Elliott Jaques Reflects on Ethics For Management

Most readers of Elliott Jaques' work on managerial systems know that like Deming and Ackoff, he looked towards the incentives and disincentives built into systems as the primary determinant of the actions of individual operating within those systems, rather than immediately looking to place blame on the individuals themselves. He was of the opinion, based on his personal experience and observations, that systems, not people, were at the root of most business problems.

He reflected on how improvements to management systems could lead to more ethical outcomes in a paper titled "Ethics For Management," published in Management Communications Quarterly, Vol. 17, No. 1, Aug 2003.

In Ethics for Management, Jaques writes that the problems of rampant unethical behavior in organizations as seen at Enron or Arthur Anderson "are a direct reflection of deep-seated and chronic problems embedded in our governance and people-management systems and practices." Such systems, he says, often undermine the requisite practices needed to promote acceptable ethical behaviors. "Dysfunction-inducing systems like these cannot be repaired by teaching ethics," he writes. "The systems themselves need drastic changes to bring them into line with ethical requirements."

Jaques proposes solutions that are inherent to the system of management he developed which he called Requisite Organization, and which include the following elements.

1. Corporate Governance, which needs to adopt mechanisms that promote a longer-term outlook on business management.

2. Appropriate vertical structuring with optimal layers "determined by  the measured size of the top executive role" as objectively measured by time-span.

3. Define accountability for each role in which managers are "accountable for the results of the work and working behavior of their immediate subordinates," because it is managers who determine the work and guide the behavior of their direct reports. When subordinates are held accountable for their own work and bonuses are used as an additional incentive, the door is opened for the active manipulation of short-term results and "the expression of corrupt practices at the top that are driven by the same systems that drive corruption at the bottom."

4. Performance appraisal and compensation systems that pay fair differentials for differences in levels of work. Pay should be related to the difficulty of the work assigned to subordinates by their managers as measured in time span. The assumption is that when people are paid appropriately for the work they do, they do not require additional incentive systems that often unsuspectingly promote unethical, dysfunctional and corrupt behavior.

5. The selection process to fill roles is often inadequate to ensure that the person selected "is the right person of the right size for the size of the role." When people are over-promoted -- assigned to do work above their level of applied capability -- the inevitable result is an undermining of accountability in the system. People who are over promoted have a tendency to "manipulate results in order to look better than they are." Using tools discovered and developed by Jaques "to measure accurately both the size and complexity of roles, as well as the size and ability of individuals to handle complexity," will, says Jaques, "without any other changes, consistently [produce] shifts in behavior towards ethically sound practices."

The failure of CEOs and managers to properly address these aspects of their management systems, writes Jaques, contribute to corrupt behaviors in organizations by creating dysfunction and the erosion of trust.

Jaques' prognosis is that CEOs and executive leaders have a tremendous impact on the ethical behavior of their people based on the types of governance and people-management practices they have in place. Leaders need to take more seriously that impact that the systems under their direct control have on the effective functioning of their organizations to serve customers, employees, and other social and economic beneficiaries in an ethical manner.

The Ethics Of Customer Service Excellence

© 2010, Barry L. Linetsky, All Rights Reserved

In a free market society, a business exists to serve its customers through voluntary trade. That’s why customer service is an ethical issue.

When a company fails to provide reasonable service, it fails its customers. When its failure is an intentional act, it commits an ethical indiscretion, a customer betrayal, perhaps even fraud.

Sometimes we come across a business that actually takes its customer service responsibilities seriously, as they properly should. Such companies should be commended for their ethical behaviour as an act of encouragement.

Within the context of today’s cultural ethos of corporate entitlement and lack of personal responsibility and respect of the individual, those businesses that make it their policy and put in place the methodology and culture to provide “wow” service should be acknowledged as heroic. They are usually rewarded with repeat business through customer loyalty and exuberant word-of-mouth praise, the most effective marketing communication methodology known to mankind.

We’ve all heard legendary service stories that are truly heroic, where an employee has gone to extraordinary lengths to serve a customer by driving a briefcase out to the airport, or making a special delivery on Christmas Eve, etc. These are wonderful and commendable events that exemplify a commitment on the part of individuals to deliver great service. But what is truly heroic from a business perspective are the achievements of staff at companies where “wow” service doesn’t appear to be heroic because it’s what they do every day. These are the companies that have recognized that their business exists to serve customers, and so they develop a culture of customer service that is integrated across the organization and through all of its systems and processes, and reflected in its policies, management, leadership, and treatment of its staff. Such an achievement is no easy task. If it were so, everyone would be doing it.

The Walt Disney Corporation is a company that exemplifies customer service excellence, at least as it relates to the management of their theme parks. Great Disney stories about “wow” service are readily abundant. They happen all the time. People return to Disney parks year-after-year because Disney creates and delivers great experiences.

Yet more than half a century after Disneyland opened in 1955, it is remarkable is that so few companies have been able to aspire to and successfully follow the Disney lead. That’s because Walt Disney came to quality and service as a basic personal value. He understood that a commitment to providing customers what they want is the only ethical way to earning profits.

In today’s nihilistic age, few executives perceive business fundamentals as an ethical imperative. Most eschew ethics in favour of pragmatism. In doing so, they put profits ahead of an integrated pursuit of business fundamentals and philosophic world outlook.

It is for this reason that as consumers we so rarely experience great service from any company, and when we do we are shocked out of our complacency of nil to low expectations to become company evangelists.

BOSE Corporation: Service Heroes

These musings about service excellence were induced by a recent experience of great service from Bose Corporation, service that made me feel that this company is as passionate about ensuring that it takes care of its customers as is Disney; that for Bose, service excellence is a matter of ethical principle, not pragmatic expedience. Bose makes high quality sound and speaker systems.

About a dozen years ago I purchased one of their LifeStyle stereo systems that included a 6 CD changer, very small cube speakers, and a big sub-woofer. I listened to it every day in my office and received great enjoyment from its high quality sound and elegant design.

One day this past November I hit the remote control to start the CD player and just like that, it wasn’t working. So I called up Bose support to see if there was a reset button or some other easy solution to my problem. Unfortunately there was not. The fellow I spoke to at their call-centre said I could send it in for repair - they have a fixed price repair policy - which would cost me about $220. Or, as an alternative, which he offered without prompting on my behalf, I could purchase any Bose system to replace it at 50% off, or I could buy their top of the line 3-2-1 Home Theater system for a price that was about one-third of the retail selling price of $1,799.

Wow, I thought, that’s some offer. That’s great service. They anticipated my needs and quickly provided some options that were of real value to me to ensure my needs were satisfied.

I decided that it was better to pay a few hundred dollars more to have a new system than to repair an old system, so I ordered the system right then on the phone, paid by credit card, and received an email containing an order confirmation and mailing label with a bar code. I was required to package up my old system, attach the mailing label, and send it back to Bose at my expense before they would send out the new one. (Too bad, I was hoping to keep those little speakers). This was a bit of a problem because I had to find a box that the oversized elongated sub-woofer would fit into. It took me a couple of weeks to find an appropriate box to package up the system. I couldn't get the speaker stands into the box, so I taped them to the side and shipped it overnight to Bose.

Three business days later my new system arrived at my office, which means they had shipped it within 24 hours of receiving my system. The paper work had all been done before hand, so I guess that when they scanned the bar code of the incoming system they released the outgoing replacement and processed my payment. I received an e-mail from the courier company with the shipping info and a tracking number so I could track the delivery online.

Where my old system played CDs, the new system also plays DVDs and includes a hard drive to store 200 hours of music, so I decided I could make better use of it at home attached to my TV than at the office.

A couple of weeks before Christmas I finally got the new system home and went to set it up. I popped open the box, and realized that I shouldn't have sent back the speaker stands because they were bought separately. Duh – Homer Simpson moment.

