[6.8.] Virtue Ethics.

 

A reminder:

 

virtue ethics (df.): an approach to ethics that emphasizes morally valuable character traits rather than the moral value of actions.

 

Applied to the issue of executive compensation, virtue ethics might maintain that...

·         someone who is truly virtuous has traits like “modesty, moderation, self-control. unselfishness and humility” (42). This sort of person would refuse to accept payment of hundreds of millions of dollars per year; and

·         someone who does accept such a huge income might have trait such as “[s]elf-indulgence, greed, callousness, competitiveness, and selfishness” (42-43).

 

Virtue ethics also lends itself to descriptions of Aaron Feuerstein (of Malden Mills) in terms such as heroic, courageous, generous and compassionate. (43)

 

As we saw earlier, some critics of virtue ethic maintains that it “reduces to” some other normative theory. They hold that any virtue theory explanation why a given virtue is morally valuable will appeal to things like well-being, e.g. by saying that a society in which people are brave, honest, modest, etc. is a society with a greater overall level of well-being. DesJardins himself suggests that we can understand which virtues are important, and why, by focusing on which characteristics are good for the person who has them: “each one of us must ask which character traits are likely to help us live a good life and which are likely to frustrate this.” (43) If by “good life” DesJardins means “a life that benefits the person who is living it,” his comment suggests that virtue ethics reduces to ethical egoism! (But he may simply mean by “good life” a life that is lived by a good person, which leaves open the possibility that virtue ethics reduces to another normative theory.)

 

Still, focusing on personality traits rather than on rules or principles can be enlightening, because it enables us to ask questions such as: what social forces—including the environment in which one works and conducts business—can help someone to become (or hinder someone from becoming) a good person.

 

…powerful social institutions such as business and especially our own places of employment and our particular social roles within them (e.g., manager, professional, trainee) have a profound influence on shaping our character. … Virtue ethics reminds us to look to the actual practices we find in the business world and ask what type[s] of people are being created by these practices. (43-44)

 

(See DesJardin’s example of the advertising agents who develop marketing campaigns aimed to get children and their parents to want products of little value, campaigns that they would not let their own children watch. 44)

 

 

 

[7.] Corporate Social Responsibility.

 

[7.1.] Wal-Mart: “Everyday Low Prices.”

 

Wal-Mart is the world’s largest retailer. Updating DesJardin’s statistics…[1]

·         Its annual revenue in the fiscal year ending January 31, 2008, was $374.526 billion. Comparing this to the 2007 GDP statistics provided by the International Monetary Fund: If Wal-Mart were a country, it would, in terms of GDP (gross domestic product) rank between Austria (26^rthlargest economy, $371 billion GDP) and Greece (27^th largest economy, $313 billion GDP).[2]

·         The company has 7200 “facilities” worldwide (4100 in the United States, 3200 in other countries).

·         Wal-Mart employs more than two million people worldwide, including more than 1.4 million people in the United States; they are the largest private employer in Mexico and one of the largest in the US and in Canada.

 

Wal-Mart achieves low prices by “leveraging its buying power as the world’s largest retailer” and “controlling labor costs.” (49)

 

The company’s core values [see lecture notes 6.3, Friday February 13] are captured in what Sam Walton, the company’s founder, called his “basic beliefs”: “respect for individuals, service to customers, and striving for excellence.”

 

But what is the actual moral value of the company’s activities? How might be evaluate the company from a normative ethical perspective?

 

 

Positive considerations...

·         for stockholders: financial benefits (profits)

·         for consumers: financial benefits (lower prices)

·         for other businesses: providing goods and services, and purchasing goods to sell to consumers

·         for employees: jobs (income and benefits)

·         for communities: taxes

 

Negative considerations... According to some critics, Wal-Mart should be criticized for each of the following:

 

1. Wal-Mart’s Treatment of Its Employees

·         insufficient wages and benefits

·         labor practices

·         forced overtime & off-the-clock labor

·         anti-union activities

·         sexual discrimination against women

·         use of illegal workers through third-party contractors

 

2. Wal-Mart’s Effects on Small Business and Small Towns

·         local businesses find it hard to compete

·         other local businesses and services (banks, accountants, lawyers) lose clients and customers when those small businesses fail

·         giant stores in rural and suburban locations…

·         encourage sprawl

·         place excess burden on roads and transportation

 

 

3. Wal-Mart’s Effects on Suppliers

• forces suppliers to engage in “reverse auctions” to try to offer the lowest-cost products to sell to the company
• many companies are forced to sell to Wal-Mart because they control such a large segment of the retail market (e.g., 28% of Dial soap’s total sales are through Wal-Mart, as are 24% of the total sales of Del Monte Foods (49)).
• this forces some companies out of business and drives others to outsource production to foreign countries, resulting in lost American jobs
• some foreign suppliers employee workers, some of whom are children, in sweat-shop conditions (it’s not that Wal-Mart has this negative effect on suppliers, but that Wal-Mart’s business practices encourage this bad behavior on the part of some foreign suppliers)

 

We will consider the case of Wal-Mart by looking at three different models or theories of Corporate Social Responsibility (CSR), i.e., the moral responsibility corporations have to society.

