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Theorists and philosophers on business ethics
George Bragues
Ever since Socrates brought philosophy down from the heavens to deal with the human things, most of the thinkers who have made a name in that subject have reflected deeply on economic life and, particularly, on commerce. They sought to comprehend its origins and nature, its functions and consequences in the social order, along with its relation to the state. This is not to mention how the philosophers endeavored to gauge the proper role of commerce both in the larger community and in the lives of individuals. Even when they were not specifically addressing commerce, they were articulating ideas and theories applicable to it, mainly by providing enduring methods and principles of moral reasoning that help us grapple with situations neither known nor imagined by them. Consciously or not, these notions have been taken up in our time by business ethics, setting the terms of analysis and debate in the field. All the current discussion about corporate social responsibility, stakeholders, sustainability, shared value, living wages, and ethical consumption, draws upon the deposit of wisdom bequeathed to us by the great philosophers of the past. Much more could be mined, to be sure, but more than a few jewels from this deposit have managed to gain currency among business ethicists. Against that age-old stereotype of being an impractical and unworldly enterprise, against the conventional wisdom of our day that sees it as inextricably confined to its historical period, philosophy has much to say that is relevant (and even sympathetic) to our modern-day business civilization.
This should not be taken to mean that philosophy is necessarily at the ready to lend its support to commerce. Philosophy, after all, is the quest for knowledge about the most fundamental principles of reality. Its highest loyalty being to the cause of truth, it does not unhesitatingly render itself the servant of other forces that in any way threaten the fulfillment of its objective. This includes the currently prevailing mode of organizing our economic lives. Philosophy is not pre-programmed to offer counsel to those engaged in the production, buying, and selling of goods and services. Neither is that the case for those holding political offices charged with the task of overseeing commercial activity. It is not surprising, therefore, that the history of philosophy presents instances of friction with, indeed of outright rejection of, the occupations of business. In these, the very idea of business ethics is rendered tenuous, if not entirely ruled out of intellectual court. In the most extreme version of this mindset, business comes into view as so morally compromised that appending the word ethics to it is seen as a glaring contradiction of terms.
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In this chapter I endeavor to tell the story of these dual tendencies in the history of philosophy, the one sympathetic and the other in tension with the project of business ethics. I also indicate some of the more notable ways in which these tendencies have been reflected and adopted by present-day business ethicists. This historical survey, along with the contemporary emanations of each phase, is divided into four chronologically ordered parts, each posing a distinct approach to commerce.
As such, the story of philosophy’s relation to business turns out to be this: business begins under moral suspicion; it is then morally accepted and praised; from there, business is put beyond saving; it ends up being redeemable under specified conditions. Though the discipline continues to pull concepts from all of these stages, business ethics today is largely the offspring of this story’s last chapter.
Ancient and medieval suspicions of commerce
It is tempting to attribute the stigma against business among the ancient philosophers to the fact that they lived in agrarian societies. Merchants were looked down upon in such societies as middlemen who merely moved around goods that others had produced. With land then being the principal asset, the necessity of defending and conquering it translated to a higher ranking of the martial virtues in the agrarian table of values. Even if amid the political turbulence of the time oligarchies and dictatorship would periodically displace the democracies of the ancient Greek city states, the latter type of regime exerted enough of an influence over people’s minds to render suspicious any line of work that hindered an active participation in public affairs. Unlike the representative democracies of our day, the republics of the ancient world demanded a more politically engaged citizenry. This, in turn, required a degree of leisure that wealthy landowners could readily afford, but which merchants and artisans could not. Accordingly, the life devoted to matters of state, and all the virtues associated with that, was accorded higher esteem than the life devoted to money-making. The ancient philosophers, not being especially popular (as the fate of Socrates attests), did have to show respect for the moral code of the ruling elites (Melzer 2014). Even so, they did not put the virtue of courage on a pedestal and nor did they lend their unqualified support to the political life. To cite only the most prominent examples, Plato and Aristotle both concluded that the best life consisted in philosophizing. This suggests that when they questioned the morality of commercial pursuits, the ancients cannot properly be interpreted as giving theoretical voice to the prevailing Weltanschauung, or to the exigencies of the politico-economic order. They sought to give a verdict that anyone, regardless of time and place, could rationally accept.
This becomes clear once it is understood how the ancients framed their moral reflections under the lens of the summum bonum. Denoting the greatest good, that expression stands for whatever conduces to the utmost fulfillment of human beings given their nature and potentiality. Aristotle offers the paradigmatic account of this approach in his Nicomachean Ethics, where he maintains that figuring out what we ought to do is a matter of following the logic of our actions. Since everything we do is for the sake of something, and that in turn for something else, eventually as we progressively run through the purposes of our actions, we arrive at a goal that we pursue for its own sake—to wit, happiness. Ethics, then, is nothing else but the set of behavioural requisites for attaining a good life. Securing this entails that the appropriate mode of conduct become ingrained as a habit—that is, it must define a person’s character. Aristotle, to be sure, was not the only one with a conception of what the good life meant. In the ancient philosophic scene, the Aristotelian view was chiefly opposed by the Epicureans and the Stoics. The Epicureans held that the summum bonum is to be found in pleasure, whereas the Stoics contended that it consists of virtue. Aristotle’s compromise position—that happiness is essentially coterminous with virtue but also requires pleasure—proved the most influential in both the ancient and medieval traditions. Thus Cicero (1991 [44bc]), among Rome’s most renowned statesman yet also its greatest philosopher, ended up adopting that middle stance in his moral teaching, most notably in his De Officiis (On the Duties). So, too, did St Thomas Aquinas (1920 [1265–1274]), whose voluminous writings grounded the thinking of the scholastics right through to the dawn of modernity in the seventeenth century.
