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Philosophy for Business
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ISSN 2043-0736

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Daniel Silvermintz

Tom C. Veblen

Marco Senatore

Peter S Borkowski

Dena Hurst

Sean Jasso


Geoffrey Klempner

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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

Issue number 43
6th February 2008


I. 'Principles and Compromise in the Business Arena' by Geoffrey Klempner

II. 'On the definitional problem of ethical investment: the problem is not the
definition: a response to Osterhage' by Matthew Haigh

III. 'Brief comments on the response by Haigh on ethical investments' by
Wolfgang W. Osterhage



In this issue, Matthew Haigh responds to Wolfgang Osterhage's article in the
last issue which raised difficulties for the definition of an 'ethical
investment'. However, Haigh offers much more than a response to Osterhage's
arguments. In Haigh's view, what are described as 'ethical' considerations are,
in reality, disguised self-interest, the ethics of 'egoism'.

In his response to Haigh, Osterhage concedes, 'the only really valid aim of
investment at all is to make money in a more or less speculative way.' At the
risk of overstepping an Editor's responsibilities, I think this concession is
going way too far.

The principle of fiduciary responsibility is undoubtedly a major factor in
decisions made by institutional investors who are ethically bound to serve the
interests of those who have entrusted their savings to them. But it is not the
sole consideration.

What Haigh has highlighted is not a conspiracy. It is not the fatal flaw in
capitalism. But it is a deep ethical dilemma which is being increasingly
recognized as such.

As Osterhage observes in his response, many investors want to know that their
money is not being used to unethical ends. This creates an ethical
responsibility on the part of institutions who represent themselves as worthy
of such trust. Unfortunately -- and herein lies the dilemma -- this
responsibility will always be in potential conflict with the responsibility to
maximize financial return on investment.

Finally, I apologize for including yet another article written by myself. I
would not need to do this quite so frequently if there were more submissions to
the Philosophy for Business e-journal. It is not necessary to submit a completed
piece. I'm happy to discuss notes or sketches for a possible article, or even
give advice on how to pitch your idea. Email to share
your thoughts.

Geoffrey Klempner



 Dirty hands

The business arena provides the best -- or worst, depending on one's point of
view -- examples of how the right action fails to be done because one is forced
to compromise with persons who are less concerned, or not concerned at all,
about doing the ethically right thing. Ideally, we would like to be able to
avoid association with those who do not uphold our high standards. In the real
world, that option is just not open to us. We then have no choice but to put
our ethical principles on hold and consider what action would lead to the best
overall consequences.

If you can't persuade others to follow your ethical example, then by taking the
prudent option you can at least live to fight another day.

Jean-Paul Sartre, in his 1948 play Les Mains Sales ('Dirty Hands') tells the
story of an idealistic political activist who reluctantly agrees to carry out
an assassination of an individual whose innocently intended actions threaten to
bring ruin to the cause. The play raises the question how far one is prepared to
go in doing actions which one knows to be wrong, because you are acting for the
sake of the greater good. Under what circumstances, if any, does the end
justify the means? This problem faces any person who is determined to do the
right thing, but finds that they have to do something which would normally be
considered unethical in order to accomplish an ethical goal.

Without doubt, these situations can and do arise. Sometimes, we are forced to
compromise our ethical beliefs, or at least put our serious reservations on
hold, on pain of permitting a greater evil. Knowing what ideally would be the
right thing to do is no help when we are faced with a real life situation where
it seems impossible to 'do the right thing'.

The bottom line is that as a business person you are responsible for choosing
who you are prepared to deal with, but sometimes there simply is no choice. Do
you take your business elsewhere? At what cost? How high a price are you
prepared to pay -- and make others pay -- for upholding your ethical beliefs?

 The bribe

One of my Pathways students related to me the following story:

     Some time ago in Moscow I supervised the delivery of some
     cargo transported by lorry all across Europe. The charge
     arrived in the backyard of some ministerial building. It
     was to be unloaded by a crew of eight people and a
     supervisor. The crew did not move at all after the lorry
     had come to rest. The supervisor came up to me and said:
     'The men cannot work. They need some provisions.' And he
     handed me a small list with items covering boxes of
     different cigarette brands and diverse alcoholic beverages.
     I was supposed to give him money so that he could send to a
     store to acquire these goods. Which I did, since otherwise
     I probably would have lost a day's work. After this the men
     were able to operate. Was I involved in a corrupt scheme, or
     was I just adhering to local customs?

