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[1]:

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.[2] 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[3]:

(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.[4]

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[5] 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.[6] 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.[7]  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.

---

[1] Adam Smith, Theory of Moral Sentiments. Boston: Wells and Lilly, 1817.  Volume II, p. 26

[2] Ibid., p. 65

[3] Ibid., p. 112

[4] Daniel Goleman, Emotional Intelligence: Why It Can Matter More than IQ. New York: Bantam Books, 1995.                             

[5] Alisdair MacIntyre, After Virtue: A Study in Moral Theory. Notre Dame, Ind.: University of Notre Dame Press, 1981.

[6] Chester Barnard, Functions of the Executive. Cambridge, Mass.: Harvard University Press, 1938.

[7] James G. March and Herbert Simon, Organizations.  New York: John Wiley and Sons, 1958.

Ethics and Creativity in Madmen

I teach Introduction to Management at Brooklyn College.  The distance learning software we use nowadays is called "Blackboard" (NYU, Troy State and Brooklyn College have all used it since about 10 years ago).  I just posted a discussion assignment on the course's Blackboard site for this fall's class. One of the subjects in the course is "creativity" and the question I'm raising is whether there are ethical limits to creativity.  I use AMC's TV series Madmen to raise two discussion questions. The links to the Madmen and television advertisement clips are below.

The questions I raise are as follows.

After reading chapter two and after the class discussion on creativity go to blackboard's "external links" folder "Creativity and Ethics in Madmen" (see links below). Watch the five Youtube clips in the folder. The first two are of 1950s Lucky Strike TV commercials. The third is of a 1960s Eastman Kodak camera commercial. The fourth and fifth are from the TV series Madmen. They depict the fictitious creative genius behind the fictitious Sterling Cooper advertising firm, Don Draper (note the allusion to drapes, draping, hiding, the Wizard of Oz behind the curtain). The fourth clip is of Draper creating the Lucky Strike advertising strategy. The fifth is of Draper creating the ad campaign for Eastman Kodak's carousel (a picture slide display device) which is similar to the Eastman Kodak ad shown.

(1) What are the benefits of advertising?  What arguments can be made to justify the ethical foundations of Don Draper's approach to advertising? 


(2) Are there moral limits to emotional manipulation? For example, is a government which uses patriotism to motivate loyalty despite policies which are harmful to the public ethical? Likewise, is a firm which uses love, happiness, freedom and similar virtues to motivate sales of products ethical? If so, what are the limits? If not, is it realistic to expect managers to adhere to strict ethical standards? 

(3) Elaborate on the question of whether Don Draper is ethical in using higher order emotions, happiness and familial love to sell cigarettes that he knows kill and photography supplies given the gains from advertising.
External Links

Lucky Strike ad 1: http://www.youtube.com/watch?v=SeUAhuSzSDs


Luck Strike ad 2: http://www.youtube.com/watch?v=vWj_tR64Ti4

1960s Kodak ad, “Turn around”: http://www.youtube.com/watch?v=qBWVWjdNWC0

Madmen clip: Lucky Strike: http://www.youtube.com/watch?v=C5rQF7Ofc5w

Comment: AMC's excellent Madmen series is supposed to be about the advertising business in the early 1960s, but as you can see from the above the "It's Toasted" concept was already established in the 1950s and earlier (1917 according to Wikipedia). Also, American Tobacco, founded by James Buchanan Duke (cf: Duke University), owned the Lucky Strike brand and it was not a family run operation by the 1960s (the US Supreme Court broke up American Tobacco, the Tobacco Trust, in 1911). Famed heiress Doris Duke who died in 1993 was Duke's only child.

Nevertheless, this scene gives a cool illustration of a creative process. In the episode, the hero, the brilliant and creative Don Draper (Jon Hamm), is asked to think of an ad campaign for Lucky Strike cigarettes to address the recent findings that cigarettes cause cancer. He thinks about it for weeks but cannot come up with an idea. At the beginning of the meeting with the tobacco executives, he still draws a blank. After consulting a psychologist, he is still speechless. His account exec, Pete Campbell (Vincent Kartheiser) quotes the psychologist to fill the gap (Campbell is sneaky and the implication is that he stole the research from Draper's trash can).

