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Profits with honor.

Election-year politics and widespread anxiety about economic security have recently prompted fierce public discussion of the "social responsibilities" of business. The debate has often been dominated by caricatures of business leaders callously ordering layoffs while earning unjustifiably high pay. Some seek to define "responsibility" as an ethical obligation owed not to the owners of an enterprise, but to its "stakeholders," including employees and their families, customers, and all citizens of this country.

We have not developed a very sophisticated understanding of business as a moral calling. Many people educated in the humanities and the social sciences are uncritically anti-capitalist, and think of business as vulgar, philistine, and morally suspect. Popular culture treats big business as its favorite villain; it sees no ethical dimensions inherent in business activities.

But the business corporation is in its essence a moral institution. Within this institution it is possible to act either morally or immorally, and by its own internal logic and inherent moral drive, business requires moral conduct. Other moral obligations fall upon it through the moral and religious commitments of its members. Thus, those who labor within the business corporation have many moral responsibilities and a richly various moral agenda.

It may help to divide these responsibilities into two different sets. The second set will easily be recognized as "ethics," since the source of its authority comes from outside business--from religious conviction, moral traditions, humane principles, and human-rights commitments.

The first set consists of the moral requirements necessary for business success. These are the virtues necessary for building a good business. These are not always recognized as ethical in their own right. One way to see that they are ethical is to ask yourself what happens when they are violated. If you think earning a profit is a morally neutral rather than morally good way to acquit a responsibility, would you hold that deliberately running losses is ethical--particularly if it's with someone else's money? Too many analysts neglect a basic point: Simply to succeed in business imposes remarkable moral responsibilities.

The business corporation is not a church, not a state, not a welfare agency, not a family. A corporation is an economic association with specific and limited functions. The primary moral duty of business is to fulfill responsibilities that arise from its own nature, moral ideals inherent in business as business.

Seven Internal Responsibilities

There are at least seven such corporate responsibilities. I call these internal responsibilities, because a business must fulfill them simply for it to be a success at what it was founded to do.

1. To satisfy customers with goods and services of real value. This virtue is not so easy to practice as it seems. Some three out of five new businesses fail--perhaps because the conception their founders have concerning how to serve the customer is not sufficiently realistic, either in its conception or in its execution. Like other acts of freedom, launching a new business is in the beginning an act of faith; one has to trust one's instincts and vision, and hope that these are well enough grounded to build success. It is the customers who, in the end, decide. One set of responsibilities assumed by a business is to its customers. These responsibilities have moral content.

2. To make a reasonable return on the funds entrusted to the business corporation by its investors. It is more practical to think of this responsibility in the second place rather than in the first, where some writers place it, because only if the first is satisfied will the second be met. Milton Friedman has made the classic case for this fundamental social responsibility. I agree with him in stressing how basic it is, but would place it also in the context of other responsibilities. Friedman's classic statement is:

"The view has been gaining widespread acceptance that corporate officials and labor leaders have a 'social responsibility' that goes beyond seeing the interest of their stockholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. Similarly, the 'social responsibility' of labor leaders is to serve the interests of the members of their unions. It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, fled by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.' Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine."

Note that Friedman's own definition includes a fairly extensive range of moral responsibilities, such as maintaining open and free competition, establishing a framework for the rule of law, avoiding deception and fraud, and exemplifying fair play within the rules of the game. This is altogether no small moral agenda.

So, again, it turns out that even a narrow conception of the purposes of business includes a high level of moral performance found in only a few cultures. In most others, moral laxity and corruption of one sort or another are life.

3. To create new wealth. This is no small responsibility. If the business corporation does not meet it, who else in society will?

Probably more than a third of working Americans receive their salaries from nonprofit institutions, which themselves receive their funding from the benefactions of others. These in the end usually derive from the wealth created by business corporations. Robert Goizueta, the chairman and C.E.O. of Coca-Cola. puts this very well:

"[Given that] billions of shares of publicly-held companies are owned by foundations, universities, and the like, one should never forget the multiplier effect in the world of philanthropy, and the benefit to society, that each dollar increase in the value of those shares brings about. If a foundation owns, let's say, 50 million shares of Coca-Cola stock, for each dollar that our stock price increases, that foundation will be required to give out an additional $2.5 million."

From this new wealth, too, firms pay a return to investors (in addition to protecting their principal). From this new wealth, provision must also be made for the future, including a fund to underwrite all those failed projects that are certain to happen along the way.