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By assigning pleasure a more auxiliary function as compared with virtue in the equation of human happiness, Aristotle passed on to his philosophic descendants a rather circumscribed tolerance of business. Were pleasure the highest good, then business would stand a better chance of gaining moral approval, inasmuch as the money to be earned furnishes the wherewithal to obtain all sorts of delights. But if virtue is the way to happiness, the place of money in a good life can only be to provide the material foundations of moral action. This is precisely where Aristotle ends up in his moral analysis of commerce. He proceeds there, first, by stressing the character of money as a mere means to other goods. “As for the life of the money-maker,” Aristotle (1982) writes, “clearly the good sought is not wealth, for wealth is instrumental and is sought for the sake of something else” (1096a: 6–7). Not being an end in itself, money cannot constitute the summum bonum. The great danger, Aristotle warns, that the businessperson faces is that of succumbing to the temptation of seeking wealth as an end in itself, for then one is on a treadmill that no definite amount of accumulated riches can stop. “The cause of this disposition in men,” Aristotle (1982 [fourth century bc]) says, “is that they are zealous for [mere] living but not for living well” (1257b41–1258a1). Aristotle recognizes that individuals do not pursue money only in order to live, but also with a view to buying pleasures and gaining honor, or what we nowadays refer to as status. Though happiness surely cannot be had without some measure of pleasure, we must choose between the different kinds of pleasure, which points to a good above pleasure. As for honor or status, which is the desire to be thought well of by our peers, that serves only to mentally enslave us to others. True fulfillment, Aristotle observes, must come from something more within our control, something like the satisfaction that comes from excelling in our actions, or realizing our highest possibilities as human beings. In other words, to live blissfully one must live virtuously.
What does this entail exactly? Aristotle’s answer has already been signaled in noting his view that the summum bonum is to engage in philosophic reflection. This looks to have little to do with business until one recognizes the vision of human nature underlying it. Aristotle believes that the quality in which we human beings peculiarly excel is our rationality. It is what most distinguishes us from the animals; it is the source of the comparative advantage we have as a species (Aristotle 1982: 1097b22–1098a20). For Aristotle, therefore, virtue consists in nothing else than the exercise of reason in our actions.
There are two ways this can be done: by grasping the truth with our rational faculties, and by employing those faculties to regulate our desires and emotions. The first way comprises the intellectual virtues, whereas the second makes up the moral virtues. Even though Aristotle holds that the philosopher most fully realizes those qualities, this does not exclude people in other walks of life from exemplifying these traits, including businesspersons. Most applicable to these persons in Aristotle’s catalog of the virtues would be prudence to make good decisions; self-control to regulate sensual impulses; courage to take reasonable risks; generosity to avoid an excessive attachment to money; sociability to be agreeable with colleagues and customers; and justice to transact fairly with others and give them what they deserve (Bragues 2006). Insofar as a virtue does not refer to a specific deed but rather to a habit, all of these traits come together to form an admirable character, someone for whom doing the right thing in light of the circumstances at hand comes as second nature. As a result, Aristotle’s contribution to business ethics consists, not in providing a criterion to evaluate particular acts, but in putting the focus on the sorts of people we wish to see working in the economy.
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Before this core idea made its way to us, however, it underwent significant modification. Cicero drew Aristotle’s definition of happiness, as virtue accompanied by pleasure, into a life that encompasses what he called the honorable and the beneficial. In doing so, the Roman thinker brought a more lenient take on acquisitiveness, sanctioning the quest for riches so long as it does not jeopardize one’s reputation or involve the perpetration of injustice. “Such expansion,” he says, “of one’s personal wealth as harms no one is not, of course, to be disparaged” (Cicero 1991 [44bc]: I.25). Cicero still found it demeaning for an individual to run a small business, but he thought leading an enterprise on a larger and more international scale to be respectable (I.151). In distinguishing between the honorable and the beneficial, Cicero also foreshadowed the tension that business ethicists nowadays are compelled to wrestle with between the moral and the profitable—the recurrent question of whether one can do well in business by doing good. To resolve that tension, Cicero examined a situation in which an exporter who has just arrived at Rhodes is faced with the question of whether to take advantage of the high price there for his corn or to disclose his knowledge that other merchants are on their way from Alexandria with similar produce (III, 50–53). Cicero explored a few other scenarios of this type, thus providing the first instance in Western philosophy in which attention is given to specific dilemmas in business ethics.
