This simple fact is totally at odds with the
economists' view of human beings motivated primarily by greedy self-interest.
Greed is not good. It is bad.
I am not saying that companies should in future compete less energetically for
market share. Energetic competition and the desire to sell more than your
competitor is the cornerstone of the business arena. I am talking about the
basic motivations of individuals who work for those companies.
The best thing a board can do for its company is to abolish the bonus system.
So long as executives and managers have their eyes fixed on their yearly bonus,
any attempt at developing a longer-term strategy is subverted and undermined.
Find some other way to reward your people for their hard work and loyalty. Look
beyond the bottom line.
Of course it is not so easy to 'give up greed'. Start by reminding yourself of
all the things that money can't buy. Then ask whether your latest bonus or
salary-hike was really worth it after all. Now you see your wife and kids less
than ever, you have permanent stomach cramps from the stress, you have no time
to enjoy the fruits of your self-sacrifice.
A company or its owners can ask a similar question. Was that take-over really
worth it? Look at the real consequences, the things that matter to you as
individuals and collectively, in terms of personal satisfaction as well as your
long term ideals, not just at the balance sheet.
In the future, the 'greed is good' credo will be seen for what it is, a curious
aberration in human history, a temporary madness that took hold when people
allowed themselves to forget that they were human beings.
Peter Drucker famously talked of a 'post-capitalist' society. Undoubtedly, much
has changed and is changing. The old image of capitalists versus workers is no
longer valid. But the most important change, which we can see happening now,
concerns our perception of values and the true nature of wealth.
Our wealth is not just the totality of our money or possessions but the quality
of our human relationships, the values of the society in which we live, the
physical environment which all human beings ultimately have to share.
As a consideration determining consumer choice, as well as the decision about
where to seek employment, these are the factors that money can't buy. Narrow
minded cost-benefit analysis is giving way to humanity and a new idealism. It
is time that economists woke up to the reality of a post-economic age.
(c) Geoffrey Klempner 2006
E-mail: klempner@fastmail.net
-=-
II. 'ON THE POSSIBILITY OF A BUSINESS ETHIC' BY GEOFFREY KLEMPNER
You might find it rather strange, in a business ethics class, to be raising the
question whether business ethics is possible. If business ethics isn't possible,
what am I doing here?
You will be glad to hear that I think business ethics is possible. However, I
am going to argue that there are certain conditions which need to be satisfied
in order for business ethics to be a legitimate subject in its own right.
What I am doing, in other words, is looking for an argument which establishes
the possibility of a business ethic, in the face of sceptical challenge
concerning its legitimacy. Such an argument would constitute a philosophical
foundation for business ethics.
However, I also have a second question in mind, 'How is business possible?' You
will see in a minute how these two questions are linked.
How is business possible? Business must be 'possible' in some sense because it
exists. It is a fact that people engage in business activity. However, the
point of the question is whether the existence of business activity -- buying
and selling for a profit using a universal medium of exchange called 'money' --
is consistent with the demands of ethics.
This was the question that the young Marx raised in his 1844 Manuscripts when
he defined 'work' as the essentially formative aspect of human existence.
Through our work, through transforming our common environment with the products
of our labour we literally create ourselves. Work creates the human world. To
view your labour, the thing that essentially defines you, as a mere commodity
which can be exchanged for money is therefore a moral evil.
Common sense tells us that this view is just plain wrong. But why is it wrong?
We have an inkling of what Marx was on about. One speaks of an artist or writer
'selling out' or 'prostituting his talent'. But generally, we see no difficulty
in distinguishing between our life -- the relationships, the ideals and
activities which define us as individual human beings -- and the world of work
where we find the necessary means of subsistence. I believe that this common
sense intuition is basically sound.
Another way of looking at the ethical problem is in terms of what is considered
acceptable behaviour within the world of business and work. In the marketplace
where producers compete to sell goods there will always be winners and losers.
If you go to a job interview you are aware that you can only gain the job at
the expense of the other applicants. I am not saying there is anything wrong
with this.
Yet there is a striking contrast between the way we behave in a work or
business environment and the way we behave towards family or friends, where the
primary concern is to do the right thing, taking the other's needs and interests
into account. Ethics in the fullest sense demands not just correct behaviour but
a readiness to put the other person first as and when the occasion demands.
My case is that business ethics is possible if and only if it is able to
deliver a coherent and useful answer to the question how business is possible.
If it can't, then I don't see the point of it. The fact that there exist
courses on 'business ethics' is no proof that it is a legitimate subject, any
more than the existence of courses on palmistry or crystal healing.
My explanation of how business is possible is the theory of the business arena.
Business is possible because it takes place within an artificial frame, which
insulates it from normal ethical considerations. Business can still be
'ethical' but only in a specially defined, restricted sense.
Here is what I say in my article, 'The Business Arena':
The business arena provides the opportunity to practice all
the Aristotelian virtues -- including temperance, justice,
courage and magnanimity.
My point, however, is that this is not an ethics.
The gap between the practice of the Aristotelian virtues
and ethics in the full sense is explicitly recognized in
Christian teaching, with its emphasis on the virtues faith,
hope and love.
Ethics, as I understand it, is based on the I and thou
relationship, on unlimited obligation and unconditional
love and respect for the other. This tension cannot be
resolved by attempting to cobble together a 'business
ethics' in the accepted sense of this term. There can be no
compromise between unconditional obligation and the limited
obligations that hold between players in the business arena.
That hasn't stopped philosophers from trying anyway. The
only result that can be achieved by adopting this
muddle-headed strategy is an ethics which is too demanding
for the business arena, and insufficiently demanding
outside that arena. While those who have seen clearly that
compromise is impossible have either gone the hopeless way
of Karl Marx -- or, at the opposite extreme, Ayn Rand.