With the advent of the global marketplace, it has become apparent that in
different parts of the world there are widely differing views on what counts as
'a bribe'.

In the early 60's, where I lived in London, it was customary for the refuse
collectors to go round every house at Christmas time for their 'Christmas box'.
This was a sum of money, usually not less than 10 shillings (around £7.50 in
today's money). You could always say 'no'. But you knew, for certain, what the
result would be: during the following year, your refuse bins would be ignored,
or knocked over and their contents spilled across the road. Everybody paid.
Today, the practice has been largely stamped out. Local authorities enforce
strict rules against soliciting bribes or 'tips'.

To achieve this result requires concerted action. It requires householders and
shop keepers to complain, and risk retaliation. It requires local authorities
who are prepared to face the threat of strike action in order to push through
tougher rules. Yet today, there is still wide agreement that in many other
circumstances tipping is perfectly acceptable: you tip your hairdresser, or the
taxi driver, or a restaurant waiter. There is a line, although not a very sharp
line, between tipping considered as an acceptable 'local custom' and bribery.

The real problem, however, is not where exactly to draw the line but what to do
faced with an official, or a gang of workers, who demand a bribe. Maybe it is
the local custom. But that doesn't make it right. There is a degree of slack
which we can allow between different views about acceptable conduct. One should
always be cautious in enforcing one's views on others. But the need for
tolerance is not an excuse for wholesale relativism.

On the face of it, the person who supervised the Moscow delivery had two stark
choices: give the bribe, or refuse to give the bribe. In logic, this is known
as the Law of Excluded Middle: either P, or not-P, there is no third

Although these may be logically the only alternatives, that doesn't mean that
we only have two available courses of action. Each alternative subdivides into
different possible actions: for example, you can give the bribe, but you still
have the choice whether or not to blow the whistle later and help put an end to
this corrupt practice. You can refuse to give the bribe, but you still have the
choice of telephoning the intended recipient explaining why you are unable to
deliver the goods and offering to make alternative arrangements.

There are two points which this example highlights. The first is a point of
ethical principle: self-interest counts for something and not nothing. You are
not expected to make unlimited sacrifices to your ethical ideals. It is not
wrong to pay the bribe, if the price of refusal is too high -- if you have,
literally or figuratively, a gun pointed at your head or at the heads of your
employees. The second, countervailing point belongs to practical ethics: the
stark and simple choices that we face are, in real life, rarely so
black-and-white as they first appear.

 The firing squad

Here is an example from Bernard Williams' essay, 'A Critique of Utilitarianism':

     Jim finds himself in the central square of a small South
     American town. Tied up against the wall are a row of twenty
     Indians, most terrified, a few defiant, in front of them
     several armed men in uniform. A heavy man in a
     sweat-stained khaki shirt turns out to be the captain in
     charge and, after a good deal of questioning of Jim which
     establishes that he got there by accident while on a
     botanical expedition, explains that the Indians are a
     random group of the inhabitants who, after recent acts of
     protest against the government, are just about to be killed
     to remind other possible protestors of the advantages of not
     protesting. However, since Jim is an honoured visitor from
     another land, the captain is happy to offer him a guest's
     privilege of killing on of the Indians himself. If Jim
     accepts, then as a special mark of the occasion, the other
     Indians will be let off.[1]

Williams, while recognizing that Jim's refusal to take the offered pistol would
be a 'kind of self-indulgent squeamishness', argues that what this example does
not show is that our feelings of loathing or horror at what we are required to
do are merely inconvenient obstacles in the way of choosing the action with the
best consequences. There are all sorts of reasons why one would not wish to be
the kind of person who could coldly calculate that one death was better than
twenty and take the offered pistol without any further thought.

This illustrates a further aspect of the predicament that we have been
considering. The choices that you make are not the only thing that is ethically
relevant; it matters how you feel about those choices. Your feelings might not,
on this particular occasion, cut any ice. But we are not just looking a
particular occasion. We are sketching a picture of the kind of person, or
business person, one would ideally like to be, the kind of person who could be
relied on to act from principle and with integrity, even though there will
always be painful occasions when the real world forces you to compromise.

Williams' essay is intended as an attack on utilitarianism -- the view that the
right action is the one which leads to the 'greatest happiness for the greatest
number' -- as an ethical theory. In my article. 'The Point of Business
Ethics'[2] I argued that the question whether we can, or would want to have an
all-encompassing philosophical view on the nature of ethics, whether it be
utilitarianism, or a deontological theory, or virtue theory, is itself
questionable: 'Evaluating consequences, identifying principles, promoting
virtues are all deeply interconnected parts of a whole which cannot be reduced
further.' Each of these is important, but it is not the whole.

