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Business Ethics

“Primum non nocere—‘First do no harm.‘”

The first responsibility of a professional was spelled out clearly, 2,500 years ago, in the Hipprocratic oath of the Greek physician: primum non nocere, “above all, not knowingly to do harm.” No professional, be she doctor, lawyer, or manager, can promise that she will indeed do good for her client. All she can do is try. But she can promise that she will not knowingly do harm. And the client, in turn, must be able to trust the professional no knowingly to do the client harm. Otherwise he cannot trust her at all. And primum non nocere, “not knowingly to do harm,” is the basic rule of professional ethics, the basic rule of an ethics of public responsibility.

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The Ethics of Social Responsibility

What is business ethics? “It’s casuistry.”

What is business ethics? “It’s casuistry,” the historian of Western philosophy would answer. Casuistry asserted that rulers, because of their responsibility, have to strike a balance between the ordinary demands of ethics that apply to them as individuals and their social responsibility to their kingdom. But this implies that the rules that decide what is ethical for ordinary people do not apply equally, if at all, to those with social responsibility. Ethics for them is instead a cost-benefit calculation involving the demands of individual conscience and the demands of position—and that means that the rulers are exempt for the demands of ethics, if only their behavior can be argued to confer benefits on other people.

A great horror story of business ethics would, to the casuist, appear as an example of business virtue if not of unselfish business martyrdom. In the “electrical apparatus conspiracy” of the late 1950s, several high-ranking General Electric executives were sent to jail. They were found guilty of a criminal conspiracy in violation of antitrust because orders for heavy generating equipment, such as turbines, were parceled out among the three electrical apparatus manufacturers in the United States—General Electric, Westinghouse, and Allis Chalmers. The purpose of the cartel was the protection of the weakest and most dependent of the companies, Allis Chalmers. As soon as government action destroyed the cartel, Allis Chalmers had to go out of the turbine business and had to lay off several thousand people.

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What Is Business Ethics?

Business ethics assumes that for some reason the ordinary rules of ethics do not apply to business.

The fundamental axiom on which the Western tradition of ethics has always been based is: There is only one code of ethics, that of individual behavior, for prince and pauper, for rich and poor, for the mighty and the meek alike. Ethics, in the Judeo-Christian tradition, is the affirmation that all men and women are alike creatures—whether the Creator be called God, Nature, or Society. There is only one ethics, one set of rules of morality, one code, that of individual behavior in which the same rules apply to everyone alike. And this fundamental axiom business ethics denies. Business ethics, in other words, is not ethics at all, as the term has commonly been used by Western philosophers and Western theologians. Business ethics assumes that for some reason the ordinary rules of ethics do not apply to business. What is business ethics then?

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Corporate Greed and Corruption

Every boom puts crooks in at the top.

It is easy to look good in a boom. But also, every boom—and I have lived and worked through four or five—puts crooks in at the top. In January 1930, my first assignment as a young journalist was to cover the trial of the top management of what had been Europe’s biggest and proudest insurance company, who had systematically plundered their company—and so it goes after every boom. The only thing new is that the last boom considerably increased the temptation to fake the books—the exclusive emphasis on quarterly figures, the overemphasis on the stock price, the well-meant but idiotic belief that executives should have major financial stakes in the company, the stock options (which I have always considered an open invitation to mismanagement), and so on. Otherwise there’s no difference.

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Sloan on Social Responsibility

Authority without responsibility is illegitimate; but so is responsibility without authority.

“Public” responsibility was to Alfred Sloan worse than unprofessional; it was irresponsible, a usurpation of power. “We have a responsibility toward higher education,” a chief executive of a major American corporation once said at a meeting both Sloan and I attended. “Do we in business have any authority over higher education?” Sloan asked. “Should we have any?” “Of course not,” was the answer. “Then let’s not talk about ‘responsibility,'” said Sloan with asperity. “You are a senior executive in a big company and you know the first rule: authority and responsibility must be congruent and commensurate to each other. If you don’t want authority and shouldn’t have it, don’t talk about responsibility. And if you don’t want responsibility and shouldn’t have it, don’t talk about authority.”

Sloan based this on management principles. But of course it is the first lesson of political theory and political history. Authority without responsibility is illegitimate; but so is responsibility without authority. Both lead to tyranny. Sloan wanted a great deal of authority for his professional manager, and was ready to take high responsibility. But for that reason he insisted on limiting authority to the areas of professional competence, and refused to assert or admit responsibility in areas outside them.

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Social Responsibility

Good intentions are not always socially responsible.

A business that does not show a profit at least equal to its cost of capital is irresponsible; it wastes society’s resources. Economic profit performance is the base without which business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor. But economic performance is not the only responsibility of a business any more than educational performance is the only responsibility of a school or health care the only responsibility of a hospital.

Every organization must assume responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. That is social responsibility. But we also know that society will increasingly look to major organizations, for-profit and nonprofit alike, to tackle major social ills. And there we had better be watchful, because good intentions are not always socially responsible. It is irresponsible for an organization to accept—let alone to pursue—responsibilities that would impede its capacity to perform its main task and mission or to act where it has no competence.

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The Crucial Promotions

The crucial promotion is into the group from which tomorrow’s top people will have to be selected.

If a company is to obtain the needed contributions, it must reward those who make them. Decisions on people and especially its promotions affirm what an organization really believes in, really wants, really stands for. They speak louder than words and tell a clearer story than any figures.

The crucial promotion is not a person’s first—though it may be the most important one to her and to her career. Nor is it the final one into the top position; there a management must choose from a small, already preselected group. The crucial promotion is into the group from which tomorrow’s top people will have to be selected. It is the decision at the point where the pyramid in an organization narrows abruptly. Up to this point, there are in a large organization usually forty to fifty people to choose from for every vacant spot. Above it, the choice narrows to one out of three or four. Up to this point also, a person usually works in one area or function. Above it, she works in the business.

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A Good Judge of People?

“There are only people who make people decisions right… and people who make people decisions wrong and then repent at leisure.”

“I know,” Mr. Sloan continued, “you think I should be a good judge of people. Believe me, there’s no such person. There are only people who make people decisions right, and that means slowly, and people who make people decisions wrong and then repent at leisure. We do make fewer mistakes, not because we’re good judges of people but because we’re conscientious.”

Decisions on people usually provoked heated debate in the General Motors executive committee. But on one occasion the whole committee seemed to be agreed on one candidate—he had handled this crisis superbly, solved that problem beautifully, quenched yonder fire with great aplomb—when suddenly Mr. Sloan broken in. “A very impressive record your Mr. Smith has,” he said, “but do explain to me how he gets into all those crises he then so brilliantly surmounts?” Nothing more was heard of Mr. Smith. However, on occasion Mr. Sloan could also say, “You know all the things Mr. George cannot do—how come he got as far as he did? What can he do?” And when Mr. Sloan was told, he would say, “Alright, he’s not brilliant, and not fast, and looks drab. But hasn’t he always performed?” And Mr. George turned into a most successful general manager in a big division at a difficult time.

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