Doing Virtuous Business

Theodore Roosevelt Malloch

• Publisher: Thomas Nelson
• Year: 2011
• ISBN:
  9780849949739
• Topic: Business
• Subtopic: Etica aziendale
• Index: Business

Can the concept of "Spiritual Capital" actually ensure a company's success?

Critics of capitalism view big businesses as insatiable masters of the universe with little regard for the public. They label those who create wealth as greedy, malicious, and unscrupulous. Doing Virtuous Business answers these charges head-on. In this insightful and original book, Theodore Roosevelt Malloch presents the bold idea that the creation of wealth by virtuous means is the most important thing that can be done for society.

Doing VirtuousBusiness explains the true purpose of business and illuminates the connection between a free economy and religious liberty. Drawing from the notion of "social capital, " which has been developed by generations of scholars, Malloch adds the concept of "spiritual capital" as a foundation for social progress and also a necessity for responsible and successful enterprise. He details the virtues that sustain a business and a free market—virtues that build up a network of trust, which is critical to the global economy.

Malloch reveals that a company's soul determines its "spiritual capital, " an equally imperative foundation to success. From Wal-Mart to IBM, Malloch demonstrates how companies that operate on ethical models informed by spiritual traditions have outperformed their competitors. This book is a welcome moral defense of free enterprise and a sensible guide for achieving the ideal of virtuous business.

Besides making the world a better place, Malloch argues, virtuous enterprise makes companies far more successful and profitable than they otherwise would be. He presents case studies of virtuous business in the Judeo-Christian tradition as well as statistical analysis demonstrating how companies that operate on ethical models have outperformed their competitors over the long run.

CHAPTER 1
SPIRITUAL CAPITAL

Grace is given of God but knowledge is bought in the market.

—ARTHUR CLOUGH

BUILT to Last, a classic study of “visionary companies,” reveals an interesting discovery: the company that succeeds in circumstances where its rivals falter or go to the wall is not the kind of “profit machine” envisaged by the opponents of corporate capitalism. On the contrary, although it aims to be profitable, the visionary company understands profit in the way that a biologist understands oxygen—not the goal of life, but the thing without which there is no life. A corporation may be motivated by an ideology of group membership, low prices, and consumer satisfaction, like Walmart; or it may be fired by a desire to make a real contribution to society, like Hewlett-Packard (HP). It may even impress upon the world and its workforce that its primary purpose is to honor God (as in the case of Dacor, which I discuss in chapter 3). The point is that, however the company describes its motivating principles, profit does not appear as the goal, but as the side effect of pursuing those principles.

In this connection it is worth quoting the words of John Young, CEO of HP from 1976 to 1992:

Maximizing shareholder wealth has always been way down the list. Yes, profit is a cornerstone of what we do—it is a measure of our contribution and a means of self-financed growth—but it has never been the point in and of itself. The point, in fact, is to win, and winning is judged in the eyes of the customer and by doing something you can be proud of. There is symmetry of logic in this. If we provide real satisfaction to real customers, we will be profitable.¹

What Young is saying is clear: by aiming exclusively at profit, you risk losing your sense of purpose; by pursuing your sense of purpose, on the other hand, you gain profit as through an invisible hand. Moral and economic values are not in competition; in the right context, to pursue the one is to obtain the other. Moreover, as Built to Last shows through the telling contrast between HP and Texas Instruments, the firm that puts profit at the top of its agenda, making all else subordinate, very soon begins to lose its competitive edge.²

A team of researchers has shown the close connection, in particular cases, between moral conviction and business success. Through the exercise of “moral imagination,” a firm can further the moral goals of its members, providing them with the personal satisfaction that comes from doing good, without sacrificing profitability.³ Some go further, suggesting a kind of secular basis for the moral dimension of business, as people enter through business into moral relations with their fellows, and work comes to function as the foundation of social harmony, imbuing life with purpose—performing the role that religion once performed.⁴ These studies take us far along the road to understanding the moral basis of capitalism and the resources of social capital on which it draws. But they do not go far enough. There is a deeper root of business success, and that is what I explore in this book.

SOCIAL CAPITAL

For close to a century, sociologists, economists, and political scientists in the academy have been developing the concept of “social capital,” drawing on the language of economics in order to describe the accumulated social resources inherited by each new generation from its predecessor. These resources are used in managing the day-to-day affairs of social existence, and they include customs, language, manners, and morals—in short, all the practices that are taught to us by our parents in order to make us fit members of society. These things cannot be invented anew by each generation, since they are the distillation of a long process of accommodation. As many since Tocqueville have shown, the rules, customs, and traditions that enable people to live together in a great society are also products of “the invisible hand.” They are the beneficial results of cooperation and competition between neighbors, and the spontaneous by-products of their attempts to live in peace. The very same freedom that produces the capitalist economy also produces the social capital that is needed if it is to run successfully.

