The Paradox of Business Ethics

By Zsolnai, Laszlo | European Business Forum, Spring 2003 | Go to article overview

The Paradox of Business Ethics


Zsolnai, Laszlo, European Business Forum


Business ethics is often seen by theorists and practitioners as an instrument for improving the functioning of a corporation, something introduced to add value to business like any other 'tool'. A new book combining the contributions of 15 authors from ten European countries--inspired by the 'Inter-faculty Group in Business Ethics' of the Community of European Management Schools (CEMS)--sets out a sharply different perspective. Here its editor summarises the variety of views and lays down an agenda for corporate action and public policy reform.

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Ethics is fundamental to, and relevant at, all levels of economic activity--from the individual and the organisational to the societal and the global. Yet there is a paradox in the proposition that higher standards of behaviour in today's world will automatically lead to higher profits and better performance. If the objective of top executives is merely to use ethics to achieve greater efficiency their efforts will ultimately fail.

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Contributors to our recently published Handbook of Business Ethics (see box) see economic actions as jointly determined by economic agents and the context in which they are functioning. Agents and context evolve together, so those who want to change the ethical basis of economic actions need to target both the ethical makeup of the agents and the rules and regulations of the context in which they are operating.

Superficially motivated business ethics initiatives--rightly called 'window dressing'--often prove counter-productive. They are perceived as cheating by the stakeholders who will react accordingly. Sometimes no ethics at all is better than opportunistic actions.

The ideas in the book--summarised in this article--present a consciously European perspective on the topic which seeks to steer clear of Euro-centrism. The European approach, after all, is about respect for 'otherness' and a willingness to enter into dialogue with non-European values and cultures.

The paradoxical nature of ethics management has already been acknowledged by ethicists and economists. "By creating new regulations to temper opportunistic behaviour within and between organisations, we may temper the symptoms but often reinforce the underlying roots of opportunism," wrote Philosopher Luk Bouckaert of the Catholic University of Leuven. "We introduce economic incentives in terms of benefits, premiums or tax relief for those who respect the new regulations but at the same time, by doing this we substitute moral feelings for economic calculations ... Preaching moral concepts such as trust, responsibility or democracy on the basis of calculative self-interest or as conditions of systemic functionality is not wrong but very ambiguous. Hence, it opens the door for suspicion and distrust because calculations and systemic conditions can easily change or be manipulated. When the fox preaches, guard your geese."

Economist Bruno Frey of the University of Zurich discovered the so-called 'crowding-out effect', a closely related phenomenon. Empirical and experimental evidence shows that external motivation, including monetary incentives, undermine the intrinsic motivation of people and is therefore likely to decrease the quality of service or output.

Peter Ulrich argues in his chapter Ethics and Economics, that business ethics is more than 'applied ethics'. The primary task of an 'integrative' business ethics is to reflect on the form of economic reasoning--it is the critique of economic reason. The history of economic thought reveals the 'emancipation' of economic rationality from moral philosophy, a process that mirrors the historical process of the 'great transformation' described by Karl Polanyi, through which the economy has become disembedded from its social, environmental and cultural context. Today, the consequences of this represent a growing threat. In such a situation, business ethics may fill the gap left open by the reduction of the classical political economy to 'pure' economics. …

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