A more momentous development, no doubt, would come about with the subsequent emergence of Christianity in the Roman Empire. Initially, this represented a moral step back for business, inasmuch as the New Testament established the summum bonum in the next life, while memorably comparing the odds of a rich person getting into heaven as being worse than that of a camel going through the eye of a needle (Matthew 19:24). But once Aristotle’s writings, which had mostly been lost, suddenly reappeared in the West during the 12th–13th centuries after having been preserved by Islamic scholars, the stage was set for an ascent in the moral status of business. To be sure, the integration of Aristotle into the Christian architectonic that was carried out by St Thomas Aquinas still conceived business as under a firm moral grip. Aside from reiterating Aristotle’s condemnation of usury (i.e., lending on interest)—mainly on the argument that money cannot reproduce itself and that time is not something that can be bought or sold—Aquinas interpreted the latter’s discussion of reciprocity in the exchange of goods as a theory of just price. According to this theory, it is not ethically licit for individuals and firms to charge whatever buyers are willing to pay, the right price being that which reflects the equality in value of the goods being exchanged (Aquinas 1920 [1265–1274]: II.II.77, A1). Qualifying this morally confining view, though, is the fact that Aquinas is notably less reluctant than Aristotle was in endorsing the admissibility of seeking profit in business, at least where that serves a virtuous purpose: “a man may intend the moderate gain which he seeks to acquire by trading for the upkeep of his household, or for the assistance of the needy: or again, a man may take to trade for some public advantage” (II.II.77, A4).
The Late Scholastic philosophers of the 14th–15th centuries—whose leading lights included Juan de Mariana, Luis de Molina and Francisco de Vitoria—would build on this more tolerant side of Aquinas. A notable example of this is how they construed the equality in exchange proviso of just price theory to mean the market price that buyers and sellers arrive at without coercion or fraud (Chafuen 2003: 82–92). In providing a robust ethical case against debasements of the currency, thus offering a sharp contrast to the technocratic approach surrounding monetary policy today, the Late Scholastics also defended the bedrock of a thriving commercial society, namely sound money (Oresme 1956 [1279]). Yet it must be admitted that in their rich and sympathetic analyses of commerce, unfortunately neglected for the most part in our day, the Late Scholastics did not go so far as to reverse the Aristotelian-Thomist stricture on usury. Still, they did chip away at it by glimpsing the pivotal point that a certain amount of money now is worth more than that same amount in the future (Chafuen 2003: 122–125). The complete repudiation in the Western philosophic corpus of the prohibition against the charging of interest had to await the 1787 publication of Jeremy Bentham’s Defense of Usury.
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Though representing the minority of business ethicists, significant contributions have been made to the discipline through the adaptation of ancient teachings. Overwhelmingly this has been sought by taking up Aristotle’s emphasis on character, in what is typically called the virtue-ethics approach to business ethics. Certainly, a major figure in that movement has been Robert Solomon (1992), whose Ethics and Excellence: Co-Operation and Integrity in Business ignited a third way in business ethics between the reigning utilitarian and deontological methods. Edwin Hartman has followed in this third way with his Virtues in Business: Conversations with Aristotle (2013), while the list of scholarly articles with a virtue-ethics angle has continued to mushroom (Koehn 1995; Arjoon 2000; Moore 2005). Conspicuous by its absence in much of this literature, though, is Aristotle’s conception of the good life as the cultivation of reason, or indeed any substitute for it. That has compounded the difficulty of settling upon the set of virtues that make up the character of the model businessperson. Amartya Sen (1999) and Martha Nussbaum (2011) have advanced the thesis that individuals should be afforded certain capabilities of obtaining happiness, which admittedly gets us closer to a list of the business virtues (Bertland 2009). Still, one cannot specify the means (capabilities) without first understanding the nature of the end (happiness).
With respect to the medieval thinkers, their impact on contemporary business ethics has been noticeably more limited than that of Aristotle. Partly this is owing to the pronounced secularism of the academy; and partly to the widespread belief that, just as the state ought to be separate from religion, so too must the company. What influence that Aquinas and the rest of the Scholastics have exercised has primarily reflected the applications to business of Alasdair MacIntyre’s (1984) After Virtue, along with the body of accumulated politico-economic and moral reflections promulgated by the Catholic Church since 1891 known as Catholic Social Thought (Pontifical Council for Justice and Peace 2004).
The modern approval of business
Whether one understands it as the outcome of an evolution or as a sudden rupture with ancient and medieval thought, what cannot be doubted is that the corpus of modern philosophy presents us with a decidedly altered moral tone about business. Given the magnitude of the change, it is not surprising that it proved a tempestuous affair at the outset, with defenders of the old order decrying advocates of the new as radicals intent on overthrowing the cause of virtue. That was certainly the case with two crucial figures at the beginnings of modernity, Niccolò Machiavelli (1947 [1513]) and Bernard Mandeville (1924 [1732]). The first, the Italian Renaissance politician and writer famous for authoring The Prince, is not unknown to business ethicists, even if he is not generally regarded by them as any sort of appropriate moral guide. Interestingly enough, this assessment runs counter to the trend in the popular management literature, in which the handing down of Machiavellian lessons to business has become something of a cottage industry (Galie and Bopst 2006). Within the academic literature of business as a whole, Machiavelli’s reputed advice is referred to most prominently in the field of organizational behavior, where individuals willing to adopt any unscrupulous means necessary to realize their particular ends is referred to as a Machiavellian personality. More quasi-scientifically, such people are known as High-Mach types. These are identified through a variety of Likert scale personality assessments meant to single out individuals driven by a ruthless egotism (Gunnthorsdottir, McCabe and Smith 2002). With this measure, researchers can explore correlations between Machiavellianism and other personal characteristics as well as occupational status and job performance (Azia, May and Crotts 2002).