Now I'm thinking that I’ll have to go out to buy new speaker stands to mount the speakers on. But hold on. I began to think about how impressed I’ve been with Bose and the outstanding level of service they have provided to me already. Maybe they realized that I had sent in the stands in error and are holding them for me! Could they be that good? So I get back on the phone and call Bose.

I tell my story to the service rep – he’s in Massachusetts and I’m in Canada – and he tells me it’s unlikely that the warehouse still has the speaker stands, but he asks me to hold. About 30 seconds later he’s back on the line telling me that he's shipping new stands out to me today, gratis.

Wow, I say. That's really great.

He says Bose should have told me not to send the speaker stands.

I say, we'll you couldn't have known I had speaker stands.

He tells me it's their job to know.

The very next day the stands arrive, shipped overnight by courier! How awesome is that?

So now I'm a raving fan of Bose not only for their great products, but also for their customer service.

All through this process, from the failure of their equipment after more than ten years, to dealing with my stupidity for sending back my speaker stands, they took control of the situation, treated me with dignity, and made it impossible for me to have any reason to even consider taking my business elsewhere. They were reliable, responsible, empathetic, prompt, courteous, friendly, generous, and handled everything beyond the level I would have expected as my standard for excellent service.

As I told this story to people it was interesting to see how cynical many were. Yes, it would have cost them more to track down the old stands in some warehouse and package them up and hold them for pick-up or shipping, than it was to ship me new ones.

But they didn’t have any obligation to replace them at their expense. I was pleasantly surprised that they didn’t try to recover some of the cost by, for example, asking me to pay half, or pay for the shipping because it was my fault I sent them back in the first place. There was none of that. The service rep comes back on the phone and inquires: you have black speakers in the box, right?

Me: Affirmative.

Bose: I'm sending new stands out to you and they'll ship today.

Me: Could you send them to my home instead of my office?

Bose: Could I have your postal code.

I provide my postal code. He affirms my address. Done. Thanks for calling Bose.

That’s great customer service as service should be. That's how you win raving fans and lifelong customers!

Another person indicated that the reason Bose is able to provide such great service is because they sell a premium priced product with a significant profit margin; that they choose to use their revenue to support service.

This appears to be true. And that’s how it should be if you want to be a great company rather than a flash-in-the-pan has-been brand struggling to win new customers while being abandoned by existing customers.

All purchases come with both explicit and implied customer promises – and as a customer, you expect to receive what the company promises. But you can’t test a promise until it is time for redemption. The real test of a company’s integrity is when something goes wrong. When that happens too many companies won't even stand up for their basic promises. Too many would rather spend a lot of time, money and effort wearing you down rather than winning you over.

Consider this typical example. I once tried to exchange a garden flower box I bought to a smaller size at a very popular chain of local garden stores a number of years ago. They refused. They pointed to their posted return/exchange policy of six days! Six days – not seven days. That means if you shop on Saturday and wait until the following Saturday to return or exchange it, you have to create a scene. That’s an explicit anti-customer service policy and I’m happy to say that the company has since gone out of business. I can’t even conceive how they could have considered that to be a policy that was anything but harmful to their business and destructive to their brand. They committed customer service suicide.

It is true that you often get better service or more respect when you pay a premium price, and you should get what you pay for. But we all know that too often you still get treated poorly. It doesn’t take a degree in rocket science (and a degree in business management may be detrimental here) to recognize that if as a business you are going to aspire to brand excellence, then it has to be reflected in every policy, and show at every point of customer contact.

I assume that Bose call-center employee in Massachusetts who took a call from some foreigner who was dumb enough to send back his speaker stands with his stereo handles these kinds of calls everyday. He didn't ask for proof of purchase or even check with the Canadian distribution centre to verify that I was telling him the truth. He didn't have to open a file, collect all kinds of information from me, and get approval from his managing supervisor. The company already had a process in place to guarantee customer satisfaction before the customer called. They had a process in place so that the customer would perceive their ubiquitous service delivery as heroic.

Too few businesses understand that at the centre of brand is the customer experience. To be a great brand takes great effort – heroic effort – but when done right it wins customer loyalty and if other aspects of the business are managed appropriately, results in long-term business success. Bose did it right and made me feel good. Know that if you choose to buy Bose, great service is part of the package that you pay for.

Air Canada: Service Villains

In contrast to great service, here's what's more typical: the creation of policies and procedures by retrograde and anti-social executives that will make themselves and their employees look and feel like morons and sociopaths. Many such executives apparently have an attraction for working in the airline industry. A long time ago now, in what was likely the good old days of airline service compared to today, Air Canada bumped my wife and I off our honeymoon flight because, they said, we didn't call the airline 24 hours in advance to confirm our booking. But I have non-refundable, non-transferable tickets, I said, so choosing another flight wasn't an option. The service attendant then made a big stink about it, citing the company policy and how they have the right to bump people with non-refundable, non-transferable tickets without notifying said people, all the while holding up the rest of the customers, now anxious to find out if they too have been bumped from the flight. Finally, after conferring with higher powers, we were moved up to business class seats, and made sure that we clearly understood that these service reps were going out of their way to make an exception for us only because we were on our honeymoon, and that we ought to be grateful that they had gone the extra mile to be helpful. It’s twenty years later and I still haven’t forgiven them, and continue to look forward to reading about their ongoing troubles, even though their service may not be any worse than anyone else's in the industry. Nonetheless, their friendly and pleasant anti-customer attitude remains the same.

It is against these kinds of experiences and the low level of expectations they endeavour that I come to judge Bose, and Bose Corporation knows it and thus uses service as a lever of differentiation. Praise be to Bose, for their entertainment components and their commitment to high ethical standards of service excellence.

Ethics, Taxpayer Massacre, And The Infinite Bailout

When it comes to ethics, economics and politics, most people rely on their feelings rather than an integrated philosophy to guide their thinking, values and action. But feelings and intuitions are not a valid means of gaining knowledge about the world.

To set upon a course of action while engaging in the willful evasion of reality and reason is always to court destruction and disaster. To move forward on a path to a goal while disparaging or ignoring the identification and guidance of valid principles to help to get you there is to act on the premise that anything goes. In all areas of life, including business and politics, such pragmatism ensures that whim and corruption will rule the day.

Unfortunately this mode of thinking and operating is endemic amongst today’s self-proclaimed elite, both in business and politics. Right now in Washington, D.C., for example, as far as I can tell, when it comes to ethics, economics and politics, principled thinking has been willfully abandoned and an atmosphere of damning the facts exists. This method of operation is creating a situation rife with epistemological and moral corruption, where anything goes.

One of the biggest recent stories of governmental moral malpractice is the ongoing bailout, management and oversight of the government owned entities Fanny Mae and Freddie Mac. The WSJ’s January 4, 2010 Opinion Piece “The Biggest Losers” reports on what they have dubbed “the Treasury’s Christmas Eve taxpayers massacre.” The massacre refers to “the Treasury’s Christmas Eve…lifting of the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow.”

In essence, the U.S. Treasury Department has removed all limits on the U.S. government’s acquisition of private housing property through Fanny and Freddie. The WSJ writes:

The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: "We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury."

The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures…. Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter.

The government wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. But at least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers.

Even better for the political class, much of this is being done off the government books. The White House budget office still doesn't fully account for Fannie and Freddie's spending as federal outlays, though Washington controls the companies. Nor does it include as part of the national debt the $5 trillion in mortgages—half the market—that the companies either own or guarantee. The companies have become Washington's ultimate off-balance-sheet vehicles, the political equivalent of Citigroup's SIVs, that are being used to subsidize and nationalize mortgage finance.