 

The question of CSR is, do businesses have a moral obligation to go beyond profit-making and promote certain social goods? In other words, are they obligated to behave philanthropically, and if so to what degree?

 

philanthropy (df.): humanitarian behavior, i.e., behavior that aims to promote human well-being and social reform, including by way of donations and other charitable aid. [From the Greek philo-, love, and anthropos, mankind.]

 

The three models or theories we will examine are:

 

1. The Classical Model (a.k.a. Free Market Theory) [Adam Smith; Milton Friedman]

 

2. The Neo-Classical Model (a.k.a. the Moral Minimum) [Norman Bowie]

 

3. Stakeholder Theory [William Evan and Edward Freeman]

 

Each of these models will provide an answer to the question, what is the moral responsibility of business managers, including corporate executives, towards society in general?

 

 

[7.2.] The Classical Model (Free Market Theory).

 

This model maintains all of the following:

·         The most important moral responsibility of business managers is to act so as to maximize profits for a business’ owners.

·         The only constraint on profit maximization is that they act within the law and avoid coercion (use of threats or force) and fraud.

·         It is the responsibility of the government to protect individuals’ and corporations’ free interactions with one another, and it should otherwise stay out of economic issues. So, markets should be free “from outside interference, both from other individuals and from government regulation.”[3]

 

Free Market Theory might be defended either from the point of view of utilitarianism or from a deontological, rights-based point of view.

 

 

[7.3.] Utilitarianism Defenses of the Free Market.

 

The general utilitarian defense of the free market is that overall utility (commonly understood within this context as preference satisfaction) will be maximized if individuals are allowed to engage in unrestrained economic exchanges, trading whatever amount they are willing to pay in exchange for goods and services.

 

If businesses attempt to maximize profits, this will ensure that the people who want the goods the most will get them, and thus preference satisfaction will be maximized.

 

A simple example[4]:

·         Suppose I have an item (a rare copy of “Hand in Glove,” the Smiths’ first single) that I want to sell; I have decided that I would prefer a bit of cash to keeping the record. So I offer it for sale at an initial cost of $1000.

·         I find two people, Brown and Jones, each of whom wants to buy it. At first both are willing to pay $1000, and so I raise the price to $1100. Brown will happily pay the higher cost, as will Jones. So, I raise the price again, to $1200. Brown offers to pay $1200, but Jones declines to pay more than $1100, and so I sell it to Brown.

·         As a result of this exchange, my preference is satisfied to a higher degree, since what I want is to get the most money I can for the item I’m selling.

·         What’s more, the person who wanted it more, Brown, got the record. Presumably he wanted it more than Jones, since he was willing to pay more for it than Jones. So on that side of the exchange, preferences were also maximized.

·         While it is true that Jones’s preference to have the record was unfulfilled (at least temporarily), since Brown wanted the record more, it will increase preference satisfaction more for Brown to get it.

·         But Jones’ preference is not necessarily permanently unsatisfied... Assuming that the market is competitive, i.e., that there are other sellers competing with me to sell the same product, it is possible that Jones will eventually get a record for $1100 or less, thus satisfying his preference.

·         The claim is not that this sort of market will satisfy all preferences (or make everyone perfectly happy). Rather, the claim is that the free market will result in preferences being satisfied (or happiness being increased) to the highest degree that is practically possible.

 

By allowing rational, self-interested individuals to bargain for themselves, by giving them the freedom to decide what they most want and what they are willing to pay for, we have reached a point where we have optimally satisfied the wants of all parties. There is no way to improve the overall situation or to increase overall happiness. If any alternative exchange would benefit two parties, rational and self-interested people would have agreed to it. Anything we now do to increase [my] happiness--for example, by increasing the price [I am] paid--would decrease [Smith’s] happiness, by requiring him to give up more for the [record]. Thus: we have reached a point of optimal happiness: No one’s happiness can be increased without a loss of other happiness.[5]

 

 

[7.3.1.] A Utilitarian Defense of Wal-Mart.

 

The following can be seen as ways in which society benefits from Wal-Mart’s free market pursuit of profit:

·         “Wal-Mart’s low prices have meant that more consumers have been able to purchase more of what they want. Society benefits when efficient companies sell more products at lower prices.” So Wal-Mart’s pursuit of maximized stockholder profit within the constraints of the law has resulted in increased preference satisfaction.

·         “By pursuing the lowest possible labor and supply costs, Wal-Mart is able to hire more workers and buy more products for the same costs.” So more employees have jobs, and more companies are selling goods to Wal-Mart, thus increasing their preference satisfaction.

 

So according to this defense, Wal-Mart’s business practices may have some negative consequences, but those are outweighed by their positive social effects, which include a maximization of preference-satisfaction.

 

Stopping point for Friday February 20. For next time, read DesJardins pp.55-61.