Just as the tobacco executives are walking out, Draper's light bulb lights: the cancer finding is a strategic opportunity to appeal to higher order needs like happiness. Lucky Strike is "toasted."

Madmen clip: Kodak carousel http://www.youtube.com/watch?v=suRDUFpsHus

The Eastman Kodak executives are interviewing ad firms to handle their new product, which they call "the wheel." You put slides in the wheel and then click to turn the wheel to the next slide. They have told Don Draper and his boss, Herman "Duck" Phillips (Mark Moses), media director Harry Crane (Rich Sommer), and art director Salvatore Romano (Bryan Batt) that their firm, Sterling Cooper, is one of four or five they are interviewing.

Draper uses his own wedding pictures, pictures of his wife Betty (January Jones), his children and himself to show that the product should be named the "carousel", not the wheel, because it is reminiscent of childhood and evokes the nostalgia of bringing up children that the "carousel" can capture--the deep feelings the consumer has for his or her own children, the nostalgia for the past and perhaps their own childhoods. "It takes us where we ache to go again. It lets us travel like child. The carousel."

Harry Crane leaves the room as he breaks into tears. The Kodak executives are speechless. Phillips confidently looks at the Eastman Kodak executives and says "Good luck at your next meeting."

Henry Sidgwick on American Moral Depravity

Henry Sidgwick was a 19th century utilitarian philosopher and classical liberal. John Rawls calls his Method of Ethics the first modern academic work on moral theory. Sidgwick's writing, unlike the German idealists, is clear. His ideas are detailed and elaborate, so reading Method of Ethics is not light, but it is well worth your time. Although Sidgwick was an accomplished classicist, I don't think he does a great job on virtue ethics and Aristotle. Toward the end of his discussion of what he calls intuitionism, that is, duty based ethics (think of the Ten Commandments or Kant's dictum of practical reason that we should act as though our action is a universal law), Sidgwick recommends two universal duty-based ethical principles that are the most convincing that I have seen. The first principle involves duty toward ourselves and amounts to a statement of the importance of deferral of gratification or neutral time preference. The second principle involves duty toward others. Sidgwick calls it the benevolence principle. The principles are as follows (pp. 381-2):

1. Hereafter as such is not to be regarded neither less nor more than now...a smaller present good is not to be preferred to a greater future good (allowing for differences of certainty).

2. The good of any one individual is of no (greater) importance, from the point of view...of the Universe, than the good of any other; unless, that is, there are special grounds for believing that more good is likely to be realised in the one case than in the other...as a rational being I am bound to aim at good generally--so far as it is attainable by my efforts--not merely a particular part of it...(so that) each one is morally bound to regard the good of any other individual as much as his own, except in so far as he judges it to be less, when impartially viewed, or less certainly knowable or attainable by him.

Upon consideration of Sidgwick's two moral principles, that we should treat the future with the same respect as the present and that we should consider the good of others as much as our own unless it is less knowable or attainable than our own, that American society is morally depraved.

The first principle, deferral of gratification or neutral time preference, has been ignored by the United States government; by Keynesian economics; by the banking system; and by the Federal Reserve bank. The reckless borrowing, spending, inflation and waste in which the American economy has engaged would, in Sidgwick's view, be unconscionable. Even more so, he would view the subsidization of house construction at the expense of alternative uses and the future and the aggressive subsidization of such waste as depraved.

As well, Sidgwick's second principle has been ignored by business executives and by the government. The closing of successfully operating plants in order to reap short term stock option rewards at employees' expense; the manipulation of earnings to induce payment of bonuses and stock; the abuse of shareholders in order to reap excessive executive compensation, using spurious claims of market demand as a rationale (spurious in part because the executives cannot point to any ability with respect to which many others do not have better endowments and scrupulously avoid measurement of potential abilities with respect to recruiting; and when their firms fail they demand subsidies from the public) all evidence depravity in the planned corporate sector.

Even worse, governmental decision making is tainted with the corruption of special interest manipulation. It is laughable today to claim that the US or state governments represent the general good.