Utilitarians scoff at the question, 'Does the end justify the means?' pointing
out that if we are evaluating 'the end' then we have to include everything,
including whatever means we use to get there. In effect, the utilitarian, in
calculating the 'best' outcome -- the greatest happiness, or the maximization
of desire-satisfaction or whatever your favourite flavour -- is simply
performing a cost-benefit analysis. When put in those terms, it is difficult to
see how a cost-benefit analysis can ever be the wrong thing to do.

The point highlighted by Williams' example is that one does not want to be the
kind of person who, faced with any important decision, would always without
fail resort to a cost-benefit analysis. Sometimes, you have to ignore the cost.
That is the point of having principles. For the man or woman of principle, there
are certain things that one will not do, period.

 The paradox of principle

We have reached an interesting point in the discussion. I have just made a
statement which, on the face of it, contradicts a statement I made earlier.
First, I said that sometimes one has to compromise on one's principles. Then I
said that having principles means that 'there are certain things that one will
not do, period.'

This is not, in fact, a contradiction although it seems to be. The overlooked
alternative is to recognize that the concept of principle involves a dialectic,
in the Socratic sense of a process of assertion and response, or claim and
counter-claim, which never reaches a final conclusion, but rather points to an
idea which cannot be literally expressed.

It is true, and false to say that principles can be compromised, and it is also
false, and true to say that principles cannot be compromised. There is no neat
solution to this paradox. For it is not as if we are dealing here, e.g., with a
case of simple equivocation -- as if one could escape the paradox by just
defining two kinds of 'principle', the compromisable kind and the
uncompromisable kind.

You might indeed think that the only real principles are the uncompromisable
kind. Compromisable principles aren't principles at all. However, you would be
wrong. Whatever you say, and however carefully you formulate your principle,
there are possible circumstances which would force you to go against it.

Suppose that as a matter of principle I will never share a public platform with
a member of the X Party. Every opportunity which is given to members of the X
Party to participate in public debate is exploited ruthlessly to give spurious
legitimacy to their cause. If the X Party ever came to power, public debate
would be suppressed and defenders of democracy persecuted.

That is a strong argument in support of my principle, but it would not
necessarily be convincing in every case. For example, I am invited to
participate in a TV debate, and am informed that if I decline, my place will be
taken by a particular individual who has little experience of the devious ways
of the X Party and far less skill in responding to their fallacious arguments.

Principles are always formulated in general terms; while every situation in
which one might apply a principle is particular. It is impossible, logically,
to formulate a principle which only applies to one case. However many details
you add to your description of the principle, there will still arise the
possibility of two situations, at different places or times, which both satisfy
that description. In the first situation, the correct action is to conform to
the principle, while in the second the correct action is to go against it.

This raises anew the question, what is the value of a principle? why do we
bother to have principles? why do we associate principles with integrity? what
is at stake, when you consider the possibility that you may have to compromise
a principle?

 Principles, rights and integrity

Principles have a similar logic to that of rights. Both principles and rights
are trumping considerations. Just as in a game of cards, where a trump card of
low value can beat a non-trump card of high value, so an argument which appeals
to a principle or a right beats an argument which appeals to consequences we
like or dislike for any other reasons, however much we like or dislike them.

If, as a matter of principle, your company does not do business with companies
which exploit third-world labour, then even when presented with powerful market
incentives, you will not go back on that principle. If you recognize that male,
as well as female workers have a right to 'maternity' leave, then you will go
to very great inconvenience, if necessary, to accommodate such requests.

However, there is also a striking disanalogy. The rules of card games are
designed to give a determinate answer in every case where a legitimate question
might be raised. At any given stage in the game of bridge, for example only one
of the four suits -- spades, clubs, diamonds or hearts -- can be trumps. In
real life, by contrast, we find that we are sometimes faced with conflicting
principles or conflicting rights. We then have no choice but to exercise our
judgement and make the best compromise that we can in the circumstances.

Why bother, then, to recognize rights or principles? The rights that one
recognizes, the principles that one stands by, are definitive of the kind of
person one takes oneself to be. They are a statement or expression of our
ethical and political beliefs and ideals, recognition of what binds us together
with other persons in our community and distinguishes us from persons, or
communities, who do not recognize the principles that we recognize. Hence, they
are definitive of our personal integrity.