If a company is not creating new wealth, it is spinning its wheels or going into debt or consuming its seed corn; such processes are self-destructive.

Finally, the steady, incremental creation of new wealth is the road to what Adam Smith called "universal opulence." He defined that as the condition in which the real wages of workers keep growing over time, until the poor live at a level that in 1776 even kings and dukes did not enjoy.

4. To create new jobs. It is better to teach a man how to fish than to give him a fish, and in the same way it is far better to generate enough jobs for all willing citizens rather than to provide government grants that keep them permanently dependent, in the condition of serfs.

The creation of opportunity is one of the great social responsibilities for which democracies fool; to business corporations, especially to new entrants into the field. The rate of small business formation is usually a very good index of the general health of society--not only its economic health but also its morale, hopefulness, and spirit of generosity toward others.

When economic horizons close down and large masses of people are unemployed, divisive and self-destructive passions such as envy, leveling, and resentment fester and multiply. In Latin America, for example, where there are nearly 110 million people 15 years old and under, cohort after cohort of youngsters enter the labor force with every year that passes, looking for employment, but with little employment to be found. In the future, surely there will be fewer agricultural workers in Latin America and perhaps even fewer working in large industrial factories. Unless there is a rapid expansion of the small-business sector, with firms employing from two or three to 100 workers it is not easy to see how economic health will come to Latin America.

You cannot create employees without creating employers. Like other societies, Latin America will have to fool; to its small-business sector for any realistic hope of liberating the poor.

Anyone who has enough imagination to generate new jobs should do so.

5. To defeat envy through generating upward mobility and putting empirical ground under the conviction that hard work and talent are fairly rewarded. The Founders of the American republic recognized that most other republics in history had failed and that the reason they failed was envy: the envy of one faction for another, one family for another, one clan for another, or of the poor toward the rich. Envy is so pervasive among the human race that in the Ten Commandments, under the name "covetousness," God forbade it seven times. If a republic is to have a long life, it must defeat envy.

The best way to do this is to generate economic growth through as many diverse industries and economic initiatives as possible, so that every family has the realistic possibility of seeing its economic condition improve within the next three or four years. Poor families do not ask for paradise, but they do want to see tangible signs of improvement over time. When such horizons are open, people do not compare their condition with that of their neighbors; rather, they compare their own position today with where they hope to be in three or four years. They give no ground to envy.

A realistic hope of a better future is essential to the poor, and this hope is made realistic only through the provision of universal chances for upward mobility. Only then can people see that hard work, goodwill, ingenuity, and talent pay off. When people lose their faith in this possibility, cynicism soon follows.

For such reasons, a dynamic economy is a necessary (although not sufficient) condition for the survival and success of democracy. If they do not see real improvement in their economic conditions, people in the formerly communist countries of Central Europe, for example, are not likely to be satisfied merely with the opportunity to vote every two years.

Businesses should avoid fomenting envy; they can do so by supplying employees with opportunities and incentives. In addition, people in business should avoid some things that are otherwise innocent in themselves. Conspicuous privilege, ostentation, and other forms of behavior, even when not necessarily wrong, typically provoke envy. Unusually large salaries or bonuses, even if justified by competition in a free and open market (since high talent of certain kinds is extremely rare), may offer demagogues fertile ground on which to scatter the seeds of envy. It is wise to take precautions against these eventualities.

6. To promote invention, ingenuity, and in general, "progress in the arts and useful sciences" (Article I, Section 8, U.S. Constitution). The root of the word "capitalism" is caput, Latin for "head": the human mind, human invention, human enterprise. Pope John Paul II puts it well: "Indeed, besides the earth, man's principal resource is man himself:" And again: "Today the decisive factor is increasingly man himself; that is, his knowledge, especially his scientific knowledge, his capacity for interrelated and compact organization, as well as his ability to perceive the needs of others, and to satisfy them." The great social matrix of such invention, discovery, and ingenuity is the business corporation.

The Constitution gives an incentive to discover new practical ideas and to bring them to the service of one's neighbors. Perhaps no other practical device in history has so revolutionized the daily conditions of life. It has brought about a higher level of the common good than any people ever experienced before.

Creativity is a cardinal virtue of business life. Firms that blunt the creative edge of their employees violate the image of God in them--and stultify themselves.

7. To diversify the interests of the republic. One of the least observed functions of the business corporation is to concretize the economic loyalties of citizens and to sort out their practical knowledge into diverse sectors of life. The interests of road builders are not those of canal builders, or of builders of railroads, or of airline companies. The sheer dynamism of economic invention makes far less probable the coalescing of a simple majority, which could act as a tyrant to minorities.

