Why good business finds it so easy to do bad things
Most business people would consider themselves to be ethical, but many act in ways that a wider audience would deem to be anything but
Apple chief executive Tim Cook appearing before a US Senate committee in May. Rather than apologise for managing Apple in a way that reduced its tax bill to staggeringly low levels, Mr Cook almost seemed surprised that the panel did not want to congratulate him for doing his job so well. Photograph: Jason Reed/Reuters
Ethics and business are uneasy bed fellows at the best of times. Most business people would consider themselves to be ethical, but many act in ways that a wider audience would deem to be anything but.
You don’t have to look too far for examples. Last month saw Apple’s chief executive Tim Cook put in a bravura performance in front of the US Senate. Rather than apologise for managing Apple in a way that reduced its tax bill to staggeringly low levels, he almost seemed surprised that the panel did not want to congratulate him for doing his job so well.
Even more recently there was the revelation that some of the biggest players in social media and online commerce were allowing the US security services access to people’s supposedly private data. The companies’ justification was that they had no choice, but that does not negate the fact that millions of their customers think they did a bad thing.
More pertinently, the five-year car crash that is the Irish financial crisis is littered with examples of people acting without any sort of moral or ethical compass. So how does business find it so easy to be bad?
The 100 or so participants in this year’s Entrepreneur of the Year ceo retreat at Notre Dame University were offered one possible explanation last week by Ann Tenbrunsel, a professor of business ethics at the university’s Mendoza College of Business.
The author of several books on the subject, her area of interest is behavioural ethics and she introduced the entrepreneurs to two concepts that might explain why we do what we shouldn’t and, in many cases, what we think we never would do.
The concepts are “bounded ethicality” and “ethical fading”. They are complicated notions but together they describe how we take a decision or an action with a profound ethical dimension to it, but convince ourselves that it is something else.
Bounded ethicality holds that there are limits to how far back people choose to – or are able to – stand from an issue and thus may not see the moral implications involved in what they are doing. Ethical fading describes the most common way it happens, which is that we choose to see a decision as a business decision, or a legal decision, rather than an ethical one. Factors such as remuneration, promotional prospects and peer group pressure contribute to this.
The tax strategies of multinational companies are fertile ground for applying such theories. Most people – certainly those living in western Europe – would see that companies have a moral obligation to pay the full amount of tax that is expected of them, by the society in which they function. They, like everybody else, benefit from the stable, regulated society paid for by taxation. They receive some particular benefits in places like Ireland, where the workforce is educated to a high standard by the State.
It would seem that most multinationals – if not most businesses – exclude this wider context when looking at how much tax they should pay. It falls outside the boundary of the problem as they define it, and thus does not have to be taken into account when thinking about how much tax they should pay.
The way they do this – the ethical fading if you like – is to start talking about tax as just another business cost. This was the stance taken by Tim Cook in his testimony to the US Senate. If tax is a cost, then the duty of a chief executive is to try and reduce it in order to be able to return as much money as he can for his shareholders. In fact the chief executive in question would most likely be killing himself to tell you how he is acting ethically.
Ethical fading may also explain why Google and the likes rolled over in the face of the National Security Agency’s request for people’s private data. If you see what was being asked of them as a legal issue, then compliance is mandatory. If you see it as an ethical one, then things are going to get complicated.
The Notre Dame professor’s theories offer a pretty good explanation for why good businesses do bad things, but before you start looking down your nose at your boss and tut-tutting about ethical fading, it is worth remembering another nugget she shared with the Irish entrepreneurs.
When asked to rate themselves versus other people in terms of their ethics, most people give themselves 75 out of 100, ie they are among the most ethical. Or as Prof Tenbrunsel puts it, it’s likely most of us overestimate our ethicality.