Professor Sidgwick would likely turn in his grave were he to see the ways in which the American dream has declined. (Sidgwick, again was British, not American, but he would surely have been deeply concerned with the American example.)

Declining Integrity Hurts Small Business

Alexandra, my wife's friend from Woodstock, just mentioned that many of the small businesses in the Hudson Valley/Catskills region are dishonest. In fact, it took me ten years to rehab my house in West Shokan in the Town of Olive, and almost as long to find honest craftsmen--an honest, competent plumber who knows how to design a heating system; a responsible electrician; a sober landscaper who does the work efficiently and intelligently; a mason who shows up and does a competent job quickly; a carpenter who finishes the job; a roofer who does not allow tar to spill over the side of the roof and knows that the problems are in the corners and details; and a snow plow guy who shows up punctually when it snows. Along the way I met a builder who took almost two years to re-work my bathroom (including an extension) and disappeared when I objected to the cost's becoming four times his original estimate; a landscaper who went way over budget and called me dishonest for objecting; another landscaper who left a new septic tank sitting on my front yard for almost a year; and a mason who never finished the job.

Without going into details excessively, I learned that requesting references chases away the worst perpetrators (several of them simply disappeared when I requested references) and to get all estimates in writing.

Although construction may be the worst venue, dishonesty seems to be common now. I have seen this in northern New York (Potsdam) as well, and I do not believe it to be a regional pattern. Rather, I suspect that ethics are on the decline.

That is unfortunate. Small business can offer a lot that big business cannot: good relationships, superior service, and understanding local needs. But the lure of the quick buck blinds too many of us from the traditional path of building a reputation through fair dealing. Unfortunately, big business has contributed to this moral climate. I do not believe that a business can become big by being dishonest. But once big, businesses too often utilize their market power in questionable ways. This should open up competitive avenues for small business. But instead of seeing the opportunity in quality, too many entrepreneurs see the opportunity in emulating corporate managers in seeking the quick buck.

The Catskills never seems to develop (which incidentally is fine with me now that my house is built and I have a good list of contractors). I think one reason is the failed moral attitude whereby money and short term gain are put before integrity. Show me an honest culture and I will show you a successful one.

Walter Lippmann on Business Ethics

"The preparation of characters for all the situations in which men may find themselves is one function of a moral education. Clearly, then, it depends for its success upon the sincerity and knowledge with which the environment has been explored. For in a world falsely conceived, our own characters are falsely conceived, and we misbehave. So the moralist must choose: either he must offer a pattern of conduct for every phase of life, however distasteful some of its phases may be, or he must guarantee that his pupils will never be confronted by the situations he disapproves. Either he must abolish war, or teach people how to wage it with the greatest psychic economy; either he must abolish the economic life of man and feed him with stardust and dew, or he must investigage all the perplexities of economic life and offer patterns of conduct which are applicable in a world where no man is self-supporting. But that is just what the prevailing moral culture so generally refuses to do. In its best aspects it is diffident at the awful complications of the modern world. In its worst, it is just cowardly. Now whether the moralists study the economics and politics and psychology, or whether the social scientists educate the moralists is no great matter. Each generation will go unprepared into the modern world unless it has been taught to conceive the kind of personality it will have to be among the issues it will most likely meet."

---Walter Lippmann, Public Opinion, 1921, pp. 169-70.

Toward an Aristotelian Moral Ubermensch

In his >Mugwumps, Morals and Politics 1864-1920 Gerald McFarland writes (p. 147):

"The consequences of the progressive perspective were evident in an older Mugwump organization, the National Municipal League. Gradually, the NML shifted its goal from one of creating municipal efficiency by throwing out the rascals to creating efficient administration by working with whomever was in. As less emphasis was put on individual moral responsibility and more on malfunctioning of the system, the tone of municipal reform changed. It was a change of style that even progressively inclined Mugwumps found quite jarring."

