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Business ethics from a historical perspective

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This paper proposes three periodisations in the history of business ethics. Different styles and kinds of discourse were produced in each of the periods. The first includes the broader social critiques of the period of industrialisation. The Fordist
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  Business ethics from a historical perspective  Bernard Mees, RMIT University Abstract This paper proposes three periodisations in the history of business ethics. Different styles andkinds of discourse were produced in each of the periods. The first includes the broader socialcritiques of the period of industrialisation. The Fordist era, on the other hand, produced thefirst attempts to describe the social responsibilities of business and standards of businessconduct. The last, the post-Fordist period, saw the application of ethical theory to businessmatters. Page 1 of 6ANZMAC 2009  Business ethics from a historical perspective Business ethics seems to have no history. It is one of the stranger aspects of a discipline thatroutinely invokes the names of long-dead philosophers that its history seems murky,unresolved. Business ethics textbooks will sometimes include a brief survey of the (potted)history of business ethics, but rarely do their accounts agree with each other -- in fact somereport narratives which seem to have very little to do with business at all. There appears to bea consensus that in some way business ethics simply did not exist before the 1970s(McMahon 2002). Others appear to think that philosophers such as Aristotle spent timeexpounding on the ethics of business. There are even those who propose to find ethics in allparts of business -- what might be considered a glib understanding from a historical andconceptual perspective. Cultural theorists may rightly believe that everything is of semioticvalue and some moralists see ethical issues in all parts of daily life. Yet to describe businessethics in terms of universal experience is surely to rob the discipline of focus, not to mentionto make it sui generis in terms of the broader history of ideas.It seems to me that there are three broad periods which we might reasonably think of asepochal in business ethics. A fortune honestly made was considered a virtue in ancient Greek tradition, but there is no sense of a particularly nuanced or developed tradition of businessethics in classical philosophy. Yes, the ancient Greeks were a mercantile race, but no, theethics of business practice does not seem to have been of much concern in the writings of ancient philosophers which have come down to us today. The medieval censors throughwhom we experience such ancient writers may simply have judged business ethics trivial. Butthere is no sense from St Thomas Aquinas that he had any classical predecessors when heconsidered the notion of what was a just price in his Summa Theologica (ed. O’Sullivan1952). Aquinas would seem to be the founder of business ethics, at least in terms of acontinuous tradition of a considered ethics of fairness in business activity.If you were angry with a customer, rival or supplier in the ancient world, you could usuallygo to a court to seek redress -- but this, then, was a matter of law, not ethics. Similarly, youcould go to a magician and get them to compose a curse on those who you reckoned hadslighted you -- and it was typical that ancient curses would justify why their commissionershad ordered them made (Gager 1992). But like the Confucian texts which warn of theperfidious nature of merchants, it would seem perverse indeed to attempt to see a rudimentaryform of business ethics in such expressions. And although the Prophet Mohammed was abusinessman, a continuous Koranic tradition of business ethics seems an equally fraughtnotion. Instead it seems that the beginnings of a considered tradition of business ethics mustbe sought in late medieval Italy, the home of the artistic and scientific renaissance thataccompanied the rebirth of European trade.Aquinas’s just price theory was followed by a series of further writings on how a goodChristian might undertake business honourably. Indeed medievalists could point to thewritings of a Christine de Pizan (trans. Lawson 2003) or one of the many medieval trademanuals for signs of an ethical facet to business literature already in Aquinas’s era. But unlikehis early-modern continuator Johannes Nider (trans. Reeves 1966), Aquinas was the king of Christian philosophers, aiming to reconcile as he did the Greek tradition (as articulated inAristotle) with the teachings of Scripture. Although Christian philosophers are often writtenout of ethics texts today, Aquinas remains a towering figure in the history of Westernphilosophy (Stump 2003).Immanuel Kant is the figure who has most clearly usurped the position of Aquinas, butdespite the constant recourse to Kantian approaches in modern business courses, the Germanidealist  par excellence had little interest in business philosophy (cf. Bowie 1997). Indeed hisage could be said to be the one which swept away the Aquinan tradition, and it was in Page 2 of 6ANZMAC 2009  reaction to this new amorality that the first major development in Western business ethicsemerged. After all, the three “ethics” which have traditionally been seen as underlying theemergence of capitalism could all be seen to undermine Aquinas’s notion of just price. Themarket ethic of (moral philosopher) Adam Smith could be seen as an excuse to let marketforces decide what a just price was. The liberty ethic of John Locke similarly seemed to someto be a tacit justification for self-centeredness. Even the more crucial focus on (or justificationof) acquisitiveness