Ethics and Economic Success A Contradiction in Terms

Abstract

People in Germany might think you’re joking if you were to tell them that you study Business Ethics. Either Business, or Ethics. This basically sums up the deep-seated belief in European culture that business andmorals aremutually exclusive. Tipping the balance toward ethics means less economic efficiency, while an increase in business profits means less moral integrity. That is why in the Bible it is easier for a camel togo throughaneedle’s eye than for amanofwealth toget into the kingdom of God, why Plato devoted many pages of his dialog on The Republic to how to regulate the market, why for Aristotle, an economist is someone who lacks the telos of human existence, why Thomas Aquinas in his Summa Theologica took nearly one hundred pages to explain how aneconomic trade canbe turned into a fair trade,why it is clear to Karl Marx that capitalism is the absolute embodiment of immorality, why for Max Weber there is no room for ethics within the iron bounds of competition and why, last but not least, the Nobel Prize winner, Milton Friedmann, can say that the only ethics of businesses is to increase profits. Those who are currently reflecting on the connection between business success and being ethical should not lose sight of the cultural standard just described, especially bearing in mind the realities of the economic situation we face today. Corruption, the effects of the financial crisis, and management criminality are just a few of those realities that are dominating the headlines. Emotionally churned-up debates about the greed and coldheartedness of the business world’s elite managers, about criminal and questionable management methods to the detriment of the owner, customer, and society, go hand in hand with scenarios that depict our decline in values, eliciting pleas for the return of the honorable businessman of the Middle Ages. The reputation and credibility of whole sectors and to a certain extent the market economy system itself is at stake. But as so often, appearances are deceptive. Generally speaking, there can be no economic success in moral anarchy. This has also been experienced in economic history and is apparently reflected in the recently developing cultural distrust for business. Unfortunately, science up to now has also been unable to provide clarity here. On a scientific level there is simply no clear and causal evidence that good ethics means good business. Results from studies carried out so far have not been methodologically conclusive due to an inconsistent definition of indicators: findings often turn out to be contradictory. However, insights currently gained by many companies indicate: a corporate strategy that is oriented toward values and implementing them at an operational level is an essential prerequisite today for economic success in modern and globally operating companies and their management. If the interplay of the economy and ethics were to be a success story it would consequently not result from a causal automatism but rather be a question of the morally sensible design of the governance structures of a company’s management. Here are a few empirical explanations for this apparently counterfactual belief. The economic scandals of the most recent past have shown that illegal and immoral behavior is a value-destroyer in the most direct sense of the word. A lack of values in management or the application of undesired values poses a risk to the existence of companies. It is a moral risk from behavior that should be an integral part of modern risk management and corporate governance. The US and British legal systems have drawn their consequences. They have set behavioral standards for the fulfillment of companies’ due diligence requirements and demand that value management systems be installed to ensure they are complied with. Compliance is worth it. Noncompliance means the organization and its representatives can incur massive risks. In this respect, character, credibility, and integrity are central leadership qualities and represent future topics to be encountered in manager training programs. However the impressionof the direction takenby theUSA and UK to strengthen business ethics is a rather bureaucratic one, and that is putting itmildly. Exculpation bywayof extensive documentation appears to be the logic behind the system: code of ethics, code of conduct, compliance officer, SOX, COSO framework, compliance program, integrity management, whistle blowing, ethics hotline – are just some of the Anglicisms that are rapidly proliferating at present and are not welcomed on all executive floors in the business world.