The Conscience of Business
Delivered at Westminster College
Tuesday, November 16, 1965
Among many issues thoughtful people today is what responsibility business bears to society. Must businessmen be concerned about the "Good," as in Utopia? Or should they, as Harvard's Theodore Levitt suggests, conduct business "as if it were a war ... gallantly, daringly, and above all, not morally?"
The answer is not as easy as it would appear.
Like every issue with philosophical the moral problem in business is linked to a universal human dilemma, and most businessmen find themselves uncomfortably on a fence in the debate caught between economic folklore and deeply personal human values.
Because businessmen's motives are traditionally suspect, many view them as bandits. Rarely, a few are accepted as benefactors.
If a businessman enters the dialogue, he is marked by a large measure of suspicion. Those who yesterday said that the corporation was without soul, now seem in terror of the effects of corporate conscience. They advocate that business should keep strictly to its economic knitting. They believe Levitt is right.
The polar opposite of Levitt contention is that Monroe Spaght, who recently became the first American to be chosen as Managing Director of Dutch Shell Here's what he says.
“However deeply a corporation is committed to finance, technology or science, it cannot be purely financial or technological or scientific. For a corporation involves people, and it is therefore a social entity with definite and inherent social responsibilities.”
Perhaps businessmen have never before been called upon more urgently to respond to that kind of thinking, or to Alfred North 'Whitehead's statement that:
“…a great society is a society in which its men of business think greatly of their functions.”
The interests of business and the interests of society has never been more closely joined. The hot and dangerous core of the challenge to the free world lies in the disparity between the material well-being of most Americans and the lacks of almost two-thirds of the rest of the human race.
It falls largely to business as the fundamental American institution of the Twentieth Century to sustain a rate of economic growth sufficient to take care of the wants of our own population and, while doing so, to innovate rapidly enough to support government programs for defense and for essential aid and development. We must invest heavily overseas We must contribute to necessary agricultural and industrial development.
I sincerely believe that we can and will do these things, and by so doing we will have proved the validity of our free system and the concept that individual freedom, when tempered with self-imposed responsibility, is the essence of democratic life.
Ironically, it is in pursuit of these lofty, essentially economic goals that business crashes into walls of prejudices, deeply imbedded in history.
Clarence B. Randall pointed out that businessmen themselves are at fault if the public misunderstands the way of life they represent:
"Actually,'' he says, "the free enterprise method of production carried on within the political climate of democratic freedom, is the social system which has brought the highest degree of welfare to the most people.
“We know that,” he says, ''but can't say it."
In my view, businessmen must say it, and must say it proudly. For if we do not, how can we expect others to view what business does with respect? On the other hand, we must be prepared to candidly the failures of the system whenever it falters.
The most influential early statement of a philosophy of capitalism was, of course, Adam Smith's. He gave the stamp to the stereotype which first confused men's understanding of the dynamics of economics. In "The Wealth of Nations," he said that the nature of the capitalist system rendered competition, conflict, and aggression inevitable, and even necessary and desirable, in order to bring society through trial and adversity to well-being. Hidden away in the injustice and brutality existed a design, Smith held, impenetrable to the eyes of man, but leading safely to betterment. This effect, he said, was caused through the activities of individuals seeking gain, the only motive that he considered.
Gain has never been esteemed the noblest force. The history of its condemnation goes back to the most primitive social structure of the tribe, accord ing to that sharp critic, Thorstein Veblen. To achieve status, men had to excel in the hunt and in warfare. All able-bodied men were expected to participate in these activities. Only the old, sick and weak were excused; by default, these people were relegated to the tasks of production. Making things, by association with the kinds of people engaged in this activity came to have a negative connotation., just as hunting and warfare came to have honorific ones, because they performed by the outstanding young men of the tribe.
Veblen's theory followed one of Plato's, who linked business activities with man's visceral pursuits. Money, trade and the mercantile spirit were necessary, Plato conceded, but were base and demeaning. Productive activities were performed by slaves.
Condemnation of money-making or as motive persisted throughout medieval times. One of the central concerns of the church was to attack this facet of man’s nature. The clergy urged repression of economic appetites. The difficulty its spokesman found in reconciling business activity to the tenets of the church is illustrated by the language of Aquinas in the "Summa Theologica"
“…there is no reason, “ he said, “why gain may not be directed to some necessary or even honorable end."
