Rational Business Behavior

My business is business. The social norms we agree on aside, what is the purpose of business in a free society? It's owners making money for themselves - money for whatever reason. Markets judge their output. Until there are externalities (pollution or fraud for example)- costs that can not be assigned to the owner via legislation established by us, stakeholders. Is the system to agree upon laws to regulate corporations broken? Have we no recourse? We continuously improve it, but there is no better way to assign accountablity for these costs. I am not aware of any laws that compel business to "be good." I don't know what that means.

It just so happens making money has a social peripheral impact (being good?) that is far greater than any other. Corporate giving has no sustainable impact, except for education. The same goes for aid. They simply are not economic engines. So to do the greatest good, you need the greatest economic engines. The greatest economic engines are in synch with social norms (or they fail), but are not encumbered with the costs of "doing good" which is an utter distraction from specialization. So when we teach, or preach, ethics in business, it is almost always values based - similar to what we teach as social norms. The problem is, again, 1) international business deals with conflicting social values, and 2) telling employees how to behave is pointless because they already know, or they are already crooks. Why this is a huge flaw in managing corporations is that we rely on these thin "good" or ethics programs as assurance that things are OK (AIG). Philanthropy as well; strictly a tax and marketing tool. At least Bill Gates has the decency to make it a personal thing and not a corporate one. Extreme poverty grows in that region of the world at 5X the global average despite a half a century of aid from governments, corporations, and people like Bill Gates. Great stuff, but to say he is solving poverty is a joke.

Good business ethics enhances specialization and innovation - it boosts less-tangible assets so they perform better. It's a competitive advantage. But the business ethics I'm talking about is the clarity of corporate purpose, and not simply right from wrong. In my work I have proven over and over that not only does this work, but it is one of the last major competitive advantages to be had. People are indeed rational in the business world where the purpose is very clear: make profit long-term. What do we do about irrrational people or crooks in the business world? Don't hire them.

It's a tough world and access to meaningful employment is probably the greatest thing we can contribute to. Well fed, secure, educated people are capable of great innovation and I believe with all my heart they can think for themselves and make their own decisions, decisions that lead to a greater distribution of happiness than any other means possible.

An Ethics Veneer Example, Tiger Woods

Tiger Woods is the perfect case for authentic reputation management. It is estimated his personal behavior will cost the shareholders of the companies that sponsor Woods over $12 billion. Other marketing veneers corporations use run the same high risk. Accenture is not really a better company with a warranty of greater earnings over time because Tiger Woods is their celebrity spokesmodel. Just as if BP is not really an environmental company. It's fake, to the tune of $12 billion or more when it's discovered that it's fake. Hiring Woods is merely a symbol of their promised integrity and performance, yet they combine the promise with symbol and couple it to their brand which has paid off, until now.

The alternative is to blueprint your operation, boost those things that do contribute to real reputation - real integrity and performance, and get rid of the things that only contribute to what amounts to a false image.

$12 billion is a lot; how can any company afford not to engage authentic reputation management? I can promise you, Accenture, Nike, Tag Hauer, all have hired high rent image builders to do damage control. Better to invest that money in building better companies and pick symbols with lower risk. Better yet, don't rely so heavily on the symbols.

Outdated Approach to Biz Ethics

Business calls for an awareness of social responsibility, but only because 1) markets that you serve may care, and 2) social and economic development (not CSR) improves the inputs to, and the performance of, the enterprise. Play nice and be good is too outdated for the complexity of international business today.

The Scam of Microlending and BOP

Microfinance is a form of BOP (Bottom of the Pyramid). The idea is that if you package and distribute goods/services that target the extreme poor, you can engage a whole new vast market while solving poverty. Examples are packaging goods that people can carry in their hands, or that don’t have to be kept frozen, or vital items for the extreme poor such as water purification kits, or even mini-hospitals on small vehicles that can access remote places with lousy roads. Several industries have tried this and for the most part failed. Microlending fares better because they build the extreme risk into the rates they charge. The problem is, however, the costs are higher for these goods/services because economies of scale in the production process are lost – and in the case of lending the risks are very high. A liter bottle of shampoo, for example, is much less expensive than a very small one. At the heart of combating poverty, you can really only do two things a) make more money (good jobs), or b) lower the quality of things. BOP raises the cost of things because there is no scale of productivity, or it produces poor quality, and there is little opportunity to go beyond subsistence living because the core rules of poverty alleviation are not met: transfer technology, transfer of know-how, provide access to meaningful and sustainable employment, and provide access to global markets (make more money, create scale, lower the cost of things). This is how it’s done and it’s really only done by big business; and, in normal and general terms, the state responds with the necessary infrastructure. Microlending only provides a marginal increase in income, while increasing debt, and as an economic instrument it may have an impact at the subsistence level, but simply takes too long to have a significant economic impact at the development level. Imagine how long it would have taken the colonists to develop the Unites States as shoe repairmen and tin knockers if the British hadn’t invested in forestry, ship building, fishing, guns, heavy machinery, mining and farming on a very large scale? There would be no Harvard or MIT.

