How Business Can Be Good

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In a recent front-page article in The Wall Street Journal, Jacob Schlesinger wondered, "Why has the '90s so far eluded the 'Decade of Greed' label that hung over the '80s?" The news was certainly full of stories of young millionaires bursting forth in record numbers due to the boon in technology stock prices. And you couldn't turn a page without seeing any number of CEO compensation packages tip in at millions of dollars in salaries and perks.

There were no cries of moral outrage, Schlesinger suggests, because in this new economy everybody's income is rising. Not only those at the top are sharing in the spoils of business, whether in the form of better returns on a 401(k) plan invested in aggressive mutual funds, or just more cash in each paycheck. But the point that people are missing, he wrote, is that even when almost everyone's income is rising, a "growing disparity in affluence can hurt the less well off." If a middle-class family in San Francisco earns 33% more than the national average but faces housing prices that are quadruple the national average because young Silicon Valley millionaires have bid up the prices of homes, it's only a matter of time before someone cries foul.

I was taken aback not so much by the article's sentiment as by its source. Here was The Wall Street Journal -- the archconservative voice of capitalism -- drawing attention to the problems endemic to outrageous income disparities at a time when that particular cause hadn't the news cachet it held during the greed-drenched '80s.

"Business ethics," a topic that for years has been relegated to the deep interior of business publications or the fringes of business school curriculum, suddenly has status. Where the word "ethics" may once have been anathema to any corporate devotee, discussion of it is increasingly seen as not only important but also as critical to a company's success.

A Shift in Thinking

The standard argument made among businesspeople used to be that a business's responsibility was first and foremost to its shareholders. Economists Milton Friedman and Alfred Carr were chief among those propagating that once-prevailing wisdom.

In a 1970 New York Times Magazine article, Friedman wrote his now well-known argument that a business's social responsibility is to its stockholders; therefore, the main objective is to increase profits. In 1967, Carr argued that business is a game in which there are certain rules. He held that a person would set aside personal ethics and values in order to meet the needs of the corporation.

However, proponents of "virtue ethics" believe that it's wrong-headed to think that we can, or ever could, park our personal beliefs at the door when we enter the corporate world. John Morse, in the Journal of Applied Philosophy, observed that "the virtue theorist insists that any ethical decision we make is based on a set of dispositions we have acquired throughout our life. When someone acts unethically in a business transaction, this is bound to break down the good character habit that he or she has developed up to this point. The virtue theorist denies that there is an ability to separate the 'business' self from the 'private' self, because the actions in each realm form dispositions which apply to a person's general manner of acting."

Morse concludes that "Friedman and Carr are wrong, for they try to separate the moral ramifications of actions within a business environment from their effects on the individuals with whom business comes into contact. Business has to be seen as a moral entity that is an integral part of the community, and it must therefore be concerned about the welfare of the community within which it is situated, as well as the welfare of the individuals whom it influences."

What's Ethical Behavior?

Johnson & Johnson is often heralded as a company whose ethical behavior is exemplary. Looking at how this company's core beliefs affect the way it handles critical ethical decisions can help demonstrate how a clear commitment to ethical behavior in business can define how a business operates, both inside and outside its walls.

The company clearly prioritizes its responsibilities in its corporate credo: first to its customers, second to its employees, third to its management, fourth to the communities in which it operates, and fifth to its stockholders. "Business must make a sound profit," reads the credo in describing this fifth responsibility, but at Johnson & Johnson that concern comes after the rest.

In 1982 the company decided to recall 31 million bottles of Tylenol from store shelves after eight people died from cyanide-laced capsules. That recall cost Johnson & Johnson $240 million and cut its profit on $5 billion in revenues that year by almost 50%. The tampering was not the company's fault, but it decided to act even before it had complete information on what had happened. The product containers were redesigned, and new tamper-proof packaging was introduced. Johnson & Johnson's immediate response saved the Tylenol brand and won the company rave reviews. Ironically, the move turned out to be a huge marketing coup that resulted in significant goodwill from customers.

When a class of business students was asked to comment on the ethics of the case, more than one student responded by saying that the case wasn't an example of ethical decision making at all: The company benefited from the whole affair. Since it turned out to be a great marketing move, where was the ethical problem?

What the students failed to recognize was that we all make ethical decisions on a daily basis. Sometimes it's as simple as deciding whether or not to credit a coworker with an idea of hers that you bring up in a meeting. Other times it may be deciding just how much information you disclose to colleagues about an office rumor making the rounds.

The results of such decisions rarely have the magnitude of a Tylenol case, but they are ethical decisions nonetheless. Based on what you know of the acceptable behavior of the group you belong to, you're trying to decide on the right thing to do.

Ethics. The word "ethics" derives from the Greek term ethos; one of the modern definitions of ethos is "accustomed place." In the New Testament, ethos was used in the more or less classic sense of a "home place" -- the place of safety, where humans and animals alike could gather at the end of the day and be protected. By extension, it came to be used as a description of the norms of behavior that provided a comparable protection to the coherence of a society.

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