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Launched on 2 November 2003, Philosophy for Business is an e-journal published by the International Society for Philosophers, looking at philosophical and ethical aspects of business practice.

We are aiming for a wide circulation to companies and corporations around the world, as well as academic philosophers.

In order to gain the widest possible readership, articles should be written in simple, non-technical language. The target length is 2500 words.

Some themes that we will be looking at:

   Globalization and monopoly
   Is business ethics possible?
   Philosophy of economics
   Practical ethics
   Idea of a code of conduct
   Freedom of speech
   Industrial democracy
   Whistle blowing
   Ecology and sustainability
   Education and health
   Business and the law
   Tax avoidance and evasion



Please send articles for Philosophy for Business to one of the Editors (see below) or to the List Manager Geoffrey Klempner at klempner@fastmail.net.

If you would like to receive Philosophy for Business, or unsubscribe, please go to https://lists.shef.ac.uk/sympa/
info/businesspathways
.

Philosophy for Business is published by the International Society for Philosophers.

The journal is distributed by email via the University of Sheffield list server.

The views expressed in this newsletter do not necessarily reflect those of the Editors or List Manager. If you have any suggestions, comments or criticisms, or if you would like to be an Editor, please write to the List Manager at klempner@fastmail.net.

Philosophy for Business is an open access journal, as defined by the Budapest Open Access Initiative.

In accordance with UK Law (April 2013) all content is archived by the British Library and is available within the reading rooms of all Legal Deposit Libraries.



LIST MANAGER

Geoffrey Klempner

klempner@fastmail.net




EDITORS

Tom C. Veblen
SuperBizRT@aol.com

Marco Senatore
marco.senatore@tesoro.it

Peter S Borkowski
p.borkowski@aui.ma

Dena Hurst
dena.hurst@appa.edu

Sean Jasso
sean.jasso@pepperdine.edu





International Society for Philosophers
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P H I L O S O P H Y   F O R   B U S I N E S S           ISSN 2043-0736
http://www.isfp.co.uk/businesspathways/

Issue number 6
4th April 2004

CONTENTS

I. 'Market Crossroads: Fertile Ground for Board Development' by Mike Kipp

II. 'On True and Fair Accounting' by David Robjant

III. 'Is there such a thing as Business Ethics?' by Rachel Browne

-=-

EDITOR'S NOTE

Just in time for this issue, I received a gripping article by Michael Kipp,
partner with Kipp and Associates, on a consultation process which he describes
as "rehearsing the future" which he designed and conducted for Delta Dental
Plans of Massachusetts.

The Pathways 'Ask a Philosopher' service has been going since 1999. Here we
reproduce an answer from panel member David Robjant to a question which we
received just over a week ago.

Pathways mentor Rachel Browne, recently awarded the Fellowship of the
International Society for Philosophers for her dissertation 'Ethical
Relations', responds to my article published in the last issue on 'The Business
Arena'.

Geoffrey Klempner

-=-

I. 'MARKET CROSSROADS; FERTILE GROUND FOR BOARD DEVELOPMENT' BY MIKE KIPP

Abstract

Governing boards are a bit like meteors above an organizational "planet". If
they position themselves too far above it all, they are likely to float at an
innocuous distance, meaningless and without impact. On the other hand, if they
plunge too deeply and quickly they are likely to burn up in the atmosphere,
dissipating their well-intentioned energy in a spate of "micromanagement". This
article describes a process for capitalizing on a market "crossroad" as an
opportunity for board and staff alike to "rehearse" alternative views of the
future, gain experience in the process of grappling with associated policy
matters and make peace with both a shared vision and a more appropriate
relationship with one another. Relevant concepts, tools and processes are
outlined for adaptation by governing bodies in similar circumstances.

Summary

In the interest of sustaining an enviable record of 4xGNP growth, Delta Dental
Plans of Massachusetts had embarked upon a path of selective diversification
from its core business. Admirable and entrepreneurial though it was, this
course of action greatly complicated the business and concerned a board that
had become accustomed to dealing with only operational and ceremonial issues.
The ensuing cycle of mistrust between board and staff was constructively broken
through a structured series of scenario planning exercises that allowed all
parties to find their voice and map their shared values and intentions for the
future. This resolution enabled the company to continue on a fully endorsed but
more focused pattern of growth in the oral health market. Lessons learned and
methods employed are relevant both within and outside the target industry
outlined in this case study.