(http://klempner.freeshell.org/articles/arena.html)
The sceptical challenge which makes business ethics appear impossible is the
recognition of a powerful tension between the requirements for the ethics of
dialogue in the full sense, where we reach out the hand of friendship and do
not count the cost, and the requirements for the business arena where we strive
to be a winner rather than a loser.
The 'hopeless way of Karl Marx' would be to argue that business is ethically
impossible -- there cannot be such a thing as a business arena -- because
selling one's labour for money contradicts the essential conditions required
for human flourishing. At least, this is what the young Marx believed. In later
works like Capital, Marx no longer relied on metaphysical considerations of
man's 'essence' but instead offered a theory of history which purportedly
demonstrated the inevitability of the overthrow of capitalism. I have nothing
to say about this.
The 'hopeless way of Ayn Rand' would be to argue that the only acceptable
ethics is an ethics based on what she terms as the 'virtue of selfishness' (The
Virtue of Selfishness, Capitalism: the Unknown Ideal). In other words, Ayn
Rand's 'ethics' is derived from the requirements for competition in the
business arena. The business arena is the whole world. We should always behave
in all our relationships like virtuous business people, seeking our own
advantage from every transaction and making every decision on the basis of a
cost-benefit analysis.
'Muddle-headed' business ethics attempts to reconcile two irreconcilable
requirements by seeking some kind of compromise between the rules of respect
and fair play which govern the business arena and the unrestricted demands of
ethics. I have argued that there cannot be any compromise. If business ethics
is possible, therefore, it must find an alternative strategy, showing how
business is possible from the point of view of an ethics of dialogue, i.e. how
there can be a legitimate place for the business arena within the ethical
world.
Both Marx and Rand saw something which the muddle-headed business ethicists
have missed, the impossibility of applying the same rules inside and outside
the business arena. What Marx and Rand overlooked is the possibility of two
distinct sets of rules, with clear lines of demarcation. In ordinary life,
prior to any philosophical reflection, we intuitively recognize this. As when
we say, 'That was friendship but this is business.' Of course, it is not enough
just to give the rules, the philosopher has to provide an underlying rationale.
You might think it would still be possible 'do business ethics' in less
demanding sense of looking at ethical dilemmas that arise in business practice,
without attempting to resolve this tension. I grant that there will be many
cases where one can adopt the strategy of philosophically bracketing the deeper
issue, where the structure of the problem case does not depend on its being a
dilemma which arises specifically within the business world.
For example, suppose I have made a promise to Peter, and he is counting on me
to keep my promise. Later, I discover something which neither of us knew at the
time when I made my promise, that circumstances obtain which inevitably lead to
bad consequences for Paul if I do what I promised to do. What kinds of
considerations might help me to make my choice? The 'structure' of this simple
dilemma translates into a business context where 'Peter' and 'Paul' are your
customers, or colleagues, or corporations. It would not be surprising if the
answer was along the same lines.
But then again it might not be. Prior to attacking the deeper issue -- the
tension between the ethics of dialogue and the business arena or the question
how business itself is ethically possible -- we don't know for sure.
Business ethics as commonly practised today is a branch of practical
philosophy. The sceptic who says that 'business ethics is impossible' is not
denying the possibility of an appeal to philosophical considerations in facing
the ethical problems that confront business. Rather, the claim is that any
response which fails to reckon with the deep tension that I have pointed out
will contain an element of incoherence.
From a purely practical point of view, an incoherent response is better than no
response at all. As a philosopher, however, it is my job to point out the
incoherence and attempt to resolve it.
(c) Geoffrey Klempner 2006
E-mail: klempner@fastmail.net
-=-
III. 'A WARNING AGAINST TOO MUCH ENTHUSIASM FOR CONSTRUCTIVISM' BY MARTIN HERZOG
A commentary on 'A brief outline of radical constructivism' by Nick Redfern [1]
Constructivism shaped the latter half of the 20th century much more than we are
aware of. It is most probably one of the major causes that led to absurdities
such as the present domination of the financial system as driving engine of the
economy, as well to the ideology of dominance Bush is adhering to -- and also to
the rule of global players over a market, that cannot really be considered as
free, with the ruling dominance of large economies and companies, asking for
global recognition of their self constructed private ideologies.
Constructivism is not mentioned in many philosophical lexica and not discussed
by a majority of philosophers, probably because it just ends in absurdities.
But it is ever more the base of journalism and didactics -- so it would be
urgent to pay more attention to it.
It is in fact not only the banking business that is based on constructivism,
making lots of money in imaginary markets than real markets could ever absorb,
but the whole PR-based economy of superfluous products. Especially the one
branch ever hailed for its successes, the pharmaceuticals industry, can afford
to spend 1/3 of its budget for PR, which means it is able to make the market,
to construct it.
Constructivism connects the old (and reasonable) skepticism with a brainless
activism, especially harmful in the forms of populism and fundamentalism. Both
can be considered as offspring of constructivism.
Constructivism had some positive effect, when it re-opened the world, enclosed
in a narrow box by positivism. But unluckily it did not reopen it towards an
all-embracing metaphysical view, but merely for individual and group-specific
speculations.
That happened, because the major check on reasonability is (most) often just
dropped, its Glasersfeld's 'viability': 'Knowledge is good, if it fits together
with the limiting elements of reality and does not collide with them.'
The 'normal' or 'vulgar' constructivism used in daily life omits this systemic
integration and creates monsters as populism and fundamentalism.
Footnote
1. Philosophy Pathways Issue 112
http://klempner.freeshell.org/newsletter/issue112.html
(c) Martin Herzog 2006
E-mail: hewww@brainworker.ch
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