In The Lonely Crowd David Riesman argued that the twentieth century saw an evolution from inner directedness, whereby personal goals and firm morals drive aims and values, to other directedness, where conformity, peer pressure and media opinion drive aims and values. The transition from Mugwumpery to Progressivism that occurred among some few of the Mugwumps during the first decade of the 1900s (many Mugwumps had died by then and two thirds of the Mugwumps did not adopt Progressivism or publicly adopted only one Progressive issue, according to McFarland).

The transition from inner-directedness to other-directedness may have resulted from (or at least be related to) the change in political emphasis from the late nineteenth century Mugwumps to the Progressives. The Mugwumps were largely religiously educated and mainly came from Protestant backgrounds. They had a specific moral sense, part of which involved an emphasis on individual responsibility and morality. In contrast, the shift among the Progressives to a systems approach lifted the emphasis on responsibility and morality from the individual and turned it into a political or public problem. The Progressives may have emphasized this in their educational activities, which were led by John Dewey. In other words, the shift from inner-directedness to other-directedness may be a result from the Progressives' political ideology. Their emphasis on systems may have been linked to scientific management and the idea that you can improve output through rationalization of systems. Herbert Croly discusses scientific management in Progressive Democracy.

Business schools also gained currency around this time or a bit later, and the ideas of Chester Barnard and the human relations advocates of the 1930s were reflective of the progressives' emphasis on systems as opposed to individual moral responsibility. Barnard emphasized morals heavily in his Functions of the Executive , but his interpretation of morals was entirely relativistic. He argued that executives must be morally creative to motivate workers. Such moral creativity leaves little room for moral grounding. He probably thought that public morality and public scrutiny and control systems would be sufficient to prevent deviant moral beliefs from becoming part of executives' moral creativity. But Barnard does not treat the problem adequately. Rather, he gives examples that suggest that deviant behavior, such as becoming indifferent to the death of one's parent, can be induced through moral creativity. In this, Barnard was not unlike Adolf Eichmann, the chief of the Nazis' prison camp operations. In Eichmann in Jerusalem , Hannah Arendt quotes Eichmann as saying that he is a Kantian and that the duty to obey orders was his moral imperative. This kind of moral creativity finds little inhibition once the problem of morality becomes one of moral systems rather than conscience or individual responsibility.

The management literature has addressed the problem of inhibiting moral deviance in two key ways: through control systems (financial accounting and incentive systems that reduce conflicts between agents and principals) and through organizational culture. But neither approach anticipates the possibility of sociopathic or morally deviant management, as occurred with Enron and other firms in the first decade of the 21st century.

The inclucation of moral sense is a lifelong process. Aristotle argued that the young must develop habits through their upbringing, and if such habits are not developed then they will not be able to be taught to be moral decision makers. Progressive education approaches that encourage students to discover principles for themselves may fail to encourage the habits necessary for moral decision making. Thus, Progressive education contribute to the lax morality that we have witnessed in business. But even those who have good upbringings in the first place can develop bad habits when they work. Social pressure to conform to deviant orgnaizational norms can displace the good habits a young executive learned when he was young.

Aristotle argued that moral behavior involves balancing extremes. Excessive honesty, revealing too much information, is foolish and can lead to being duped. Excessive dishonesty leads to criminality. The mean involves good faith, fair dealing and comeptent negotiation. The competent executive needs to negotiate the moral challenges with which organizations cope but needs to retain the ability to judge when compromises with his basic personal values are too great. That our education has failed to do this is evident from the case of Enron, whereby young MBA graduates bought into Enron's dishonest handling of regulatory agencies; accounting fraud; willingness to cheat investors; and similar kinds of criminality.

Progressivism and its followers, to include Chester Barnard and the advocates of modern management theory, agency theory and systems-based approaches to control, de-emphasize individual responsibility. This is erroneous, as Adolph Eichmann and Jeff Skilling proved. The unscrupulous will always find the way around systems. Not that systems can be ignored or should be, but they are not enough.

Students must learn to balance Aristotle's moral mean with Barnard's moral creativity. To do so requires a considerable degree of self-awareness and managerial skills, of the very kind that managerial skills advocates such as David Whetten and Kim Cameron have advocated. Finding the Aristotelian moral mean in a complex organization means have considerable interpersonal skill and moral awareness, both of which are too often missing.