Article: Fair is foul - if profit’s the purpose

Life @ Work

Fair is foul - if profit’s the purpose

The justification for fairness, ethical business practices, diversity, and environmental friendliness cannot be that they improve financial performance. What is right must be done and leaders need to find ways to make it profitable.
Fair is foul - if profit’s the purpose

The discussion was getting heated as it tends to do when I express my anguish about the hypocrisy of Indian industry which talks about being fair and ethical while using (and underpaying) hundreds of thousands of contract workers for permanent jobs.1 A well-meaning friend of mine (who is among the most respected stalwarts in the HR profession) sought to calm the storm of vituperation by suggesting the discussion be deferred till we had data to prove that companies using employees with durable tenure for permanent jobs actually performed better (both financially and reputationally) than those that didn’t. I feel strongly that is exactly the wrong question to be asking. Before pointing out the fatal flaw in my friend’s idea, let’s broaden our survey of other respected thinkers and analysts who seek to justify ethical behavior because it is profitable in the long term. I call this approach the new MBO (Morality By Results).

Morality By Results

There is a whole industry of academicians, researchers, NPOs, and professional bodies that have devoted their working lives (and, sometimes, well past their 'best use by' dates) to proving that corporations do well by doing good. The range of desirable behaviors they cover is so wide that only an extreme extropiant can cover it at a glance. Starting with ethical corporate behavior, we have plenty of references to the correlation between it and corporate stock or financial performance. Here is one from SHRM: "According to the most widely used measure of ethical workplace culture, the stock price growth of the 100 firms with the most ethical cultures outperformed stock market and peer indices by almost 300 percent."2 Hang on: the bandwagon is just starting to roll. "… [B]usiness ethics actually add value for customers and result in increased profitability and performance for the firm.3 Then there is a slew of studies on the connect between CSR spending and sustainable profits, with a variety of independent variables seeming to strengthen or weaken the relationship.4 Some studies extend the domain of investigation for CSR to customers as well as suppliers and come to the same cheerful conclusions.5 Compared to the high tide of research pointing out the advantages of CSR, those extolling the benefits of diversity (mainly relating to gender) are a Tsunami.

Unfortunately, not all the research is as stridently convincing as the studies quoted above. Margolis, Elfenbein and Walsh summarized their findings in these terms: "Does it pay to be good? For thirty-five years, researchers have been investigating the empirical link between corporate social performance (CSP) and corporate financial performance (CFP). In the most comprehensive review of this research to date, we conduct a meta-analysis of 251 studies presented in 214 manuscripts. The overall effect is positive but small …, and results for the 106 studies from the past decade are even smaller."7 Disappointing as this conclusion maybe for some, I think much of this research is mispurposed. Is mammon really the strongest defense we have for morality?

I have no problem listening to uplifting stories of corporates that have done well while following the moral imperatives they set for themselves. I also applaud the rectitude that makes the research-minded among us hold back their sense of pious thrill till empirical statistics back up the anecdotes. It’s wonderful that good deeds get their reward in the here and now. It is as edifying as seeing the worthy and wise Archbishop of Canterbury get respect and reverence from the monarch of Great Britain. But I think far more highly of Thomas Becket (than of the current Archbishop) because his King prompted some overeager barons to murder the prelate for sticking to his beliefs. In fact, Becket’s name rings down the ages because he made the supreme sacrifice for his principles. By the same token, organizations that remain ethical when there is a cost to be paid for doing so are the ones that we need to admire and emulate.

Consequences do matter

Let me make it clear: I am not proposing that the anticipated or actual outcomes of corporate actions should play no role in judging their moral worth. On more than one occasion in this column, I have taken a view that might not appeal to strict deontologists (i.e. those who believe that the morality of an action should be based on whether that action itself is right or wrong under a series of rules, rather than based on the consequences of the action). Interested readers might refer to my advocacy of aggregate people happiness as a goal8 or my plea for mitigating punishments depending on the seriousness of the damage caused by transgressions.9