While all of this looting by elected politicians of its nation’s citizens may be legal in today’s morally nihilistic world, I eagerly await an explanation by anyone - including those in the “business ethics” profession - to justify how such behaviour by some people against others is ethical. Ethical principles are ethical principles, so whatever those principles are, they must apply to all people – politicians included. Otherwise, it just isn’t ethics. The same goes for economic principles and political principles. Principles are, by their nature, objective and universal in scope.

One businessman and potential politician of note has come forward recently to proclaim his outrage – entrepreneur, author (Crash-Proof 2.0) and 2010 United States Senate candidate for Connecticut, Peter Schiff.

Mr. Schiff used the unlimited Treasury bailout commitment for Fanny and Freddie as the launching pad for a more principled economic/political argument as to why government bailouts are bad. Here is my transcription of his extemporaneous comments from his weekly webcast, Wall Street Unspun With Peter Schiff, December 30, 2009.

The way capitalism works is that when you are generating a profit, that means you are doing something right. You are combining resources in an effective way and you are generating a profit.

The profit is the market’s way of rewarding you for doing the right thing, and the companies that are making profits can expand and get bigger because they are doing the right thing. But the other way, if you do the wrong thing you lose money, you get a loss. And what happens then is that activity ceases. You can’t keep losing money forever. So that fact that you’re losing money is a sign that you’re doing something wrong.

Now obviously General Motors Acceptance - GMAC - is doing something horribly wrong because now they’ve had to be bailed out [by the U.S. Treasury Department] for a third time. But instead of letting the market put that company out of its misery, they keep perpetuating it so it can do even more damage to the US economy; they [the U.S. government] can squander even more resources. And in order to keep GMAC in business they have to take resources away from other companies that are doing it right, that would otherwise be growing and expanding and benefiting the economy. Instead they [successful companies] suffer so we can prop up these [failing] companies. The same thing is going on with Freddie and Fanny.

Every business that the government decides to bail out is a business that the economy would be better off without. It’s just enforcing all the wrong things. It’s the reverse of Darwinism and we’ve got to get our leaders to understand the capitalistic system. They’re not in the politburo there – this is the United Stated of America – and they need to understand what that means…

When [Fanny and Freddie] were initially in trouble and they bailed them out when they should have let them fail, the government said we stand behind these entities to the tune of 200 billion dollars each – we will cover the first $200 billion in losses of each company - which is a staggering amount of money. But now last week they said that isn’t even enough – we’re going to cover it all. Even if they lose $500 billion – even if they lose a trillion – the American taxpayers have got it covered. Unbelievable!

And the fact that they would even raise it shows that they know this is going to happen because there were obviously some problems in the bond market…people didn’t want to buy the Freddie and Fanny debt because they began to realize the guarantee only covered $200 billion and they could see the problem was bigger than that, so in order to get people to buy these bonds they had to guarantee everything. So despite the fact that the government is trying to tell us that the housing market is improving, the fact that they had to guarantee all their liabilities shows you that it’s not improving but that it’s getting worse.

Mr. Schiff’s ability to analyze and explain clearly and logically in economic fundamentals makes him a great teacher of economics for the educated layperson and I highly recommend you subscribe to his weekly investment podcast to gain a better understanding of economics.

The underlying causes and solution to all of these economic and political problems we face today has its roots philosophy, especially epistemology and ethics. If, as individuals, we are to promote and engage in civilized societal renewal, we must first embrace reason as our means to understanding, and then identify and define sound ethical principles to guide human action. Only then can we apply those principles to guide the other human sciences, the most important of which are economics and politics.

Abandon or neglect ethical principles and you will enable and create human misery and destruction. And it does seem that our politicians are hell-bent on creating destruction, their declarations of good intentions notwithstanding.

When it comes to politics, I’m always reminded of a line by singer/songwriter Bruce Cockburn: the trouble with normal is it always gets worse.

Copyright 2010, Barry L. Linetsky, All Rights Reserved

What Is A Stakeholder?

The word “stakeholder” has become ubiquitous in the world of business. People talk about it as if it has some definite meaning, but I’ve come to the opposite conclusion.

All legitimate concepts refer to some specific entity that can be identified in reality and can be fully integrated within the context of human knowledge. To be a legitimate concept, the thing referred to must have distinguishing characteristics of similarity and difference, with the fundamental characteristic(s) identified. If this can’t be done, then the concept is not (yet) legitimate.

Let’s try to answer the question: what is a stakeholder?

To start, businesses are funded by investors, run by employees, and organized to align resources in ways that create customers and operate at a profit. They operate in a market, which includes everybody that may be affected by the company. This latter group – everybody that may be affected by the company – is what is usually referred to as "stakeholders."

The term "stakeholder" is in practice meaningless because it pertains to everybody that has an interest in any aspect of the company including owners, lenders, employees and their families and spouses, and all people and organizations whom are affected by the activity or lack thereof of the business entity or anything associated with it. It also includes all citizens of a nation because the business pays taxes which support government redistribution and social spending. Thus, for all intents and purposes, everyone is a stakeholder of everything if they are in any way affected by the existence of that entity.

If this is true, then stakeholders are just people - members of society - the market. If you want to group them by interest, then there are stakeholder groups - a group that wants higher wages, a group that wants less noise, a group that wants lower profits, a group that wants union membership, a group that wants more recycling, a group that wants subsidized education, etc., subdivided into as many groups as there are wishes - rational or irrational, prudent or imprudent. moral or immoral, legal or illegal.

Business managers must always operate within the boundaries of opinions and laws of the society to remain in business. That's what it means to be a market-focused enterprise. To proclaim oneself to be a stakeholder in a free-market means that one is free to influence the thinking, decisions, and actions of business owners and management as one sees fit. It is to behave within the confines of freedom, respect for individual rights, and human decency. But it is a concept that isn’t necessary because there is nothing distinguishing about it. What, for example, distinguishes a stakeholder from a non-stakeholder?

In an interventionist market, the claim to be a stakeholder often means the attempt to leverage a moral claim - beyond what one is entitled to in a free-market - to influence the government to coerce businesses through legislation and regulation to act in ways contrary to the interests of the market - in ways that the market would not otherwise voluntarily support. If this is what stakeholder means, then it is a distinct concept, but I don’t think this is what those who use the term consider to be the essence of the concept.

The question therefore remains as to whether the notion of "stakeholder" has any validity as a concept at all if it refers to everybody that has an interest in the outcome of a business.

It seems to me that the designation of stakeholder is often used by some groups to presume moral entitlement to influence business management because they will be affected or impacted by the decisions made by a business, when no such entitlement exists. The self-referenced designation of stakeholder is often an attempt by some to assert or imply the status of victim of an injustice, and therefore redress is required, where no such injustice has occurred. Legitimate injustices can be dealt with through established courts of law with no need for references to stakeholders.

An astute manager should be taking into consideration all external influences to his business when making resource allocation decisions in pursuit of profit, but ultimately, if one believes in the principle of property rights, the ultimate decisions and responsibilities rest with the business owners.

Copyright, 2010, Barry L. Linetsky, All Rights Reserved

Ethics Drive Political Choices and Economic Consequences

We live today in a culture that holds a high regard for people and institutions that claim that they have little or no self-interest, for people and institutions who claim to place the value of the interests of others ahead of their own. The leading institution vying for this supposed exalted position is government, which is believed to be inherently and intrinsically virtuous. A considerable portion of the population holds that for the most part government is a positive force in the lives of individuals and is a helpful and benevolent force in society. Every politician campaigns on promises of how they will spend billions of dollars doing good deeds, deeds that are deemed to be either more virtuous or will produce better results than otherwise would exist. 

Citizens may disagree about the nuances of how these billions or trillions of dollars are spent, but very few disagree that government taxation and spending of this money is ethically virtuous because it creates greater good for greater numbers than would otherwise be the case if individuals were left free to function in the peaceful pursuit of their own self-interested ends. The response of voters, as indicated by their insatiable demands for ever more government spending and intervention in economic affairs, seems to support the inference that there is a strong positive correlation between government spending and government virtue. It is not surprising, then, that many people with a desire to focus their work in the pursuit of virtuous ends see virtue in pursuing careers in government and related social institutions that receive government funds. 