The economic interests of some citizens are, in an important sense, at cross-purposes with the economic interests of others, and this is crucial to preventing the tyranny of a majority. In cities, towns, and states, accordingly, it is wise for civic leaders to promote a healthy diversity of business interests. It is also sound practice for business leaders to urge their employees to be as entrepreneurial as possible, even if they end up going into business for themselves. Such events are signs of business as well as social health.

Seven External Responsibilities

All seven of these economic responsibilities need to be met by a nation's business corporations. All seven are crucial to the health of the state and, more important, to the health of civil society, which is the master of social reality.

But there are also other responsibilities, inherent not so much to business qua business as in the convictions of its practitioners.

Romano Guardini once wrote that you should be able to tell a Catholic even from the way he climbs a tree. he meant that the cult of the Catholic church, like that of all other great religions, is culture-forming. The liturgy is intended to inspire a distinctive style of life. To labor is to pray. Our callings in the world are intended to be, in the doing of them, ways of praying. It is not so much that we should pray as we work as that we should intend our work as a wordless prayer.

Therefore, while the business corporation has a set of inherent responsibilities, proper to itself, these do not exhaust the responsibilities of Christians or Jews or other religious believers whose vocation calls them to the business world.

Without intending to be exhaustive, and in a kind of shorthand, one might discern seven further sets of moral responsibilities proper to the business worker as Christian or Jew. (In most matters affecting business, it turns out, the biblical imperatives weighing on Jews and Christians are similar.) I have taken pains to state them in a way that shows their relevance to business and makes them analogously compelling to those who are not Jewish or Christian. In this second set of responsibilities, as in the first set, I list but seven:

1. To establish within the firm a sense of community and respect for the dignity of persons, thus shaping within the firm a culture that fosters the three cardinal virtues of business--creativity, community, and practical realism--as well as other virtues. This also means fostering respect for the standards, discipline, motivation, and teamwork that bring out the best in people, encourage their moral and intellectual growth, and help them gain a sense of high achievement and personal fulfillment.

As Ellen Marram, president of Seagram's Beverage Group, says: "While growing one's business is important, I think it's equally important to grow one's employees. Many of the people I've worked with in the past have gone on to run other divisions and companies, and I feel good about any contribution I may have made to their learning and development. It's a role I take seriously."

2. To protect the political soil of liberty. Since free business corporations are permitted to operate freely only in a minority of countries on earth, those involved in business must come to see how fragile their activities are; they can be crushed by war, revolution, tyranny, and anarchy. Most people today, like most others in history, have suffered from such devastations. Many individuals have rarely experienced the peace, stability, and institutional environment that supports the daily activities and long-term hopes of business. Some have never experienced them.

Businesses are plants that do not grow in just any soil; they depend on specific sorts of political environments. People in business therefore have a responsibility to be watchful over their political society, even as a matter of survival. It is no accident that they love liberty as ardently as any others in history and, indeed, have often been forerunners of free societies.

Since the survival of business depends on the survival of free institutions, the responsibilities of people in business include the need to build majorities well informed about the principles of the free society.

A look at the top 20 percent of American society--its elite, defined in terms of income, education, and status (professionals, managers, the self-employed)--shows that our elite is roughly divided into two parts. Call one part the "Old Elite," whose income and status depend on the expansion of the private sector, particularly the business sector. Describe as the "New Class" those who see their own income, power, and status as dependent on the expansion of the state. These two rivals vie for the allegiance of a democratic majority.

A society simultaneously democratic and capitalist benefits when these two perennial rivals are of roughly equal strength, so that the free political system and the free economic system are in healthy equilibrium. (Given the tendency of the state to amass power and even coercive force, however, a society is probably closer to healthy equilibrium when at least a slight majority favors economic liberty.)

Businesses should encourage their employees, retirees, and shareholders to take political ideas and policy issues seriously, to participate in electoral campaigns, and to vote.

3. To exemplify respect for law. Business cannot survive without the rule of law. Long-term contracts depend for their fulfillment on respect for law. In America, we often take the rule of law for granted and barely appreciate how fragile it may be. Hardly any other institution is so much at risk as the business corporation, and hardly any is so dependent on the reliability, speed, and efficiency of the daily operation of the rule of law. Thus it is doubly scandalous for people in business to break the law. It is wrong in itself, and it is also suicidal, since to the extent that the law falls into disrespect, the life of corporations is rendered insecure, if not impossible.

