Why do we have Business Ethics?
Ethics has been around for thousands of years. Businesses have been around for even longer. But Business Ethics has been around for less than 100 years. Ethicists of the past would, of course, sometimes discuss business situations. However, business wasn’t thought to require a branch of ethics all to itself. The major points of ethical responsibility in business were typically seen as taking two forms. First, there were general moral rules that applied to everyone, all the time, and business was just one place where people would interact where these rules applied. It’s wrong to lie, so it’s wrong to lie to customers, for example. Second, business involves a lot of contractual or similar agreements between parties. This creates an obligation for those parties to adhere to their agreements. Ethics in business, though, didn’t go beyond the application of these sorts of considerations in business situations.
There are some situations where standard ethical considerations are insufficient to fully capture our ethical responsibilities. Parenting is perhaps the clearest example. Merely satisfying the obligations we have to all other persons is insufficient for fulfilling all of our responsibilities as parents. People have obligations to their own kids, such as feeding them on a regular basis, that they don’t have to other people. The reason for this is that the special relationship parents have to their kids creates special moral obligations that they do not have to others. Situations where individuals have relationships that require additional, specific responsibilities to certain parties require a more complex and specialized ethical system.
Over the past century, people have adopted a view of businesses as “corporate citizens,” and have claimed that, in this role, they have special obligations to other parties that transcend typical moral obligations. This view has progressed so quickly and extensively that business ethics is now dominated by something called the “stakeholder model.” A “stakeholder” is now viewed as literally any party that has an interest in any decision a business makes. The standard view in business ethics is that businesses are obligated to take these interests into account when making decisions. This is in contrast to the traditional “shareholder model,” where their only moral obligation outside of standard ones that apply to all of us was to maximize profit to the shareholders. This specific obligation is grounded in a promise to shareholders to provide a maximal return on their investment.
The world that arose from this shift in expectations is now taken for granted. Once, people thought that if a worker fell to their death while eating lunch on an I-beam, that was a tragedy, but it didn’t create a responsibility on the part of the company. Now, it’s just assumed that companies will enact protections to ensure workers don’t do dangerous things like eat lunch on I-beams. If a company allowed this and someone died, they could be sued by the family for failure to protect their workers. In society as it was, the workers knew the dangers of the job, accepted them, and were responsible for bad things that might result from dangerous choices. Now, businesses are thought to have special obligations to ensure employee safety. They are thought to have failed in those obligations, and are subject to lawsuits, if they fail to provide for that safety. Similar things hold for consumer safety. In addition, governments frequently regulate business in ways that are supposed to help ensure that businesses are fulfilling their obligations to the community in which they are “corporate citizens.” We live in a world where the laws keep expanding to ensure that businesses fulfill their responsibilities to a wider and wider variety of stakeholders. This is grounded in the assumption that stakeholders have rights against businesses that extend beyond traditionally recognized obligations of ethics, or specific responsibilities of a contract.
While this has become a standard part of modern society, I think business ethics and the assumptions that underlie it are not only mistaken, but harmful. The reason I oppose business ethics is very simple: corporations are not people. The notion of a “corporate citizen” is an attempt to reify a non-entity, but non-entities cannot have moral obligations to anyone. Business ethics encourages us to place blame on something that can’t be morally responsible, and that can’t take accountability. In the end, mostly innocent people are harmed, and wrong-doers hide behind a shield of protection. Pretending businesses have these obligations is immoral, and doing so has led to disastrous unintended consequences.
The Myth of Corporate Personhood
Society consists of individuals. Sometimes these individuals act together to achieve certain aims. In these efforts, certain individuals have more power, and exert that power as more influential agents in determining the ultimate results of such cooperative actions. When people act in concert like this, we often refer to the group under a collective term. Teams, families, businesses, governments, societies, and any number of other groups in society are examples of this. Terms that refer to these groups using singular noun phrases are useful short-hands for discussing large-scale events. This shouldn’t trick us into believing that they refer to actual things. Businesses, corporations, governments, nations, and the like are non-entities. At the end of the day, the only real entities are the individuals themselves.
The fact that businesses aren’t real things is important for a number of reasons. For our purposes, the most important result of this is that businesses can’t be agents. They don’t make choices, and they can’t have moral responsibility for the things they do. One consequence of this is that they can’t have obligations. Whatever praise or blame we may want to apply to a business actually belongs to the individuals responsible for those results. The consequences for these decisions should also apply to those individuals.
