Wednesday, January 12, 2011
New Year's Resolution: Ethics Is HR's Business
I submitted the following article to the American Institute of Certified Public Accountants' newsletter, AICPA Career Insider.
New Year's Resolution: Ethics Is HR's Business
Mitchell Langbert, Ph.D.
In the last two years several leading institutional players, to include the Society for Human Resource Management, the Business Roundtable's Institute for Corporate Ethics, and the Deloitte accounting firm have noticed that trust between firms and their employees has flagged and that trust can, or ought to be, viewed as an ethical issue. A 2009 Business Roundtable and Arthur W. Page Society survey found that the public sees a power imbalance that enables business to abuse its position. The Business Roundtable recommends renewal of public trust in business through common sense: the production of quality services; steady jobs in healthful environments; and reasonable stockholder returns. Last year, Deloitte found that of one third of Americans who plan to seek a job, 48 percent cite a loss of trust due to poor communication as a reason. Deloitte notes that lack of trust affects talent management. Moreover, competence and ethics go together. 91% of employees say that they are more likely to be ethical when they fit their jobs.
But, if we are to believe Adam Smith's Theory of Moral Sentiments, trust is, as statisticians might put it, a dependent rather than an independent variable. That is, trust depends on good ethics. It is not good ethics. As Smith argues:
Our rank and credit among our equals…depend very much upon … our character and conduct, or upon the confidence, esteem and good will which these naturally excite...
Three virtues, in Smith's view, constitute good character: prudence with respect to our dealings, justice and beneficence with respect to others. Self-command is needed to ensure that knowledge of the right thing to do is accompanied by ethical action. In these claims Smith follows the ideas of Plato, Aristotle and the Stoic philosopher Zeno, who emphasize virtue and self-restraint. Smith distinguishes between commutative justice, according to which which we do no harm to others and distributive justice, according to which we give due credit. Much as Deloitte found, Smith argued in 1759 that a good life-work fit relates to ethics:
(W)e are said to do injustice to ourselves when we appear not to give sufficient attention to any particular object of self-interest. In this last sense, what is called justice means the same thing with the exact and perfect propriety of conduct and behavior, and comprehends in it not only the offices of both commutative and distributive justice, but of every other virtue, of prudence, of fortitude, of temperance.
Smith writes in the Aristotelian tradition of virtue ethics, according to which virtues or competencies ground ethics. In Nicomachean Ethics Aristotle claims that virtues, especially prudence, self-command, courage (risk neutrality) and most of all justice need to be applied through practical wisdom and deliberation, which are similar to what Daniel Goleman has called emotional intelligence.
Virtue Ethics as Emotional Intelligence
The 18th century Enlightenment philosophies of David Hume and Immanuel Kant created a gulf between ethics and competence. Hume claims that there is no logical foundation for ethics and that ethics is pure emotion. Kant claims that ethics is based on practical reason. In the late twentieth century Alisdair MacIntyre pointed out that the attempt to absolutely ground ethics in emotion or reason through sweeping philosophical systems lead to Nietzsche's nihilism and rejection of ethics altogether. Nietzschean nihilism is reflected in the evolution of management thought through writers like Chester Barnard, who claims that morality is malleable and grounded in the executive's ability to manipulate employees' emotions. Arguably, the Nietzschean mindset has influenced fallen managers and investment bankers like Jeffrey Skilling and Ivan Boesky. It is unfortunate that the Nietzschean view has come to be associated with business and capitalism when capitalism more directly rests on the benevolent self-interest of Smith and Aristotle.
Once the gulf between emotional intelligence and practical wisdom is bridged Milton Friedman's claim that business's job is to produce a profit in opposition to corporate social responsibility falls by the wayside. It is business's job to produce a profit consistent with ethical norms, justice and benevolence. Neo-classical economic theory makes similar implicit assumptions. The equation of wage and marginal revenue product echoes Aristotle's concept of justice as proportion, and some philosophers even have controversially claimed that Aristotle was the first to enunciate marginalist economic theory. Given the free market's foundations of justice and benevolence, illegal or unethical behavior is as bad as losing money. We have seen this demonstrated again and again in government and business. The failures of Robert Moses and Robert McNamara in government were failures of competence. The failures of Long Term Capital Management and Arthur Anderson were also so.
Ethics Is a Human Resource Function
The Sophists were the first to claim that ethics is relative and can be viewed as a teachable competence. Plato argued that ethics has a natural foundation and it depends on universal Ideas. Aristotle agreed that ethics depends on natural foundations but that it needs to be applied particularly, to the appropriate circumstances, and the competencies on which it depends are subject to what March and Simon, 2,400 years later, call bounded rationality. Smith saw his ethical system as consistent with the Aristotelian view. Several Enlightenment philosophers, most importantly Kant, rejected Aristotle's emphasis on judicious contextual and particular application of virtues and argued for Platonic ethical universality. This has the unfortunate effect of banishing ethics from profit seeking because there are always exceptions to universal ethical laws. The exceptions debase ethical currency and managers adopt Nietzschean nihilism. In contrast, Smith grounded his ethics on virtue and competency and does not make universalistic claims. Smith argues that culture modifies underlying natural ethical patterns.
Human resource managers are expert in understanding and applying competencies. Job analysis is the gathering of valid information about jobs including job specifications or tasks and job criteria or competencies. In fact, the trend in job analysis has been away from emphasis on duty or task and toward competency. Yet, the classical Greek word for competency, arête, is the same as the word for virtue. Hence, in Aristotle's view (if Aristotle could have imagined a world based on technology and trade, neither of which he saw as important or even desirable beyond a small degree) human resource managers are the arbiters of virtue in the corporation. Moreover, there are universals but they are modified by circumstances. Universal rules need to be tempered with judgment and deliberation.
More to the point, justice is the fundamental competency on which all job responsibilities are based. Its application is imperfect and subject to cognitive limits on rationality. Practical deliberation and judgment are crucial to all professional and managerial jobs but without justice cooperation and coordination necessary in large firms are impossible. Hence, HR managers ought to be the advocates of justice in the corporation. For upon justice prudence, benevolence and all other competencies as we define them today depend.
 Adam Smith, Theory of Moral Sentiments. Boston: Wells and Lilly, 1817. Volume II, p. 26
 Ibid., p. 65
 Ibid., p. 112
 Daniel Goleman, Emotional Intelligence: Why It Can Matter More than IQ. New York: Bantam Books, 1995.
 Alisdair MacIntyre, After Virtue: A Study in Moral Theory. Notre Dame, Ind.: University of Notre Dame Press, 1981.
 Chester Barnard, Functions of the Executive. Cambridge, Mass.: Harvard University Press, 1938.
 James G. March and Herbert Simon, Organizations. New York: John Wiley and Sons, 1958.