The profitability of business ethics

While many proponents of business ethics claim they are good for business, critics remain skeptical and demand to statistical data to substantiate such claims. Today’s consumer-based free market economy necessitates a quantifiable economic value be placed on goods and services in order that the efficient utilization of resources results in the creation of wealth. The quantification of data is not restricted to economics: it has become an integral component accompanying the growth of the social sciences during the last two centuries.

To thrive in contemporary society an individual must become proficient at – what Aristotle to referred to as – intellectual virtues. Intuitive reason, technical knowledge and practical wisdom are intellectual virtues that provide a guideline for making important quantitative decisions in our lives.

For example, the financial advisor must possess advanced technical knowledge about matters of finance, accounting, taxation and marketing, while at the same time apply intuitive reason and practical wisdom to the craft of investing clients savings appropriately. It is through the application of these intellectual virtues that we endeavor to enhance our material well-being. Efficiency and effectiveness are required in the pursuit of external goods – both of which are easily quantifiable in our technological and scientific based society.

However, intellectual virtue has a counterpart: moral virtue. The moral virtues are states of character formed by basing our actions upon the mean between extremes of excess and deficiency. Whereas intellectual virtue is acquired through teaching, moral virtues can only be acquired through the habituation of virtuous behavior such as exercising courage, self-control and honesty.

Moral excellence is a state of character that values accountability, responsibility and integrity. Moral virtue is the qualitative aspect of one’s life, whereas the pursuit of intellectual excellence is a quantitative pursuit. It is exceedingly difficult to accurately enumerate a person’s or corporation’s character in a manner that employs the conventional statistical metrics of the social sciences. Even the eminent Utilitarian philosopher, John Stuart Mill, conceded it was difficult to enumerate the ‘higher pleasures’ using various forms of hedonistic calculus. If some element of man’s life is not quantifiable due to the subtle nature of that particular attribute, then it seems that an explicit correlation between profitability and ethical behavior would be difficult to formulate.

While a link between profitability and morality may not be possible to establish scientifically, there is ample evidence that unethical business practices have a major problem when it comes to sustainability. Consider: Michael Milkin of junk bond fame, Bernie Ebbers of WorldCom, Ken Lay and the Enron scandal, Bernie Madoff – the list of financial malfeasance goes on and on. These examples have one thing in common: these people succumbed to the vices of excess and/or deficit.

While unethical business practices may lead to sensational growth and profitability in the short run, enterprises that are operated under a veil of opaqueness and deceit by individuals who lack virtuous moral character often crash and burn in flames of guilt and disgrace. To lead an all encompassing prosperous life balance has to be established. There must be a balance between excess and deficiency in one’s thoughts and actions and there has to be balance between the pursuit of external goals (intellectual effectiveness) and the pursuit of internal goals (moral excellence).

Over the long-term a business model that is based upon these principles is likely to have loyal and productive employees, well served contented customers and satisfied shareholders – these are the foundations of a ‘successful’ business. An ethically run business facilitates the individual pursuit of excellence while at the same time benefiting the community at large. These circumstances may be difficult to quantify but these are the very conditions that Adam Smith strived to attain in the application of his theses. Unethical businesses cannot boast of the same enviable characteristics because they have chosen to dismiss the necessity of moral excellence in business.