The Problem

Few among us have an instinctive orientation toward "boardsmanship". Those
asked to serve on boards are typically "direct action" personalities who
understandably struggle with the tension between taking charge and setting
policy. This seems especially true in healthcare where the lingua franca is
either the drama of individual cases or the magnitude of the dollars at work.

As a consequence, the atmosphere of board meetings often crackles with thinly
veiled "micromanagement" and feelings of "majoring in minors". This represents
a frustration for board members and executive leadership alike, and in fact,
often becomes a self-perpetuating cycle:

     Staff reasons: "They get so lost in the weeds how would we
     ever take them up to the big picture?" Vs.
     
     The Board responds: "They never tell us anything really
     significant. Something must be wrong. Let's dig into the
     details."

This cycle can often lock an organization into a holding pattern at a time when
market factors call for a more proactive stance. An effective response,
though... one that will sustain through the setbacks and sacrifices associated
with any new initiative, requires that board and staff alike be on the
proverbial "same page". The problem has always been one of achieving this
condition efficiently and without acrimony.

Wouldn't it be great if board and staff had a method to effectively "rehearse
the future", considering alternative stories of how it might unfold as a
vehicle for making policy choices? The answer, we felt, was a comprehensive
scenario process served up in board meeting "bite sizes" that afforded
participants an opportunity to air their biases, exercise their gifts and find
their voice on questions of fundamental direction. We conducted such a process
at Delta Dental Plans of Massachusetts (DDPMA) throughout the summer of 2000.

The Context

For context, DDPMA is one of 37 Delta plans covering all 50 States, Puerto Rico
and Guam. Chartered to insure the oral health of subscribers, these
not-for-profits are typically governed by a combination of practicing dentists
and health benefit managers. Such a configuration is ideal for conservation of
"business as usual" but ill suited for the consideration of "bold moves". As
market forces have put pressure on these and similarly structured arrangements,
business failures have occurred, unexpected alliances have evolved and operating
margins have all but disappeared. Clearly, these are the conditions in which
bold moves make sense.

DDPMA had enjoyed a unique position among comparable plans. Consistently
"profitable" from operations, the company had enjoyed a decade of growth at
rates four times the GNP. Within the business case as originally conceived,
Delta had nearly saturated its available market. Recent gains had been achieved
only through a departure from traditional lines... an experimental clinic, a
foundation for the dentally uninsured, etc. These selective diversifications,
while contributors to the business base, introduced a different philosophy of
management and surfaced their own vulnerabilities and divided opinions within
leadership. Relations between the board and the executive staff entered the
self-perpetuating cycle described above. Arguments ensued over operational
matters, technology, the rising cost of acquiring new accounts and the alleged
fostering of competition with member practitioners. In short, the forest was
lost for the trees.

The Process

Over the second and third quarters of FY 2000 and in preparation for the 2001
budget process, leadership embarked on a seven-step process to develop a
unified voice regarding future direction:

 * Identifying the fundamental alternatives
 * Creatively presenting the story of the future as it might unfold
 * Engaging the Board in lively dialog around each of the scenarios
 * Drawing consensus themes and requisite staff-work from those dialogs
 * Surveying members on their predisposition toward critical issues
 * Constructing a "chart-pack" for members in advance of a "watershed" session
 * Opening the session with a resolution in favor of a specific scenario.

Subsequent discussion took place around that resolution... all of it at the
policy-making level that had eluded the group in the preceding months.

The Methods

Some of the specific techniques employed were instructive and possibly useful
to other organizations at similar crossroads. Alternatives, for example, were
developed along two intersecting axes... growth and diversification. Simply
put, the company could adopt a larger "footprint", offering the same portfolio
of products to a broader, perhaps even national, geographic market. More
limited growth might be achieved through continuing on the path of selective
diversification... selling new products and services into its existing market.
Alternatively, the policy call might be to retreat to the core business...
"stick to our knitting", as they say. In the extreme, leadership could elect to
sell the company to a commercial carrier, putting the proceeds of the
transaction in a perpetual foundation to attend to the oral health of the
dentally uninsured, consistent with its original mission.