His use of the negative construction in speaking of gain, before describing the "frequent sins of traders" reveals his grave doubt of its values.
Guild rules were strict in the Middle Ages. Advertising was forbidden, profit-seeking prohibited, and severe penalties exacted for cutting costs. Men’s hands were lopped off for transgressing.
The tradesman of the period is described by Heilbroner as a “disturbing ‘outsider' in the feudal hierarchy, the much despised merchant."
Insults to Businessmen
Other occupations have had their share of imprecations -- certain practices of lawyers and doctors have evoked such blistering names as “shyster” and "charlatan" -- but seldom with the frequency and that consistency that insults have been applied to men of business.
Thomas Nash said in 1593:
"Is it not a common proverb among us when any man hath cozened or gone beyond us, to say, He hath played the merchant with us?''
Or, later, Goldsmith:
"It is well known what a middleman is: he is a man who bamboozles one party and plunders another.”
Or Nietzsche, in the 19th Century in "Zarasthustra":
"Merchant and pirate were for a long period one and the same.”
There are many examples to the contrary. But out of this ripe history of jibe and diatribe, business has survived and flourished.
Today a man like Theodore Levitt may be characterized as one of a dissenting minority, in contrast to the chorus of voices urging management to reach out for more responsibility -- men of the stature of Arnold J Toynbee men of the academic world and public service like John Gardner, and many businessmen themselves. Prominent schools of business administration now give courses dealing with problems of moral choice. The Committee for Economic Development has published studies on this complex problem, and its European counterpart, in its own words, " ... conceives its duty to be the promotion of economic development based on respect for the human being and for social justice.”
The happiest development, amid all these indications of maturing thought, is that gain is no longer thought to be the sole motivating force of businessmen. The man who selects business as a career is no longer, of necessity, assumed deficient in spiritual sensitivity nor atrophied in his development as a whole man. The kind of escape from responsibility prescribed by Adam Smith is now considered many businessmen as unrealistic, a concept of utmost sterility.
The significance of this change cannot be overemphasized. When businessmen were believed bound to selfishness, they could not be entrusted with great power without great risk. As long as business activities were thought to be outside morality, businessmen inevitably were kept aloof from social involvement. The change in thinking about business's responsibilities clears the way for true understanding by both public and businesmcn of the real problems confronting society, and, hopefully, for action to help solve them.
Factors Behind Change
Why this change? And why does the question of moral approach to business arise in the first place? What do profits, promotions, recruitment, acquisitions, business expansion and research have to do with morality?
First, the nature of business has changed. Small businessmen may follow their own separate interests without affecting society as a whole, and small businesses were once the only kind. A small enterprise may close its doors or move to another location without interrupting the community. It employees could, for the most part, be absorbed elsewhere with relative ease. Now, a single subdivision of a company may employ as many people as the population of a small city. Change may mean the death of a town. Or, on the other side, the coming new enterprise may revitalize the inhabitants and institutions of an entire region.
With this power came inevitable abuse, and following the abuse there was public outcry. Because we are talking of capitalism within a politically democratic framework, the public was incensed. Laws were passed. Regulation enforced. Businessmen learned the necessity of a sense of social responsibility--and once accepting it, they are finding that it adds elan to their lives.
Corporations, more and more, are put into positions which require that they take stands on issues that once were judged of no concern to them.
Take the case of the large national corporation with a southern division. When it comes to hiring, does it deny certain jobs to Negroes regardless of their qualifications or does it lead the way to open employment? Either way, it will have taken a stand. Inevitably, the corporation is involved in economic, social and political dynamics whether it wills or not.
Thus, size and accompanying power became large factors in the acceptance of social responsibility by many business people.
A second reason for the change is a pragmatic one.
My friend and neighbor in Rochester, William Vaughn President of Kodak, puts it this way:
“No one can prove it, but I venture to say that the intangible and incalculable rewards go a long way to offset the cost of the over-all benefit program…The sense of job and income security means that an employee can concentrate attention on his job.”