When you loan a woman in Zaire $171 to start a fruit stand, and then maybe even a taxi stand, the broader impact on the economic chain is very small, and precarious, and there is no resulting infrastructure. Unilever Indonesia, however, and by way of example, has a massive direct impact on the regional economic chain; 5000 Unilever employees support a full time equivalent of 300,000 sustainable jobs in Indonesia. It’s not perfect, and that’s an explanation for another day, but it is extremely effective in alleviating poverty. We can hate big business all we want, but look out the window today and every NGO employee on the planet is on their knees praying the big companies recover quickly.

Over the last several years, with crap for results, BOP supporters have tried to revamp the idea by creating the “capacity to consume,” or “capacity building,” which is NGO and government involvement with the emerging state to build basic infrastructure, education, legal systems, etc. The goal are 1) attract foreign direct investment (corporations), and 2) augment BOP activities with infrastructure and economic engines that BOP doesn’t naturally create. Well, then why do BOP at all? In some cases it may be better than nothing at all, but these people are kidding themselves if they think they are solving poverty.

If you’re genuinely interested in suffering, and its solution, then you have to understand that charity (and BOP) is nonsense. You have to eliminate your moral or do-good reasoning because then it becomes more about you than them. It’s an unsustainable relationship, the patron-and-the-demeaned; this notion that the extreme poor can’t be trusted to do what’s right, or that they don’t understand enough about what’s best for them; that as patrons giving is parsed out. Who’s that for anyway? The patron or the poor slob at the receiving end of Bill Gate’s mosquito net? Why don't NGOs just take half of their funds and give it all to a few good industrial entrepreneurs in the Congo and Botswana? A gift or loan of several hundred million dollars might yield a significant industrial or mining operation that could employ well a direct economic chain of hundreds of thousands who could then afford engineering school, and convert a generation of talented resources valuable enough to attract foreign investment. The Irish did it. It works. Look at Ireland fifteen years ago versus today, it’s stunning. Korea too. Granted, the political will and freedom has to exist. Like Milton Friedman, I think the answer is that most of these NGOs are tax deals. Activitsts love ‘em, they can boast about helping the poor, they can gather at cocktail receptions and show artsy pictures taken by the one poor sap with the balls to actually go to the third world, but the lack of results are unmistakable: the extreme poor continue to grow at four to five times the average growth rates of the developed world, and of the nine billion people that will inhabit the planet by 2040, one in four will be a squatter making less than two dollars a day.

The UN and CSR

The UN, World Bank, International Monetary Fund, NGOs, and now governments continue to concentrate on CSR and aid type strategies, the economic and financial reform of governments in poor regions, and various other programs of education and infrastructure. The guidelines for these objectives can be seen in the UN’s Millennium Development Goals, but frankly the results have been dismal. Most likely, perhaps, because as economist Jeffrey Sachs states in his book The End of Poverty: “Alas, the international community’s approach remains incoherent in practice. … When it comes to real practice, where the rubber hits the road, in the poverty reduction plans, the Millennium Development Goals are expressed only as vague aspirations rather than operational targets. … The IMF and World Bank reveal split personalities, championing the MGDs in public speeches, approving programs that will not achieve them, and privately acknowledging, with business as usual, that they cannot be met!” These words come from the force behind the .7%/GDP giving and African debt relief effort. Mr. Sachs is correct, these organizations are failing and they are adopting and driving CSR.

Can Ethics Be Taught?

I don't believe you can teach people to behave better. There is good evidence to support that learning values best happens between the ages of 1-15. There is diminishing capacity after that. The key is to take values out of business ethics education. One reason is in truly global markets values are widely diverse, and another reason is adults don't like to be told how to behave. Frankly it's demeaning; worse, when the behavior condoned by management conflicts with the ethics lesson, productivity is severely curtailed. When you make business ethics about specialization, enterprise and market purpose, and meeting the demands of the market, then it is simply easier to understand. It becomes analytical, mathmatical even, and not moral philosopy. Your market will vote whether or not you got it right.

The alternative is, and the norm for today, is a very weak veneer style compliance and ethics groups that are powerless to stem the tide of bad behavior, and then the market decides anyway which is usually catastrophic. Moral philosophy is an important endeavor, but an individual endeavor and not a corporate one.

Objectives

I don't want to set the world on fire. I want to cover it in the sustainable emissions of well paying productive output.