How Business Can Be GOOD.

(And Why Being Good is Good for Business)

In a recent front-page article in The Wall Street Journal, Jacob Schlesinger wondered: "Why has the '90s so far eluded the `Decade of Greed' label that hung over the '80s?" The news was certainly full of stories of young millionaires bursting forth in record numbers due to the boon in technology stock prices. And you couldn't turn a page without seeing any number of CEO compensation packages tip in at millions of dollars in salaries and perks.

There were no cries of moral outrage, Schlesinger suggests, because in this new economy everybody's income is rising. Not only those at the top are sharing in the spoils of business, whether in the form of better returns on a 401(k) plan invested in aggressive mutual funds, or just more cash in each paycheck. But the point that people are missing, he wrote, is that even when almost everyone's income is rising, a "growing disparity in affluence can hurt the less-well off." If a middle-class family in San Francisco earns 33 percent more than the national average but faces housing prices that are quadruple the national average because young Silicon Valley millionaires have bid up the prices of homes, it's only a matter of time before someone cries foul.

I was taken aback not so much by the article's sentiment as by its source. Here was The Wall Street Journal--the archconservative voice of capitalism--drawing attention to the problems endemic to outrageous income disparities at a time when that particular cause hadn't the news cachet it held during the greed-drenched '80s.

"Business ethics," a topic that for years has been relegated to the deep interior of business publications or the fringes of business school curriculum, suddenly has status. Where the word "ethics" might once have been anathema to any corporate devotee, discussion of it is increasingly seen as not only important but also as critical to a company's success.

A SHIFT IN THINKING * The standard argument made among business people used to be that a business's responsibility was first and foremost to its shareholders. Economists Milton Friedman and Alfred Cart were chief among those propagating that once-prevailing wisdom.

In a 1970 New York Times Magazine article, Friedman wrote his now well-known argument that a business's social responsibility is to its stockholders; therefore, the main objective is to increase profits. In 1967, Cart argued that business is a game in which there are certain rules. He held that a person would set aside personal ethics and values in order to meet the needs of the corporation.

However, proponents of "virtue ethics" believe that it's wrong-headed to think that we can, or ever could, park our personal beliefs at the door when we enter the corporate world. John Morse, in the Journal of Applied Philosophy, observed that "the virtue theorist insists that any ethical decision we make is based on a set of dispositions we have acquired throughout our life. When someone acts unethically in a business transaction, this is bound to break down the good character habit that he or she has developed up to this point. The virtue theorist denies that there is an ability to separate the `business' self from the `private' self, because the actions in each realm form dispositions which apply to a person's general manner of acting."

Morse concludes that "Friedman and Carr are wrong, for they try to separate the moral ramifications of actions within a business environment from their effects on the individuals with whom business comes into contact. Business has to be seen as a moral entity which is an integral part of the community, and it must therefore be concerned about the welfare of the community within which it is situated, as well as the welfare of the individuals whom it influences."

WHAT'S ETHICAL BEHAVIOR? * Johnson & Johnson is often heralded as a company whose ethical behavior is exemplary. Looking at how this company's core beliefs affects the way it handles critical ethical decisions can help demonstrate how a clear commitment to ethical behavior in business can define how a business operates, both inside and outside its walls.

The company clearly prioritizes its responsibilities in its corporate credo: first to its customers, second to its employees, third to its management, fourth to the communities in which it operates, and fifth to its stockholders. "Business must make a sound profit," reads the credo in describing this fifth responsibility, but at Johnson & Johnson that concern comes after the rest.

In 1982 the company decided to recall 31 million bottles of Tylenol from store shelves after eight people died from cyanide-laced capsules. That recall cost Johnson & Johnson $240 million and cut its profit on $5 billion in revenues that year by almost 50 percent. The tampering was not the company's fault, but it decided to act even before it had complete information on what had happened. The product containers were redesigned and new tamper-proof packaging was introduced. Johnson & Johnson's immediate response saved the Tylenol brand and won the company rave reviews. Ironically, the move turned out to be a huge marketing coup that resulted in significant goodwill from customers.