By implication, many such people value government work above profit-oriented private sector work because they perceive such "social" work as morally superior. Not all government and social sector workers hold this viewpoint. A vast majority of these workers are likely looking to use their skills in well-paying jobs with good benefits, whether they be in the private or public sector. 

Still, there is a large segment of the population that has an ideological preference for government work; who value being on a government payroll above other private sector employment alternatives; who sincerely believe that government work is noble, patriotic, self-fulfilling, giving. Many believe that government work, by definition, is not tainted with the unsavory scent of pursuit of profit and thus not exploitative and self-serving; that government serves a higher cause than does business. It is common these days to run across experienced executives that retire or lose their private sector jobs and then seek senior government roles as a way to 'give back' to society. The language they use is interesting because 'giving back' implies that they have taken something or have benefitted in some way that entailed the commitment of unjust acts; that penance is being paid for years spent pursuing profits through productive wealth creation in the service of consumers; that government employment is 'good' work and can cleanse the guilt of years spent doing 'bad' work; that government work to serve citizens is morally superior to private sector productive work that serves the well-being of those same citizens. 

There are fundamental differences between private sector 'for-profit' and government 'for-loss' activities. 

Private sector exchange is necessarily voluntary, and in voluntary exchange, both parties to the trade perceive net benefits from the exchange. Private sector production requires the creation of wealth in that goods or services are created from economic inputs, exchanged, and the proceeds are reinvested in further productivity. This cycle of production and exchange is the process of wealth creation, from which all members of society benefit.  

Government, on the other hand, doesn't create wealth. In a free-market society, the government is not in the business of economic production. In fact, the existence of government is parasitical on the wealth created in the private sector. Where the private sector engages in the production of wealth, government engages in the consumption of wealth. Governments have two ways to obtain the wealth it needs to operate. It can convince citizens that they should voluntarily provide support to government in exchange for those services that it is proper for governments to provide, such as the protection of individual rights and property rights through the provision of police, courts and armies. Alternatively, those individuals who are elected and work as representatives of the elected can actively repudiate the moral requirement for upholding individual rights by initiating the use of force to confiscate the wealth of others in the form of taxes or duties in support of those activities they believe they have the moral authority to carry out. Such individuals in government (or the institution of government itself) assert legal authority as an extension of their purported moral authority. 

Those in favour of government's initiation of force hold as a premise that it is ethical in principle to initiate the use of force as a means to confiscate the wealth of others to serve ends to which those who are forced to pay for them have not granted their voluntary consent. They are opposed as a matter of principle to the idea that voluntary exchange between consenting individuals is a fundamental requirement of civilized society. They hold that civilization requires human sacrifice, set out to define who and how much gets sacrificed by some to benefit others, and then set out to enforce the command mechanisms they put in place.  

 

Most people don't think about the differences between the private sector and the government in these terms because they divorce ethics from politics. There are many people who truly want to do good for others and believe that they are doing so when they enter into government work. They see government as a multiplication mechanism for their good deeds by forcing people to contribute en mass and on a grand scale, that is, by making the "unenlightened" multitudes do good against their will "for their own good and the good of others." Because the government is the only institution with the legal right to initiate the use of force, government becomes a magnet for those who believe that the initiation of force is a virtue. In ethics, such people are known as altruists, and proclaim that virtue consists in doing good for others through personal sacrifice. 

Philosopher Immanuel Kant, for example, in defending the ethics of Christianity, argued that only actions undertaken as a pure duty to a higher cause than man, in which the actor was precluded from any psychological or materialistic benefit whatsoever, could count as being moral. From this comes the widely accepted modern ideal that ethical action precludes any personal gain, or self-interest, or pursuit of valued or desired ends or results, and therefore requires personal sacrifice. As demonstrated by Ayn Rand in her essay "Causality Versus Duty" in Philosophy: Who Needs It, this altruistic concept of ethics is at root anti-man and anti-life. To survive and prosper, individuals must identify and pursue values that promote the pursuit of the values that life requires of man qua man, not identify those value and then require that ethics demands their sacrifice. Such a sacrifice of life-promoting values is demonstrably irrational and life-destroying. Altruism sets man against himself by requiring the destruction of the very values that life requires in the name of being moral. Ethical altruism is, in fact, an inversion of morality.

Tara Smith, Professor of Philosophy at the University of Texas, summarizes the concept of altruism amongst today's contemporary philosophers in her recent book Ayn Rand's Normative Ethics: The Virtuous Egoist. She writes:   

Altruism calls for the sacrifice to others. This has been the standard conception since [Auguste] Compte coined the term – which literally means "other-ism" – in the mid-nineteenth century. E.J. Bond characterizes altruism as the policy of "always denying oneself for the sake of others." Burton Porter presents altruism as "the position that one should always act for the welfare of others. While recognizing that the term can be used more and less strictly, Lawrence Blum observes that in its most prevalent usage, altruism refers to placing the interests of others ahead of one's own. This is clearly how Rand understood altruism. She describes it as the thesis that self-sacrifice is a person's highest moral duty. [Leonard] Peikoff stresses that altruism is not a synonym for kindness, generosity, or good will, but the "doctrine that man should place others above self as the fundamental rule of life." A sacrifice must not be confused with an investment, in which a person forgoes a nearer reward in expectation of a greater one later. A sacrifice is the surrender of a greater value for a lesser one or for something that one does not want at all. (P.p. 38-39).

When extended into the realm of politics, altruism moves beyond an edict of the virtue of self-sacrifice to proclaim the virtue of the sacrifice of others! Most Westerners understand at least somewhat the logic of reciprocity of the enlightened concept of individual rights, upon which modern Western civilization was founded and upon which the United States was created. Reciprocity requires that we leave other persons free from the initiation of force and fraud to pursue their own ends in return for the reciprocal right. Rights are a mechanism to prevent the injustice of allowing some persons to go around taking things that don't belong to them away from others, things that they have no moral entitlement (right) to. 

When it comes to the government, its primary purpose is to use force in defense of individual rights by ensuring that the rights of its citizens are protected. What differentiates government in kind from non-government institutions is that it maintains a legal monopoly through the police and army to use force. Ethical principles are principles derived from reality and are applicable to all people. There isn't one set of ethical principles for people who earn their living in the private sector and one for those who earn their living working for government. It is equally unethical for all people to initiate the use of force against others, whether they are employed in the private sector and paid by the owners of the means of production, or whether they are employed by governments and paid by taxes taken from the governed. Proper laws founded on moral principles and consistent with the virtue of justice would require governments and their representatives to operate in ways that take individual rights seriously by ensuring that they do not engage in actions that require, condone, or encourage the initiation of the use of force. 

When armed with the ethics of altruism (where duty and sacrifice form the foundations for virtue), men and women that pursue and assume the role of governing (be they elected politicians or government employees), too often relish the fact that because they are now part of the governing clique, they are anointed with the moral authority to initiate the use of force against others. If they ascribe in any way to the altruist code of ethics they will self-righteously insist that they have an ethical duty to enforce the sacrifice of others to create virtue. In this way, modern government does not perceive its proper role as it should be, namely as a protector of individual rights and freedoms. Rather, it sees itself as, and therefore becomes, an altruistic force for "virtue" by requiring the sacrifice of the values of its citizens in order to create a so-called greater moral good. When the pursuit of self-interest is deemed to be intrinsically unethical or evil, then the suppression or punishment of self-interest – the imposition of duty – is deemed to be intrinsically virtuous and good. 

