Business Efficiency and Ethics

Values and Strategic Decision Making

D. Chorafas

• Editore: Palgrave Macmillan
• Anno: 2014
• ISBN:
  9781137484253
• Argomento: Business
• Categoria: Corporate Governance

Business Efficiency and Ethics presents both the theory of business efficiency and ethics, and a wealth of case studies based on practical experience. This unique perspective offers a framework for identifying this behaviour and reestablishing appropriate business behavior standards.

1

Ethical Values, Efficiency, and Effectiveness

1. Areté: Virtue Is the Foundation of Ethics

To the ancient Greek philosophers areté (virtue) meant excellence, bound with the fulfillment of purpose or function. The way of reaching one’s full potential is efficiency, and efficiency depends on the job one does and its deliverables. You cannot be efficient unless you take the trouble to learn the job and then be willing and able to deliver an honest day’s work prior to asking for compensation of your efforts.

By elaborating the concept of areté as a guideline, ancient philosophy turned its attention from physics (the natural sciences) to man’s own self. Virtue was conceptually extended to cover a person’s contribution to the society in which he was living. A basic question raised by Socrates, Plato, and Aristotle has been about the ergon, or function of man. This brought both efficiency and effectiveness in perspective (section 3).

• The emphasis on ergon promoted “virtue in the large,” defining a person’s place in society and his contribution to it.

• By contrast, the current meaning is “virtue in the small,” limited to a person’s behavior and his observance of laws and unwritten rules.

“Virtue in the small” is ethics, a moral philosophy recommending what is right in conduct within the broader context of society and the conscious or unconscious processes underpinning it. Ethics defines how one should act within a given societal setting with its laws, rules, and conventions. At the root of the word “ethics” is the Greek word ethos, which means character.

The present, which contains the roots and seeds of the future, is always loaded with the past. The link between past, present, and future is provided by virtue in the large, which is meta-ethics, addressing theoretical meaning, or moral acts, as well as the determination of truth values. Normative ethics are concerned with the practical way of elaborating a moral course of action; applied ethics focus on moral deliverables; descriptive or comparative ethics study people’s beliefs about morality and evil, good and bad, right and wrong.

An integral part of ethics is individual freedom, evidently including the liberty of thought and speech. The concept of virtue should not be used to keep thinking and speech under lock and key. Fyodor M. Dostoyevsky, the Russian author of the human soul, was opposed to the movement of his epoch (mid- to late nineteenth century) that professed that social events and developments could be programmed or reprogrammed. In Dostoyevsky’s opinion there existed no recipe for the creation of “the new man”—the way socialism and communism professed.

The basis of ethics is individual freedom, Dostoyevsky said.¹ His thesis takes the wind out of normative ethics, which is the study of ethical action. The purpose of normative ethics is to investigate the questions arising when contemplating how one ought to act according to prevailing morality. It examines standards for right and wrong actions, while meta-ethics studies the metaphysics of moral facts.

Normative ethics is also distinct from descriptive ethics, which is an empirical investigation of people’s moral beliefs, hence rather prescriptive than descriptive. By contrast, a process known as moral realism looks at moral facts in a hybrid descriptive and prescriptive way, its downside being the admission of constraints and taboos that inhibit the continuous advance of culture and restrain its impact on civilization.

Normative ethics should neither be too soft to sustain social culture, nor too rigid to swamp free expression. Ideally, normative ethics should dictate the principles of truth and of transparency.

Truth is the best policy. But many people, and not only those in high places, do not like to admit the truth that they say violates the central tenet of political and financial life. Instead, they advise avoiding the use of a written and spoken language to convey a message. François Mitterrand, the late French president, believed that you get out of ambiguity at your own risk; he advised his assistants to never explain and never justify their acts.

I find it simply incredible that people get excited and sometimes aggressive when I speak my mind and tell them the truth about a bleak future, if things continue “as usual.” This they should have been able to find out by themselves. Merely embracing the status quo is not ethics, because there may be many things going the wrong way and it is silly to ignore them. The facts surrounding areté are dynamic and that’s the way to handle them. The trouble with misinterpreted areté is that we take too much for granted.

The concept of ethical behavior should not be confused with acting in line with social conventions or religious beliefs. The underlying concept is one of character (section 2). Virtue in the small is no stand-alone concept. It is an integral part of a person’s behavior and it should not be used interchangeably with “morality” whose meaning tends to change from one society to another, as well as over time, to fit a particular tradition or developing situation.

The ontology of ethics is concerned about values and stuff referred to by ethical propositions. Some philosophers believe that ethics does not need a specific ontology, but the pros insist that there must be a system to explain what kind of properties or states are relevant for ethics and also how to value things and motivate actions. In this sense the ontology is accompanied by a philosophical approach to higher-order questions about ethics.