that Max Weber thought to see explained in Calvinist theology seemed togrant the accumulation of capital a moral legitimacy that could outstrip other concerns of ethicality (Wren and Bedeian 2009). If work was good for the soul, the sweatshop couldvalidly be seen as a moral reformatory. The moral value now attributed to work could justifyreform through hard labour. As the motto of the Nazi concentrations camps had it  Arbeit macht Frei , work makes you free.The perverse moralities preached by the first noveau capitalists of the Britain of theindustrial revolution alarmed many contemporary observers. A new form of business ethicsarose as a critique of the Dickensian norms which had emerged in the land of Manchesterism.Socialism arose as a moral critique of the perversities which had arisen in the new society. Itshould not be forgotten that Engels’s first work (1845) was penned after a visit to Manchester.It was also Manchester, the first capital of industrialism, that proved the intellectual tryingground of Welshman Robert Owen. Owen was the first management thinker to outline acomprehensive ethical vision for his workforce. A utopian visionary, his famous communalistexperiment at New Lanark brought him fame throughout Europe and was based around hisvision of a new moral order. And it was clearly a moral order based on an experience of factory life that Owen took as his main point of departure (Owen 1857-58, Donnachie 2000).Owen was a confident of Jeremy Bentham, and although neither as utilitarian nor atheisticas his more famous fellow, Owen outlined a clear moral vision for capitalists and managersduring his time at New Lanark. His  New Moral World  of 1836 could well be considered thefirst major contribution to business ethics, except that Owen was not satisfied with rethinkingthe ethical bases of business, but extended his critique to the whole of British society. Owenfounded the British Co-operative movement, established a system of labour exchanges,lobbied for the introduction of the first Factory Act and for paying labourers just wages(Harrison 1969). But a sustained historiography of business ethics did not continue on afterhis death. If anything the reverse might be said to have been true -- socialism instead becameincreasingly seen as a movement in opposition to business, particularly so as a decidedlyAmerican twang began to emerge in reckonings of capitalist values.Much as Britain’s much earlier industrialisation lead to the emergence of all sorts of socialand governmental failures, American businessmen of the nineteenth century seemed morethan intent on revisiting the mistakes of their Transatlantic cousins than learning from them.Visions of children labouring in sweatshops are part-and-parcel of American industrialisationwell after such moral blemishes had been outlawed in Britain. Indeed the era of the US robberbarons still proves welcome fodder for revisionist historians, as the American equivalents of the Cadburys and Leverhulmes are re-excavated and the perfidious influence of Spencerismand Fordism are downplayed (Josephson 1934, Folsom 1987). The rise of Americanphilanthropists such as Andrew Carnegie and John D. Rockerfeller Sr. are rarely seen bymodern apologists of American business frailty as examples of what Marx and Engels deridedas self-serving philanthropy (e.g. Wren and Bediean 2009). But the remarkable bequests of such men (not to mention the emergence of the Community Chest movement) are often seenas the roots of an American business ethics that was more prominent, more organised andmainstream than any lesson Great Britain had to offer.Railroad journalist Henry Poor (of Standard and Poor’s) served as some kind of businessconscience in the ante-bellum era (Chandler 1956). Yet it was not until the days of Frederick  Page 3 of 6ANZMAC 2009  W. Taylor that a true historiography of business ethics might be said to have emerged in USexperience (Schwartz 2007). And oddly enough, it was the father of the cash bonus, HenryGantt, who might be claimed to be the first American business ethicist. Among the reams of papers he produced on factory management, Gantt was one of the first to articulate a clearargument for business to assume social responsibilities. More than just appealing to the notionof entrepreneurial philanthropy, Gantt argued that businesses had to adopt a broader socialrole -- anything to see off the rising threat of Communism (Gantt 1919, Wren and Bedeian2009:165).Marx had finally re-entered the discourse of business ethics as a new age of Americanethical understandings of management and business emerged. But the father of US businessethics was clearly not (at least in a continuous discursive manner) the exceptionallyproductive Mr Gantt. It was Chester Barnard, the first American theorist of organisations,who is most strongly to be connected with the emergence of a continuous discourse of business ethics. Barnard’s 1938 classic, The Functions of the Executive , features two of themost important contributions ever to be made to the field of business morality (Schwarz2007).Barnard developed the ideas which came together as the Functions from a variety of mostly unacknowledged sources. It is hard today, then, to pin down precisely what was hisinspiration for his theory of moral leadership. Barnard’s account of the connection betweenethics and the role of executives is the foundational articulation of ethical leadership inbusiness. Although he does not use expressions such as “tone at the top”, Barnard’s theory of moral leadership encapsulates the basic notion of this crucial theory of business ethics in amanner that few would find much fault with today.Barnard’s theory did not stop with the modelling of ethical behaviours by those at the top,however, but extended to