That is also why the principles that we hold dear are bound up with emotion, as
well as reason. As the philosopher Aristotle observed, the capacity to express
anger when anger is required is part of what it takes to be a person of ethical
virtue. Ethics is not just a matter of knowing the right thing to do but feeling
it, because as a result of one's moral upbringing it has become part of one

Companies, like individuals, can have integrity or lack integrity. There are
various expressions that one would use to recognize this. For example, one
talks of a 'healthy corporate culture', as opposed to an unhealthy corporate
culture -- or a lack of corporate culture in cases where the culture is so
diffuse or amorphous that one doesn't know what the company stands for.
Companies, like people, can be happy or unhappy.

A complicating factor in the case of companies is that standing for something
or having a mission is now recognized as having value in the marketplace. A
mission statement is often the first thing you see when you visit a company web
site. It is easy to view this cynically as a public relations exercise. However,
the point is that we would not be interested in knowing whether a company had a
sense of mission or not, or in the quality of its corporate culture, if it were
not for the fact that these are factors which have acquired a value in the eyes
of many which is independent of economic considerations. 'Superior' business
people -- to use the term of art coined by Tom Veblen[3] -- prefer whenever
possible to deal with other superior business people.

 Principled leadership

At the 1980 Conservative Party Conference in Brighton, British Prime Minister
Margaret Thatcher coined one of her most famous sound bytes, which has to many
been seen as definitive of her leadership. Replying to widespread media
speculation of an about turn in the government's anti-inflation policies,
Thatcher declared defiantly:

     To those waiting with bated breath for that favourite media
     catchphrase, the U-turn, I have only one thing to say: You
     turn if you want to. The lady's not for turning!
To those on the left, this was just further evidence of Thatcher's mulish
stubbornness, her determination to go down with the sinking ship. Yet,
arguably, the stark evidence of the government's determination to stick to its
anti-inflation line no matter what, was one of the main factors in making that
policy effective.

As I remark in 'The Point of Business Ethics'[4], to be consistent, and be seen
to be consistent, is one of the main considerations on good leadership. An
essential part of what is involved in having principles is that others know
what our principles are, and can count on us to behave in accordance with those

However, when seen from the point of view of game theory, acting rationally and
consistently, acting on principle, is a double-edged weapon. The problem is that
not only ones friends, but also ones enemies can accurately predict one's
response in a given situation, and use this to manipulate us to their advantage.

At the height of the Vietnam war, President Nixon notoriously formulated the
'Madman Theory', as an attempt to gain the upper hand in the fight against
Communism. White House Chief of Staff and Watergate conspirator H.R. Haldeman
reports that Nixon once confided to him:

     I call it the Madman Theory, Bob. I want the North
     Vietnamese to believe I've reached the point where I might
     do anything to stop the war. We'll just slip the word to
     them that, 'for God's sake, you know Nixon is obsessed
     about Communism. We can't restrain him when he's angry
     -- and he has his hand on the nuclear button' -- and Ho
     Chi Minh himself will be in Paris in two days begging for
It didn't happen. With the wisdom of hindsight, we can see that this was the
desperate strategy of a desperate man. To make the Madman strategy work, you
have to behave in a way which is consistently -- mad. Otherwise, your opponent
will simply call your bluff. There is no meaningful way forward from that
point. There are no limits to how mad you can become, once you have left the
safe haven of rationality behind.

However much one recoils from this memory of one of the most sordid eras in
American foreign policy, it does illustrate the point that there are perceived
dangers in being overly consistent, when dealing with an unscrupulous opponent
who is prepared to go to any lengths to use our principles against us. A
classic scenario is the terrorist kidnap. Those who uphold the principle of the
sanctity of life are always vulnerable to the threat of hostage killing. In
vain, governments promulgate the principle of 'no bargain with terrorists'
knowing full well that in a case like this the two principles come into direct
and tragic conflict.

 Strategy and tactics

Let's say that you have decided along with a group of other business people to
form an organization dedicated to combating bribery and corruption in the
business world.[6] You have designed a web site, and started a free email
newsletter which interested visitors can sign up to. You are in contact with
members of the governments in different countries who have pledged support. You
have ample funding from donations from both companies and individuals.

In the first of a number of planned initiatives, the organization has
instituted a well publicized award scheme for individuals who have
distinguished themselves by their resourcefulness and bravery in the fight
against corruption. There is also a fund to provide living support and pay for
legal expenses for individuals who have lost their livelihoods as a result of
their refusal to take bribes or be involved in bribery.