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Only to the extent that Machiavelli is interpreted as arguing that politics is a separate realm from ethics with its own rules can it be said that the Florentine thinker has been taken up within business ethics. What comes to mind here is Albert Z. Carr’s (1968) defense of bluffing, which features the analogous contention that business has its own rules distinct from those of private life. By contrast, that other controversial figure alongside Machiavelli at the ground floor of modernity, Bernard Mandeville, has been almost forgotten. With few exceptions, the eighteenth-century Dutch-Anglo philosopher figures nebulously at best in present-day business ethics as the one who first alluded to what Adam Smith would later call the invisible hand. Mandeville did so in the sub-title to his book The Fable of the Bees—which was Private Vices, Publick Benefits.
Their limited influence notwithstanding, Machiavelli and Mandeville both enable us to understand what really transpired intellectually to raise the moral standing of business. An important clue is given in the sub-title of Mandeville’s book. It suggests that what had been called vice had to henceforth be seen as socially useful and that, by implication, what had been called virtue had to henceforth be seen as socially useless. By virtue here what Mandeville (1924 [1732]: 48–49) means is conduct in which a person subdues his or her selfish impulses, either to assist others or to obey the dictates of reason. Vice, on the other hand, is defined as conduct in which a person indulges selfishness. To Mandeville, what essentially distinguishes virtue from vice is the exercise of self-control. Though this dividing line might appear overstated and bordering upon the puritanical, he was right to pinpoint that morality had historically demanded an inner struggle against egoism. This was, to be sure, more pronounced in the medieval-Christian variant of that tradition, according to which the giving of self is the way to eternal bliss with God. Still, even among the ancient philosophers—who after all can be read as advocating a high-minded egoism by so closely tying virtue to personal fulfillment—individuals were called upon to resist the more common expressions of selfishness, whether in the seeking of pleasure, status, or wealth. What Mandeville (1924 [1732]: 35) perceived was that it is precisely these ordinary drives that conduce to economic prosperity, whereas self-denial ultimately leads to a deadly penury. Similarly in Machiavelli (1947 [1513]), who advised princes to respect private property and encourage commercial activity, we see the charge that the ancient medieval ideal is dangerously impractical: “he who studies what ought to be done rather than what is done will learn the way to his downfall” (44). By such criticisms, Machiavelli and Mandeville both hinted at the necessity of a transvaluation of values. Virtue had to cease being a means towards our natural flourishing as rational beings or our prospective communion with God. Instead, virtue had to become the instrument for worldly enjoyment and success. Selfishness, in all but its most nefarious forms, had to be made respectable.
The various systems of morality bequeathed to us by the modern philosophers are best seen as so many attempts to do just that. Three tasks were undertaken to this end. First, the ancient mission to define the summum bonum for human beings was abandoned, replaced by the view that no end exists to which all actions can be ordered to consummate our desires. Thomas Hobbes, the seventeenth-century British philosopher, set the tone: “For there is no such Finis ultimus (utmost ayme), nor Summum bonum (greatest good) as is spoken of in the Books of the old Morall Philosophers . . . Felicity is a continual progresse of the desire, from one object to another” (Hobbes 1985 [1651]: 160). Ends thus became relative and moral analysis turned its sights to where it largely remains today, including in business ethics—that is, with the question of how to regulate the means that individuals may choose towards their subjectively defined ends. Second, God had to be removed from the supporting structure of morality. Though some at the time expressed the atheist hope of accomplishing this through the complete secularization of society, the principal strategy that the modern philosophers adopted was toleration. To avoid social conflict over religious doctrine, the state was enjoined to be neutral and to respect the individual’s right to privately practice his or her faith. The upshot was that moral arguments that impinged on public matters now had to be framed in terms that all persons, whatever their opinions on religion, could in principle accept. And third, some way had to be found to derive a set of moral obligations out of the confines of the self. With Hobbes, that which necessarily propels the self, to wit the desires that the self cannot help but endeavor to satisfy, became the source of a right to self-preservation. To more effectively satisfy this right, he argued, individuals give up the prerogative to promote their survival in any manner they deem fitting and agree to be bound by a social contract. For Hobbes, morality is identical to the terms of this contract. John Locke (1960 [1689]), the seventeenth-century British thinker often identified as America’s philosophical inspiration, further developed this theory of the social contract, crucially modifying it by asserting a natural right to property.
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Locke’s defense of property rights is grounded on the claim that each of us owns one’s self. Nobody is born to belong to another person. At the same time, however, Locke acknowledges that the earth and all its resources originally belonged to all human beings. So how does he go from ownership of the self to ownership of things? By mixing their labor with the world, Locke maintains that individuals acquire property rights to the bits of the world they work upon. Two conditions govern this process: the first is that no else already has established ownership over the resources appropriated; the second is that enough be left over for others to use. Not only does this second rule bar the monopolization of the earth, it prohibits the ownership of anything that would go to waste in one’s possession. Implicit here is the claim that scarcity is a brute fact of the human condition. Describing the plight of being human, Locke speaks of “the penury of his condition” which in turn forces him “to subdue the earth” in order to live (Locke,1960 [1689]: 332). Given these circumstances, to spoil something that is scarce is equivalent to taking something away from others that they could use. This spoilage proviso, Locke argues, was overcome with the introduction of money. Money does not spoil. Because of that, people are free to accumulate as much money as they want. And because those who pursue money harness the earth’s materials to create a wealthier society, even those who lack property end up better off than they would be if no one were allowed to own things. Referring to pre-Columbian America, Locke observes: “a King of a large fruitful Territory there feeds, lodges, and is clad worse than a day Laborer in England” (Locke 1960 [1689]: 339). Thus, a natural right to property becomes a natural right to accumulate property without limit on the argument that its exercise in a monetary economy is consistent with the common good. No moral postulate has been more important historically than that of the right to property in providing an ethical sanction of business.