When a class of business students was asked to comment on the ethics of the case, more than one student responded by saying that the case wasn't an example of ethical decision-making at all: The company benefited from the whole affair. Since it turned out to be a great marketing move, where was the ethical problem?

What the students failed to recognize was that we all make ethical decisions on a daily basis. Sometimes it's as simple as deciding whether or not to credit a coworker with an idea of hers that you bring up in a meeting. Other times it may be deciding just how much information you disclose to colleagues about an office rumor making the rounds.

The results of such decisions rarely have the magnitude of a Tylenol case, but they are ethical decisions nonetheless. Based on what you know of the acceptable behavior of the group you belong to, you're trying to decide on the right thing to do.

ETHOS * "The word "ethics" derives from the Greek term ethos; one of the modern definitions of ethos is "accustomed place." In the New Testament, ethos was used in the more or less classic sense of a "home place"--the place of safety, where humans and animals alike could gather at the end of the day and be protected. By extension, it came to be used as a description of the norms of behavior that provided a comparable protection to the coherence of a society.

So ethical decisions can be said to be decisions that ensure the safety of a society's sense of order and justice. But trying to determine what falls into that sense of order and justice can be difficult. The range between right and wrong can be vast. We generally recognize--or at least we hope we dry--when we're operating at the margins. We can tell when we're going well beyond what's expected in the way of right behavior. And we also know when something falls squarely into the category of questionable or wrong behavior.

What we struggle with every day is operating between the extremes. How completely right do we really need to be in our behavior?

In business, the pressures are magnified, because business owners and managers are faced with competing demands to keep a company going. Does the need to make a profit out-weigh weigh the need to reward our employees fairly? Does making payroll count more than paying vendors? Do we cut comers on manufacturing processes to keep costs down when our shortcuts might result in unsafe or polluting outcomes? Does our commitment to an employee in trouble outweigh the financial burden he places on the company?

A story told by the CEO of a $14-million computer consulting company points out how grueling and complex such decisions can be. A high-level employee failed to show up at a client's location one morning for a software installation. The employee was an alcoholic who apparently had had a relapse. In the end it cost his company half of its $200,000 fee.

The CEO received conflicting recommendations about whether to fire the employee. Some suggested giving the employee another chance and enrolling him in a rehabilitation program. Others said the only way the employee would get help would be if he were allowed to hit rock bottom. After much agonizing, the CEO decided to offer the rehabilitation program.

Everything seemed fine for about eight months after the employee finished the program. Then he failed to show up for work again. This time he cost the company about $5,000. Again, the CEO had to decide what to do. Advice he received skewed toward letting the employee go, but--after some agonizing--the CEO decided to help him again.

While the CEO may have been prolonging the alcoholic's resistance to getting sober, his decision brings to life how good people in business try to do good by the people in their world, in this case a troubled employee. "Business is easy compared to life," the CEO said when retelling the story. "We're just laymen with good hearts and crossed fingers."

Invariably people who run or manage businesses find themselves facing decisions that will clearly affect their employees' lives. Navigating through these relentless dilemmas is a day-to-day, moment-to-moment process.

FIRST, THE LAWYERS * When we talk about ethical behavior in business, too frequently we're really talking about the kind of behavior people need to avoid litigation. We put behavior policies in place so we don't get sued for sexual harassment, penalizing minority workers, or slandering poor-performing employees.

With workplace litigation exploding over the past several years--more than 24,000 wrongful termination suits were filed in 1997 alone, up from 10,000 in 1990--the actions of business people too often are driven by what will keep a cap on legal costs rather than by what we really believe is right.

When this happens, we relegate many ethical decisions to the human resources or legal departments and stop thinking about it for ourselves.

The fear of discrimination suits may be legitimate. A 1997 survey by the Society for Human Resource Management found that of 616 personnel executives who responded, 53 percent said their organizations had been sued at least once by former employees in the last five years; nearly half the 611 suits they reported revolved claims of discrimination.