All this good will must achieve a positive result, or so one would like to
think. Certainly, the very fact that you have succeeded in getting like-minded
people to act together is a positive achievement. This is the essence of
politics, to bring about results through the concerted, organized action of
individuals who share a common purpose.

Now let us consider a businessman running a small independent company in the
UK. The company manufactures spares for tractors and agricultural equipment,
which they export around the world. Recently, the financial viability of the
company has been put increasingly in doubt, as the result of fierce
undercutting competition from the Far East, as well as pressure from the large
manufacturers who want to keep the lucrative spares business for themselves. If
the spares company has one more bad year, it will have to be wound up.

Just when things are looking particularly bleak, a large order comes in from an
African country which they have traded with before. From painful experience, the
managing director is all-too aware of the fact that one needs to offer
'kickbacks' to get anything done. At every stage of the process of shipping,
customs, delivery, money is handed over. The corruption is endemic. It is
everywhere, no-one is immune.

Suppose that the managing director contacts the anti-bribery web site asking
for advice. What advice would you offer?

It is a trick question. There is no sensible advice one can give. Whether the
business man takes the order, or doesn't take the order, he will regret it. If
he takes the order he will be sucked into a cesspool of corruption. If he
doesn't take the order, his company will be on the road to bankruptcy.

One moral that we might draw from this story is that you can't win every
battle. A global strategy for dealing with bribery and corruption is feasible.
There are many similar worthy goals being pursued actively at the present time.
Individuals will offer help where they can. When they cannot, it is not a defeat
for the overall strategy.

However, we have already seen that there is also room for tactics. Individuals
can make a difference, because even when there are only two alternatives, there
are still many possible courses of action. For example, the unhappy
businessman's story would make great publicity for the anti-corruption web
site. With some inspired PR, it might even get into the national press. In the
age of global communication, the worst defeat can be turned into victory with
the addition of the factor of public opinion, and its capacity to galvanize a


1. Smart, J.J.C. and Williams, B. Utilitarianism For and Against CUP 1973

2. Geoffrey Klempner 'The Point of Business Ethics' Philosophy for Business
Issue 41, 4th December 2007

3. Tom C. Veblen 'The Role of Business in Our Society' Philosophy for Business
Issue 38, 5th June 2007

4. 'The Point of Business Ethics', ibid.

5.  H.R. Haldeman and Joseph DiMona The Ends of Power. Times Books 1978

6. There is in fact an NGO, Transparency International founded in 1993:

     Transparency International challenges the inevitability of
     corruption, and offers hope to its victims. Since its
     founding in 1993, TI has played a lead role in improving
     the lives of millions around the world by building momentum
     for the anti-corruption movement. TI raises awareness and
     diminishes apathy and tolerance of corruption, and devises
     and implements practical actions to address it.

My remarks should be understood as relating to a fictional organization with
broadly similar aims.

7. This article is adapted from unit 4 of the Pathways 'Ethical Dilemmas'
online program.

(c) Geoffrey Klempner 2008




W.W. Osterhage, writing on the methods of managers of ethical investment
products in Issue 42 of this journal, concludes that ethical investment
reflects 'the entanglement of human kind in its own designs and activities'.
While this non-trivial conclusion is to be commended, the article ignores a
more worrying possibility that ethical investment practices reflect
capitalism's capacity to neutralize that which might present a threat. This
article argues that emergent practices of the ethical investment industry
reflect a Hegelian relation between ethics and capitalism, a relation that
explicitly buttresses the latter at the expense of the former. An implication
of the argument is a challenge to the bases of much of the business ethics
literature and its teaching in business schools.

Osterhage's conclusion arrives after two arguments. One, the self-declaration
of ethics by money managers has created a problem of scope, whereby arbitrarily
set thresholds determine the acceptable limit of involvement in morally
unacceptable industries. Two, the absence of objectivity in such assessments,
frequently (not always) outsourced to specialist rating agencies, has led to
dangerous levels of subjectivity. Both areas of concern demand attention on
metaethical and empirical grounds. To take each of Osterhage's arguments in
turn, the first relates to ethical investment's self-declarative nature. Since
the first public ethical managed fund portfolios appeared in the mid-1980s
(Kumar et al., 2002), various terms have enjoyed terms of currency. Both
dedicated ethical managers (those only offering ethical products) and
comprehensive managers such as large investment banking groups have used terms
such as ethical, values-based, green, sustainable, SRI, mission-directed,
societal, Responsible Investment and Long-Term Investing.