Mr. Vaughn makes an important point when he asks:
"Is it better to wage a tactical retreat, not conceding any new or improved benefit until the pressure for it becomes irresistible; ... or to exercise one’s freedom of choice and planning, and treat responsibility more as an opportunity to be taken at the appropriate time, in the forward conduct of the business?"
Kodak's worldwide for enlightened relations with its people is the answer.
The recognition that incentives other than gain may be at least equally powerful is a third factor in the evolution of the modern businessman.
Only the naive would suppose that salary and wages will ever move very far down the priority list, but salary is not often the first consideration when it comes to choice among positions. Opportunity is of great significance in the minds of people seeking jobs, but the values and reputation of the company are powerful forces, too. Identification with high-minded pursuits has become a strong motive in the best of our society, and a company excels only if it attracts and holds the best.
The search for self-expression is yet another cause of change. While most people need to feel part of a group, they also must have a strong sense of themselves as individuals. All men, including businessmen, have needs that go beyond the requirements for shelter and clothing. Much of a man’s concept of self depends on what he does for a living and how he does it. Fulfillment must largely be found through one's occupation and, cynics to the contrary, self-fulfillment. involves much more than the size of the paycheck. To the extent he truly can find himself in his work, man will be happy in it. To the extent that he finds outlets for many facets of his makeup, he will feel enriched.
In a recent publication, “Managers for Tomorrow," Rohrer, Hibler & Replogle, psychological consultants, put it this way:
“Growth, finally, is the evolvement of personal goals and the sense of venture in pursuing them. This is the meaning of the dedicated man. His personal goals, his company goals, and his job goals have coincidence to a great extent; and his personal power is directed single-mindedly toward being himself on his job.”
The corporate leader who does not try to conduct his company so as to instill pride in his people is doomed these days.
The considerations I have discussed--power, farseeing pragmatism, varied motives and self-expression-- are a few among many that have affected the nature of large corporations as they are run today in America.
Combined from Need
People organize institutions to deal with the recurring problems of a civilized life. The institution of business grew out of the basic needs of all people, from primitive societies to the present day, to make and distribute tools, weapons, clothing—or automobiles and television sets.
In much the same fashion. institutions arise in response to social needs.
In short. the only stability in society, either in business or outside it, is the certainty of change and the need for institutions to be prepared for change or become reconciled to extinction at worst and fossilization at best.
The situation is dynamic. Businessmen have not changed; people have not changed; but our environment and its possibilities and demands have. In this ebb and flow our perspective must be enlarged. Required programs must be developed and administered, never mind by whom. We should not oppose either government intervention or big business expansion for the sake of opposing one or the other, but we should oppose each if it threatens the quality of life.
Business has not failed in discharge of the duties conventionally assigned to it: the production and distribution of goods. The problem comes when business, in organizing for these necessary and socially significant objectives, finds itself in the realm where there are consequences outside the range of the businessman's training and experience, where criteria are fuzzy indeed.
Acceptance of a corporate commitment to socially responsible action raises fearsome specters in the eyes of both businessmen and the public.
There is the problem of adequate control to insure that power will not overrun the interests of the individual, a difficulty inherent in any large organization. As size and complexity increase, it becomes more and more difficult to administer policies equitably, even those adopted precisely and exclusively for the benefit of the individual.
There is the problem of paternalism, which implies return to a feudal structure of noblesse oblige basically insulting to individual dignity and destructive of individual initiative. Fringe benefits, for example, are sometimes criticized as making a kind of industrial feudalism which binds workers to a particular corporation by threatening losses of seniority, or retirement benefits, to those who change jobs.
Further, any act of responsibility is an exercise of power, and people fear the exercise of power greater than their own, especially when coupled with confusion about goals or means or both.
There is fear that the large corporation itself is a kind of welfare state which may reach into every aspect of life, and could become a leviathan and a threat to freedom. This would be anathema to a society dedicated to pluralism as ours is, and businessmen would deplore it as much as any were it to happen.
Here is the classic moral problem confronting each of us. No man has the right to order the lives of others, even for good, but inevitably, the decisions of the businessman do just this --and yet, act he must.