"Histories" of the future were written in the form of the Wall Street Journal
article that might appear in 2005... one version as a positive outcome and the
other as a disappointment. Beyond the advantages of "digestibility", this
format enabled members to surface their best hopes and worst fears with respect
to the realistic options they faced.

Over a 60-day period, the Board met in two separate sessions to consider the
impact of these scenarios. Members were randomly divided into subgroups and
were asked to silently record and publicly post what he/she liked about each
scenario and what their concerns were. After all participants reviewed one
another's perspective, these same sub-groups were asked to make the case for a
specific alternative to their peers, regardless of their personal preferences.
Sessions ended with a general discussion of the choices and a group listing of
both facts and process steps that would facilitate genuine closure.

Prior to a subsequent session 30 days hence, members received two mailings...
the first an anonymous survey to determine their values, preferences and
starting positions; the second, a "fact base" responsive to the questions
various members raised about the market, the competition, the Delta system at
large, company valuation and governance alternatives.

Chart-packs are often used to equip a board or management team for important
deliberations. Superior to spreadsheets or vertical text in their readability,
chart-packs direct the attention of a group to critical questions, supporting
those questions with an easily understood graphic portrayal of relevant facts.

Finally, the nature of the process prompted lively and informed discussion
regarding the mission of the organization, the competencies of the company, the
strengths of leadership and the role of the board. Everyone emerged from the
process better equipped to "define and secure their preferred future".

The Outcome

Closure formed the basis for a longer-term financial plan and provided the
latitude leadership needed to take the company to the next level. The board
felt informed, supportive and genuinely committed to a growth plan that had
previously been contested each step along the way. While there are no
guarantees of success over the months and years ahead, a "good outcome" in this
case was the kind of collective resolve that enables organizations with
intrinsic advantages to convert those advantages into results.

Lessons learned

The primary ingredients of this experience constitute important lessons for
institutional leaders and board members alike:

Don't allow the tyranny of the urgent to obscure your view of the big picture.
Recognize a "crossroads context" for what it is and work to identify the key
dimensions along which choices will have to be made... growth, market, customer
set, product portfolio, etc.

Avoid excessive attachment to the outcome. Remember that a strategy is "a
pattern of response to market needs, consciously selected in light of probable
shifts in the environment, relative competencies of the firm and the contingent
moves of intelligent competitors" (James Bryant Quinn). Single-path advocacy
develops its own momentum and will rob the group of its ability to make a
conscious selection among available alternatives.

The absence of a robust fact-base keeps organizations moving in the same glide
path. People respond to the kind of information they have. If you tell a board
that dues and subscriptions are up 15% they'll want to drop the Daily News.
Make a habit of serving up solid does of data on market factors, industry
trends and substitute technologies that bear on your future.

Allow sufficient "soak time". Don't expect big decisions to be made in a single
sitting. There's a long history of bad decisions and "false closure" brought
about in just that way.

Once achieved, sustain the high ground. Keep the level of dialog and the stream
of data on the plane you reached during the "crossroads" period.

As in all of life, important transitions offer important opportunities to
reshape relationships... working or otherwise. Don't let the momentous
circumstances around us put and keep you and your organization on the defensive.

(c) Mike Kipp 2004

E-mail: mike@mikekipp.com
Web site: http://www.mikekipp.com

-=-

II. 'ON TRUE AND FAIR ACCOUNTING' BY DAVID ROBJANT

This article was written in response to a question submitted to the Pathways
'Ask a Philosopher' service:

 http://www.philosophypathways.com/questions/index.html

Alternative URL:

 http://go.to/ask-a-philosopher

---

Chazha asked:

"What is the level of credibility at which shareholders, stakeholders and other
related parties place on the final accounts of an enterprise considering the
fact that the phrase "true and fair view" of accounts contains subjective
elements?"