This does not exclude the fact that people use ethical propositions as a screen for their not-so-ethical acts. A research project, reported the Daily Telegraph, has come to the conclusion that almost half of the psychologists have massaged the results of experiments to obtain a desired outcome. Nearly one out of two scientists questioned for a survey admitted having reported the only results of an experiment that supported their theory or position.

Some 43 percent of the interviewed scientists said they had decided to exclude data from one or more of their studies, while 35 percent had reported an unexpected finding as if it had been expected all along. A small 2 percent admitted actually faking their data, which is far from being an ethical practice no matter how one looks at it.²

The common ground for all the references made in the preceding paragraphs is that virtue describes the character of a person as a driving force, with an inclination toward ethical behavior. Socrates was one of the first ancient philosophers to encourage both archons (leaders) and common citizen to turn their internal attention from the outside world to their ethical condition, while insisting on the fact that areté is knowledge that cannot be taught.

• Knowledge was considered an inherently essential good, necessary for success in life.

• But self-knowledge and the assumptions we gradually make automatically, was placed higher.

A self-aware person will act using his abilities in the best possible way. By contrast an ignorant person will flounder and encounter difficulties in making up his mind. In the opinion of ancient Greek philosophers, to attain self-knowledge a virtuous person must be aware of every event and its context. Improper actions and low ethical standards are the result of ignorance.

This approach has been instrumental in correlating knowledge with virtue and with efficiency, while learning how to learn constitutes the background. Learning is, as well, the teaching of the Buddha, whose dictum has been that we should live each day as if it is the last day of our life but we should learn as if we will live forever.

Learning must overcome problems of evidence, interpretation, explanation, and assimilation. We can learn much more from failure than from success. In fact, success and failure are not absolute opposites. Not only can failure be a better teacher than success, but turning failure into success is also a sign of creativity.

A creative attitude toward failure can help to avoid a tandem of other faults and weaknesses. When, in 2006, Alan Mulally became the CEO of the ailing Ford Motor Company, one of the first things he did was to demand that his senior executives describe their failures. He then expressed astonishment at being confronted by an absence of failures revealed by this self-critical process, though in the previous year Ford had lost several billion dollars.

Success, too, must be carefully watched because its aftereffects fade fast if there is no follow-up, no matter what the reason for delays. Hardly have we built the arches of bridges and clauses of the law that time starts straining them. The efficiency side of areté requires careful watching out for stress signs, with measures taken to right the balance before the damage spreads. This is a “virtue in the large” responsibility.

2. Character Is the Main Asset of Trustworthy People

In a wide range of situations, including investments and trading, transparency is the best policy. Phil Tindall, a senior investment consultant at Towers Watson, says: “The best types of strategies are those that are more transparent, straightforward and easy to understand . . . It’s really important for (the clients) to understand the characteristics: the simpler the product, the easier it is to know what you are buying.”³

The keyword in Tindall’s quote is understanding, which is just as vital whether the situation is good or bad. Character plays a decisive role in understanding and appreciating a situation. Most of the triumphs of people faced with adverse conditions are won by the person’s character rather than his intelligence, as Siegmund G. Warburg, the banker, advised his customers, associates, and assistants, adding: “High quality people find it easier to pardon others than to pardon themselves.”⁴

As in the Ford example in section 1, the worst that can happen to any organization is auto-satisfaction, because it leads to negligence and to lack of interest in what one does. Unlike common sense, however, personal discipline and drive are not universally distributed.⁵ People are either very demanding of themselves or satisfied with themselves no matter what they are doing.

• People who question the value of their deliverables are those who contribute to progress, including their own advance.

• The real winners in life typically face great challenges and turning points; they win by concentrating on them and overcoming them.

Those who are satisfied with themselves and their condition rely on lies (to themselves) to make things sound wonderful. The worst lie politicians can nowadays say, and the common citizen repeat, is the illusion that Western countries are “rich.” They are not. An equally bad lie is to believe that it is possible to change the current depressing economic and financial situation by keeping things as they are, only giving the impression that one is favorable to change but not right now, sometime later on, which practically means never.

This shows a character that leaves much to be desired because a clear responsibility of leadership is to explain that many things that move the wrong way must adopt a new course. The reasons may be varied: The present system may be too old in its concept, hence incapable of embracing the future; too inflexible in the way it works; too costly, hence uncompetitive; or too inefficient in its methods. Alternatively, the political leadership may wrongly believe there is something to be gained from tolerating defects or from accepting what the lobbyists present as god given.

The attitude described in the preceding paragraphs is a direct negation of what Warburg said on character, and because that sort of spirit has become widespread, society is dominated by the big lie. As an example, lobbying for pharmaceutical companies in the US has reached $1.2 billion per year. Compared to this, not long ago lobbying costs were “only” $800 million.⁶ It is also interesting to note that big pharma has overtaken defense as the no 1 financier of political part...