Search For Criteria
The revolution in thinking about business' responsibility leads to a search for workable criteria upon which the businessman can base his actions. There appear to be two kinds of criteria: the external standards embodied in formal law, and the internal standards of an ethic based on philosophy and religion.
Although the first of these may take the form of positive, or enabling legislation, most laws governing business have been negative and restrictive. Legislation, both federal and state, has permeated business activity to an extent that would amaze many people outside it. A vast multitude of statutory restrictions sets limits to the conduct of enterprise.
The truth is that most of the laws which so hedge in the operation of today’s business were enacted because of early abuses of freedom by some businessmen and the consequent need to protect various segments of the community. The net result has been to force business into a mold of responsibility -- and to keep it there -- without providing really workable criteria for the businessman who seeks to reconcile his duties to society and his duties to his share owners.
For example, a highly motivated man would undoubtedly pay his employees a wage consistent with the level of the economy. Not to do so, in the absence of legislation, would be “morally” wrong. Today’s laws convert the moral issue to a legal one and say that not to pay at least a specified wage is legally wrong. The businessman , however, continues to have a moral problem. He must determine whether the legal minimum wage is a moral minimum wage.
Beyond these laws, the structure of the corporation itself presents a paradox which restricts the kinds of moral actions a corporation can undertake. The corporation, legally is organized to act as a person in the conduct of its affairs.
Yet unlike a person, it is composed of individuals whose rights must he respected. This second consideration restrains the corporation in many ways. Legally, a corporation may, for example, donate a part of its profits to charitable organizations like United Funds. The corporation may also distribute literature to its employees advertising a blood drive. But it is not defensible on any ground for a corporation to order its to donate blood or to exert pressure on them to contribute to a charity.
This points up the distinction which must be made between the kind of service it is right for an individual to offer and the sort of service proper for an artificial person like a corporation. Progress made by community organizations depends to a large extent on the voluntary contribution of time and energy by members of corporations acting as private individuals. Participation in church activities, fund drives, elections, and service on school boards are matters which must be engaged in by individuals as individuals. Corporations can only foster an atmosphere in which participation of this sort is nurtured. Corporate responsibility must manifest itself in other ways.
Until recent years, there has been a dearth of legal on positive actions open to corporations. Now the law has so developed that it permits the exercise of responsibility to the community through the commitment of corporate resources to charitable purposes. More than forty states have passed statutes authorizing corporations to make donations to philanthropic and educational institutions. In 1953, a unanimous decision of the Supreme Court of the State of New Jersey established the doctrine:
“When the wealth of the nation was primarily in the hands of individuals, they discharged their responsibilities as citizens by donating freely for charitable purposes. With the transfer of the wealth to corporate hands and the imposition of burdens of individual taxation, they have been unable to keep pace with increased philanthropic needs. They have, therefore, with justification, turned to corporations to assume the modern obligations of good citizenship in the same manner as humans do. Congress and state legislatures have enacted laws which encourage corporate contributions, and much has recently been written to indicate the crying need and adequate legal basis therefore."
A policy of making contributions to worthwhile efforts is the best way, it seems to me, for the corporation to contribute to the welfare of the community without infringing the rights of the individuals who compose it.
A Code For Business
All of this leads to the notion that business ought to be a profession -- in the sense of one which comprises a concept of service and a code for its practice.
Management has largely shifted from the owners of the means of production to a class of salaried managers ultimately responsible to an enormous, diffuse body of shareholders who do not run the business. The new justification for control of resources is knowledge and ability to use them, rather than possession. These facts facilitate understanding of the managerial function as a service, directly to the shareholders and indirectly to the general public. Although managers may own stock, most of them do not control the company through this holding; their services are purchased in the same way people purchase the services of doctors, lawyers or teachers.
Donald K. David, Dean of the Harvard Graduate School of Business Administration, puts it this way:
"The goal of professional administration ... is the achievement through our economic system of a full life beginning with but not ending with material plenty… The direction in which we are moving compels me to say that administration will some day be recognized as the process of conducting affairs in the interest of a life worth living according to the values of our society and the capacity of each individual.”