The exception to this, perhaps, is Adam Smith’s invisible hand. Mandeville’s adumbration of this has already been mentioned, but what Smith did was eliminate the paradox of maintaining that vicious acts produce social benefits. What Mandeville called vice, Smith (1981 [1776]: 540) referred to as, “the natural effort of every individual to better his own condition,” an entirely commendable undertaking if pursued within the bounds of prudence and justice. Any individuals hoping to increase their fortunes through trade must do so by providing goods and services in exchange for which others are willing to pay. As this means an individual cannot prosper in the marketplace other than by attending to the wants of others, Smith holds that self-interest redounds to the public good even though no one consciously intends it. Indeed, Smith takes this claim further, insisting that the businessperson who does consciously intend the public good will likely fail to realize it. “I have never known much good done by those who affected to trade for the public good” (Smith 1981 [1776]: 456). Very few are the business ethicists that agree with this statement, defying as it does the precept of corporate social responsibility (or CSR) that normatively frames their discipline. Illustrating this is the critical stance that has overwhelmingly been taken against Milton Friedman’s (1970) famous reprisal of Smith’s argument in a New York Times Magazine essay entitled “The Social Responsibility of Business Is to Increase Its Profits.” Thanks to the increasing recognition of corporate social responsibility in corporate law and among companies, the almost ritualistic practice has abated of highlighting Friedman’s piece for attack as a prefatory to the study of business ethics. Of late, the more prevalent tack of addressing the challenge posed by Adam Smith has involved co-opting him by emphasizing the ethical dimension of his thought, manifest in The Theory of Moral Sentiments (Rothschild 2001). One way or another, business ethics has felt compelled to defuse the possibility of using Smith’s authority to challenge the idea that managers ought to be socially conscious.
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The modern philosophical movement subsequently produced two methods of analyzing moral dilemmas that have proven far more congenial to business ethicists. When first introduced, however, those were not put to the task of subordinating the quest for profit to the deliberate pursuit of social goals. Nowhere was this more evident than utilitarianism, a moral theory with roots as far back as the Epicureans of the ancient world and with its basic outlines having been suggested by the eighteenth-century Scottish philosophers, Frances Hutcheson (1738: 107–128) and David Hume (1957 [1751]: 40–58). But it was Jeremy Bentham who originally systematized utilitarianism in An Introduction to the Principles of Morals and Legislation. Starting from the premise that human beings live, “under the governance of two sovereign masters, pain and pleasure,” Bentham infers that morality embraces those actions that, on balance, tend to bring about pleasure, whereas immorality embraces those actions that, on balance, tend to bring about pain (1948 [1789]: 1). Pleasures and pains are, in turn, subject to quantitative measurement by their intensity, duration, certainty, and proximity in time. Thus a given pleasure is greater to the extent that it is earlier, more intense, longer-lasting, and has a higher probability of occurring—and vice versa in the case of pain. Despite the hedonistic psychology, utilitarianism is not an egoistic ethic. While acknowledging that it is only our own pleasure and pain that we feel, Bentham maintained that individuals can feel the pleasure and pain of others as their own (1948 [1789]: 36 and 40). This affords Bentham the basis to pronounce that utility, defined as the quantity of pleasure, ought to be maximized among all persons comprising the group affected by an action, whether executed by an individual or an organization (1948 [1789]: 2–3). With the emergence of utilitarianism, therefore, the first seeds of doubt were planted against the modern philosophic effort to accept and harness selfishness for social purposes, even if Bentham and his early followers were all avid believers in Smith’s invisible hand. Those seeds would sow demands for the substitution of more altruistic motives in economic life, demands that would subsequently become a core part of business ethics, as we shall see.
A more direct reproof of self-interest arose with Immanuel Kant. In this effort, the eighteenth-century German philosopher still kept to the modern philosophic strategy of looking to the self as the ground of morality; however, rather than honing in on the implications of our psychological propensities, Kant focused on our autonomy. Any ethic guided by our desires—whether for happiness, self-preservation, or pleasure—he categorized as heteronomous, that is, as a condition in which human beings are subject to a law outside themselves. If the self is to be autonomous, it has to follow a law it enacts for itself. This law must be universal, being meant for rational beings and to reflect the basic intuition that the rules of morality apply to everyone without exception. Kant’s solution to this is the categorical imperative: “never act except in such a way that I can also will that my maxim should become a universal law” (Kant 1981 [1785]: 14). In thus envisioning what would happen if everyone else were allowed to perform a given act, Kant is not asking for an assessment of the consequences to all those that might be affected. Such a rule-utilitarianism is ruled out by Kant’s aversion to a heteronomous ethics. What the universalization test is meant to check is whether any contradiction exists in generalizing the permissibility of an action. Suppose a man desperate for money obtains a loan while knowingly making a pledge of repayment that he will not keep. The moral turpitude of this conduct lies in this: if everyone could issue false promises, it would no longer make any sense to make promises as no one would accept them. Counterfeit promises, that is, cannot co-exist with the practice of issuing promises. Despite this and other illustrations, however, Kant left it notoriously unclear how a contradiction is supposed to be deciphered with the universalization formula.