Answer:

To what extent shareholders even care about such things depends in part on what
objectives they have in holding stock. The first question you should ask is: Do
shareholders hold shares so as to grow their capital, or so as to derive an
income from their capital?

The public limited liability company was invented as a mechanism to encourage
capital to be invested. This was done by laying it down that the shareholders
in such a company are not jointly and severally liable for any and all
liabilities arising from the endeavour. Smokers can bring a class action suing
the tobacco company, but not a class action suing all the shareholders
individually. The point of this invention was to reduce the risk to capital to
a point where capital wouldn't stay fearfully under the mattress. Money could
be reasonably ventured - and thus do work. Positive results of this invention
include, it is often said, the industrial revolution, the flushing toilet, etc.

However, in limiting the risk to capital, the limited liability invention does
not do away with the risk altogether. While investors do not stand to be
personally sued for all they own and can earn, they do still stand to lose
those funds invested in the company, e.g. when the class action brought by
smokers bankrupts the company, or if capital is frittered away on daily
expenses. It is because investors run this risk of losing their capital
completely that it became useful and traditional to offer dividends to offset
this risk. And because dividends, as an annual return on investment, are in
competition with rents on land holdings and such like, it became possible to
think of investment in a company as analogous to holding these other kinds of
property.

Now, those who hold their shares in this spirit will regard the management of
the company rather in the way that a landowner regards his estate manager, ie
as a hired help whose job it is to ensure, through wise measures and sound
accounting, that the capital continues to accrue interest year on year, just as
a soundly managed bit of farmland maintains or increases it's yield. We speak of
'yield' both with wheat and with dividends. This kind of investor cares very
much whether "the final accounts of an enterprise... [are a] 'true and fair
view' of accounts". Crucially, this kind of investor cares very much about
methods for distinguishing running costs from capital investment, and wants to
see his money spent on investment in techniques and machinery and personnel
that will maintain the ability of the business to make profits and return
dividends. There are subjective elements in accounting procedures for
identifying capital expenditure here. But it is a particular kind of
subjectivity.

Through the consistency of the accounting procedures from business to business
ensured by some regulatory standard, the investor can legitimately hope to be
able to form a view of how good the management is at managing his 'estate' in
comparison with other companies and managements. That this kind of assessment
is 'subjective' can be seen to be of less importance than the fact that the
variety of subjectivity involved is, so far as possible, made *consistent*
across the board. (Consistency and objectivity here are closely related
notions, as can be seen in the idea of objective size and it's connection with
the consistent measure guaranteed by the ideal metre rod held in Paris). Given
a sufficiently consistent structure of accountancy assessment laid down by the
regulators, an income seeking or income farming investor is able to judge the
performance of the management against that of other managements, and use the
voting power accorded in line with his shareholding to hold the management of
the company to account, and ensure that they act properly in their position of
trust.

But there is another kind of investor in the picture who really doesn't care
about long run dividends, and for whom, in consequence, the soundness or
otherwise of a company's accounts is of rather different significance. This
second kind of investor can, because of his different relation to the company,
exercise a quite distinct influence over the behaviour of the managers to whom
he has entrusted his money. This is the more ambitious type, or the more
stupid, depending of the degree of success which fate rewards him with.

This second kind of investor is the one who is interested chiefly in capital
growth. Capital growth, in this case, means simply a rise in share value. This
is an investor who wishes to purchase cheap and sell dear. Here the relation of
the capitalist to the capital is like that of a market hawker to his goods, or
of a punter to the horses on the racecourse, rather than like that of the farm
owner to his land. And since this investor measures the value of his holding
not in terms of the income that can be expected to be realised from it in the
long term but rather in terms of the money that can be realised by selling the
shares, what this investor cares about chiefly is market sentiment.

To refine the horse racing metaphor, there is no 'finishing post' other than
the market sentiment at some time in the future. The finishing post is
sentiment, not 'fundamentals'. It is the beliefs of other investors about the
company that chiefly concern this investor. The quite separate question of
whether those beliefs are in fact well founded takes second place, if it is
considered at all. It is of little interest to this investor whether the
company is well run. What matters to him is that that the company should appear
to be well run for those other shareholders who care about these things, if
there are any of them left.

