Tuesday, November 27, 2007

What Is Ethics? It's Not Obvious To Most.

Copyright © 2007, Barry L. Linetsky, All Rights Reserved

Ethics is the branch of philosophy that studies and defines a code of values to guide human choices and actions in the pursuit of life. It begins by asking the question as to why man needs values, defines a standard of value, and then defines a code of values or ethical principles to guide the action of individuals in pursuit of their own life.

As such, ethics is a requirement for living a successful life. To live the kind of life proper to Man, one must pursue values that support one’s life and well-being. It is the role of ethics to provide rational guidance in this realm, so that each person can achieve, fulfill and enjoy that ultimate value, that end in itself, which is his own life.

In her 1961 essay “The Objectivist Ethics,” American philosopher Ayn Rand defined ethics this way: “What is morality or ethics? It is a code of values to guide man’s choices and actions – the choices and actions that determine the purpose and course of his life. Ethics, as a science, deals with discovering and defining such a code.”

For Rand, it was the role of philosophers to define and rationally defend such a code. The validity of a code of ethics was, for her, a matter of life and death not only for individual people, but for mankind as a species. She was irate at the failure of philosophers in this regard, and made it her mission to challenge the lethargy and status quo of academia.

Ethics has been contentious through the ages, not because of a disagreement that Man requires a set of guiding principles to define good and evil and guide his choices and actions, but because leading thinkers have not agreed on what the standard of value should be. In general two choices have been offered: the standard of value is the will of god (or other metaphysical entity, real or imagined); or the standard of value is Man’s life.

It is this disagreement about the standard of good and evil, right and wrong, which leads to major disagreements in ethics. Without the ability to discuss the grounds for different viewpoints in a rational way, no acceptable peaceful resolution can be found. The wider framework for a reasoned and scientific discussion of these more fundamental issues is to be found in the discipline of Philosophy. To the extent one is committed to appeal to god rather than reason, one deals in the realm not of philosophy, but of theology. In this realm, faith, not reason, determines the standard of value.

Rand defined philosophy as the science that studies the fundamental aspects of the nature of existence, man, and of man’s relationship to existence. Unlike the natural sciences that deal with particular aspects of existence, philosophy deals with wider aspects that pertain to everything that exists. At its best, philosophy is a unifying science of understanding.

The task of philosophy, wrote Rand, “is to provide man with a comprehensive view of life. This view serves as a base, a frame of reference, for all his actions, mental or physical, psychological or existential. This view tells him the nature of the universe with which he has to deal (metaphysics); the means by which he is to deal with it, i.e., the means of acquiring knowledge (epistemology); the standards by which he is to choose his goals and values, in regard to this own life and character (ethics) – and in regard to society (politics); the means of concretizing this view is given to him by esthetics.” (From her essay “The Chickens’ Homecoming,” quoted in The Ayn Rand Lexicon, p. 359.)

Here are a couple of other definitions of ethics to set the context for further discussion.

The Shorter Oxford English Dictionary defines ethics as the “science of morals.” It defines morals as “pertaining to the distinction between right and wrong, or good and evil, in relation to actions, volitions, or character,” and “concerned with virtue and vice, or the rules of right conduct, as a subject of study.”

The Mirriam-Webster On-line Dictionary defines ethics as “a set of moral principles: a theory or system of moral values.”

An online business glossary defines ethics as: “A system of principles based on ideas of right and wrong, whether true or false; rules of practice in respect to human actions”
(Small Business Glossary, http://www.smallbusinessnotes.com/glossary/defethics.html).

Author Elaine Sternberg, in her book Just Business: Business Ethics in Action, defines ethics this way: “As commonly used, ‘ethics’ and ‘morals’ refer variously to moral codes, to the actions enjoined by them, and to the study of either or both…. When used more strictly, however, the term ‘ethics’ refers simply to a branch of philosophy, that which seeks to identify and clarify the presuppositions of human conduct having to do with good and evil.”

My view is similar to that expressed by Sternberg.

Ethics is, first and foremost, the branch of philosophy that identifies principles to guide human actions as we pursue our lives. As a branch of philosophy, ethics must adhere to the principles of the discipline, and those partaking in the subject must adhere to the basic requirements imposed by reality and reason.

As a normative science, ethics begins with observations of reality combined with logical reasoning to provide prescriptive guidance for man to achieve goals and ends appropriate to his nature as Man. In essence, it provides mankind with intellectual ammunition to help us determine, at the highest level, what’s for us and against us in our struggle with nature to live our lives successfully. That which can be shown in principle to support successful and prosperous human life is ‘the good’ and that which can be demonstrated to be harmful represents ‘evil.’ The standard of value is human life.

It should be pointed out that not everybody agrees that ethics is a normative science and that it refers to a branch of philosophy. As Sternberg indicates, there is common usage around the term “ethics” that is descriptive and non-normative. For example one could research and report on the normative practices of various groups of people or cultures and speak about their ‘ethics.’ Hence, talk of ‘business ethics’ can be both prescriptive (business leaders should behave this way) and descriptive (our survey shows that most business leaders behave this way). This latter approach is how the humanities typically approach ethics, and can be seen in areas such as anthropology, sociology, or history. This is what might be called a ‘journalistic’ approach to ethics, as differentiated from ethics proper.

Still, it is only right that if you are going to profess to be an ethicist or expert in the realm of ethics, such as business ethics, that you provide a definition of, or delineate what it is you are talking about. I don’t trust people who want to tell me what I must do to be ethical unless they can demonstrate why such action is ethical and why other actions are unethical. I want to know what the standard of value is and what ethical principles are involved. I want to assess the real world consequences of any recommended moral prescriptions. My advice to everyone is: be wary of those practitioners who provide self-serving, non-objective definitions of ethics, and who cannot demonstrate the objectivity of their prescriptive judgments. Don’t be bullied by ethical language and the desire to be perceived as ‘ethical’ in the eyes of others. Ethics is open to human knowledge and human judgment, and, if one pursues it as the science which it is, then ethical conclusions are subject to reasonable proof.