The World Bank defines social capital as “the norms and social relations embedded in social structures that enable people to coordinate action to achieve desired goals.” Robert Putnam, a Harvard political scientist who has made social capital his specialty, describes it similarly: “‘social capital’ refers to features of social organizations such as networks, norms, and social trust that facilitate coordination and cooperation for mutual benefit.” His landmark 1993 book, Making Democracy Work, convincingly demonstrated the political, institutional, and economic value of social capital. In Bowling Alone, he presented a scholarly and provocative account of America’s declining social capital. Numerous comparative economic studies by the World Bank and the United Nations corroborate Putnam’s thinking: some regions of the globe lag behind while others thrive due to their social capital.⁵

A recent study examines the role that social capital invested in a company plays in economic success. In Good Company describes social capital as the “stock of active connections among people, the trust, mutual understanding, and shared values and behaviors that bind members of human networks and communities and make cooperative action possible.” Social capital involves the social elements that contribute to knowledge sharing, innovation, and productivity. It makes any organization or cooperative group into something more than a collection of individuals intent on achieving their own private purposes. This social capital, it turns out, is so integral to business life that without it, corporate action—and consequently productive work—is not possible.⁶

Like economic capital, social capital can be accumulated and invested. It is built through creating networks of trust and goodwill, which enable people to spontaneously pool their intellectual and physical resources in a common enterprise. A seminal work titled Trust: The Social Virtues and the Creation of Prosperity argues that communities with a culture of trust and accountability are able to prosper in adverse circumstances and to create wealth seemingly ex nihilo. Hong Kong, a tiny peninsula without natural resources, and with some 5 percent of China’s population, has regularly accounted for 30 percent of the Chinese GNP. The difference between Hong Kong and mainland China (which has every possible natural resource) lies in the culture of trust that was protected under British administration in Hong Kong, but systematically destroyed by the communists on the mainland.⁷

Western societies have accumulated a great stock of social capital in the form of culture, networks, institutions, and laws. In each area of human endeavor, they have added to this stock, accumulating works of art and music, games and sports, festivals and competitions, through which individuals rehearse their social feelings and refresh their commitments. Social capital can be wisely invested, as when we found a school or university and endow it with good teachers, good books, and good facilities, so helping the fund of knowledge and skills to grow. It can dwindle, as many researchers have shown, through the gradual retreat from social contact. It can also be wasted, and the conspicuous waste of social capital is one of the most unhappy features of our societies today. This waste has been documented by several authors who have shown the way in which, by throwing economic resources into the welfare system, we do not merely waste those resources, but also waste social capital—producing the welfare dependency that prevents people from learning how to be on equal and responsible terms with others, subsidizing indolence, and exhausting our teachers, social workers, and doctors with the thankless task of caring for people who are often unwilling to care for themselves.

Some critics of the welfare system have become highly controversial on account of the challenge they present to liberal orthodoxies. We are heirs to a long tradition of free discussion and open dialogue; we solve our problems by discussing them and attempting to discover their causes and cures. The many institutions devoted to free discussion that we have built over time represent an important accumulation of social capital. Universities, newspapers, academic journals, House and Senate committees—all these are invaluable assets in which we have distilled the precious habit of free opinion, in order to invest our thinking in the collective process of social and political reform. For a variety of reasons, however, it can no longer be assumed that a university will permit the free discussion of those questions that are most in need of a solution. Academic leaders have been driven to resign following remarks that, although true, ran contrary to feminist orthodoxy or political correctness, and these cases illustrate the enormous cultural shift that has occurred in American universities. Where once there was a culture of free inquiry, there is now a culture of radical indoctrination. Integrity and educational vision have taken a backseat to ideology. In this and similar ways, the accumulated capital of scholarship goes to waste. This capital can be squandered and, in time, lost.

Of course, the truth has a way of making itself known, even in times when there is a penalty for expressing it. Still, we should not be complacent. We should recognize that much of our social capital in Western societies is being squandered and that we need a far better understanding of its value if we are to invest it as we should. Nor should we ignore the reason for this waste of vital resources. The left-liberal orthodoxies of the universities and the welfare culture both belong to the same anticapitalist frame of mind that sees success in business as a proof of “greed,” which imagines wealth creation to be a zero-sum game, and which blames capitalism and the free economy for the plight of the world’s impoverished nations and marginalized groups. These attitudes are, I believe, profoundly mistaken. But they are so widespread, and so immune to refutation among those infected by them, that we shall need to explain just why they have arisen and why they persist.

Wise investment means responsible investment, with social capital just as much as monetary capital. And investment is responsible only if someone is accountable for it, in the way that a board of directors is accountable to its shareholders, or an elected politician to his constituents. Too much social capital now passes through the hands of unaccountable bureaucrats. Those who run our state education system can evade all penalties for the loss of knowledge as the curriculum is degraded and dumbed down, for the loss of moral standards as sex education is diverted from its true goal of teaching restraint to the false goal of teaching options, and for the loss of manners and discipline in the young, who need these things every bit as much as their parents needed them, but who are being deprived of the legacy from which a successful life in society can begin.