expectations of employees in all aspects of business behaviour. ForBarnard this clearly extended also to what we now routinely describe as stakeholders -- aword that Barnard would not have recognised in his day. But Barnard’s theory of moralleadership extended to all parties involved in his formal model of organization -- internal,external, top to bottom. Barnard can be said, without too much rewriting of history, to havealso invented the stakeholder model of the firm.Barnard did not stop, however, with the Functions of the Executive . In a largely forgottenpaper from 1958, he also articulated what he considered to be the ‘Elementary principles of business morals’. This contribution was published long before business ethics was apparentlyfounded in the 1970s (as many textbooks would have us believe) -- and long before appliedethical philosophy began to appear in business courses. Indeed Barnard was not the onlyleading proponent of business ethics of his generation. Courses in business ethics werealready being taught at some Ivy League universities by the 1950s and works like HowardBowen’s Social Responsibilities of the Businessman (1953) also left their mark (cf. Wren andBedeian 2009). Although many members of the generation born after the Second World Warlike to reinvent history to suit a particular generational narrative, business ethics is a discourseof American management thought that well predates the passing of US environmentallegislation and the Foreign Corrupt Practices Act in 1977.These new efforts of legislators to reign in unethical business practice emerged in light of awholesale assault on traditional American business practice. Although Milton Friedman’sfamous 1970 article in the  New York Times Magazine is sometimes cited as articulating a‘classical’ theory of business ethics, it might better be described as a ‘reactionary’understanding. Friedman was (with Peter Drucker) one of the foremost public critics of thecall of leftwing thinkers for US business to behave more responsibly. From consumer activistRalph Nader (cf. Nader 1965) to economist J.K Galbraith (1958, 1967), a chorus of critics of American business had emerged. Friedman and Drucker (see, esp., Drucker 1981) served as Page 4 of 6ANZMAC 2009  apologists for business practice at a time when reform was becoming a siren call (Hoffmannand Moore 1982, Schwartz 1998, Carroll 1999). Keith Davis summarised the two sides of thedebate in a 1973 article as the many voices calling for a reassessment of business educationfrom the 1960s (Davis 1960, Baumhart 1961, 1968, Walton 1967, Carr 1968) found muchmore acceptance as US universities (in general) became less reactive to the criticisms of anew generation (cf. also the dissertation of McGraw 1969). No longer would the call forbusiness ethics seem ‘subversive’ as the first business ethics textbooks emerged, and nameslike Bowie, Carroll and Freeman emerged to take up Barnard’s by now long-forgotten call.The third period of business ethics can be more readily be tracked through the pages of business journals such as the  Journal of Business Ethics (founded in 1982) and  Ethikos  (founded in 1987). The first editions of textbooks such as those by Beauchamp and Bowie(1979) and De George (1982) also now appeared as did the first applications of formal ethicalargument to business practice. Continuing debates concerning whether business ethics shouldbe taught in electives or throughout the curriculum seem to show a discipline asserting itspresence in an evermore confident manner. As Peter Singer writes in his Practical Ethics  (1979), when he was an undergraduate in philosophy, ethics seemed more a concern of intellectual aesthetes than it was something that could be seem as practical. It is perhaps thisdevelopment that can be seen so clearly in business ethics today with its studies of ethicaldecision-making, ethics codes and what precisely may constitute an ethical organisation. References Barnard, C.I. 1934, The Functions of the Executive , Harvard University Press, Cambridge,Mass.Barnard, C.I. 1958, ‘Elementary conditions of business morals’, California Management  Review 1/1, 1-13.Baumhart, R.C. 1961, ‘How ethical are businessmen?’,  Harvard Business Review 39/4, 6-19and 156-76.Baumhardt, R.C. 1968,  Ethics in Business , Holt, Rineholt and Winston, New York.Beauchamp, T.L. and Bowie, N.E. (ed.) 1979,  Ethical Theory and Business , Prentice Hall,Englewood Cliffs, NJ.Bowen, H.T. 1953, Social Responsibilities of the Businessman , Harper & Bros, New York.Bowie, N.E. 1997,  Business Ethics: A Kantian perspective , Blackwell, Maiden, Mass.Carr, A.Z. 1968, ‘Is business bluffing ethical?’,  Harvard Business Review 46/1, 143-53.Carroll, A.B. 1999, ‘Corporate social responsibility: evolution of a definitional construct’,  Business and Society 38, 268-95.Chandler, A.D. Jr. 1956,  Henry Varnum Poor: Business editor, analyst and reformer  , HarvardUniversity Press, Cambridge, Mass.Davis, K. 1960, ‘Can business afford to ignore social responsibilities?’, California Management Review 2/2, 70-76.Davis, K. 1973, ‘The case for and against business assumptions of social responsibility’,  Academy of Management Journal 16/6, pp. 312-22.De George, R.T. 1982,  Business Ethics , MacMillan, New York.Donnachie, I.L. 2000,  Robert Owen: Owen of New Lanark and New Harmony , Tuckwell, EastLinton.Drucker, P.F. 1981, ‘Can there be “business ethics”?, The Public Interest 63/2, 18-36.Engels, F. 1845,  Die Lage der arbeitenden Klasse in England; nach eigner Anschauung und authentischen Quellen , Wigand, Leipzig.Folsom, B.W. Jr. 1987,  Entrepreneurs vs. the State: A new look at the rise of big business in America, 1840-1920 , Young America’s Foundation, Herndon, VA. Page 5 of 6ANZMAC 2009
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