There are and will continue to be debates about the desirability of evaluating moral worth based on consequence or some other standard such as a universal imperative or the attainment of virtue. There is much to be said for each approach and there have been several attempts to reconcile them. Here is one such in the context of Business Ethics: "… [W]e adopt as a basic principle, first, that no one be treated as a means and, second, that as far as possible everyone be treated as an end in themselves. And suppose we take the first to imply that persons have, at a minimum, barrier rights that can justifiably be overridden only in extreme circumstances. And we take the second to imply that we should enhance the wellbeing of others – their happiness – to the extent we are able. Thus, by accepting barrier rights we ensure that persons are not treated as means, and by promoting happiness we treat them as ends in themselves."10 Having different justifications for making ethical decisions and making efforts to find a synthesis between them are all welcome. However, we cross the bounds of acceptability when we take the matter out of the moral register altogether and place value justifications in the realm where ROI rules and everyone has a severe case of stockholderitis. Authors far more competent than I have debunked the legal and practical justification for maximizing shareholder value. Perhaps none have made the case as powerfully as Lynn Stout who recalled the recantation of an earlier devotee of the shareholder value myth and wrote: "Even former champions of shareholder primacy are beginning to rethink the wisdom of chasing shareholder value. Iconic CEO Jack Welch, who ran GE with an iron fist from 1981 until his retirement in 2001, was one of the earliest, most vocal, and most influential adopters of the shareholder value mantra… several years after retiring from GE… Welch observed in a Financial Times interview about the 2008 financial crisis that 'strictly speaking, shareholder value is the dumbest idea in the world.'"11 It is strange then that ethical behavior and fairness, which we announce to be (and indeed should be) among our most fundamental values, need to be buttressed by reference to a far more questionable goal like shareholder returns. The very definition of an end value is that it stands on its own self-evident worth and does not need propping by another. 

What I am proposing here should not sound alien to Indian managers brought up in the KV (Karmanye Vadhikaraste ma phaleshu kadachana) Gita tradition of action untainted by the desire for reward. At least at the times when they attend discourses by their gurus with pious attention and upper bodies bare. How they can reconcile this part of their lives with the 'Geckoish' worship of greed during their workday is a dissection of schizophrenic behavior that will have to await another column.

Does it matter?

Does it matter why people or organizations are ethical, as long as they are? I think it matters hugely. Elizabeth Barrett Browning conveys the prime problem with secondary motivation in verse of great beauty (though she does it for another fundamental value – love): 

If thou must love me, let it be for nought

Except for love’s sake only. Do not say,

"I love her for her smile – her look – her way

Of speaking gently, – for a trick of thought

That falls in well with mine, and certes brought

A sense of pleasant ease on such a day" – 

For these things in themselves, Belovèd, may

Be changed, or change for thee – and love, so wrought

May be unwrought so.12

In our context, it is not difficult to imagine the empirical (mainly financial) justifications for each of our fundamental values (whether fairness, diversity, environmental sustainability or any other) throwing up negative correlations. Would we then be prompted to jettison these foundational beliefs? Performance-driven criteria for ethical conduct are two-edged swords which can turn traitor at any moment. Let’s take a few examples to drive this argument home.

The recent Covid crisis and the heart-rending sight of tens of thousands of migrant workers (many of whom had been engaged on contract and terminated with almost no notice) focused public attention on the plight of the precariat and the way they are treated in a profit-first scenario.13 What is perhaps not so generally realized is that the whole move away from durable employment has been prompted, not by the fictitious need for seasonal flexibility, but by a desire to cut BOP costs to the bare bone – and even lower. Here is a glaring instance of a decimal improvement in bottom-line tail wagging the people-first value dog.

Another phenomenon that illustrates what happens when shareholder returns become the justification for (what should be) fundamental values is the rampant resort to downsizing.14 Here is an extract from Macy’s statement of values, emphasizing the importance of collaboration: "In this company, innovation is a critical value to ensure the company stays abreast of the changing world. It is something that Macy’s recognizes can best be an achievement by promoting collaboration among its employees and other players."15 Readers are left to decide how far employee collaboration was augmented by its announcement to cut 3,900 jobs while awarding top management $ 9 million in bonuses.16

Environment friendliness and energy saving have rightly been prioritized by many corporates as fundamental to the future of the planet and to their own survival. When these goals are treated simply as appendages of the drive to get better financial performance, things are fine only so long as the two variables operate in tandem. When, for example, petroleum prices crashed, it was easy to spot companies that had adopted energy conservation only as a means to raise profits. They put a hold on conservation efforts and permitted their energy consumption ratios to slip negatively.

It bears repeating once more. A truly valued ethical behavior is one that the organization will carry out regardless (and, preferably, with even greater diligence) when there is a cost attached to it.

Core values are the immovable object

The central thrust of this column is very simple: If our ways of doing business and providing superior returns to shareholders conflict with either the core values we have declared or those implicit in the permission society has given businesses to operate, it is not these values that must cede way. The values don’t need to demonstrate their financial returns in order to exist. That is not to say, of course, that we must passively accept sub-optimal performance or returns. To my thinking, there are at least three paths open to an enterprise that is caught in such a dilemma. They are: Ingenuity, Repurposing or Abandonment.

