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NZ Herald, 23 June 1999
 

Professor Barry ("Ignorance, misunderstanding drive business ethics moralism") appears to ignore the major changes occurring in thinking and practice throughout the Western world. Senior managers and directors of large corporations are embracing a form of business that no longer concentrates on the maximisation of shareholder wealth as the only reason for business.

When such multinational giants as General Motors, BP Shell and IBM adopt a radical new way of approaching business one has to take note - likewise when such an august institution as the British Institute of Directors does a rethink on business social responsibility.

Organisations such as Business in the Community, Social Venture Network, Businesses for Social Responsibility, Environmental Business Network, the Natural Step and the Business Council for Sustainable Development are being formed, not by academics and not by anti-capitalist elements, but by practising business people.

Since the Milton Friedman days of the 1960s we have moved extremely rapidly from a shortage of labour and an abundance of resources to a world-wide surplus of labour and a shortage of resources.

It has been calculated that we would need three globes to provide the physical resources to give everyone the same standard of living as Americans have now. The Barry model of business would have us use these resources in the pursuit of profit, regardless of the scarcity for future generations. It is not possible to agree with him that "the solution to many environmental problems is a clear definition of property rights."

Central to the argument for social responsibility is the concept of stakeholder. Professor Barry appears to misstate stakeholder theory. It is not company directors and managers handing control to the competing demands of stakeholders. Rather; it is the realisation that managers have moral and ethical responsibilities to all stakeholders in a business and that the shareholders are not the only stakeholder.

The theory is that shareholders are investors, not owners, and this redefinition removes some of the arrogance from the concept of ownership.

Professor Barry is also concerned about the new business ethics and morality. Again he appears not to realise the changes that have occurred. Large corporations can now easily span the world, moving money, resources and goods from country to country at will. This may be a good thing. However; many corporations are now considerably larger than the governments of sovereign countries, particularly of small countries. Bill Gates is wealthier than New Zealand.

These corporations do not have the transparency or accountability of democratic governments. Without a sense of morality and ethics, they can disadvantage large sections of the world to benefit their shareholders. Some of the management excesses associated with these corporations suggest that sometimes they are not even fully accountable to shareholders.

Professor Barry argues that companies are not obliged to have ethical standards beyond those of the average person. Yet corporations are groups of people collectively able to produce goods and services that could not be produced by an individual.

If companies can produce goods and services more efficiently than the individual then surely it is not unreasonable to argue that they should have standards of morality and ethics above those of the individual. Collective standards of ethics and morality should be more robust than those of an individual.

Professor Barry appears to have no understanding that ethical and moral standards in the business world and in the community at large are linked. Senior business people are leaders and behaviour models whether they like it or not. If business leaders push the limits in environmental, tax, social or other matters, individuals will tend to do so too.

Increasing numbers of business people appear to be finding that by embracing stakeholder theory they are enhancing shareholder wealth. Pressure to take a moral position is not seen as blackmail, as suggested by Professor Barry, but rather as a business opportunity.

Social responsibility to staff does wonders for the workplace. Social responsibility in the environment can often produce dramatic savings. Social and environmental responsibility is being given the thumbs up by consumers. There is growing realisation of a business paradox - if corporate managers take their eye off profit maximisation as the only reason for their existence, then long term they tend to be more profitable and stable. Companies such as Johnson & Johnson clearly demonstrate that.

Social responsibility and sustainable business practice are, of course, no guarantees of success. Socially responsible companies fall if management practices are not sound. It is facetious to suggest, as Roger Kerr did recently, that the problems of Levi Strauss Ltd are a result of its social responsibility. A combination of good business practice with social responsibility and sustainable business practice will give advantages not only to shareholders but to other stakeholders.

Professor Barry's model of business may be correct in theory but it is obvious that it is not working in practice and is not sustainable. There is evidence that socially responsible and sustainable business is working in practice - it just has yet to be proved in theory.
 

letters

NZ Herald, 23 June 1999
 

The market economy and business are undergoing perhaps their most complex challenge of the post-war period.

Unlike traditional Marxist attacks on capitalism, the current anti-capitalist rhetoric has a new plausibility precisely because it emanates from sources that are nominally predisposed towards the market economy.

Important among these critics is a new business ethics movement. This is a trend of opinion that does not aim at the overthrow of capitalism but seeks to evaluate it by reference to a morality that is not specifically related to business. This movement has to do with the promotion of wider social ideals derived from ethics, religion and social philosophy.

According to its adherents, free and lawful exchange is insufficient to guarantee the acceptability of the enterprise culture. Instead, business must be subjected to the whole array of western ethical and political philosophy and evaluated by concepts which have little to do with business enterprise.

Businesses are now expected to surpass ordinary morality - honesty, promise-keeping, respect for private property and concern for family and friends - and adopt new responsibilities.

The new critics argue that business is especially privileged and therefore has an obligation to act for the community even when this involves a sacrifice of profit, to promote equality in the workplace, take special care of the environment and satisfy many other prescriptions of non-compulsory ethics.

Anglo-American capitalism, as practised in New Zealand, scores poorly with business ethics moralists because of its apparently remorseless individualism and exclusive profit motivation. By contrast, Japanese, Asian and certain types of European market orders are praised because the business ethics position argues that these systems restrain greed and self-interest.

