I began teaching business ethics some years ago, as part of an MBA leadership course that I had prepared for the University of Arizona. Our college placed strong emphasis on economic thinking, so when I taught ethics I decided to emphasize what Carroll and Shabana (2011, International Journal of Management Reviews) have called the “business case.” That is, I argued that ethical and socially responsible behavior was “good business,” as it would promote long-term financial success. I knew that this was not the whole story, and I taught other perspectives as well. Still, the business case struck me as especially compelling to MBA students and, anyway, there was evidence to buttress my claims (for examples, see Orlitzky & Benjamin, 2001, Business and Society, and Orlitzky, Schmidt, & Rynes, 2003, Organization Studies).

In retrospect, my emphasis on the business case was not such a good idea. I had unwittingly yoked moral conduct to business success. Implicitly, the ultimate goal (or telos, as philosophers might say) was something like raising profits or expanding markets. Ethics became an instrumental goal, one (but not the only) means by which business success was attained. I had let the financial tail wag the ethical dog and all this quite by accident. Oddly, this simple idea escaped me for a few years, but let me tell you how I came to this insight.

I once knew an individual whom I named the “Ultimate Popperian.” I called him that because he was always wrong. Having read a bit of writing
Popper_The_Logic_of_Scientific_Discovery from Karl Popper, I quickly grasped that, while he could never confirm the truth of any proposition, he could always disconfirm one. For instance, if I had two options, call them A and B, I could ask the Ultimate Popperian for his opinion. If he recommended “A” then I would immediately know to select “B.” True, my original question might have been underspecified. For instance, there might have been a “C” option that I had neglected to include. Nevertheless, by knowing his preference I could at least rule out an obviously wrong possibility.

I was having a grand time with this insight until the day that I attended a workshop on the case method. The first day of the session we discussed the teaching of business ethics. At first I was delighted to find that the Ultimate Popperian was sitting only a few seats from me. As business ethics is an interest of mine, I am always eager to rule out bad ideas, and I listened attentively as he began to speak. The Ultimate Popperian opined confidently that “Business ethics is a good financial decision. You can quantify the value of ethical conduct.” Or something to that effect. As it happened, I can’t remember his exact words because I was aghast. The Ultimate Popperian had proven me wrong by agreeing with me!

This left me in a quandary. While I knew that the Ultimate Popperian was always wrong, he seemed to believe that his viewpoints had merit. Indeed, his confidence was inversely proportional to his accuracy. Because of this, his opinion didn’t come with much analysis and, failing that, couldn’t tell me the source of my error. I knew I had to be mistaken, as I shared the same opinion as the always wrong Ultimate Popperian, but I didn’t know why. I would have to unravel that for myself.

To solve this puzzle, I decided to take the Ultimate Popperian at his word. For the sake of argument, I granted that ethical conduct was important because it generated profits. Conceding this assumption for the moment, I then worked through the logic to see where it would take me. On the one hand, if the conclusions that followed were sound and reasonable, then I would know that the Ultimate Popperian was correct, morality reduced to money, and his long chain of failures had finally come to a merciful end. On the other hand, if the conclusions that followed were injudicious and silly, then I would have greater insight into my original mistake and the Ultimate Popperian would be able to maintain his perfect streak. The trick was to think of morality as money, and then see where we ended up after starting from that point. As it happened, four conclusions followed from the Ultimate Popperian’s belief, and I was uncomfortable with all of them. I’ll describe them now, and you can decide for yourself what you think.

First, even if moral conduct is generally related to financial success, and the aforementioned work of Orlitzky and his colleagues suggests that this may be the case, this relationship will not hold in every situation. There will be times when one can profit from behaving in a socially irresponsible manner. If you hold to the view that morality is nothing more than a means of making money, then when morality becomes costly you should abandon it. There is no mystery to this conclusion; we’re only discussing the net present value of socially redeeming conduct. To illustrate, let us consider a different example. Suppose you are considering a major purchase of new business equipment. Other things being equal, if incurring this expense was profitable, then you might well go forward with it. If it were unprofitable, then you probably would not. If ethics is only about business success, then it should be treated in roughly the same fashion as any other business expense. When it generates wealth you should be ethical, but when it does not generate wealth you should do something else.

The second conclusion flows directly from the first. When you cannot get caught, and when unethical conduct is profitable, then you should become immoral. If you follow this pseudo-advice, then you will be in good company. People behave in this fashion much of the time. For instance, the social psychologist, Daniel Batson, and his colleagues have found that individuals are prone to cheat, if doing so is beneficial and if they believe that they won’t be detected (see Batson et al., 1997, Journal of Personality and Social Psychology, and Batson et al., 1999, Journal of Personality and Social Psychology).

There is a third thing that follows from limiting ethics to a tactic for creating business success. If ethical conduct or socially responsible behavior leads stakeholders to favor your firm, then you should focus on appearing moral rather than on actually being moral. This is because reputational benefits are grounded in perceptions of reality, and these do not always match with reality itself. Seeing the matter stated in this way may seem shallow, but it sometimes occurs. In a 2002 Harvard Business Review Article, Porter and Kramer reported that Phillip Morris spent $75 million on charity but devoted $100 million to a campaign promoting their beneficence. I suppose this isn’t so bad, but the next issue is troubling.

The fourth conclusion is one that I have, thankfully, never seen in action. Let us suppose that ethical conduct is a good way to boost the financial bottom line and that the bottom line is what we really care about. If this is the case, then you should hope that your competitors are unethical. Morality, in other words, is a sort of “trade secret” that you do not want to get out. If everyone was ethical, then you would lose an important source of competitive advantage. Perhaps you should dissemble and encourage other firms in your industry to be as nasty as possible? Regardless, you should do nothing, or at least the absolute minimum, to promote a more ethical business climate.

In this essay I have done some joking, but I hope that this has not obscured a significant point. Moral behavior does seem to promote business success, but that is not why we should behave morally. If you thought, as I once did, that ethical conduct is an instrumental path for boosting the balance sheet, then certain things follow that I’ll bet you don’t like – behave morally only when it is profitable, cheat when you can get away with it, focus more on appearing ethical and less on being ethical, and hope to heaven that everyone else in your competitive environment is nasty toward others. These four conclusions make us uncomfortable. We don’t accept them and that’s not how we want to live our lives. There is more to ethics than making money.