By far the most advantageous way to come out of a principles vs. performance conflict is through the use of Ingenuity which permits organizational goals to be met without sacrificing values. Though not brought about through car companies’ commitment to environment issues, their ability to turn to more energy-efficient and less polluting engines happened with a speed and totality that would have been unimaginable before Governments gave them no choice. The point is that if a constraint is taken as non-negotiable and inescapable, corporates can creatively marshal resources to perform in that situation as well as if not better than previously. Prospectively speaking, if, as is my hope, durable employment becomes the general norm, corporations will turn in even better performance once they have detoxified themselves from their addiction to contract labor. 

Sometimes, when all the ingenuity in the world is not sufficient for preserving the viability of the core business model while adhering to ethical standards, Repurposing might be the only option. As some old-timers might remember, Telco (now Tata Motors) was set up to manufacture steam locomotives. The company was not permitted to get into diesel locomotive manufacture and realizing that, in any case, having a single customer (and one as powerful as the sovereign state at that) might make adherence to the Tata code of business ethics a challenge, it entered commercial vehicle manufacture in collaboration with Daimler-Benz. Here again, it found State Transport Corporations taking into account factors other than product performance and price while awarding contracts. For a second time the company re-cast its strategy to focus on load carriers. Both decisions, though partly forced by a keenness to stick to principles, also worked out extremely favorably in the long run. But it was the fear of slipping off the straight and narrow ethical path, rather than those financial hopes, which made the company reorient itself. 

If the chasm between the firm’s strategy and what is ethically (or legally) permissible is too broad to be crossed by a leap of Ingenuity or avoided through Repurposing, the time may have come to Abandon the enterprise altogether. Several companies (some chartered by the monarch) in Europe prospered mightily on the slave trade between the West coast of Africa and the Americas in the 17th and 18th centuries. With the legal and other sanctions on the slave trade in the19th century, their days were numbered. A few did transition to the trading businesses but the majority were wound up in one way or another. There is no heaven-granted right that gives companies the right to continue existing – especially if they are doing wrong in order to survive. Their demise should be one of our least reasons for regret.

Let me sum up this column with a single sentence Kant wrote: "Do the right thing because it is right"17 – and for no other reason.

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Notes:

  1. Visty Banaji, Udta Udyog – Industry’s addiction to contract workers, People Matters, 15 September 2016.
  2. Steven D Olson, Shaping an Ethical Workplace Culture, SHRM Foundation.
  3. Robert C. McMurrian and Erika Matulich,  Building Customer Value And Profitability With Business Ethics, Journal of Business & Economics Research, November 2006, Volume 4, Number 11
  4. R Fisman, G Heal and V B Nair, Corporate Social Responsibility: Doing Well by Doing Good?  Working Paper, Columbia University, New York.
  5. Vanina Forget, Doing well and doing good: a multi-dimensional puzzle, cahier de recherché 2012-04. 2012. <hal-00672037v1>.
  6. Vijay Eswaran, The business case for diversity in the workplace is now overwhelming, The World Economic Forum, 29 April 2019.
  7. J D Margolis, H A Elfenbein and J P Walsh, Does it Pay to Be Good? A Meta-Analysis and Redirection of Research on the Relationship between Corporate Social and Financial Performance; The Stakeholder Marketing Consortium, Boston University, 2007.
  8. Visty Banaji, HR’s business should be happiness raising, People Matters, 24 September 2019.
  9. Visty Banaji, Dealing with misdemeanor at work, People Matters, 27 July 2019.
  10. W Michael Hoffman, Robert E Frederick and Mark S Schwartz (Editors), Business Ethics: Readings and Cases in Corporate Morality, John Wiley & Sons; 5th edition, 2014.
  11. Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, Berrett-Koehler Publishers, 2012.
  12. Elizabeth Barrett Browning, If thou must love me, Sonnets from the Portuguese. Dover Publications, 1992.
  13. Visty Banaji, Is HR too fragile?, People Matters, 12 May 2020.
  14. Visty Banaji, People are not beans, People Matters, 13 July 2016.
  15. Macy’s Mission and Vision Statement Analysis
  16. Walter Loeb, Macy’s Grants $9 Million In Bonuses To Top Execs After Cutting 3,900 Jobs, Forbes, 17 July 2020.
  17. Immanuel Kant, Groundwork for the Metaphysics of Morals, Broadview Press, 2005.

 

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