Any discussion that takes us from what is the case to what ought to be the case, if it is not merely someone’s opinion but to which we intend to give the weight of serious principled guidance in pursuit of the good, takes us into the realm of ethics and philosophy, and the full weight of these disciplines come into play.

Wednesday, November 07, 2007

What Is A Business? It's Not Obvious To Many.

Copyright © 2007, Barry L. Linetsky, All Rights Reserved

If we are going to talk about business ethics, we need to begin by understanding what business is. While it may seem intuitively obvious that everybody knows what business is, this isn’t the case. In fact, much of the controversy and confusion about business ethics takes place because business ethics advocates don't know what business is. Often what they are ranting about has very little to do with business ethics. That’s why it is important to begin at the beginning.

To get a good sense of what business is and pertains to, the dictionary is always a good place to start.

The pertinent definition of business from The Shorter OED is: “Trade, commercial transactions or engagements,” and “A commercial enterprise as a going concern.”

Commercial is defined as: engaged in commerce, trading; Of or relating to commerce or trade; Viewed as a matter of profit and loss.

Commerce is defined as: Exchange between men of the products of nature and art; buying and selling together; exchange of merchandise, especially on a large scale between different countries or districts.

Profit is defined as: The advantage or benefit of or resulting from something; The pecuniary gain in any transaction; the excess of returns over the outlay of capital.

Loss pertains to losing and to lose, and in the context of business, to spend unprofitably; to waste, get no return or result for (one’s labour or effort).

So from these definitions we may glean that business as an activity pertains to commercial trade through buying and selling as an ongoing concern to derive a profit. A business is an entity the purpose of which is to engage in this activity.

To demonstrate that there is a broad fundamental lack of understanding of what business is among the educated segments of our society, here are a couple of examples.

The first is from the University of Minnesota College Of Liberal Arts. They write in answer to the questions What is business?:

What is business?
A business can be defined as an organization that provides goods and services to others who want or need them. When many people think of business careers, they often think of jobs in large wealthy corporations. Many business-related careers, however, exist in small businesses, non-profit organizations, government agencies, and educational settings. Furthermore, you don't need a degree in business to obtain many of these positions. In short, every sector of our economy needs people with strong overall skills that can be applied to business-type careers. (http://www.class.umn.edu/business_and_cla_degrees/what_is_business.html)

The fundamental concept of business here is the provision of goods and services to others who want or need them. What is missing is any notion of commerce, trade, being an ongoing concern, and the motivation to earn a profit. Therefore, according to this concept, non-profit organizations and governments are businesses. This is an example of the error of defining a concept without reference to its essential differentiating characteristics, which for business, are commercial trade and profit seeking. It is precisely these attributes that differentiates business in kind from not-for-profits and government agencies.

Here’s another one from the U.S. Army CPI Resource Center. CPI stands for Continuous Process Improvement.

What is Business?
We define a business as any organization (commercial or government) whose aim is to satisfy a set of customer requirements and is required to deliver results and provide value to the receiving customers, organizations and/or institutions. This is obviously a simplistic view of an organization, but in order to grasp the importance of processes it is critical to understand the importance of business processes to business success. It is also important to realize that regardless of the nature of an organization (e.g., commercial, government or others) your operations and processes have to provide value to someone outside of your organization. Starting from the business's place in the world will help you understand how an organization must behave to serve its purpose and ultimately its external customers. (http://www.army.mil/ESCC/cpi/biz1.htm)

Once again, the concept of business advocated here pertains to any organization that has a purpose. The characteristics of commercial trade and profit seeking are not deemed to be essential aspects differentiating business from other forms of organizations.

These examples were the first two that I found by Googling “what is business.” Perhaps it is a coincidence that both are from organizations that are not businesses, and therefore the equivocation between “business” and “organization”. I have no grounds to speculate why they have a problem recognizing that while all businesses can be considered organizations, not all organizations can be considered businesses, nor why they wish to portray non-profit and government organizations as businesses. Whatever the reason, it stands as proof that when discussing matters of business and business ethics, it cannot be assumed that just because someone is using the word “business” that they have a proper understanding of what a business is.

If you require more evidence, go to Google and type in "define:business" for a page of definitions of business that Google has compiled from the web. Many of them are guilty of getting the definition of business wrong.

In addition to non-profits and governments, there is one other category that is commonly confused as a business but is not, namely hobbies. One organization that correctly recognized the distinction between businesses and non-businesses, was a free legal advice web site called FreeAdvice. While they draw attention to this point from a tax perspective, nonetheless the distinction is valid and worth keeping in mind:

What is a business?
A business is an activity performed for profit.
The difference between carrying on a business and a hobby is that a business has an expectation of profit, is run in a systematic, continuous and regular businesslike manner, and has ordinary commercial principles governing it (such as business and accounting records). A person who collects and sells baseball cards on a regular basis from a store is engaged in a business, while a casual collector, who will occasionally trade a card or two with friends is probably engaged in a hobby. The distinction is important for tax purposes as losses from a business are tax-deductible, while losses generated from a hobby are not. (http://business-law.freeadvice.com/business-law/profit_business.htm).

The most concise definition of business I was able to find, and which will serve as my definition in this blog, was this one from the Credit Research Foundation: "An organization engaged in producing goods and services to make a profit." (http://www.crfonline.org/orc/glossary/b.html).