Freeman

ARTICLE

Duty and Interest

Wealth Must Be the Central Good in Business

JULY 01, 1994 by DOUG UYL

Professor Den Uyl teaches philosophy at Bellarmine College, Louisville, Kentucky.

It is often argued that we are in desperate need of courses or training in business ethics because business is an area more devoid of ethics than other endeavors. Indeed, it is usually assumed that there is something fundamentally at odds between business and ethics. Business must be tamed by ethics because by itself business has no natural affinity with ethics—it may even be antithetical to ethics! Our point in this essay, however, is exactly the opposite. Business and ethics are allied with each other at the fundamental level and only conflict at the fringes.

Aristotle held that the morally perfect individual was one in whom knowledge of what one ought to do was fully integrated with what one desired to do. If one knew what the good was and desired something else, that was a sign of moral imperfection. By the same token, if one simply did what one wanted without giving any thought to what was good, that too was a sign of imperfection. The morally good person, we might say then, thoroughly blends his or her desires with what is morally good. This could be described as the coincidence of duty and interest.

The sorts of philosophers that have dominated our own age by contrast have seen the interested and the moral to be either in inherent or likely conflict. Immanuel Kant, for example, tells us that the presence of interest lessens or destroys the moral quality of an act. J. S. Mill worries about the narrowness of self-interest preventing one from acting for the good of the whole. And even Adam Smith has qualms about the connection between self-interest and social well-being.

All these more abstract worries about morality and desire would certainly have an impact upon Business Ethics. For if the two really are in necessary conflict, it looks as though business—which is apparently grounded in interested pursuits—will be hard pressed to incorporate anything like ethical duty.

There is the possibility nonetheless that the very essence of business may just consist in this Aristotelian ideal! For that to be the case, duty and interest must not only be harmonized such that what is in one’s interest also turns out to be one’s duty, but also that in being subject to a certain obligation one is thereby furthering one’s interest. While other professions, e.g., law and medicine, may suggest (undoubtedly somewhat naively) that the interests of others (the patient or client) take precedence over one’s own, business turns out to be essentially rooted in the proposition that our own interests and the interests of others are co-extensive.

The Convergence of Duty and Interest

The rudiments of our point are found in the simple act of trade or free exchange. With respect to the interest side of the issue exchanges are presumably in the interests of all parties or they would not take place. The act of trade seems to leave out, however, the notion ordinarily associated with “duty,” namely of there being some sort of moral obligation to others. If it were the case, however, that one made exchanges that were not only in one’s interest but which one had an obligation to others to make, then duty and interest would be harmonized. As strange as it may at first seem, the modern corporate manager is in the position of having both the duty and interest to engage in trade.[1]

As a fiduciary of the corporation a manager has a duty or obligation to act in the interests of that corporation. Although it may seem as though there is now the same old possibility for conflict between one’s interest and one’s duty if what would be good for the corporation would not be so good for oneself, this perception is largely illusory in business. Indeed, if managers come to see their personal business interests as being in conflict with the business of the corporation, then we would describe the corporation as badly managed. To insure against this sort of conflict, corporations offer equity and other incentives to tie one’s wealth to that of the corporation. In a business environment it would actually be strange to think of the corporation’s interest as taking precedence over that of individual (or vice versa). As a business enterprise, the assumption is that everyone involved is interested in personal wealth maximization and corporate life (as opposed to, say, self-employment) is the mode chosen to that end. Consequently, there is no prior or essential split between self and corporate interests or obligations.

Perhaps one is inclined to object that numerous cases of conflicts of interest between managers and corporations can and do occur. A manager may wish, for example, to give some relative the contract for supplies rather than the firm with the highest quality at the lowest price. Or perhaps one is thinking of the conflicts that are sometimes said to exist between managers and stockholders (owners) over such matters as the sale of the business in a “hostile” takeover. It is not our claim here that such conflicts cannot or do not take place. Rather, our claim is that the legal conception of a “fiduciary,” while perfectly appropriate to business law, can mislead one when it comes to understanding the essential character of business.

In law, a situation is corrected or operating normally when the fiduciary fulfills his or her obligation, whatever the personal interests involved. In business, by contrast, a situation is normal only when one’s interest is engaged. If one is simply doing one’s duty, a potential (if not actual) management problem exists. The sorts of conflicts that may arise in the business world are not solved, in other words, by the appropriate fulfillment of a role. They can only be solved when the appropriate actions are motivated by personal commitment. In business one does not make commitments to obligations, but rather one’s obligations grow out of one’s commitments. A business, therefore, has the appropriate managers when those managers see their own best opportunity for maximizing their wealth as being co-extensive with the work they are doing.

Disrupting the Harmony

Now there are many factors that serve to undermine this happy coincidence of duty and interest in the modern world. Some of these, we must admit, may be generated from the quasi-bureaucratic nature of the large modern multinational corporation. Yet the most significant of these factors arise from the present political climate and the social/moral claims used to support it. In business ethics the issue is put most clearly in the debate over corporate social responsibility.