The fact that corporations aren’t people has many implications the left likes. Corporations have no rights to freedom of speech, and therefore no right to fund political campaigns. They have no interests, and therefore no right to promote them through lobbying. Any funding of politicians and any efforts to sway political decisions should therefore be relegated to individuals. Some of them may be business owners or corporate executives. But they would have no right to use corporate assets to pay for their efforts. Accepting these results would drastically limit the influence of corporate officers and capitalist investors on political decisions.
Negating the status of businesses as citizens also has a number of other consequences traditional Republicans liked. If corporations aren’t people, then they cannot have obligations. This includes the fact that they can’t be subjected to taxation. Taxes would have to apply to individuals rather than corporations. In addition, businesses couldn’t be party to legal disputes. Rather than suing a company, those harmed by interactions with a corporation would have to sue the individuals in the corporation responsible for the harms caused by their decisions. This would lead to lower legal costs and less regulation. It would also create freer, more competitive markets.
Most importantly from an ethical perspective, rejecting corporate personhood avoids serious problems of blame and responsibility. Vague and vaguely suspicious non-entities are easy targets for blame. Since they can’t fight back, it’s safe to loudly hold them accountable. When we do this, though, we harm the innocent and help the guilty. Costs imposed on businesses are actually imposed on those harmed by a decrease in income or an increase in costs. When Roger Ailes sexually harassed Gretchen Carlson, Fox News paid Carlson $20 million dollars in compensation, and paid Roger Ailes a $40 million severance package to quit. For his bad behavior, he gained a huge benefit, and was freed from personal responsibility to pay for his crimes. On the other hand, the loss of $60 million almost certainly cost some innocent people their jobs, cost some investors some money, and interfered with the quality of the programming they could provide to consumers. Allowing the company to serve as a party to this lawsuit created an immoral distribution of costs and benefits. These sorts of problems are pervasive, and they create numerous serious flaws in society.
Collusion, Cronyism, and Corruption:
One result of imposing expectations on businesses is that it has allowed for collusion. It is illegal for different companies to come together to limit competition. Given their responsibilities to the community, though, they are now allowed to establish “industry standards.” In most if not all fields, this includes pricing standards. Unsurprisingly, these standards consider it wrong to offer similar services at drastically lower prices. This allows existing businesses to avoid competition that would lower costs for consumers. Similarly, industry standards typically require accepting larger costs of production. While this may seem to harm existing companies, what it actually does is increase the costs and the difficulty of entering the market. This decreases competition, leading to less innovation and higher prices for consumers. Whatever intentions people may have had for forcing business to act in these ways, the actual results, as should surprise no one with a basic understanding of human nature, was that they were turned into methods for rich people to benefit themselves at the expense of poor people. We made collusion legal by giving it a new name.
In addition to legalizing collusion, we have legalized bribery. Most corporations spend money on lobbying. Lobbying typically results in paying money to political campaigns and to political parties in hopes of influencing people to support the aims of the company. Most large corporations contribute to both major political parties. Quite obviously, their efforts are not designed to persuade, but to create influence on decision-makers. They don’t care about issues for principled reasons. They care about laws that might affect profits. By pretending that corporations have independent standing as entities with interests in policy we have opened the door to making cronyism and bribery easy.
Finally, by allowing companies to be sued, we have eliminated the need for moral behavior by decision-makers. The worst that is likely to happen to someone who makes immoral decisions in business is that they will be fired. If they’re an executive, this is likely to include a large severance package. The people who caused the 2008 financial crisis didn’t end up in prison, and didn’t owe anyone a penny. The bankers at HSBC who chose to help terrorists funnel money through their bank also suffered no criminal or civil penalties for it. When a business plays the role of defendant, the real perpetrator goes free. Only if the individuals themselves will face criminal and civil liability for their actions can we expect this to change.
With Great Power should come Great Accountability:
People who have the power to bring about huge effects on the lives of large numbers of people need to be held accountable for their actions. LLCs play a role much like qualified immunity. Both allow evil to occur with a reasonable expectation of little to no costs to the perpetrators. Since business is necessary for a morally decent society, we can’t allow mistrust to infiltrate the system like this. Similar arguments to those above can be given for holding members of the government accountable. The sort of people who are comfortable making decisions that could harm others are exactly the sort of people we need to instill caution into in the form of liability. Given the ability of businesses to affect people’s lives, this definitely includes important decision-makers in companies. We need to hold powerful people accountable. The assumptions of business ethics have opened the door to powerful people making that impossible. All responsibility is placed on a collective figment of imagination, and the real costs are dispersed among the innocent. This has happened due to widespread, misguided assumptions about both morality and business that lie at the heart of business ethics. We would be far better off eliminating the subject, and the social effects it has helped bring about.
Leave a Reply