Crossroads of Philosophy and Economics

An Ethics Officer's Handbook


The other CEO: What is a Chief Ethics Officer?

Ethics is about values, about defining what's worth pursuing and what doesn't matter so much. An Ethics Officer - or the less glamorous ethics interviewer - helps an organization understand what its values are: what does the business exist for?

Myth: There are unethical businesses (or people)
Because ethics is about defining what's valuable, every person and business is ethical. It's hard to act without already imagining something you want, and that’s doing ethics. Consequently: the critical difference isn't between ethical and unethical, it's between one and another kind of ethics, one and another set of guiding values.

In business ethics, the most significant division between types of ethics separates the various marketplace (or shareholder) theories from others which turn around conceptions of corporate social responsibility.

Broadly, those who adhere to a marketplace ethics take their values from economic reality. Profit is the corporation's guiding aim, and in the social realm human freedom and the right of individuals to pursue (and create) their own destinies is the highest value.

Those who adhere to an ethics of corporate social responsibility sort out their values by envisioning the corporation as a citizen in society, with obligations similar to those we normally attribute to people. Viewed as members of society (as opposed to profit machines), corporations are expected to value community welfare and environmental health independently of the financial bottom line.

One common and false assumption about business ethics
It's not true that business ethics reduces to telling people to be nice, or that it fails to include the possibility that a company exists solely to turn the largest and fastest profit possible. A business guided by the bottom line and at the expense of everything else is perfectly ethical as long as the prime value - the rapid accumulation of wealth - is explicitly understood as guiding the enterprise.

It's possible to debate whether profit maximization in the open marketplace is preferable to other ethical orientations – there are strong arguments on both sides, but it's wrong to dismiss ruthless profiteering as necessarily unethical.

A quick defense of the ruthless profiteer here (with an amusing reference to burning oil).

The difference between examined and unexamined
Self-reflection matters. While it’s true that every person and enterprise does ethics whether they like it or not, some organizations investigate, understand and come to grips with the kind of ethics they’re doing, and some don’t: ethically, only some organizations know what they’re doing.

What’s primary, having strong ethics, or knowing what your ethics are?
The second. Just as you can’t improve something if you can’t measure it, so too you can’t judge something you can’t see.

What's the CE(thics)O's second job?
The first job is to help an organization understand what its values are. The second job is to see in the constellation of values a coherent theory for action. Only when general rules have been induced from specific values can an organization know what it ought to do to remain true to its own ethical outlook. Forming general rules is the way organizations understand what they are as ethical enterprises.

When a business actually does something, how can the act be justified by recourse to the ethical framework the company promotes for itself?

Take a downsizing business offering generous severance payments. The offer could be justified by the company’s belief that the relatively happy endings ultimately serve long-term profitability: treating discharged workers well increases company loyalty for those employees that remain. That’s good reasoning, but it only makes sense within a larger ethical outlook that envisions the company’s primary responsibility as serving the financial interests of shareholders.

By contrast, a firm may offer a generous severance not to help its own long-term bottom line, but because the business feels a social obligation to the ex-workers. The money situation is the same, but the ethics are different. In this case the severance is understood as part of the organization’s view of itself as a living member of a larger community, one that must sometimes sacrifice its own welfare (profit) in the name of promoting other members of the community and their interests.

The corporation that values profit, and the one that wants to play a broader role in its community are equally ethical and their actions may be identical, it’s just that their specific ethical outlook is different.

In different circumstances it may also be that their different outlooks lead to distinct managerial decisions. The bottom line company may determine that minimal severance payments better serves the responsibility to shareholders, while the more socially oriented business accepts that, but keeps the payments high as a reflection of a responsibility to the larger society.

What’s the difference between morality and ethics (and meta-ethics, while we’re at it)?
In discussions about what ought to be done, morality occupies the lowest level. Morals are the direct rules that should be followed, things like Don’t steal or Give generous severance payments. Generally, the question to ask about a moral directive is whether it was obeyed.

Above all morality there’s the broader question about exactly what rules should be instituted and followed. Answering this question is ethics. Ethics is the morality factory, the production of guidelines that later may be obeyed or violated.