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Not surprisingly, then, another version of his categorical imperative has ended up gaining wider currency: “Act in such a way that you treat Humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means” (Kant 1981 [1785]: 36). Kant was willing to tolerate self-interest in commerce, believing that it was part of a progressive historical process that would hopefully culminate in a world society characterized by a perpetual peace within which all persons are treated with dignity as ends in themselves (1983 [1795]: 37 and 124–125). Albeit less willing to tolerate self-interest than Kant, a good deal of business ethics today can be comprehended as an effort to realize an economy in which people are no longer solely used as means for the purposes of others.
The late modern attack on business
Before saying more about this Kantian legacy, as well as on some of the uses of utilitarianism made by business ethicists, it will be necessary to give a brief summary of the third philosophic chapter in the moral story of business. The importance of this phase is that it had to be overcome in order for business ethics to develop. For it is no coincidence that the subject did not originate until the 1960s and 1970s, precisely when the hold of Karl Marx on Western intellectuals began to fade. And, let there be no doubt, the nineteenth-century German philosopher and economist was the towering figure of the third chapter in our story. Yet he was not alone. Not to be forgotten is Jean-Jacques Rousseau, who launched the first all-out assault on modern philosophy’s commendation of business, framing the moral vision and agenda that Marx later endeavored to systematize with the tools of classical economics. But if Marx had to be transcended, business ethics could, and indeed has, imbibed key elements of Rousseau’s thought.
The eighteenth-century French philosopher’s critique of modernity is most famously set forth in the Discourse on the Origin and Foundations of Inequality. He begins by adopting the same line of attack employed by other modern philosophers, taking his initial bearings from the self. He contends, though, that its true nature was distorted by previous thinkers: “All of them . . . speaking continually of need, avarice, oppression, desires, and pride, have carried over to the state of nature ideas they had acquired in society” (Rousseau 1964 [1754]: 102). With Hobbes and Locke among the presumed targets, Rousseau’s charge is that philosophers did not go far enough in removing all the traits that human beings had absorbed through socialization and in stripping us down to what nature gave us. Once this is done, he maintains, human nature comes into view not as acquisitive and antagonistic, but as good and compassionate. Hence, the greed, vanity, and lust for power that pervades the human scene are due to the influence of society. Of all the social institutions that have shaped individuals throughout history, none has been more damaging, according to Rousseau, than private property: “What crimes, wars, murders, what miseries and horrors would the human race have been spared,” he asks, if someone had stopped the first person from saying, “this is mine” (Rousseau 1964 [1754]: 141). This condemnation of private property as the source of human ills, beyond ending up as the fulcrum of Marxism, is tied to a suspicion of economic progress (not present in Marx) along with the nostalgia for a return to nature that has rightly been interpreted as the beginnings of environmentalism (LaFreniere 1990). Before Rousseau, one is hard pressed to find a philosopher who extolled nature in its uncultivated state to the extent that he did. Locke, for example, advocated the conquest of nature, observing that it, “furnished only the almost worthless Materials, as in themselves” (1960 [1689]: 340). By way of the environmentalist movement, Rousseau’s spirit makes itself felt in business ethics today in the near-universal edict that corporations promote sustainability.
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The main lineaments of Marx’s theory are well known. So all that need be said here is that when private property was introduced, societies were divided into classes based on the ownership of the means of production. In capitalist societies, Marx claims, that class division is between those who own capital and those who do not; the first consist of the capitalists who earn profit and the second of the workers who, not having any other means of generating income, are forced to sell their labor to earn wages. Relying on Smith’s and David Ricardo’s labor theory of value, Marx held that the price any good commanded on the marketplace was due to the effort put into its production by workers. What this means is that the profit that the capitalist extracts out of that price is taken from the value created by the worker. In this way, capitalists exploit the working classes. Nothing can eliminate this injustice other than the overthrow of capitalism, for no matter how much it might be reformed, the oppression of labor is engrained into that system’s drive for profit. However, because this regime is unsustainable, Marx held out the prospect that the forces of historical progress are inevitably leading to the end of capitalism, the elimination of private property, and the consequent realization of a classless society in which, “the free development of each is the condition for the free development of all” (1978 [1848]: 491).
Now, this being said, it is clear why business ethics had to await the fall of Marxist modes of thinking for it to develop as a discipline. On the Marxist view, after all, the task of the intellectual is to advance the revolution that history portends, whereas much of what transpires in business ethics is the giving of advice to capitalists—tantamount to consorting with the enemy. Moreover, ethical concepts are understood by Marx to be part of the cultural superstructure of society, a set of ideas whose function is merely to rationalize the underlying economic structure. That raises the question: why engage in moral analysis when the real action is taking place in the economic realm? Then, too, there is the fact that Marx paints a determinist picture of economic life whereby capitalists are trapped within a system in which they can do little else but take advantage of workers. Business ethics seeks to improve the conduct of firms as well as the individuals who work inside them. But there is little point in doing so if all the main players lack the freedom to mend their ways. No wonder that the recently published Handbook of the Philosophical Foundations of Business Ethics (Luetge 2013) contains only one article on Marxist business ethics.