From the altruist's twisted view of morality, what could be more important work than ensuring that individuals behave in ways that best serve "society." Therefore, what we see all around us, including by the elected representatives of the U.S. Congress and Senate, who are expressly prohibited by the Constitution from depriving any person of life, liberty or property without due process of law, is the rush to impose the force of government to demonize and destroy the last fading remnants of a marketplace free of government controls. From an ethical perspective, what we are witnessing today is a full and willful frontal assault against individuals who try to act on the basis of the conclusions reached by their own minds in pursuit of the values they have determined their life and happiness requires. This plays out politically in the government's increasingly explicit political rejection of individual rights and freedom, the very things that governments have a moral obligation to protect and that defines their moral purpose. 

What we are witnessing playing out today is an altruistic crusade in favour of "sacrificial duty" led by the President of the United States, while throngs of the altruist-educated masses are cheering him on and unwittingly clearing the road toward civilization's destruction. The President believes that he possesses the cognitive intelligence to lead the United States and world to prosperity; that he and those who work for him in government know what's best for each of us and will therefore assume control of finance and industry, or land, labour and capital. 

In his first 100 days, the President has assumed control of a vast proportion of private property via its takeover of Fannie Mae and Freddie Mac. He has initiated government control of a vast proportion of the banking sector. He has wrested away private control of most of the U.S. auto sector in order to give it to others. He has overstepped the bounds of moral and legal propriety to force his will upon leaders of business and industry, while leaving the whims of fellow politicians and bureaucrats largely unchallenged and unrestrained. Through unprecedented spending, he leads the borrowing and consumption of the wealth of future generations of Americans. F.A. Hayek, winner of the Nobel Prize in Economics in 1974, called such thinking a "fatal conceit" and warned that the pursuit of such a centrally controlled society would inevitably lead us along the "road to serfdom."

While all of this is a question of politics, it is more fundamentally a question of ethics and philosophy. Those who still believe in the validity of ethical relativism and that economics is value-free, and therefore anything goes, should be checking their premises. All the while smiling, I fear that the President of the United States is leading the civilized world rapidly towards the eve of destruction as he adopts fascist tactics to achieve his fanciful whims. There is a clear and frightful trend of governmental delusion and psychosis afoot.

Consider just these two recent stories as representative of many more in recent weeks that indicate a complete disregard by politicians and government employees for both the rights of individuals and for the law. 

From The Wall Street Journal, May 7, 2009: "U.S. to Condemn Land for Flight 93 Memorial." The National Park Service has announced that it will "begin taking land" from seven property owners so that a 2,200 acre park can be build as a memorial to the victims of Flight 93 in time for the 10th anniversary of the 2001 terrorist attacks. To obtain the land, the government will declare it condemned, thereby setting the stage for its confiscation against the will of the current owners. 

From the Washington Post, April 30, "Obama Blames Lenders for Pushing Chrysler Into Bankruptcy." Apparently, the Obama administration tried to muscle secured lenders from enacting their legal rights under the law. As a result of secured lenders trying to abide by the rule of law rather than give in to government coercion to forgo their legal rights, the administration indicated their disapproval and disappointment, expressing that the secured creditors had failed to do the right thing by failing to act "in the national interest." President Obama stated, "I don't stand with those who held out while others made sacrifices." It is clear from the structuring of the bankruptcy that the government will maintain control over the board of the new Chrysler along with the UAW. "Upon successful completion of the alliance, a board of directors for Chrysler will be appointed by the U.S. government and Fiat," Chrysler CEO Robert Nardelli wrote to his employees. "The majority of the directors will be independent (not employees of Chrysler or Fiat)."

If you are worried about the current state of the world and perceive the impending decline of Western civilization in current social trends (including this one), the best source for understanding from a philosophic perspective is Ayn Rand's monumental 1957 novel Atlas Shrugged. Read it, discuss it, learn from it. Even her detractors are now calling her work prophetic, and are unable to provide a valid counter-argument. For an excellent synopsis of Atlas Shrugged and Rand's argument for the virtue of ethical egoism and the vice of ethical altruism, see Craig Biddle's essay "Atlas Shrugged and Ayn Rand's Morality of Egoism" in The Objective Standard. 

Economist extraordinaire George Reisman has written an excellent article in two parts that he published on his blog explaining the current causes of and solutions to the economic crisis: "Economic Recovery Requires Capital Accumulation Not Government 'Stimulus Packages'".While the root of our current crisis is philosophical and ethical, a basic understanding of economic principles is crucial to understanding why the government's response is irrational and only making matters worse. You owe it to yourself to take the time to carefully read this article, and all of his writings.

A recent article by Peter Foster in Canada's The Financial Post, "Trading Honesty for 'social responsibility'" touches on the connection between ethics, economics and politics.

If you want to read an excellent book that explains the economic and political factors driving the current economic crises, Thomas E. Woods Jr.'s New York Times Bestselling book "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse" is easy and important reading. 

Also, download the lecture "Why Was Anyone Surprise by the Crash?" by investor and authorPeter Schiff and laugh until you cry at how America's politicians are willfully and self-righteously pursuing their altruistic premises and thereby destroying the lives of hundreds of millions of people, and lying to themselves and everyone else about who's at fault. Schiff speaks about the current economic situation in economic terms, not moral terms. The key virtue of Schiff is his ability to present the key economic concepts discussed by each of the authors above in an easy-to-understand and entertaining manner. He ought to be a little more outraged at the blatant injustice being perpetrated on innocent victims by our Lords of Looting and Kings of (Wealth) Consumption, i.e., our politicians and their bureaucratic cronies, in my opinion. 

Finally, the economic arguments that Schiff brings to the independent inquiring mind on TV and his webcasts are not new. If you want to go to the source, discover and read the works of the 20th Century's greatest economist, Ludwig von Mises. For a concise summary of his explanation of the 1930's crisis, written in 1931 but still valid for today, read his essay "The Causes of the Economic Crisis" available from the Mises Institute in Auburn, Alabama.

It is important to make the time to hear and heed the analysis of the above authors and to prepare yourself for the coming consequences. Ideas have consequences and mistaken ideas, or worse, evil ideas, are assured to produce value-destroying consequences. These value-destroying consequences are being unleashed on us in cascading waves day-after-day, and we will continue to suffer the assault, whether we like it or not, whether we approve of it or not. It will continue until the conceited altruists relinquish the notion that values can be gained through force, and forgo the absurd idea that there is intrinsic virtue in the unleashing of government sanctioned coercion in a moral crusade to clip the wings of freedom and overthrow the self-interest of individuals and inalienable individual rights. 

The ultimate answer is not a better understanding of economics, although this is desperately needed today. It is more fundamental: a better understanding of proper philosophy.

Walt Disney: Iconoclast

My article Think Like An Iconoclast: The Principles of Walt Disney's Success has just been published in the Spring 2009 issue of Rotman Magazine, the widely acclaimed and award-winning magazine from the Rotman School of Management, University of Toronto. 

I have done extensive research on Walt Disney to identify some of the key traits that contributed to his success as one of the top 20 "Builders and Titans of the 20th Century" and innovator who changed the way the world works, according to Time Magazine. These traits are summarized in my article, which is a severe condensation of a longer essay "Walt Disney and His Business Philosophy in Action" available here.

Whatever the reason, Walt had an extraordinary mental capacity and collection of traits that allowed him to dream of, and create solutions that others valued. It was not uncommon for those who knew him to describe him as a visionary, a dreamer, a genius.

Taking all of that as a given, the key to his success, without which any of his achievements would have borne fruit, was his commitment to living life ethically through what he would have called a commitment to good ol' American common-sense. Having never completed high school, Walt was a curious, caring and learned man, but not a sophisticated or ostentatious man. While he is probably recognized as the world's most well-known dreamer, he was also very practical, with a deep commitment to an implicit philosophy rooted in reality and reason, and a sense of pro-life values linked to virtues that support man as a heroic being capable of achieving his proper goal: happiness. "Life should be a World's Fair of delights," Walt once said. "I know that life isn't, but I think it should be, I believe it could be, and hope it will be." 

