7 Oct 2011

Is morality in business a contradiction in terms?

Morality in business is anything but an oxymoron. With the growth of international business and globalism, morality is today not only an international social requirement but a competitive advantage.

While business morality has been all but forgotten in recent decades, contemporary events such as the exponential growth in industrial pollution, the rise of consumerism and the popular reaction to increasing numbers of scandals and corruptions have returned it to the forefront of people’s minds. Modern managers must contemplate the moral implications of business. Morality shall provide the trust necessary for successful transactions and the glue that holds business together.

Firms must be profitable in order to survive, but absolute maximization of profit is not conducive to the type of long-term relationships that create true wealth for individuals, businesses, and economies. In a world where consumers see their purchases as votes for a better world, moral management provides a competitive edge. Additionally, moral management benefits both internal and external customers: Happy employees provide better service and they are motivated to improve the business.

Morality implies a certain value system. It presumes a correct way of doing things, which can vary from person to person. Morality is rooted in religious faith with beliefs and values serving as guiding principles. Ethics, often intended as a synonymous, are more neutral, conscious agreements between people or institutions.

All business decisions have moral implications that have to be considered. Business is personal because it directly affects us: Our lives and our futures. It is also personal because each one of us can use it to choose the sort of world we want to be part of. Google’s informal motto, Don’t Be Evil, is a clear moral stance, even if it was easily forgotten in its last attempt to enter the Chinese market. It is no longer good enough to think “business is just business”. There are ramifications for every dollar we earn and spend, and each of us is accountable.

In an international environment customs and values vary from country to country, from one region of the world to another, and from one religion to another; however, the basic moral rules apply everywhere, despite differences in local customs. As an example, the United Nations Universal Declaration of Human Rights has been ratified by almost every country on earth, and it is used as a standard both by companies and by their critics.

Business as an institution is amoral and, like any other institution, is an artefact rather than a natural person: personae fictae, the Romans called them. Nevertheless, a company is comprised of actual people, and the corporation shall be treated as an entity capable of reason and judgment. A company is a legal construct; it is the people in it that determine whether the business is behaving morally or not.

Key players are the chairman and CEO. They set the tone for the company. The mystical body of business is guided not by a visible head but many leaders and chief executive officers. They are the responsible people in business. Each manager is responsible of the shareholders. While a manager must act in accordance with the law, he/she may go beyond the requirements of the law in order to follow his or her own moral values. And moral law is much easier to find and digest, because it resides in each of us.

The subordinates in the corporation tend to obey the rules and inertia of the bureaucracy, and here it comes once more the responsibility of the manager to act morally. Again, it is the human being, the manager, and not the construct, the corporation, who is the judging agent. Moral people are necessary, even if they are not enough. Ethical structures and enforced legislation are also necessary not only to enable business to develop, but to protect workers, consumers and the environment.

Multinationals shall also consider the impact of their actions on the local scene. They must observe the natural right of other individuals, honour contracts, and avoid fraud and coercion, but also honour representations made to the local community and contemplate the most likely consequences to their actions. Nowhere is written that business comes without responsibility.

Business morality as a field is expanding internationally. Many have come to see that good ethics frequently means good business. Any multinational interested in its own long range reputation and future development and profit should adopt this model.

Morality, of course, involves a cost. This cost may be in money, effort, risk or income forfeited. However, it would be strange indeed if we recognised that all income has to be bought, but the most precious product, morality, to be costless when, in fact, it is a priceless treasure.

Throughout the process of writing this, I am pondering why we entertained a dichotomy between morality-business for so long. Perhaps we did it because we tended to see morality only as a matter of religious belief and therefore outside the bounds of normal business discourse. From a pure profit perspective, maybe we could not see any economic benefits of it. Whether it is one of these, a combination of the two, or some other factor, I am reminded of a quote from Stefan Engeseth, “Just as you choose to be the person you are in life, you can choose how your business acts.” We have the power to decide: Will our business choose to be good or bad?



Emiliano Lazzaro, Dubai EMBA student, has grown an international banking experience for 10+ years in Europe and GCC. He specialised in debt capital markets, distressed asset management and Islamic finance with Blue Chip investment banks including Morgan Stanley, Goldman Sachs, Lehman Brothers and Citi.

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