In short, social capital is like economic capital in that it is easier to lose than to gain, and easier to spend on instant gratification than on the long-term benefits for which it is designed. By thinking of our social inheritance as analogous to economic capital, we learn to safeguard and build on it, and we become wary of the ways in which it can be squandered and destroyed. And one of the most creative ways in which we build on social capital is through free enterprise, pursued as a calling.

SOCIAL CAPITAL AND THE MARKET

The free economy is not the enemy but the friend of social capital. The free economy is an accountable economy, in which the cost of risk falls on the one who takes it, and in which reward comes to those who pay their debts and who deal openly and justly with their fellows. As we know from the law of contract, actors in a free economy are duty bound to keep agreements and to compensate those whom they wrong by any breach. This is just one way in which the free economy encourages important virtues—notably honesty, accountability, and the ability to accept the cost of risk taking. Those virtues are a fundamental part of social capital. We teach them to our children, and we deplore their absence in the cheats and sneaks who hide in the crevices of the modern economy—and nowhere more than in its vast bureaucracies.

Advocates of state intervention tell another story. The market, they say, erodes human virtues by putting selfishness ahead of compassion. They view the private sector and free markets as morally corruptible, being sources of commercialism, materialism, and individualism. Since the power of a central government is needed to bend society toward their ideal, those on the left favor always increasing the power of government over the private sector, and see the distribution of economic resources through the agency of government as the way to change the direction of trade from private profit to “the spiritual self-perfection of man,” to use Isaiah Berlin’s phrase. In this way, the moral critique of the free economy leads imperceptibly and of its own accord to the advocacy of state control, which in turn means control by bureaucrats. Put another way: by despising the profit motive, we insensibly move toward a situation in which those who take the risks are controlled by others who take no risks at all, and whose costs are covered at every juncture by the all-providing state. To think of this as a moral improvement is to lose sight of the true role of morality—forming character, instilling responsibility, and thereby establishing the dignity and happiness of the person and the communities that people create and sustain.

There is another tradition that sees the free economy as an integral part of the moral life, underpinning virtues and also depending upon them. As Adam Smith made clear, the free economy that is advocated in The Wealth of Nations depends at every point on the rational sympathies that he describes so movingly in The Theory of Moral Sentiments. The idea of a conflict between the “selfish” world of free markets and the “benevolent” world of human sympathy is a myth. The two worlds flourish together and depend upon the same input of moral virtues if they are to provide their benefits. And the relation between virtue and the free economy is reciprocal. A free market depends upon honesty and accountability; it also tends to produce these virtues. People can succeed in the short term through cheating and confidence tricks, but the market soon exposes them, as it exposed the directors of Enron. Long-term success depends upon trust, and people trust only those who have shown themselves to be honest, accountable, fair dealing, and willing to accept the cost of their own risk taking.

That is why the theory of economic capital and the theory of social capital are not two theories but one. They describe two necessary inputs into the modern economy—two indispensable resources from which a healthy and prosperous economy can grow, and a healthy and prosperous community can take charge of its own future.

SPIRITUAL CAPITAL

The idea of capital accumulation and investment can be used to describe other equally important inputs into a flourishing economy. The term “human capital” first appeared in 1961 in an American Economic Review article, “Investment in Human Capital,” by a Nobel Prize–winning economist. Since then, economists have loaded much baggage onto the concept, but most agree that skills, experience, and knowledge, embodied in human beings, are a species of capital that plays an indispensable part in the generation of profit.⁸ Some add personality, appearance, reputation, and credentials to the mix.⁹ Still other management gurus equate human capital with its owners, suggesting that it consists of “skilled and educated people.”¹⁰ Human Capital: What It Is and Why People Invest It demonstrates through examples the many ways in which the skills, experience, and virtues of the employee constitute a real and profitable asset of the firm. Indeed, it has become almost trite to mention that the most important assets in both economic development and firm behavior are the human assets. The old division of the “factors of production” into land, labor, and capital now has a decidedly antiquated air. Labor has been absorbed into human capital, and land is just one among the many raw materials that this capital transforms.¹¹

But there is another application of the capital concept that is still too often overlooked, and that underpins all that people have noticed in the subtle functioning of human capital: namely spiritual capital, the subject of this book. Two Nobel laureate economists have used the term “spiritual capital” in their writings, referring to the aspect of capital that is linked to our spiritual life.¹² I aim to make the meaning more precise by showing exactly what spiritual capital amounts to in practice. For the moment we may define it as the fund of beliefs, examples, and commitments that are transmitted from generation to generation through a religious tradition, and that attach people to the transcendental source of human happiness. Let me give you two historical examples to illustrate what this means.

In 1807, after decades of diligent legislative and business persuasion, William Wilberforce, member of the British Parliament, ...