Looseness of eponymy is institutionalized by regulations in the United Kingdom,
the Netherlands, Australia and New Zealand that require the disclosure of any
'social, environmental and ethical considerations' used in portfolio
construction. Legislators have refrained (wisely) from defining those terms,
requiring that institutions define what such terms represent in portfolio
practices. The regulations have proved, perhaps predictably, a disappointment,
both in terms of legislators' objectives to improve accountability of
investment products (see, Haigh, 2006c; Haigh and Guthrie, 2008) and retail
investors' objectives to compare and assess the claims of ethical investment
products (see, Haigh, 2008).

Osterhage's second issue concerns the processes used by investment managers to
define and apply morally acceptable boundaries of corporate practices.
Regulators share the concerns of ethicists in this regard. Osterhage correctly
recognises the pragmatic nature of incorporating explicit moral concerns with
investment portfolios. Ratings agencies assess industry sectors and
corporations on various qualitative considerations: regulatory risk and human
rights are the broad rubrics. Leca and Naccache (2006), for example, provide an
account of the consensus stakeholder model used by these agencies to determine
selection and application of qualitative investment criteria.

It is overly simplistic, however, to state that ratings agencies 'decide' which
corporations are good, which are bad. For one, not all ethical products are
constructed by reference to ethical raters. Many ethical investment portfolios
are legacies of founding religious and other mission-directed organizations.
Friends Provident in the UK provides an example. Two, ethical raters'
assessments are made available to investment managers, who tend to use them in
conjunction with other sources of advice, including requests of pension fund
members and retail clients (see, Haigh, 2006a). Three, the standards used are
not immutable. Assessments are subject to periodic review by the raters
themselves, with continuous and often ad hoc inputs coming from stakeholders
(Leca and Naccache, 2006).

Moreover, any qualitative (meaning long-term and often non-financial)
assessments incorporated into investment portfolios must be approved by the
investment committee of a major investor such as a pension fund or investment
banking institution. This is where a distinction between what is ethical and
what is not becomes spurious. From a metaethical perspective, the pragmatic
approach of investment managers to ethics is not the problem. The primacy of
individualistic ethics in ethical investment gives rise to a more pressing
problem of sublation.

Osterhage appears to assume that a utilitarian model holds sway in ethical
investment portfolio construction, judging the outcomes of ethical fund
portfolios on that basis. The literature suggests otherwise. It has been
suggested that ethical egoism and subjectivism are the major paradigmatic
models of ethics in play in ethical investment (Haigh, 2006a; McGoun et al.,
2003; Owen, 1990; Roberts, 2003). Under a subjectivist model that would govern
moral choice by reference to what is good for me, investment managers and
ethical raters escape determination of what is good for all. The relevant
societal group is not the wider society, or social welfare widely construed, or
the natural environment per se. In ethical investment, the relevant moral group
is investors which, by virtue of pensions law, covers all employees in OECD

So, for this relevant group of the working public, whatever 'works for me' is
good. Subjectivism would countenance mutually exclusive standards in the
examples supplied by Osterhage: birth control and prohibition on
contraceptives; conflicted sustainable agriculture practices; renewable energy
projects associated with displacement of communities; armaments used to
maintain desirable levels of law and order. The assumptions of subjectivist
models are sparse and mutable. Under subjectivism, as Wolin (1985, p. 75)
points out: 'what is important is that one simply decide, since the normative
basis of the decision can only be arbitrary'. Why is this important to know? It
becomes important when one considers the rationalities permitted in the
institutional environment of ethical investment.

Financial services are governed by a doctrine of ethical egoism. An egoist
doctrine assumes the proper approach to ethics is motivated by arbitrary
self-interest: that all actions when properly understood are, and should be,
motivated by selfish desires (Feinberg, 1995, p. 70). In the case of ethical
investment, where application of ethical values is governed by subjectivism,
egoism is likely to dominate. Financial markets, economic competitors and peers
remind managers that prudence, or enlightened self-interest, is the dominant
ethical value. Osterhage does not comment that wider societal concerns, such as
repression of communities and the systemic destruction of large parts of
ecological systems (if not entire: global warming), would be difficult for
ethical investment managers to translate into value propositions, and on most
occasions are overlooked. What are morally relevant in prudence, Rawls reminds
us, are gains and losses made on types of interests such as wealth and prestige
(Reed, 1999, p. 464). Prudence justifies the only rational outcome in ethical
investment as that which serves self-centred economic interests.