4. Social justice. Friedrich Hayek pointed out that as most people use it, the term social justice is incoherent. They say they are talking about a "virtue" (a characteristic habit of a person), but then they describe a condition of society, for which no one person is responsible. By contrast, the virtue of social justice is a virtue highly important to business, in this way: Business is a crucial (perhaps the crucial) institution of civil society. Civil society (and business, too,) depends on the rule of law, on the one side, and on a potent set of moral and cultural institutions, on the other. For its own well-being and survival, business therefore depends on its personnel being active in civil society: in politics, the law, churches, the arts, charitable works, and other civic activities. That is why, businesses typically encourage their employees to practice social action, to volunteer for civic activities, and to be good citizens in the local community.

The essence of social justice is to look with the eyes of justice ("give to each his due") at the present condition of society; to reflect with others about what needs to be done to improve things; and to act with others in practical, effective ways to move toward that goal. In this sense, social justice has two aspects. First, it is a habit (disposition, inclination) inherent in individual persons, and thus truly the virtue of social justice. Second, its social character is shown in two ways: Its aim is to improve some aspect of society, and its characteristic form of action is to organize others, or at least to work jointly with others, toward that aim. In both respects, this virtue carries the self into involvement with others for the sake of the human city and is thus truly social justice.

Hayek himself was a great practitioner of this virtue. He dedicated himself to developing sound realistic ideas concerning the constitutions of the good society. He started many organizations designed to improve society both by advancing sound ideals for society and by urging practical steps in the direction of those ideals.

It goes without saying that the first focus of employees and managers of a business might be how to make their company more humane ("Give each his due" as creator, person of dignity, and vital member of the corporate community). Like other forms of justice and love, social justice begins at home. Yet its ultimate focus is on the whole of the human city: a civilization based on freedom, justice, and mutual respect.

5. To communicate often and fully with their investors, shareholders, pensioners, customers, and employees. A business firm represents ever-widening circles of people, and part of its civic responsibility (and much to its long-term advantage) is to keep all of them informed about its purposes, needs, risks, dangers, and opportunities. In a democratic society, the corporation needs the support of a great many citizens and is of itself--especially against the omnivorous administrative state of the late 20th century--exceedingly fragile.

This responsibility rests particularly on people of business in nondemocratic or newly democratic lands. In South Korea, Chile, Poland, the Czech Republic, and many other lands, it is crucial for business leaders not to neglect their responsibilities toward democracy. The same is true for American firms overseas.

6. To contribute to making its own habitat, the surrounding society, a better place. It is much to the advantage of the business firm that the republican experiment in self-government succeed. And this project of self-government requires an active private sector as an alternative to the state. The business firm therefore has a responsibility to become a leader in civil society. To this end, it should contribute to the good fortune of other mediating structures in the private sector, whether in areas such as education and the arts, healthful activities for youth, the environment, care for the elderly, new initiatives to meet the needs of the homeless and the poor, and other such activities. The business corporation cannot take primary responsibility in this area; it is not, in itself, a welfare organization. Nevertheless, it does well to nurture the networks of civil society and to strengthen those of its allies who provide an alternative to government.

During 1994, some 89 million U.S. citizens over the age of 18 dedicated an average of 4.5 hours per week to voluntary activity in such projects as these. It is a responsibility that business owes to the project of self-government-citizens doing for themselves, not relying on government--to encourage their own constituencies to participate in civil life.

Government is not the enemy of business or of citizens. On the other hand, historically it has been a fertile source of tyranny, corruption, the abuse of rights, and plain arrogance of power. The alternative to excessive reliance on the state is self-government: sustained and systematic voluntary activities. This capacity for self-government is precisely what "the republican experiment" of the United States is testing: Can it take the pressure--or must the nation relapse, like others, into statism?

7. To protect the moral ecology of freedom. In many countries, the media (especially television) are paid for and controlled by government. In fully free societies, commercial sponsors pay for television time. Although l am reluctant to propose that they should control (have a censor's power over) program content, such sponsors do control their own advertising--and they also have responsibility for the content their advertising budgets pay for. Most executives, it appears, have not accepted responsibility for the ecology of the television environment.

A visitor from a distant continent who looked at American television for a week might be amazed by its kaleidoscope of images, narratives, symbols, and assumptions about the nature of reality. These would also have shocked our great-grandparents; they often enough shock us.