Fears of litigation make even the most self-enlightened manager question his or her own judgment about employees, how to manage them, and how to be fair in the workplace. The solution is to go back to making decisions based on the merit of a candidate rather than the fear of what might happen should this candidate not work out or not like the way we manage. It may seem perilous to take such a stand, but it's the only way to break free of the management gridlock that has overtaken so many businesses.

FINDING A PLACE * The deeper challenge is not merely to get businesses or corporations to change, but to get the people who are making decisions within these organizations to change the way they think--to realize that the same care they take to behave ethically in their personal lives should drive the decisions they make in their professional lives. One of the good things about the blurring lines between our personal and professional lives is that it makes who we are and how we behave seem more connected to our beliefs and the way we interact with other people and the community at large--whether we're at work or not.

The whole concept of "business ethics" is brought more sharply into focus when we recognize that such a notion is inextricably tied to the individuals who make up that business. It is ridiculous to think that we can fob off onto others ethical decisions that must be made without having to take responsibility for our own inaction.

"Ethics is how we behave when we decide we belong together," writes Margaret Wheatley and Myron Kellner-Rogers in their book, A Simpler Way. "Daily we see this interplay of ethics and belonging in our own lives. We want to be part of an organization. We observe what is accepted or rewarded and we adapt. But these ethics are not always good. We may agree to behaviors that go against personal or societal values. Months or years later, we dislike the person we have become. Did we sacrifice some essential aspect of ourselves in order to stay with an organization? What was the price of belonging?"

At the end of the day, that's the true question: In our effort to belong, have we become the people we swore we never wanted to be?

Help with the "Tough Choices"

The body of literature on business ethics is growing rapidly. Here are some resources that treat the subject soundly without making it seem that ethical decision-making is simple.

* Defining Moments: When Managers Must Choose between Right and Right, by Joseph L. Badaracco Jr. Harvard Business School Press, 1997.

* The Stirring of Soul in the Workplace, by Alan Briskin. Berrett-Kohler, 1998.

* Built to Last: Successful Habits of Visionary Companies, by James C. Collins and Jerry I. Porras. HarperBusiness, 1994.

* Common Fire: Leading Lives of Commitment in a Complex World, by Laurent A. Parks Daloz, Cheryl H. Keen, James P. Keen, and Sharon Daloz Parks. Beacon Press, 1996.

* Management Challenges for the 21st Century, by Peter F. Drucker. HarperBusiness, 1999.

* Cannibals with Forks: The Triple Bottom Line of 21st Century Business, by John Elkington. New Society Publishers, 1998.

* How Good People Make Tough Choices: Resolving the Dilemmas of Ethical Living, by Rushworth M. Kidder. William Morrow, 1995.

* Corporate Culture and Performance, by John P. Kotter and James L. Heskett. The Free Press, 1992.

* Good Intentions Aside: A Manager's Guide to Resolving Ethical Problems, by Laura Nash. Harvard Business School Press, 1990.

* A Simpler Way, by Margaret J. Wheatley and Myron Kellner-Rogers. BerrettKohler, 1999.

Business Ethics on the Web

A growing number of Web sites focus on business ethics. Inc. Online's Ethics Corner features links to articles on business ethics for Inc. magazine www.inc.com/extra/columns/ethics. An exhaustive list of links to ethics sites on the Internet can be found at http://carbon.cudenver.edu/~jjuhasz/ethiclinks.html. Some of best sites devoted entirely to business ethics include:

* Council for Ethics in Economics www.businessethics.org

* Ethics Resource Center www.ethics.org

* Ethikos and Corporate Conduct Quarterly www.singerpubs.com/ethikos

* Institute for Business and Professional Ethics www.depaul.edu/ethics

* Institute for Global Ethics www.globalethics.org

* International Business Ethics Institute www.business-ethics.org --JLS

JEFFREY L. SEGLIN is the author of The Good, The Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart, forthcoming in March from John Wiley & Sons. He writes the monthly "Right Thing" column for the Sunday New York Times. He is a professor of magazine publishing at Emerson College and an editor-at-large for Inc. magazine.