(Business) Ethics

I'm taking a class on compensation. One of our recent classes was on ESG, gender, and race. For the uninitiated, ESG stands for Environmental, Social, and Governance. It's a set of criteria used to evaluate a company's operations and performance in terms of sustainability and ethical impact.

We started off the class talking about Milton Friedman's piece in the NYT in 1970, where he argued that the social responsibility of any business is to maximize profits, not to promote social good, have a diverse set of employees, etc.

I believe that all behavior, both conscious and unconscious, is rooted in wanting to be in alignment with how we understand reality. We treat our friends the way we treat them and choose the professions we choose because, inherently, those behaviors align with how we want to show up in our understanding of reality. Stem cell researchers get into their field to investigate the fundamental building blocks of life, seeking answers to questions about the essence of existence. Quantum physicists aim to understand the nature of reality by studying tiny particles and forces in the universe. Historians examine change, seeking to understand the essence of human existence and the forces that shape our world. So, in a business school class on compensation, we're not really debating the social responsibilities of a company. We're debating how we understand the world.

Back to the class. The professor had us take anonymous surveys, and we found that the class was divided on the topic of whether the social responsibilities of a company were solely profit or something else. I'm crude and will collapse the argument that companies should focus only on profit as fiscally conservative and the argument that companies have responsibilities towards ESG, gender, and race, as fiscally liberal.

A fiscally conservative classmate, we'll call him Bob, defended his position by saying that ethics is always going to be gray as there will always be a winner and a loser, so agents (companies) don't have any business trying to be ethical. That's why we have institutions like the government to give us laws to cooperate in our society. A fiscally liberal classmate, we'll call her Alice, gave the example of "big sugar." If the sugar industry were driven purely by profit, their sole focus would be on how to market an addictive product to a vulnerable population, knowing they’re contributing to rising rates of obesity, diabetes, and other health issues.

It's funny; I grew up liberal, my teen and young adult years were more conservative, and now I don't know where I stand. I see where both Bob and Alice are coming from, but I can also rip their arguments apart.

To Bob I would say that it might be possible to set ethical norms in a small setting like a family or amongst friends, but it's pretty much impossible with larger organizations and subsequent sets of those organizations. We've agreed on a social contract that the government will guide us through laws. But do you really plan on abiding by those laws? Isn't it the case that you try to pay the least amount of taxes possible? You have no incentive to be any more moral than the most moral criminal and the least moral citizen. You say you abide by the government's laws, but really you undermine it. So when you claim that you'll abide by the ethical norms set by the government, what I'm hearing is that you're just offloading moral responsibility to another entity - an entity you plan on undermining.

To Alice I would say that I despise big sugar. And large social media companies. They exploit us. We're getting closer to a world of Wall-E with each waking moment. But companies like Pfizer and Moderna, as despicable as the pharmaceutical industry is, developed COVID-19 vaccines rapidly in response to the pandemic. Their prior pursuit of profit resulted in vaccines that saved millions of lives. Amazon has arguably the most efficient logistics and distribution systems in the world. By focusing on profit, they've created a world in which consumers have two-day access to goods, while creating jobs in the process. Is it not the case that the world we live in today is better than it used to be? Lifespans have increased dramatically and access to education has expanded to millions more people globally. These advancements are, in part, driven by profit-seeking enterprises that innovate and push the boundaries of what is possible.

Yes, companies have a responsibility to maximize profits. They are backed by shareholders who have taken the risk to invest their own wealth. Companies are supposed to make money. But I would place profit maximization as priority #2. Priority #1 would be something along the lines of trying to be a good team player. I don't just apply this standard to companies - I apply it to us as individuals. Before every decision we make, we should question if what we're doing is good.

That is much easier said than done. "Good" is a hazy word. And sometimes, to achieve a greater good, some ambiguous sacrifices must be made. That's why I feel empathy for both Bob and Alice. Morality is hard to navigate, and at some point, you need to draw a line in the sand to move forward. They are both motivated by a desire to see society function well and improve. They hold healthy skepticism towards simplistic solutions. Bob doubts the feasibility of businesses enforcing their own ethical standards uniformly, while Alice doubts that a profit-maximizing company can be an ethical agent.

I'm going to end this post in an unsatisfying way and not offer a solution because I don't think I have any good ones. My only recommendation is that we try to be better people, however we define better.