The controversy centers around Milton Friedman’s claim that corporations have no social responsibility beyond wealth maximization within the “rules of the game.”[2] This is thought to be too limited and too economically centered a view for most writers in the field, and thus they would speak of a more expanded sense of social responsibility for business.[3] Businesses are being asked to consider the good of society as a whole, or certain aspects of society (sometimes called these days “stakeholders”), as being of equal or greater consideration than “the bottom line.” Yet what can be said for Friedman’s position is that it, rather than the alternatives, best serves the harmony of duty and interest as we have described it here.

Friedman’s argument is quite simple: it would violate one’s contractual obligations to the owners (stockholders) if one pursued anything other than wealth maximization, for that is precisely what managers were hired to pursue. So as managers seek profits for the firm, they are both satisfying an obligation to others as they achieve what is to their own benefit. Moreover, they are doing so in a community of wealth pursuers (i.e., among others doing likewise).[4] It must be the case then that to oppose Friedman’s position is to claim that we ignore or otherwise diminish the pursuit of profits for the sake of other “responsibilities.” In doing that, however, the harmony between duty and interest that is established within the community of wealth pursuers would be undermined in at least five ways:

1. By overriding the contractual relationship in favor of vague, limitless, and all-encompassing “obligations,” there is no certainty that one has satisfied one’s obligations in a business context and thus little chance of harmonizing one’s interest with them.

2. With the contractual model, one’s obligations flow from one’s commitments; but in the corporate social responsibility model one’s commitments are to be defined by one’s obligations implying, as we noted above, the diminishment of interest.

3. The idea of a social responsibility beyond that of wealth maximization necessarily subordinates the latter to the former and thus, at least temporarily, drives a wedge between what the individual is in fact pursuing and what he or she ought to be pursuing.

4. Indeed, the additional “obligations” suggest the moral inferiority of the pursuit of wealth, so that if one takes a greater interest personally in the pursuit of wealth within a business context one is necessarily at odds with what one is supposed to be interested in morally.

5. Corporate social responsibility undermines the individualism implied by the harmony of duty and interest by conceiving of the corporation as the locus of moral responsibility rather than the individuals who jointly compose it.

These reasons, and undoubtedly others, should indicate how current conceptions of corporate social responsibility undermine not only the ideal harmony we have been discussing, but also the very ethos of business itself. For we can now realize that what constitutes a business context or relationship is one where the production or pursuit of wealth is central both morally and operationally. Corporate social responsibility decentralizes the role of wealth in business in favor of other ends, and in this respect undermines the very ethos of business.

One might say in response to all this, “Who cares about the harmony anyway? Isn’t it the case that morality essentially is a conflict between what one wants to do and what one ought to do? And moreover, don’t such things as pollution, poverty, unemployment, and illiteracy take precedence over wealth and the greed that comes with its pursuit?” These are complex questions with arguable underlying assumptions. They cannot be fully answered here. But if one is open to the idea that harmonizing duty and interest might be a good thing, then perhaps one might be willing to consider approaches to social problems that are more in accord with maintaining that harmony. Much has been written about various market-oriented approaches to all these issues—approaches that provide an alternative social vision to the politically dominated one espoused by advocates of corporate social responsibility. To admit that poverty and pollution are problems is to say absolutely nothing about the appropriate way to address them.

What is more pertinent to our point is the basic question of why we should care whether there is any coincidence between duty and interest in the first place. As we have noted, business does in fact approximate the ideal. But why should one care about the ideal itself? The reason is that it is within this harmony of duty and interest that one finds the basis for the moral legitimacy of business itself. It is not because of the benefits provided us that business is morally justified, nor is it because business “behaves” itself in appropriate ways. Business is at root morally legitimate because the good it seeks (wealth) is appropriate for human existence and can be sought without any fundamental conflict between what is good for oneself and what is appropriate conduct towards others. To insure that both are in harmony requires that we do nothing to threaten the centrality of wealth which makes that harmony possible.

Is wealth then the highest or only good? Is its pursuit constrained by nothing? Wealth is neither the only or highest good in human life. It is and must be, however, the central good in business. That means that when it comes to business, other ends must be considered in light of wealth, even if another end takes priority in other contexts. It also means that the social conditions for the integration of various ends and the pursuit of any end must be respected. This is another way of saying that basic individual rights must be respected.[5] But since that sort of respect is an obligation one has in all contexts under all circumstances, we have no additional obligation but rather one that makes all other social obligations meaningful. We can only begin to know what obligations we have towards others when we know what their rights are. In addition, we can only begin to cooperate effectively with others when we do so on the basis of mutual interest. And if our interests can become our obligations we shall more likely understand the moral value and propriety of business than if we think in terms of trying to transform obligations into interests or of making obligations independent of interests altogether.[]

Notes

  1.   We focus mainly on the corporation and its managers, since this is the main focus of most of the writing on business ethics.
  2.   This position is reprinted in most business ethics texts. For example, see W. Michael Hoffman and Jennifer Mills Moore (eds.) Business Ethics (New York: McGraw-Hill, 1975), pp. 153-157.
  3.   One need only consult the essays conjoined with the one mentioned in the last note to confirm this point. Any other business ethics text would serve as well.
  4.   This argument does not rule out the possibility that some things which at first seem like they might detract from profitability might in the end contribute to it and are therefore legitimate.
  5.   I have expanded on these points more fully in “Corporate Social Responsibility,” Business Ethics and Common Sense, Robert W. McGee (ed.) (Westport, Conn.: Quorum Books, 1992), pp. 137-151.

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