One striking feature of advertising as well as of the surrounding prime-time and afternoon shows is their irreligiousness, their worldliness, their lack of any sense of eternal life. This aspect of television is far out of accord with the history of American culture. Recall the unself-conscious piety found in Civil War letters. It is also remarkably out of touch with the religious lives of most Americans today, who, when tragedy strikes, as well as success (football players kneeling down to express gratitude after completing a great play), turn first to God. The commercials--particularly the beer, automobile, and fragrance commercials--share in this aggressive worldliness (this virtual anti-religiousness) as much as the programs they accompany.

Yet this characteristic worldliness is tame compared to the aggressive, animal-like sexuality and brutal violence that form the lure of television's excitement and innuendo. By their products, the creators of the television world would seem to do their work with a constant leer. Naturally, the public is susceptible to this constant appeal to their prurient interests. It assaults us in our own homes. it is amiable, it is free, and part of our nature does respond to it--the least noble, most beastly part of our nature. We often consent to it even when cheapened by it. "Giving the public what it wants" is here no boasting matter. It is, in fact, a form of prostitution.

Even in announcing his retirement from the U.S. Senate, the sober and prudent Sam Nunn could not forebear issuing a stark challenge to corporate executives:

"Too many parents who are struggling to provide their children with basic needs have no way to protect them from street violence and drugs. If America is to remain the greatest country on earth, our children must come first.... Too many executives are spending too many corporate dollars paying for television programs that bombard our homes with sex and violence--not thinking or caring about the effect of this bombardment on our children and our nation's future.

"Too many of us as citizens sit by passively while this bombardment takes place.

"We are reaping the harvest from this combination of conditions in soaring rates of child abuse, drug abuse, teenage pregnancies, abortions, and unprecedented levels of crime and violence."

In the past, corporate executives thought their role in advertising and sponsorship to be quite limited. In fact, however, it is far more extensive than they thought. They are rightly being blamed for the ethos reflected through the television sets in the nation's homes.

It is shocking, for example, that in Dallas, the television series with the largest global audience during the 1980s, the most murderous, lying, double-dealing, cheating, wife-swapping cads on the show are usually businessmen, and that this slander on the business community has been produced and paid for by business sponsors. Businessmen are the first minority not only to allow their moral reputation to be systematically dragged through the mud every night but also to pay for the privilege.

A Moral institution

All around the world, the major existing threat to free markets and democracy at the end of the 20th century springs from the systematic corruption of popular culture. Systemic moral decline undermines the capacity of peoples for self-government. This is why business is a morally serious calling and why women and men of virtue are needed to fulfill it.

Both democracy and capitalism depend on certain specific virtues, such as creativity, building community (civic spirit), and practical realism. Both regimes (political and economic) disdain the passivity imposed by socialism; both call forth spirited action. They depend on self starters with a strong sense of personal responsibility and civic cooperation.

The private business corporation, then, is a necessary (but not sufficient) condition for the success of democracy. This insight is one of the crowning achievements of this nation's Founders. They reasoned that democracy would be safer if built upon the commercial and industrial classes than if built upon the military, aristocratic, priestly, or landed classes. Corporate executives have grave responsibilities: They ought, for example, to supervise their advertising departments far more rigorously than they now do, discerning whether their product weakens in the public mind the virtues on which the free society depends.

The most important responsibility of the woman or man of business, however, is highly personal. "What does it profit a man if he gains the whole world and suffers the loss of his soul?" (Mark 8:36) The first concern of ethical reflection is how one's actions affect one's own soul.

Long ago, Aristotle pointed out that the proper focus of ethical reflection falls upon those actions that change our own nature--that establish in us a "second nature." Ethics itself is a calling: It calls us to change our way of life for the long term. It means grounding ourselves in new habits. It means building--slowly, patiently, deeply--our own character.

The business corporation has many responsibilities to the moral ecology of our nation, and especially to the culture of virtue. Traditional virtues--sustained by people of business in their private and public lives--are the muscles, ligaments, and sinews of the free society. Cut them, and you have paralyzed liberty.

Michael Novak, the 1994 laureate of the Templeton Prize for Progress in Religion, holds the George Jewett chair in Religion and Public Policy at the American Enterprise Institute. This article is excerpted from Business as a Calling: Work and the Examined Life[c] 1996 by Michael Novak. Reprinted by permission of the Free Press, an imprint of Simon & Schuster, Inc.
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Author:Novak, Michael
Publication:Policy Review
Date:May 1, 1996
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