This hawker-investor thus, to the degree to which his type is dominant in the
ownership of a company, exerts a malign influence on the behaviour of the
managers of the company (typically by omission rather than by commission, ie by
exerting no good influence or 'scrutiny' over the accounts), who begin to care
more about the current market share value than about assessing the ability of
the capital invested to generate reasonable levels of income in perpetuity. The
effect of this kind of change of emphasis can be seen most dramatically realised
in the case of Enron, but in fact the danger is a structural one, in proportion
to the preponderance of investors seeking capital growth before income return.
It is the achilles heel of anglo-saxon capitalism, and the reason why we get
boom and bust in all kinds of markets.

In the case of this second kind of investor, the right answer to your question,
"What is the level of credibility... which shareholders, stakeholders and other
related parties place on the final accounts of an enterprise?" is: None at all.
They don't care. They might care about market reaction to the final accounts,
but they do not care about the accounts in themselves. And because the
investors don't care, the probity of the accounts comes more and more to rely
solely on the insight and activity of the regulatory regime, rather than, as
was previously the case, on both the regulatory regime and the owners operating
in tandem.

(c) David Robjant 2004

E-mail: David.Robjant@irismurdoch.plus.com

-=-

III. 'IS THERE SUCH A THING AS BUSINESS ETHICS?' BY RACHEL BROWNE

In response to Geoffrey Klempner's paper, 'The Business Arena' (Philosophy for
Business Issue 80), I would like to pursue the question of the nature of
business ethics.

I agree with Geoffrey Klempner that the basic ethical relation is the I-Thou
relation. The I-Thou relation can be described as a response to the
subjectivity and the humanity of another person. That we can and do respond to
others in this way as persons, underlies, or gives rise to a moral principle
which say that we should respond to others as persons, since this is not what
we always do.

The I-Thou definition of the ethical could be seen as foundational or as the
originary ethical attitude. If this attitude informs one's principles, then
ethical principles become possible. To simply follow a principle is not
essentially ethical when we think of it in contrast to following a principle in
light of the recognition that others matter.

Because the code of conduct is an obligation not founded on I-Thou, but
determined by the requirements of good business practice grounded in social
expectations it is more easily assimilated to the law.

There is a psychological problem in describing ethics simply as a matter of
adopting and following moral principles. Principles need to be internalised so
that we are psychologically motivated towards them. They need to shape our
thought and activity. The concept of the Freudian super-ego stands for the
internalisation of the paternal function which produces internalised motivation
to constrained behaviours. This occurs in a young child who is learning about
life and human relations.

In maturity, can we suddenly be motivated towards principles laid down by the
company to which we belong? We can recognise a principle and its correctness,
for sure, but how does it become binding? Furthermore, principles are easy to
get out of: We know we should do such and such but in this instance... We can
always make excuses because we can always rationalise towards what we want.

Codes of conduct set out principles which are to be abided by. This is
described in the world of business ethics as an "ethical" code because it aims
at producing the sort of behaviour in employees, and in the corporation as a
whole, which would meet the approval of the public, of professional bodies and
other corporations. However, as pointed out it is difficult to formulate any
way in which an adult employee can internalise the code. Written policy cannot
provide an effective ethics unless it is in some way made binding to those who
carry it out. It has to matter. If we are not motivated towards a code of
principles, we are blindly obeying orders. Codes are external to us, setting
written strictures, and are more similar to following the law than to being
ethical. I believe the language of the law might be more effective than the
language of ethics.

The I-Thou relation can arise in the business arena in personal relationships.
Role playing, which is perhaps unavoidable for some in the business
environment, is the very antithesis of the I-Thou relation. It sets up a
barrier which makes honest interaction impossible. However, an I-Thou
relationship and a dialogue can exist in the business world when there is trust
and openness.

Another moral relation which need not include the concept of rule-following is
between the corporation as a whole and those with whom it deals: Other
businesses and the general public. But in this case the possibility of trust
and openness looks problematic. If, for instance, a pension trust is not doing
well, should it inform all those who are trustfully paying in for their
retirement? There would be immediate collapse.

