I’ve been reading The Black Swan, by Nassim Taleb. If you care about understanding the difference between how little we really know and how much we think we know, you should read it. If you think we’ve figured out cause and effect, and you’re interested in how that works, you’d like this book. And don’t worry, as I use that bewildering subject matter to describe it; he’s a much better writer than I am, he sprinkles liberally with interesting examples and useful stories. The book moves right along, easily.
|The Black Swan: The Impact of the Highly Improbable
by Nassim Nicholas Taleb
That, however, is not the main point of this post. It was just a reminder. The main point of this post is about whether or not business ethics is good business.
Is Good Business Ethics Good Business?
To me, the idea that business ethics is about good business makes so much sense it feels like it’s intuitively obvious: ethical businesses do better over the long run. So business ethics isn’t about being good so your soul goes to heaven, or so that you get reincarnated to a higher being, or other variations on that theme; no, I say, instead of that, business ethics will make your business perform better in the here and now, in this world.
What I’d like, however, is to be able to prove that. And, if I’ve understood the message of the Black Swan, I’ll never be able to prove it. We can prove that ethically bad behavior has produced terrible business setbacks for the corporate culprits, over and over again; but we can’t prove that bad behavior is bad business because our evidence is limited to companies that got caught. We can’t know how many companies don’t get caught.
I’ve been asking around on this issue. The best comment that came back to me, in my opinion, was from John Caddell, of Shoptalk — Innovation, Marketing, and Alliances, who suggested that business ethics is like an insurance policy. It reduces risk.
But Really, How Would We Know?
Then we run into another problem, when people try to research business ethics, which is that we really have no standard for business success. The closest thing to it is sales growth and stock price appreciation, but there’s so much noise in that data, it’s almost useless. Over what time frame do we measure stock prices or valuations? And what if bad business ethics offers occasional (or random) short-term stock market gains, followed by long-term problems that the research time frame doesn’t turn up?
You pose an interesting question.
Part of the problem with 'proving' whether or not business ethics actually works is that many of the issues relating to business ethics are qualitative, rather than qualitative in nature.
Consider some of the commonly sighted benefits of positive ethical behavior:
(1) more effective working relationships with a range of key stakeholders (customers, suppliers, employees, the general public, etc);
(2) Avoidance of penalties, such as fines or compensation claims; and
(3) Avoidance of stricter government regulation.
In relation to each of the above factors, the magnitude of the impact is difficult to quantify. Accordingly, a considerable degree of subjectivity is required in assessing their value.
Therefore, the one cannot 'prove,' in an objective fashion, that the benefits of positive ethical behavior outweigh any costs involved in such behavior.
However, the benefits of positive ethical behavior are real, and underestimating the value of such benefits would not appear to be a wise business decision.