However; too many critics of Anglo American capitalism are ill-informed about the workings of the system and are ignorant of both the economic and moral fallings of its rivals.

New Zealand's success in enacting free-market reforms in the past 15 years has provoked considerable opposition and much of this has given the business ethics movement added force.

Allegedly, New Zealand's reputation for honesty, trust and compassion has been compromised in the rush towards markets and individualism.

Some of these criticisms seem gratuitous since, by any established moral standards, New Zealand business and political life appears to be characterised by a remarkable honesty and probity.

In its criticism of the market economy, the business ethics movement has focused on corporations, stakeholder theory, the stock market, take-overs and the environment.

Proponents argue that the corporation has privileges that oblige it to act in non-profitable ways and promote ends that might properly be thought to lie in the province of law and government. However; the managements of corporations are under strict fiduciary duties to advance the interests of their owners, who are normally shareholders.

Business ethics moralists also argue that stakeholders - individuals who are not normally shareholders but are closely connected to the corporation - should have decision rights over some corporate activities. However; stakeholders have no coherent voice and are sectional and competing groups. Few people would invest in a fully-fledged stakeholder company, because ownership rights in it would be seriously diminished.

The stock market has also come under moral criticism from business ethics supporters because large profits can be made in it and it is said that insider dealing creates opportunities for fraud and deception. A better solution to the problem of insider dealing would be to make permission to trade in the company's shares a matter of contract with its employees.

Takeovers have been criticised as a technique used to discipline management in an environment characterised by lack of trust. However; the right to sell one's shares to the highest bidder has generated great flexibility and adaptability. There is no uncontroversial concept of the "common good" that can be used to validate excessive restrictions on takeovers. In fact, most of the immorality stems from self-serving managements using unacceptable methods to resist so-called corporate raiders.

Business ethics moralists have accused Anglo-American capitalism of despoiling the environment and depleting scarce natural resources. The sensible environmental debate, however, is economic rather than ethical. Problems occur where no one economic agent has an incentive to preserve goods which are consumed by everyone. The solution to many environmental problems is a clear definition of property rights that will provide the necessary incentives to preserve clean natural resources.

There is no necessary contradiction between commerce and morality. Yet many writers on business ethics assume that commerce has to be "tamed" by morality. It cannot be supposed that business is any less moral than other human activities just because the lure of private advantage is involved.

All forms of capitalism rely heavily on a generic moral code: respect for justly acquired property, sanctity of contract, the objective verdict of the market, individual rights, and predictable, non-retrospective laws.

Participants in the market economy should not be required to go beyond these constraints, although if they do so voluntarily that action may be worthy of respect. There is little respect to be gained where such actions result from the moral pressure, if not blackmail, that the business ethics movement so often seeks to impose.
 

Norman Barry is professor of politics at the University of Buckingham in Britain. His book, Anglo-American Capitalism and the Ethics of Business, was published last week by the New Zealand Business Roundtable.
 

Dick Hubbard's response
 

NZ Herald [letters], 28 June 1999

It is unclear from Norman Barry's article on business ethics where he gets the idea that the business ethics movement employs either moral pressure or blackmail to persuade capitalism to "clean up its act."

We are founder members of the Environment Business Network and Business for Social Responsibility in New Zealand. Never at any of these gatherings have we heard or taken part in such a discussion. It's not necessary. Sustainable business means sustainable profits in a world of diminishing resources.

We set up a business here five years ago based on principles of business ethics. There is, as Dick Hubbard points out in his reply, a triple bottom line to our success: sound business practice, social responsibility and environmental responsibility. It is a highly successful formula in both attracting new customers and maintaining their loyalty.

With a fast-growing data base of more than 10,000 active customers who buy clean, green Kiwi products from us, our experience is that a great many New Zealanders prefer to put their wealth where their future is and where the futures of their children are. This is an active choice on their part. Our business is so successful that we don't have to browbeat anybody.

If Professor Barry looks at the United States performance indicator tables he will quickly see what many large corporations have sussed. Ethics are good for business, good for profits and good for people.
 

Malcolm Rands, Melanie Rands,
Founders of the Eco Store, Ponsonby.
 

Professor Norman Barry and Dick Hubbard skin the same poor old dog. Professor Barry pronounces as a generic moral code the respect for justly acquired property when any ordinary person knows full well that there might just be the possibility that property can never be acquired at all, justly or unjustly, and that those who do, do it at the expense of those who do not (and mostly cannot, even if they wanted to).

Professor Barry's brutal dictum is that property and business owners (of capital) have no more or less moral and ethical responsibilities than those who own very little or nothing at all. In other words, there must be absolute respect for the thief and absolutely no respect for those who suggest that all property be returned as public property - and as such abolish the very idea of property.

Mr Hubbard only adds the charitable twist that an outward protestation of social responsibility by business people will make both workers and consumers happy, hence business will be more profitable. This strategy has long been recognised, by analysts such as Noam Chomsky, as "manufacturing consent"

Professor Barry's uncompromising dogma is tempered by Mr Hubbard's charitable thoughts: the out come is ultimately the same where a small class of large property owners make life a misery for all those below them, and at the bottom of the heap, charity is increasingly the only relief offered. A bowl of free cereal perhaps?