It would be an exaggeration to say, however, that Marx has exercised no influence whatsoever on business ethics. His contention that employers have an inherent advantage over employees—inasmuch as the latter usually have fewer alternatives of contracting for work than the former do—is widely accepted by business ethicists. Witness their general opposition to the principle of employment-at-will and their support of measures, such as just-cause termination along with the right of workers to form unions and strike, which constrain the ability of employers to negotiate the hiring, pay and working conditions of their employees. In what he calls “radical business ethics,” Richard L. Lippke (1995) appeals to the Marxian analysis of the capital-labor relationship to argue that advanced capitalist societies severely inhibit the realization of human autonomy. Not only does he allege that autonomy is hindered by the economic compulsion that the system exerts upon workers, Lippke also maintains that people’s capacity to think for themselves is distorted by advertising and the concentration of ownership in media industries. While Lippke does not advocate the abolition of capitalism, he does stress the need for major structural changes, the institutionalization of worker participation in companies for example, which he thinks goes beyond what the general run of business ethicists are prepared to contemplate. Yet it would be a mistake to see only the influence of Marx at work here. Rousseau’s shadow arguably protrudes even larger, for he is the one who introduced the ideal of autonomy into the Western intellectual aether. He, too, was the first to object that modern commercial societies undermine human autonomy—economically, by rendering everyone dependent on others through the division of labor; and psychologically, by inducing everyone to judge themselves based on what others think of them (Rousseau 1964 [1754]: 156).
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The philosophic epoch of business ethics
Thus we arrive at the last epoch, during which business ethics has materialized into a burgeoning specialty. What is distinctive about the current era is that no philosopher, or even school of thought, can be identified whose ideas are predominantly etched into the contours of the field. No equivalent of an Aristotle, a Smith, or a Marx appears before us that directs, encapsulates, and lends substance to our epoch’s moral approach to business. Instead what we have is a zeitgeist informed by various thinkers, an intellectual milieu conducing to a middle way between the modern praise of business and the late modern assailing of it. This middle way, an acceptance of business under substantial moral constraints enforced by regulations, not untypically features the appeal to earlier philosophic traditions to define those conditions—yet almost always a selective appeal.
A key turning point in this direction was John Stuart Mill. The nineteenth-century British philosopher and economist began his career firmly within the utilitarian camp founded by Jeremy Bentham that believed self-interest could be chiefly relied upon to promote the common good. But Mill (1994 [1871]: 324–357) ended his intellectual odyssey by arguing for the legitimacy of state intervention in those situations where individuals cannot be expected to understand their own interests correctly or be able to pursue them in voluntary concert with others. Indeed, he came to expect that the public would, over time, develop intellectually and morally to the point where businesses could all function successfully as worker-owned cooperatives (Mill 1994 [1871]: 147–156). With this, the adequacy of self-interest was undercut, but without the implication of a state-run socialism to supplant it. The operation of self-interest in business could be tutored and crafted into something more ethically elevated, without following the Marxist prescription.
Fortuitously enough, that prescription happened to lose credit around the time that John Rawls’ A Theory of Justice was published in 1971. Prior to this, the influence of logical positivism among Anglo-American academics, with its contention that moral propositions can never be anything more than subjective beliefs, stifled the evolution of moral and political philosophy. Rawls single-handedly changed all that, not only reviving those subjects, but further pushing the gates that had been opened by the eclipse of Marx for the emergence of specialized fields of moral inquiry such as business ethics. One need only consider Rawls’ teaching on justice—to wit, that inequalities in the distribution of resources are fair only if they work to the interests of less advantaged groups. This lent credence to the notion that business could find a licit place within a legitimate socio-economic system. Still, Rawls’ philosophy—which comes closest in our time to playing the roles previously held by the works of Aristotle, Smith, and Marx—left the distinct impression that business is supposed to function in an environment in which self-interest and the pursuit of gain must bow down before the greater social imperative of treating everyone with equal concern and respect. In reaching his conclusions, Rawls combined utilitarianism, social contract theory, along with Kantian principles of human dignity. He argued that, of all the possible options, the allocation of goods that maximizes the welfare of the less advantaged is the one that persons would choose behind a veil of ignorance not knowing the social and natural assets that luck will assign them.
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A similar attempt to marry time-tested philosophic theories is to be found in the central tenet of contemporary business ethics: the stakeholder theory of the firm. More popularly known under the banner of Corporate Social Responsibility (CSR), the stakeholder view aims to displace the shareholder theory of the firm that has long comprised the orthodoxy in economics and finance and which, until recently, was legally entrenched (Dodge v. Ford 1919). The shareholder theory envisions the firm as a nexus of individual contractors within which the highest duty of corporate managers is to the shareholders, the equity owners of the firm. By contrast, the stakeholder theory sees the firm as a legal privilege conditionally granted by the state, while asserting that corporate managers are ultimately obligated to conciliate the interests of multiple parties, namely all those affected by the firm’s actions, the stakeholders. These include customers, employees, creditors, suppliers, governments, local communities, in addition to shareholders. In R. Edward Freeman’s (2002) influential defense of the stakeholder theory, utilitarian arguments are employed to demonstrate that profit-maximizing for shareholders will not redound to the public interest owing to the presence of externalities and industry concentration. When there are externalities—which occur whenever the costs and benefits generated by an economic activity are felt by those not engaged in it—then the self-interest of companies will lead either to the underproduction of goods (when the benefits are externalized) or the overproduction of bads (when the costs are externalized), with pollution the standard instance of the latter. When industry concentration exists, whether in the form of oligopoly or monopoly, then self-interest will dictate that companies overcharge consumers for goods and produce less of them than is socially optimal. To overcome these dilemmas posed by externalities and industry concentration, stakeholder theory holds that firms must adopt a more socially conscious perspective in order to boost communal utility. Beyond this emendation of Bentham, the stakeholder theory also invokes Kant’s maxim that everyone’s ends be respected. It does so by raising all other agents affected by the firm to an equal status with the shareholders. When Freeman (2002: 414) objects against “the presumption in favor of financier rights,” he insinuates that the traditional view lets shareholders use everyone else involved as mere means for their own purposes.