Above both morality and ethics, there’re debates about meta-ethics. These are abstract discussions about why we have ethics and morality in the first place. (Animals steal from each other all the time and no one accuses them of being unethical, but human animals tie ourselves in knots over the question about when theft might be justifiable. How did that happen?)

Conclusion: morality is the rules, ethics is the making of rules, and meta-ethics concerns the origin of the entire discussion.

Second conclusion: in common conversation, the words morality and ethics often overlap. It’s hard to change the way people talk and, in a practical field like business ethics, fostering the skill of debating arguments is more important than being a stickler for words, but it’s always possible to keep in mind that, strictly speaking, morality and ethics hold distinct meanings.

What's the difference between ethics and compliance?
The ethics and compliance relation mirrors the one between ethics and morality. In business, ethics is about defining and justifying rules; compliance is about obedience, following the rules.

What's the difference between a CE(thics)O and a CECO?
A CECO is a Chief Ethics and Compliance Officer. In some organizations, the responsibilities of ethics and compliance are mixed in a single post. They have little in common, however, at least when each assignment is considered in its pure form.

The ethicist's job is reflective, it’s to ask questions, determine values, form rules. The tools of the ethics officer are philosophical; they’re theories of value that allow individuals and organizations to define priorities. The tools include historically defined conceptions of duty, understandings of egoism and altruism, an idea of what human dignity is, a respect for basic rights and human freedom, a sense of the relation between diverse cultures and different customs of business, conceptual grasps of marketplace theory, corporate social responsibility and stakeholder theory.

The compliance officer's task is, in the literal sense, indoctrination, it’s to communicate rules and ensure that they’re obeyed. The tools of the compliance officer are psychological; they’re techniques of social control including economic incentives (you get paid a bonus to follow the rules), professional incentives (you'll get fired if you don't follow the rules), social incentives (we are watching what you're doing, and will call you a good person if you follow the rules), and legal incentives (people who break the rules will be reported to governmental regulatory agencies).

The limits of the CE(thics)O
Ethicists don't make decisions or render verdicts. They can only help others clarify and then defend their reasoning.

In an e-mail exchange obtained by The New York Times, a worried executive at HP asked the CE(thics)O whether certain tactics were "above board." The CEO responded, "I think it is on the edge, but above board." This is badly wrongheaded. The ethicist doesn't tell other people what's "above board," the ethicist asks "What does it mean for something to be 'above board? In accord with what values is something above board? How can doing this – or not – be rendered coherent with our established values and ethical outlook? The basic task of ethics isn't to provide yes or no answers, it's to ask questions. And to help others answer.

What’s the difference between ethics and a fad?
Today, many organizations make sustainability a central concern. That doesn’t make the businesses ethical, however. The gesture toward sustainability only becomes ethics when it corresponds with the organization’s values, and if a clear line of justification runs from the values to the conclusion that sustainability is important. If the values aren’t underneath, or if the reasoning make no sense, then proclamations of interest in “sustainability” (or whatever) are just fads, words that will be abandoned as soon as a new version of corporate responsibility comes into vogue.

How can you test whether an organization promotes sustainability as an ethics or as a fad?
By asking the company to explain why it’s promoting sustainability.

What is greenwashing, and how can it be ethically criticized and justified?
Greenwashing is creating a pro-environmental image to sell a product or service, or to increase a brand’s value. Environmentally friendly actions are taken (and sometimes exaggerated in subsequent advertising campaigns), but not because of the environment, instead, in order to boost the bottom line.

Greenwashing can be criticized from an ethics based on duties – especially the duty to tell the truth – because greenwashing in inherently dishonest: expressed concern for the environment is just a pose struck to make money.

Greenwashing can be justified from the perspective of a shareholder ethics if feigning environmental concern serves their welfare, which is assumed to be a maximized return on their investment. Alternatively, greenwashing can be justified within a consequentialist ethics because from this perspective all that matters are the (good) consequences of what is done, not the motive. The question about whether the company acts to save the environment because the directors really care about the natural world becomes irrelevant.

Ethics and the law
Ethical discussions are distinct from legal ones. It’s not necessary that an ethically strong company follow the law, just as it’s not certain that a company scrupulously obeying the law is ethical.