It's not surprising that he traversed a road that started with drawing illustrations and simple pencil-sketch cartoons and ended up imagining, designing, and building Disneyland and Walt Disney World. More than 40 years after his death in 1966, at age 65, these immense and complex businesses and tourist destinations are still held up as the pinnacle of service excellence and described by visitors as "the happiest place on earth."

Walt Disney built his empire on the foundation of his personal values. Those values and principles hold the secret to what is known colloquially as 'The Disney Way'. His brother and business partner, Roy Disney, summed up his and Walt's perspective on taking moral values seriously: "When your values are clear to you, making decisions become easier. It is never really easy, but I think when your values are in order, the process is easier." As the Disney Brothers demonstrated, that's a quote you can take to the bank!

Walt dedicated his life to the creation of happiness, joy, and wish-fulfillment. His legacy is a monument to his success.

I extend my sincere thanks to Didier Ghez for his enthusiasm in posting a link to Think Like An Iconoclast on his Disney History blog. Didier is the editor of the excellent and historically important Walt's People series of books. The seven volumes published so far contain hundreds of rare interviews with former Disney artists about their reflections on Walt and the pioneering work that they were involved with. It is fascinating and required reading for all Disney history buffs. 

Legal Doesn't Always Mean Ethical

It goes without saying that what is legal is not always ethical. 

A proper legal system would be built upon valid ethical principles so that there was complete correspondence between the legal and the ethical. When people accept ethical subjectivism as valid, they have no means at their disposal to assess the validity of laws because they implicitly or explicitly rejected the notion of universal principles.

In a proper philosophical hierarchy, ethics comes before politics. Out of a scientific ethics derived from the facts of reality comes the concept of natural rights and natural law - namely the identification of legal principles to enforce social behaviour that are derived from ethical principles and the moral rights of individuals. From this perspective, the primary purpose of law is to protect individual rights.

Most people, however, when thinking about social issues, don't consider ethics at all. They begin with politics, i.e., the law, and then move backwards to make ethical judgments. This process reverses the proper method and makes ethics subordinate to politics. The inevitable result of this methodology is that it leaves no way to pass ethical judgment on political issues. It results in a political and social system that embraces the initiation of physical force as a legitimate technique to achieve desired social ends. This is the political system that the world is floundering in today - a system that is systemically unethical because it fully repudiates the validity of natural law and natural rights.

I recently came across an excellent article that touches on this subject by John Stossel, ABC News "20/20" co-anchor and author, that discusses the political from an ethical perspective, with the great title The Scandal Is What's Legal. 

There are a couple of memorable lines in the article. 

The first is from H.L. Menken: "Every election is a sort of advance auction sale of stolen goods." 

The second relates to the unethical means adopted by politicians and their bureaucratic support networks and the fundamental difference between them and the rest of us. For the rest of us, the initiation of the use of force is deemed to be unlawful and unethical. But the heart and soul of modern statist government depends on the negation of this principle because the use of force is at the heart of its mission to serve the people. Stossel writes: "Politicians, bureaucrats and the people they 'rescue' get money through force – taxation. Don't think taxation is force? Try not paying, and see what happens."

The initiation of force is the antithesis of freedom, and of ethical behaviour. 

With so much talk in the press about "business ethics" and the supposed lack thereof, one can only wonder why there is so little talk of "government ethics" and of holding politicians and government leaders to the same high standards of ethical accountability that they demand of others. Perhaps they think that ethical behaviour among those engaged in honest and voluntary trade is expected, while they expect others to recognize, as they themselves do, that there is no hypocrisy in the lack of ethical behaviour amongst today's breed of politician. Their plundering and destruction of the wealth of others is, after all, perfectly legal. 

Do We Need An Economic Bill of Rights?

The Harvard Business Review Advisory Council Forum initiated an online discussion for members to respond to the general question: "How would you advise Obama on his business agenda priorities." I participated in a thread in response to the question: "Do we need an economic Bill of Rights?"

Given that individuals already have moral rights that governments can neither legitimately grant nor take away, I hold to the position that we have economic rights as a corollary of the rights we each possess as rational human beings. If an "Economic Bill of Rights" is a reiteration of universal moral rights, the purpose of which is to reinforce these already existing rights, then I'm all for the creation of an Economic Bill of Rights. But if an "Economic Bill of Rights" requires the repudiation of universal moral rights through the legitimization of the initiation of the use of force by some to gain unearned/un-permissioned access to the property and wealth of others, then I'm against it. As should be all civilized people. 

My take on the context by which the question was framed is that an Obama-led Economic Bill of Rights is one about repudiating the concept of individual rights and implementing a government-led initiative of wealth redistribution in support of the Marxist slogan: from each according to his ability; to each according to his need.

Here are the pertinent parts of my contribution to the thread and to the comments by others.

KM: November 18, 2008: 

We need to examine the meaning of work and the ethics regarding operating a business. Investment in the economic backbone is paramount and should be simplified and anchored on key principals of character, responsibility and accountability. It needs to start with an examination of fiscal fundamentals of supply-demand, resource availability and domestic and global integration and protections as well as currency management.

Linetsky: November 18, 2008:

Peter Drucker wrote that the purpose of a business is to create customers. To do that requires an entrepreneur to organize resources in a manner that can create more value than the sum of the parts as determined by consumers. That's where any economic bill of rights has to start. Those who are able to win customers in a free market acquire wealth and earn the right to continue to control capital. Those that fail lose wealth, go out of business, and capital is transferred to others who think they can do a better job at satisfying consumers. Those with the foresight, ability, or luck to work for value-creators and contribute to satisfying consumers are gainfully employed. Those who work for companies that create products or services customers do not desire lose their jobs. Beyond abiding by economic laws of the marketplace, I'm not sure what other economic rights there are to talk about, unless you mean the right to produce things people don't want and still get rewarded for it. But that can only be achieved through unethical government intervention in the free market. Please explain what kind of ethical economic bill of rights you are considering.

AP: November 19, 2008:

In response to linetsky, I would suggest that you are not actually talking about rights. A company's ability to capture customers by providing them with what they value is one of the determinants of company success in a market economy. Unfortunately, there can be other determinants (at least temporarily): contracts, government favourtism/unregulated lobbying/corruption, manipulating perception of risk, exploiting supply chains... Basing the economic system merely on criteria of monetary success leaves the system vulnerable to practices that promote individual success at the cost of systemic sustainability. If we believe in a society built on mutual dependence and progress (as opposed to the law of the jungle), then we need to recognise that businesses have acquired a role beyond profit generation. In a capitalist democracy, businesses are one of the fundamental units that channel our social interaction, our effort to form and realise aspirations and our sense of place in society.

How we choose to regulate and value the operation of a business has fundamental implications for the society we wish to live in. Whether an economic bill of rights is the best way to progress or not, a serious reflection on these questions is a damn good idea.

Linetsky: November 20, 2008:

Antony and I come together and agree to build widgets that cost us five dollars to make.

We find a buyer who is thrilled about our Widgets and she agrees to pay us $20 per Widget if we can provide 1,000 of a specified quality by a specified date.

With a sale pending, we form a business.

We hire Antony's friend who agrees to help us for a specified wage.

We fulfill the order as promised and get paid as promised. We pay our employee and share a portion of the profits as we agreed when forming the company.

We get another order and then another.