Bringing the idea of a social contract to bear as well, Freeman comes up with a corporate variation of the Rawlsian veil of ignorance. Individuals are conceived as being aware of the general facts of commercial life and the possibilities of market failures like externalities, but do not know what position vis-à-vis the firm they will end up occupying. Amongst the various alternative ways of organizing the firm, Freeman maintains that individuals, in order to hedge against the prospect of losing out by not becoming shareholders, would rationally opt for the stakeholder theory. The social contract tradition has also been summoned in business ethics by Thomas Donaldson and Thomas W. Dunfee (1994). Unlike Freeman, however, they envision two separate compacts, one macrosocial and the other microsocial, with the first providing the overarching norms for those that can be agreed to in the second. Another difference with Freeman is that what Donaldson and Dunfee call “integrative social contract theory” is put forward more as a technique for business ethicists to use as they deem theoretically fit, than it is to infer their own detailed set of ethical obligations for companies, even if they do make various suggestions that lean in the direction of corporate social responsibility.
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Regrettably, in all this harnessing of time-tested ideas from the past, business ethicists show few signs of having gone beyond the level of general concepts. They have not yet come to grips with the complete scope of arguments that the philosophers marshalled to support their positions. Thus, for Hobbes and Locke, the obligatory force of the social contract, upon original consent to its terms, derives from the fact that it is generally in everyone’s interests to continue to abide by it. This is why Locke (1960 [1689]: 460–470) argues that people reserve the prerogative to revolt if the state violates their rights, the preservation of the social contract no longer being in their interests; it is also why Hobbes (1985 [1651]: 199), though he denies a right of rebellion, nevertheless asserts that a person facing capital punishment has the right to evade the state’s enforcement of that penalty, the social contract having been originally entered into to avoid death. Applying this reasoning to stakeholder theory, it is difficult to see why any rational shareholder would persist in agreeing, irrespective of whatever they initially signed up for under a veil of ignorance, to an arrangement in which management is not primarily obligated to them to maximize profits. As the last ones to be paid out of revenues, and therefore the bearers of the greatest risk among the firm’s claimants, shareholders cannot ask for anything less than profit maximization if they hope to motivate corporate executives to generate a return on their investment. The solicitation of Kant by business ethicists is similarly remiss about his treatment of human dignity. It entirely neglects his insistence that treating people as ends-in-themselves entails that their property rights be respected almost absolutely, the chief limit being taxes to support the state and the poor. Such a conception of property rights is hard to square with the notion that shareholders ought to sacrifice profit for larger social goals (Kant 1991 [1797]: 136–137). Only with utilitarianism have business ethicists paid some heed to its original philosophic exponents. Even there, Mill’s psychological assumption that individuals will become more socially minded as humanity progresses has been too uncritically accepted. Other thinkers sympathetic to utilitarianism, such as David Hume, had more modest expectations of human altruism but such views have received short shrift. These are just a few examples indicating that business ethicists have yet to thoroughly engage with the historical contributions to their field.
Concluding remarks
Despite not fully mining that legacy, business ethics shows all the marks of being influenced by the great philosophers. Veering from the celebration of commerce at one extreme to its condemnation at the other, and with qualified acceptance in between, what the philosophic tradition has to say about business ethics can be organized into four historical phases. In the first period, comprising the ancient and medieval thinkers, we see the initial clash between philosophy and business, albeit with this tension getting progressively eased as the Renaissance draws closer. This tension largely disappears in the second period encompassing the 17th to 18th centuries, during which early modern philosophers like John Locke, Adam Smith, Immanuel Kant, and Jeremy Bentham give moral sanction to commerce and establish the theoretical underpinnings for much of contemporary business ethics. Afterwards, we witness two distinct reactions to this philosophic alliance with commerce. Thus in the third period, beginning in the mid-eighteenth century with Jean-Jacques Rousseau and coming to fruition in the nineteenth century with Karl Marx, commerce is forcefully challenged. As for the fourth period, with its seeds sowed in the writings of the late John Stuart Mill in the nineteenth century and its latest manifestation in the figure of John Rawls, this tradition responds less radically to the consolidation of commercial societies. It does so by accepting the basic legitimacy of business, while simultaneously insisting upon the necessity of taming it with an array of political, economic, and moral checks. Business ethics belongs to this last phase, even if it looks to the first three for inspiration and guidance.
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Essential readings
The essential works on the philosophic foundations and influences of business ethics include Aristotle’s Nicomachean Ethics (1982), Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1981 [1776]), Jeremy Bentham’s The Principles of Morals and Legislation (1948 [1789]), Immanuel Kant’s Grounding for the Metaphysics of Morals (1981 [1785]), Karl Marx and Friedrich Engels’ Manifesto of the Communist Party (1978 [1848]), and John Rawls’ A Theory of Justice (1971).
For further reading in this volume on the compatibility of virtue and profit-making business see Chapter 7, Can profit seekers be virtuous? On modern theories of ethics and their relation to business, see Chapter 5, Consequentialism and non-consequentialism. On Locke and Rousseau as offering competing visions of society see Chapter 3, Theory and method in business ethics.
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