The concept of the businessman as a professional brings me back to my original historic view of business activity. It never has been and is not now outside the dictates of moral considerations. Business today is neither immoral nor amoral by nature; the consequences of its actions in pursuit of its objectives are subject to judgments as to their morality. The businessman, to be successful, to be honorable, must be a full man, developed both intellectually, spiritually and in the special knowledge relevant to his affairs.
The idea of banditry may be hard to dispel. Distrust has been built upon very real experience. Some bandits are still with us. This does not change the need for acceptance of moral responsibility.
No matter what laws are enacted, no matter what changes transform our institutions, men will err. But through attitude, standards can be high. This goes for the man at the top; it goes for the man at the bottom and for all the ones midway. When business people learn and live this truth, business will have come to maturity.
This sounds idealistic. Statements of belief and faith always are. But it is action that is significant and action is difficult. Values must be made real by individuals acting on them, and even then, results are all too apt to be ambiguous. Throughout the corporation, management must find ways to articulate and support these values, as well as the company's objectives.
More Than Technology
Therefore it takes more than technical competence for the successful, responsible conduct of business today. The developing concepts of administration as I have outlined them require an understanding of art, the social sciences, history, religion and literature. In the words of Montaigne:
"We need men and women who know what courage is, and temperance, and justice; what the difference is between ambition and cupidity, slavery and submission, license and liberty; by what signs genuine and solid contentment may be known; to what extent we should fear death, pain and shame; what springs move us, and the occasion of so many stirrings within us.”
In short, the nub is education. We must deeply ponder Judge Stein's opinion in the Supreme Court of New Jersey:
“Nothing that helps or promotes the growth and service of the American universities can possibly anything short of direct benefit to every in the land."
We of Xerox, for example, believe that the vitality of democracy depends on free and open discussion of the troubling and that this is the only means to continuing education in the movement of events around us.
This is why we support higher education as fully as we can.
It is why we try to increase public understanding of controversial issues, through such television programs as those about the United Nations, or presentations of significance in man's search for freedom and purpose, such as the TV shows about "The Louvre," or "Let My People Go," which told of the Jews' establishment of a homeland in Israel.
But the first purpose of the businessman is the profitable conduct of his enterprise. This is the sole source of his power for good. There can be no controversy on this point.
Yet our experience demonstrates that innovative policies involving social responsibility bring very interesting reactions to the business as a business. Our sponsorship, without advertising, of the UN television brought an avalanche of favorable as well as unfavorable comment, and has been hailed as a revolutionary action. We knew it would provoke much comment. That is why we decided to do it.
An Elmo Roper survey has shown that thus far we gained much, much more goodwill than we lost.
Another example relates to the proposal by one of our shareholders that our corporate contributions for charity and education be restricted to those which could be proved to be directly beneficial to the company. The proposition, put to a vote at our Annual Meeting, was overwhelmingly defeated.
The effect upon business of this kind of action is extremely difficult to measure. The only thing we know with certainty is that Xerox has become identified, in the minds of people who know something about it, with progress, with education and with the spirit of responsibility and that's enough for us.
The Moral Choice
Pioneering on a frontier inevitably causes deep reactions pro and con. It could not be otherwise. It is the result of the problem of moral choice which faces corporate heads who, like all other citizens, have the duty of every individual to work for good government and the health of society. It is a tight rope over a deep chasm that the manager walks with only his insight for a balance pole. The risks are great and missteps are inevitable, although we dare to hope inconsequential and temporary, if he is wise.
The businessman must now above all other times act bravely with convictions and courage to inspire him. And to insure the best of his service, society must allow, indeed, ask him to do so. As John Stuart Mill said:
''A state which dwarfs its men, in order that they may be more docile instruments in its hands even for beneficial purposes, will find that with small men no great thing can really be accomplished.”
By the same standard, dignity, even greatness, can come to those men, and only to those men, who accept fully the challenge of responsibility inherent in their work, whatever the risks. In the words of Theodore Roosevelt:
"Credit belongs to the man who is actually in the arena ... who strives valiantly, who errs and comes short again and again; who knows the great enthusiasms and the great devotions, and spends himself in a worthy cause; who at the best knows in the end the triumphs of high achievement; and who at the worst, if he fails, at least fails while daring greatly; so that his shall never be with those cold and timid souls who know neither defeat nor victory.”