As an egoist cannot prove that providing for private desires is more
objectively desirable than doing the same for others, an egoist's moral norms
will always be subjective (Mackie, 1977, p. 143). In this light, and contrary
to the argument of Osterhage, the assumptions of ethical investment are not
irrational. Managers will not justify ethical values and moral principles for
fear of losing a client's account (Haigh, 2006a). The implications, however,
are worrying. A subjectivist approach does not promote sound decision making
from either societal or economic bases. Osterhage is right to question those
who assess corporations and industry sectors on moral grounds (see, Graham,
2001). A direct corollary of subjectivism is the absence of moral debate. In an
environment of moral silence, the co-optation of selective, other-directed,
social concerns into the me-centred, corporatist ideals of egoism has largely
gone unnoticed.

A Hegelian relation between ethics and capitalism appears in a conflation of
finance capital with social responsibilities. In Hegelian philosophy, to
sublate is to supersede while retaining something of the nature of what is
superseded. When possibilities for free-willed debate are restricted to ethics
that reify the institution of investing, social concerns are subordinated to
purposes that serve capital. Sublation -- literally, stripping away -- of
ethics arises when ethical investment managers' strongest ethic is merely to
support and enlarge the domain of private interests.

Direct outcomes include ethical portfolios that look remarkably like regular,
conventional investment portfolios (Bauer, Koedijk and Otten, 2005).
Contentious determinations of acceptable involvement in ethical undesirable
industries have also received attention in the business ethics and accounting
literatures (see, Haigh, 2006b; Owen, 1990; Roberts, 2003; Schwartz, 2003).

Indirect, more permanent outcomes are a certain ascription of capital markets
with validities of high moral magnitude, a working up of tendencies of
economic-social systems toward financial hegemony, and stymied criticisms of
the political-economic order. Social activist nongovernmental organizations
have played a collaborative role in this process through various mechanisms.
The presumed intent of these organizations to enhance their effectiveness is
obscured by financial institutions' use of 'the seductive language of
empowerment of marginalized social groups' (Fernando, 2004) and erstwhile
protectors of endangered ecosystems.

To paraphrase Mintz and Schwartz (1990, p. 203), ethical mutual funds act as a
type of ideological intermediary by according economic utility to resistance
movements. The most visible promotion of corporate social reporting practices
involving the non-profit sector to date, the Global Reporting Initiative,
presents as a litany of co-optation and legitimation (Haigh and Jones, 2007).
Evidence suggests that private consultation of activist nongovernmental
organizations by ethical raters can produce similar outcomes (see, Leca and
Naccache, 2006).

These types of social outcomes are ideal candidates for case studies in
business ethics education and, yet, most business schools and a vast swathe of
the business ethic literature from which teaching is drawn proceed as if
atomistic analyses of an individual's choice set is the only type of 'ethical
dilemma' worthy of consideration. Business ethics educators have a
responsibility to highlight the possibility and likely outcomes of uneasy
marriages of profitable business enterprise and social activism captured in
such as criteria appearing in 'ethical investment charters' of some investment
products and sustainable economic development (see, Fernando, 2003).

The subjects of business ethics/ responsibility/ citizenship research and
teaching are obvious. Appropriate directions for research and teaching are
identification and analysis of institutional, organizational and personal
conflicts inherent in business life and financial investment practices. Ethics
are not matters of discretion, despite what business schools might teach when
examining such as ethical investment, economic sustainability, and corporate
social responsibilities. The cool capitalists of today and their order of
priorities are not above challenge.


Bauer, R., Koedijk, K., Otten, R. (2005), 'International evidence on ethical
mutual fund performance and investment style', Jnl Banking and Finance, 29:

Feinberg, J. (1995), 'Psychological egoism', In Pojman L.P. (ed.), Ethical
theory: classical and contemporary readings, 2nd ed., Wadsworth Pub., Belmont,

Fernando, J.L. (2003), 'NGOs and production of indigenous knowledge under the
condition of postmodernity', Annals of the American Academy of Political and
Social Science, 590(1): 54-72.

Graham, K. (2001), 'The moral significance of collective entities', Inquiry,
44: 21-42.

Haigh, M. (2006a), 'Social investment: subjectivism, sublation and the moral
elevation of success', Critical Perspectives on Accounting, 17(8): 989-1005.