Take as an example a company that helps people download music from the web. One day the law may allow that business. The next day a judge labels the downloading as copyright infringement and therefore illegal. The next day another judge overturns the decision, and things revert back to the original state. During that time the law switched (twice), but it doesn’t seem right to conclude that the downloading company went from being ethically respectable, to reproachable, and back to respectable again. The law changed, nothing else.

A simple example of an illegal corporate practice that may be ethically respectable starts with a pharmaceutical company that develops a new drug to cure a terminal disease. The only problem is that in 90% of the cases, the drug actually has an immediate and mortal effect. The FDA would not approve this medication. Still, the case could be made that the right of terminally-ill individuals to freely risk what remains of their lives for the possibility of a cure translates into an ethical responsibility for the drug-maker to market the product.

Do corporations have broad social obligations going beyond the narrow economic responsibility to make money for shareholders?
Advocates of broad corporate social responsibility believe businesses are obligated to share the burden of resolving society’s problems for these reasons. The responsibility stands on pure moral grounds: the fact that the question exists means businesses are already involved in broad ethical issues whether they want to be or not. More, there are operational reasons for the responsibilities: if businesses are going to contaminate the environment or cause distress in people’s lives, they should also be actively working to resolve the problems. Finally, there’s the argument that even if the corporate purpose should be limited to making profits, social responsibility can be an excellent way to achieve the goal.

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What's the difference between corporate social responsibility, the triple bottom line, and stakeholder theory? And, what is sustainability?
The term corporate social responsibility is a catch-all for any vision of business as having responsibilities stretching beyond profit to include social concerns.

Corporate social responsibility is also a specific theory arranging a business’s obligations. Four obligations compose the core package:

• The economic responsibility to make money
• The legal responsibility to adhere to rules and regulations
• The ethical responsibility to do what’s right, even when not required by the letter or spirit of the law
• The philanthropic responsibility to contribute to society’s projects, even when they’re independent of the particular business

Taken in order from top to bottom, these four obligations are decreasingly pressing.

The triple bottom line is a form of corporate social responsibility dictating that corporate leaders tabulate independent bottom line results not only in economic terms (profit), but also in terms of company effects in the social realm, and with respect to the environment. In all three of these areas, the company should obtain sustainable results.

• Economically, sustainability means sufficient profit to continue
• Socially, sustainability values balance in people’s lives and the way we live. In the NYC metropolitan area, for example, a reality where all executives are hauling down millions a year ultimately becomes unsustainable when other workers can no longer afford to live near the city and so do the supporting work necessary to keep the executives going
• Environmental sustainability begins from the recognition that natural resources—especially the oil fueling our engines, the clean air we breathe and the water we drink—are limited. If those things deteriorate significantly, our children won’t be able to enjoy the same quality of life most of us experience. At the extreme, an operating factory dumping industrial waste may make its own location unlivable.

Stakeholder theory lists and describes those individuals and groups who will be affected by (or affect) the company’s actions and asks: what are their legitimate claims on the business, what rights do they have with respect to the company’s actions, what kind of responsibilities and obligations can they justifiably impose on a particular business? In its strongest form, stakeholder theory affirms that those whose lives are touched by a corporation hold a right and obligation to participate in directing it. Though they may own no ownership share in the economic sense, they are and operate as owners on the ethical level. This is a very important point. At least in theoretical form, all those connected to a company’s actions actually become something like shareholders and owners.

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What are the arguments against corporations having broad social obligations going beyond the narrow economic responsibility to make money for shareholders?
Advocates of marketplace responsibility—and adversaries of the corporate social responsibility model—argue that corporations exist to serve the economic interests of their owners (shareholders), and little more. They argue that by definition corporations can’t have moral responsibilities: companies are inanimate things, incapable of understanding and therefore incapable of ethics. Further, to the extent ethical obligations control corporate directors, the obligations are to shareholders and mainly involve maximizing their financial return. Also, corporate directors aren’t experts at solving social problems, and we already have an institution that presumably does have expertise: government. More, it should also be noted that saddling economic life with broad social responsibilities can become a threat to individual human freedom. Finally, there’s the argument that even if the corporate purpose should include broad social service, free individuals and corporations in the world making profits serves that purpose indirectly but very effectively.

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