A third relation is to auditors and regulators such as the FSA and the Stock
Exchange. Here we find a need for openness and trust. However, any company can
say that all they need to do is follow the codes set by regulators without
giving any more thought to it's policy.

The two latter relations are not examples of relations founded on the I-Thou
relationship. The third is a case of simply following principles. The
recognition of the humanity of others, the harm we can do them, and the
obligation we owe them, an obligation which is always there, is the essence of
the I-Thou relationship.

So IS there business "ethics"? The consideration of actual behaviour towards
others is an ethical consideration. We don't need to look at recent scandals
but can look at ordinary cases of a company's behaviour.

I have been informed that one well-known supermarket seeks to supply homogenous
looking vegetables. Each of the leeks, for instance, must look the same size and
colour. The supermarket has a chart for each vegetable in its ideal form and
inspects farms to see if the crop matches up. This is what the consumer wants,
but it is bad news for the small farmer and the organic farmer. When the
supermarket labels products as "organic" when the vegetable simply is organic
because it is the type of vegetable that doesn't need to be sprayed, whose
interest is this in? Is it that the consumer is happier thinking that he is
eating healthily or is the motive a mark up on prices for the supermarket? This
could probably be clarified, but I don't know what the answer is. We do know
that the supermarket provides vouchers for customers and looks like a friendly
company: It provides all you want. But there is looking good and being so. This
supermarket is a recipient of this newsletter.

Another recipient of this newsletter, who has heavily influenced the
introduction of corporate social responsibility into the commercial world, has
told me that no-one he knows would want to read the contents of this
newsletter. I wonder if this is because everyone he knows is actually abiding
by codes and no-one needs philosophy. But already, in this newsletter,
corporate responsibility has been accused of being a PR fig-leaf (David Gold,
Issue 4, Philosophy for Business). These examples show that a company's
behaviour is about appearance.

That it is not ethical to care about appearance to the masses was pointed out
by Plato in his early Socratic dialogue, Crito, written around 400 B.C.
Socrates brings Crito to share his own view that listening to the desires of
the masses leads to corruption and man should listen to he who has
understanding.

Where is a positive business ethics?

But another question is - who has understanding in the case of business
"ethics"? On the face of it, the answer would be the professional business
ethicist. But he is an academic, not a man who practices business. With the
exception of Geoffrey Klempner, very few philosophers are in business. But if
we leave business ethics to those in business who are answerable to the masses,
where opinion and appearances matter more than truth and integrity, businesses
will continue to be corrupt.

The answer seems to be that there is no expert, no man of understanding.
Perhaps all that is possible is dialogue and openness which keeps corruption in
mind even if it is unavoidable. The improbability of there actually being such a
thing as business ethics means that business ethics itself must be up for
criticism. We need to know that a code of conduct is simply a written policy
which is not a guarantee against corruption and malpractice and we want to know
whether it isn't simply a facade.

But more than this. We can ask questions. If a code of conduct is to succeed, I
think we should try to improve our understanding of the nature of motivation in
regard to principles. It is a psychological question. How do you get employees
to accept the ethos of the company and internalise it's principles? Can we, and
do we, want this? If you can inculcate a principle, it could be any principle,
good or bad.

If there is business ethics then it is a matter of psychological and
philosophical research and reflection.

Business practice is likely to become heavily regulated by the law. The
European Union already plans legislation to introduce auditing and corporate
governance standards which will be obligatory. This legal obligation is very
different from the ethical obligation.

We already have statutory business law and in particular areas the concept of
reasonableness and the idea of conflict of interests arise, for instance. It is
consideration of these matters that gives rise to thoughtful business practice.
But I would suggest that the term "ethics" is misapplied. As above, the written
obligation is something that can be evaded and does not get a psychological
grip. If good business practice and codes of conduct are about appearances they
are not ethical. I believe that if all areas of what is now termed business
"ethics" were to be developed into business "law" then codes and principles
might not need to be psychologically binding but would have a greater
commanding force and authority.

(c) Rachel Browne 2004

E-mail: RachelEBrowne@aol.com


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