What I don't understand, which Antony implies in his comment, is how (or why he thinks that) he and I, by the fact that we have come together and voluntarily created a business and pooled our thinking and our efforts to create new wealth, have somehow "acquired a role beyond profit generation." Why have we acquired a role that doesn't exist for every other member of society? I don't understand what "role we have acquired by virtue of our serving customers. I don't understand who "we" is in the assertion "how we choose to regulate and value the operation of a business has fundamental implications for the society we wish to live in." I don't see why, in this case, Antony, me, his friend, and the customer needs a "we" to regulate our voluntary interaction. Clearly the regulation would not be voluntary.

Why is this a matter of rights? Because I am asserting that Antony and I have the right to engage in the use of our property in the way I described because we have the right to own property and transact with that property without the permission of some "higher" authority.

A right is a moral principle that protects the freedom of each individual from the interference of others. Rights are a moral sanction that prohibits the initiation of the use of force (or fraud) by one person against another. The legitimate role of government is to protect each citizen's rights, not to arbitrarily deny individual rights by substituting coercive "legal" rights, which is all a government created "economic" bill of rights could amount to.

If someone else has the right to decide how we must use our property, or to determine what is proper or improper use of our property (whether or not we have permission to make Widgets, how many we are allowed to make, how much we must charge for them, how many employees we have to hire and where they must live, etc.), then we are deluding ourselves to think that the capital we bring to the business - including our own independent thinking - belongs to those who bring it forward. By right, it must belong to the regulators, in this case disguised as "we."

An "economic bill of rights" must result in the property of some being looted to serve the needs of others. An "economic bill of rights" must, by definition, enshrine injustice as a moral virtue.

If this is not what we are talking about when we are seriously talking about "economic" rights, then what is it we are talking about?

ID: November 20, 2008:

An economic Bill of Rights is a very important initiative for the new legislature to consider for implementation given the current economic downturn and rescue bailouts that are in consideration. We can take a lesson from healthcare who has operated with a patient bill of rights for a very long time. A bill of rights offers guidance and establishes the expectations of conducting business and meeting the needs of the consumer. It is very unfortunate that the lack of oversight on the operations of many of the firms who declared bankruptcy, have led the country into a recession. This is mostly attributed to a lack of ethical business behavior. An economic bill of rights would provide the framework and guidance that is required to establish and allow ethical business behavior to occur. In addition, the leadership will be able to identify the boundaries of ethical business operations.

Linetsky: November 21, 2008:

I would argue, as other have, that it is government interference in the market - let's call it a policy of interventionism rather than socialism - both in terms of regulation, veiled political threats by congressmen and senators, and monetary policy including fractional reserve banking, that has led to this crisis. It has a lot to do with a lack of ethical political behavior that attempts to deny the fundamental laws and principles of sound ethics and economics. It has almost nothing to do with "a lack of ethical behavior."

To paraphrase Idiaz2, what is needed is a citizen's bill of rights that would provide the framework and guidance that is required to establish and allow ethical business behavior to occur without the unethical injection of political interference in the economy and intervention in free trade among consenting adults. If that happened, business leaders everywhere will be able to identify the boundaries of ethical business operations and not have to worry about unjustifiable political interference for the benefit of some at the expense of others.

There's nothing ethical in [business leaders] begging politicians to confiscate the income of other people [for the purpose of giving] it to them. Even if you call it a wealth transfer, it is still looting, and is the very opposite of justice. I would like to see an "Economic Bill of Rights" that is consistent with the basic moral principle of justice. If it can't be done, then you must decide whether the principle of justice is worth giving up, and what principle you are substituting in its place.

As business people, let's get focused on real issues of freedom and the creation of wealth to improve society instead of rehashed Marxist rhetoric and psychological envy. As business leaders, let's not on the one hand talk as if we believe that being "market-focused" is a good thing because businesses can only succeed if they fulfill a market demand, and on the other hand advocate moral and political principles that encourage the destruction of the very concept of a market.

POSTSCRIPT (December 2008):

I'm happy to note that I was able to elicit at least one response in my favour. One participant wrote in part: "In the end we need to make money, and I would propose an Ethical Bill of Rights over an Economic Bill of Rights. We have enough government regulations in business already from EPA, to Human Resources, so why add another wrinkle into the overall process?"

An "ethical bill of rights"...I like the ring to that. It can start with Ayn Rand's credo spoken by the character John Galt in her novel Atlas Shrugged: "I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine."

An Economic Bill of Rights, on the other hand, would likely be appropriately prefaced with another of Rand's credos, this one from her dystopian novel Anthem. Rand's protagonist, Equality 7-2521 speaks: "Over the Palace of the World council, there are words cut in the marble, which we repeat to ourselves whenever we are tempted. 'We are one in all and all in one. There are no men but the great WE, One, indivisible and forever.'"

If you had to choose one of the two credo's as the basis for the principles by which to live your life, which credo would you choose?

Which do you think President-elect Obama would choose to guide an "Economic Bill of Rights"? 

What Is 'Business Ethics'?

Copyright © 2008, Barry L. Linetsky, All Rights Reserved

There is a lot of confusion amongst those who write about business ethics about what the topic subsumes beyond the obvious fact that business ethics has to do with business and ethics. Given how many people speak and write about the topic, you’d think that there would be clarity about what it is they are talking about. Yet it is rare to find a definition of business ethics by those who talk about it and even write books about it! They just assume that when they talk about business ethics, everybody knows what they are talking about. Authors that provide a definition of business ethics are rare. I contend that this is because most of them aren’t really talking about business ethics in the first place.

So, what then is business ethics? Let me put my stake in the ground.

What Is Business?

“Business” can be one of two things, depending on whether it is used as a noun or a verb. It can be an entity or an activity.

As an entity, a business is an organization of people and resources organized to engage in commerce or trade through buying and selling or providing a service or services as an ongoing concern to derive a profit. As an activity, it is the engagement in commerce or trade by means of organized people and resources buying and selling or providing a service or services as an ongoing concern to derive a profit.

Thus, whether “business” refers to the organization or to the actions performed by its people, each is inherent in and inseparable from the other. (See my earlier blog “What Is Business? It’s Not Obvious To Many” .)

If an organization does not fit this definition, then it’s unlikely to be a business. By this definition, hobbies, not-for-profits, and governments and their agencies are not businesses, although they may engage in and manage very delineated operations using the methodologies of business. Organizations under private ownership but operating under government protection from competition (airlines or media companies in Canada, for example) or under regulation that ensures profitability (most utilities) would fit the definition.

A business serves a specific purpose; it has a specific function. Its purpose is to create something that is perceived by consumers to be of value for which they will pay a price that exceeds its cost. In a free market, businesses compete with each other to win sales from customers. As a general rule, they compete to provide the most value at the lowest production cost to achieve that value, and to sell at a price that achieves a desired level of total profit.

So, this is what a business is and what a business does.

There are two ways to judge business: from outside or from inside this context.

To reject business from the outside is to assert that the institution of business is illegitimate or evil. As irrational as it is, this viewpoint is very common today. Karl Marx is alive and well amongst business critics who proclaim that all profits are illegitimate; that profit by definition entails exploitation of consumers by charging them more than is justified. Others criticize profit not from an ideological perspective or from ignorance of economic laws, but rather from a particular perspective on human nature and man’s natural proclivity for greed, power-lust, and stupidity. These people hold that producers have unlimited power over consumers and thereby scheme to bamboozle and rip people off so as to get rich quick by any means possible. The only way to intervene against this proclivity of human nature is to remove the profit motive. And the only way to do this is through government intervention in the economy and the elimination of the free market. Under these kinds of schemes, the government will regulate all industry through a planned economy. This demand for governmental (political) control over the means of production and the peaceful voluntary trade between people is known by various names, including the mixed economy, market socialism, central planning, or just plain socialism or communism. This is primarily a political rather than an ethical perspective, having to do more with the proper role of government and the use of political means to guide social behaviour.