Haigh, M. (2006b), 'Camouflage play: making moral claims in managed
investments', Accounting Forum, 30(3): 267-283.

Haigh, M. (2006c), 'Managed investments, managed disclosures: financial
services reform in practice', Accounting, Auditing & Accountability Jnl, 19(2):

Haigh, M. (2008), 'What counts in social managed investments: evidence from an
international survey', Advances in Public Interest Accounting, 13: 35-62.

Haigh, M., Guthrie, J. (2008), 'Management practices in Australasian ethical
investment products: a role for regulation?', In-press, Business Strategy and
the Environment.

Haigh, M., Jones, M.T. (2007), 'A critical review of relations between
corporate responsibility research and practice'. Electronic Journal of Business
Ethics and Organization Studies, 12(1), 16-28.

Kumar, R., Lamb, W.B., Wokutch, R.E. (2002), 'The end of the South African
sanctions, institutional ownership, and the stock price performance of
boycotted firms', Business and Society, 41(2): 133-165.

Leca, B., Naccache, P. (2006), 'A critical realist approach to institutional
entrepreneurship', Organization, 13(5): 627-651.

Mackie, J.L. (1977), Ethics: inventing right and wrong, Penguin Books, London.

McGoun, E.G., Dunkak, M.S., Bettner, M.S., Allen, D.E. (2003), 'Walt's Street
and Wall Street: theming, theater and experience in finance', Critical
Perspectives on Accounting, 14(6): 647-662.

Mintz, B., Schwartz, M. (1990), 'Capital flows and the process of financial
hegemony', In S. Zukin and P.J. DiMaggio (eds.), Structures of Capital, pp.
203-206, Cambridge University Press, London.

Owen, D.L. (1990), 'Towards a theory of social investment: a review essay',
Accounting, Organizations and Society, 15(3): 249-265.

Reed, D. (1999), 'Stakeholder management theory: a critical theory
perspective', Business Ethics Quarterly, 9(3): 453-483.

Roberts, J. (2003), 'The manufacture of corporate social responsibility:
constructing corporate sensibility', Organization, 10(2): 249-258.

Schwartz, M.S. (2003), 'The 'ethics' of ethical investing', Jnl Business
Ethics, 43: 195-213.

Legislation requiring disclosure of ethical investment practices

Corporations Act 2001(Cth) 2001, Commonwealth of Australia, Canberra

Myners principles for institutional investment decision-making: review of
progress 2004, Her Majesty's Treasury, U.K.

New Zealand Superannuation and Retirement Income Act 2001

Pension fund governance code for Dutch pension funds: rules for the management,
control, accountability and supervision of pension funds, 2006, Committee on
Corporate Governance, European Corporate Governance Institute, Brussels

Pensions Acts 1995 and 2004, Her Majesty's Treasury, U.K.

Statutory Instrument 2001 (No. 3649), The Financial Services and Markets Act
2000 (Consequential Amendments and Repeals) Order 2001, Her Majesty's
Stationery Office, Norwich U.K.

(c) Matthew Haigh 2008

Dr Matthew Haigh
Toulouse Business School




Haigh takes my thoughts on the pitfalls of ethical investments a step further
and arrives at the critical point, where the only conclusion should be that
capitalism and ethical investments are irreconcilable.

This leads to the question, whether capitalism and ethics really have something
comparable in common in the first place, since both have come into life for
entirely different purposes and without one having the other in mind in the
first place: after all there is also no such thing as an ethical toothbrush.

Since, however rating agencies and their customers assume that such a
connection does exist, there is no way around discussing the consequences of
this assumption. Of course it would be simplistic to suggest that rating
agencies sort the good from the bad in a black and white fashion. On the other
hand, some people seem to expect their advice in just such a way.

In the end these people make themselves believe that they are on the good side
by following the advice given. Even if agencies put their own recommendations
to periodic review this only means that ethics are indeed a function of time --
both on an objectivist or subjectivist basis. Of course this only reflects
reality, but leads to systematic confusion from a deductive philosophical point
of view.

In the end one probably has to lay all these arguments to rest, on the grounds
that the only really valid aim of investment at all is to make money in a more
or less speculative way. This again, as Haigh points out, is the only
rationality behind any recommendation. No one would advise other people to
place their money in shares of a company, where the probability of no or even
negative returns is high -- even if this company passes all the ethical tests. 

(c) Wolfgang W. Osterhage 2008