To judge business from the inside is first and foremost to accept the function of business as legitimate, and then ask whether businesses are being managed in ways consistent with their function. It is this concern with normative judgments of individuals that leads us to the issue of ethics. Ethics asks how man should act and seeks universal answers that apply to everybody.

What Is Ethics?

Ethics doesn’t consist of the opinions of what people like and don’t like about human behaviour. Ethics is the branch of philosophy that studies and defines a code of values to guide the choices and actions of people in the pursuit of life. Ethics seeks to identify and clarify the proper principles of conduct to guide the actions of man towards the good and away from evil. (See my earlier blog, “What Is Ethics? It’s Not Obvious To Most” .)

Ethics begins with observations of reality combined with logical reasoning to provide prescriptive guidance for sovereign man to achieve goals and ends appropriate to his nature as man. In essence, ethics or morality provides us as individuals with an intellectual roadmap or compass to help us determine, at the highest level, what’s for us and against us as living beings in our perpetual 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 to human life represents ‘evil.’

The standard of value in ethics needs to be defined and defended. If ethics is to be meaningful at all, the standard of ethical value can be neither arbitrary nor subjective. Man’s life as the standard of value provides an objective basis for ethics that is reality-based. It is objective because it is defined by the nature of human life and verifiable facts about the world we live in.

(For a more detailed discussion about why human beings require ethics and how and why ethics is objectively grounded in reality, see my two earlier blogs on Ayn Rand’s Revolutionary Ethics, Part 1 and Part 2.)

What Is Business Ethics?

With this background, we can now gain some clarity on what business ethics is. When you put the prefix “business” in front of “ethics” the standard of ethical value doesn’t change. It remains man’s life. What changes is the context within which one considers the application of ethical principles. The context narrows from man’s actions in all realms, to consideration of a specific subset of human behaviour, namely that pertaining to the realm of business.

If business is the process of organizing people and resources to create value through voluntary exchange as an ongoing concern to derive a profit, and ethics is the identification of moral principles and a proper code of conduct to guide human action in the pursuit of life and individual happiness and well-being, then business ethics can refer to nothing more than the identification and application of ethical principles to promote and achieve the proper purpose of business.

Business ethics, then, pertains to discovering and defining the proper application of general ethical principles to guide the choices and actions of individuals engaged in business and the creation of value through voluntary trade and commerce. It is through this gateway that ethics melds with and shapes all aspects of business.

Because ethical human behaviour is ethical in all contexts, including business, it follows that there is not one valid code of conduct that excludes business and another that applies to business. In this way, the notion of a “business ethics” is misleading. Business ethics is not a distinctive, delineated code of guiding behaviour that exists apart from the wider and more general principles of morality. Rather, the notion of business ethics is a means of identifying a narrower context in which to discuss and study the application of the same universal ethic.

Ayn Rand’s Revolutionary Ethics, Pt. 2

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

Ayn Rand set a scientific footing for ethics by demonstrating an unbreachable bond between ethics and reality. The Randian paradigm shift – I would call it a revolution - in ethics is her proof that there is an objective standard by which one judges what is good or evil. That standard is “man's life, or: that which is required for man’s survival qua man" (P. 25).

What man’s life requires is knowable in reality, and reason is required to figure it out. It's the role of philosophy to provide understanding of reality and man’s place in it, and to provide practical guidance for living happily and successfully. Ethics requires the discovery of the nature of man and the conditions that allow him to flourish according to his nature. In a famous formulation, Rand wrote: "Since reason is man's basic means of survival, that which is proper to the life of a rational being is the good; that which negates, opposes or destroys it is the evil” (P. 25).

Because man is devoid of the survival instincts possessed by most other animals, man’s survival requires that he function as a conceptual consciousness, applying reason and purpose to direct his actions toward survival goals. Everything man needs has to be discovered by a human mind and produced by human effort.

This is an existential fact that applies to each of us. We each must discover knowledge and act to bring about and sustain our own survival. This leads to two essentials of the method of survival proper to a rational being, says Rand: thinking and productive work. (As an aside, business is a way of organizing to make the most of both.)

To succeed at the task of survival, man has to choose his goals and values in the context of a lifetime. The longer the range of a person's thinking, the better he can plan and prepare for contingencies. Failure to think long range for oneself leaves a person vulnerable and dependent on the thinking of others, and leaves one’s fate to chance. When people fail to take control of their own life and responsibility for their own welfare, they are left to depend on either the charity of others, or worse, the looting of others. Rand wrote: "Man has to be man by choice - and it is the task of ethics to teach him how to live like man" (P. 27).

Rand holds each person’s life as the standard of value, and his own life as the ethical purpose of every individual life (P. 27). For Rand, a standard is an abstract principle that applies to every individual person. But every individual person has to live his or her own life by applying this principle to the specific purpose of living a life proper to a rational being. Rand wrote: "Man must choose his actions, values and goals by the standard of that which is proper to man - in order to achieve, maintain, fulfill and enjoy that ultimate value, that end in itself, which is his own life" (P. 27).

Rand defined virtue as the act by which one gains and/or keeps values, and she identified Rationality as man's basic virtue and the source or all other virtue. She identified irrationality - the willful and purposeful rejection of reason – as man’s greatest vice. She wrote that irrationality is the rejection of man’s means of survival. It is anti-mind and anti-life because for a man to reject reason - his only tool of survival as a conceptual being – is to set himself on a blind course of self-destruction (see p. 28).

Placing rationality as the central tenet of ethics – as the primary virtue – is merely the identification of facts about reality and about us as human beings. Reason is man’s primary means of survival. It is a fundamental and non-optional requirement of his life that man understand what this requires of him, and that he puts forth the mental effort required to learn to excel at its application.

For Rand, the purposeful pursuit of rationality and the disciplined application of reason to achieve one’s chosen ends against all obstacles has been so rare historically, that it represents for her the heroic in man. Rand’s personal heroic achievement resides in the dedication of her life’s work to defining and demonstrating why this is so.

Her research and thinking on what constitutes virtue for man and her identification of the primary virtues and their functions, led her to overturn and refute all prior attempts to define a valid ethical code by non-rational means. Her unique methodology of taking an inductive and deductive scientific approach to philosophy led her to a unified philosophic system that is Aristotelian in spirit, and which culminates in a rational, individualistic, integrated, this-worldly code of ethics. Rand firmly shifted the basis of a philosophic defense of ethics from altruism to a form of enlightened egoism. She called her total system of philosophy Objectivism, and referred to the Objectivist ethics as a morality of “rational self-interest – or rational selfishness” (P. xi).

While her methodological approach has been vilified and swept aside by those who believe that all virtue resides in altruism and personal sacrifice, and reject out of hand her premise that facts and value are inseparable, it remains that fifty years after the publication of her magnum opus, Atlas Shrugged, there has yet to be a reasoned and valid refutation of her philosophy.

Those most likely to criticize Rand as an original thinker and as making an important contribution to our understanding of the field of ethics are those who aren’t seriously seeking truth and knowledge in the field of ethics, but rather have an agenda to hijack the normative language of ethics as a means to emotionally coerce others into agreeing with the social or political agenda they are advancing (usually an agenda that involves the collecting of the sacrifices of others - often through the initiation of physical force or deceit - to pursue their own hidden motives under the guise of benefiting “society” or God).

It’s ironic that those least able to defend their own agenda’s by means of rational arguments are the people most likely to disparage an author while failing to address serious legitimate challenges to their ethical ideas. Far too many thinkers dabbling in the subject of business ethics brush aside the serious challenges that Ayn Rand posed fifty years ago because facing those challenges are felt to be either unnecessary, or insurmountable. It is unfortunate that Rand’s work in ethics has been largely ignored through intellectual dishonesty and evasion in the hope that the advocacy of erroneous conclusions can remain valid. Nothing could be more irrational, and, frankly, more unethical, than such an evasion of reality.