The Role of Philosophy

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The Role of Philosophy Ethics in Business

• Miles Arnone
• Principal, American Capital Strategies
• MB712
• September 6, 2008

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Overview

• Outsourcing and Consumer Behavior will be used to
  motivate the discussion and provide context.
• From this we will be able to more easily
  conceptualize and discuss the more abstract
  concepts associated with ethics and philosophy
  and their relevance to your career.
• Who is Miles Arnone?

3
What makes a great engagement ring?
Setting
Most goods are acquired based upon their apparent
characteristics.
Clarity
Size (carats)
Cut
Color
Why are engagement rings purchased ?
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Are all diamonds created equal?
Would you buy a diamond if you knew it cost
someone both hands?

• Hundreds of millions of of diamonds are mined
  at gunpoint in Sierra Leone, Angola, Liberia, DRC
  (Congo) each year.
• Al Qaeda trades in conflict diamonds.
• USA consumes 65 of all diamonds including these.
• Amputations, rape, murder are routinely committed
  by the rebel forces controlling the mining
  regions.

Latent characteristics matter!
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Latent characteristics of a product are relevant

• Products and services are increasingly
  undifferentiated as relates their apparent
  characteristics.
• This is a well established cycle for any and all
  offerings.
• The diamond example is not an isolated one. For
  most people, the operating assumption is that the
  government or some other, unnamed power or
  influence, ensures that only goods and services
  produced in a reasonable manner make their way
  to us. Is this a good assumption?
• Oil
• Natural Gas
• Coffee
• Clothing
• Forest products
• Furniture
• Think of the range of factories and working
  conditions youve seen in your career.

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Questions, questions, and more questions.

• Should the environment (socio-political,
  economic, specific company characteristics) in
  which a product is produced be a relevant
  consideration when acquiring a good or service,
  either for direct consumption or for sale to
  others?
• Working assumption Yes
• This starts us down a very slippery slope..
• What should one measure?
• What is the appropriate level of granularity when
  making such evaluations?
• What is the relevant standard in evaluating the
  measurement?
• The answers to these questions ultimately presume
  a philosophical basis, which in turn mandates a
  certain standard of moral behavior.
• This can be explicit or implicit

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There are several large elephants in the room
with us..

• Five typical Objections are.
• My job is to maximize profits. My Board of
  Directors will accept nothing less.
• I dont have time for philosophical mumbo-jumbo.
  Thats all very nice and theoretical, but Ive
  got payroll to make.
• If I dont do it (e.g. source from country X)
  someone else will and then where will my company
  be?
• My impact on what goes on in the world is very
  limited this is something for governments to
  worry about. What I do doesnt move the needle
  so why sweat it?
• This sounds like a prelude to Buy American
  jingoism.

• Managers often object to this developing line of
  thought , namely the idea that there may be a
  moral or ethical imperative that should impact
  sourcing decisions.

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Roadmap

• The thesis
• Business decisions should be guided by an
  explicit standard of ethical behavior as dictated
  by the philosophical tenets adopted by the firm.
• The profit motive is not such a guide in and of
  itself.
• Failure to do so can have dire consequences for
  the firm, its shareholders, and the individuals
  working there.
• The manner in which firms handle outsourcing will
  be used as the context (i.e. an example) in which
  we will review this thesis.
• Our process for this meeting
• Motivate the discussion - done
• Address common objections
• Suggest a practical approach to outsourcing (and
  more generally).

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Objection 1

• My job is to maximize profits. My Board of
  Directors will accept nothing less.
• Implicit assumption 1 Maximizing profits and
  acting in accord with ones philosophical beliefs
  is not possible.

TIME OUT!
What's a philosophical belief?
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A Few Definitions

• A philosophy is a comprehensive system of ideas
  about human nature and the nature of the reality
  we live in. It is a guide for living, because the
  issues it addresses are basic and pervasive,
  determining the course we take in life and how we
  treat other people.
• The topics that philosophy addresses fall into
  several distinct fields. Among those of
  fundamental concern are
• Metaphysics (the theory of reality)
• Epistemology (the theory of knowledge)
• Ethics (the theory of moral values)
• Politics (the theory of legal rights and
  government)
• Aesthetics (the theory of the nature of art)
• EVERYONE OPERATES ACCORDING TO A PHILOSOPHY,
  WHETHER EXPLICIT OR IMPLICIT. IT SUBSUMES
  EVERYTHING ONE DOES AND HOW ONE DOES IT.

Toyota
Enron
G.E.
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Objection 1

• My job is to maximize profits. My Board of
  Directors will accept nothing less.
• Implicit assumption 1 Maximizing profits and
  acting in accord with ones philosophical beliefs
  is not possible.
• This may or may not be true. It is
  philosophically dependant.
• If ones philosophy does not allow one to earn
  money while otherwise being ethical, time for a
  new job! ?
• Implicit assumption 2 The end justifies the
  means
• The problem here is that ends are not repeatable,
  only methods or processes are. Further,
  ultimately, it is the process, or means that
  characterize the individual/company/society, not
  the ends.
• Example crime reduction strategies in the
  former U.S.S.R.
• Machiavelli was wrong! Successful ends are
  derived from appropriate means not vice versa.
• Have you ever explicitly discussed this (i.e. the
  context in which profits are to be gained) with
  your Board of Directors?
• Maybe not. Sounds too mushy.

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Objection 2

• I dont have time for philosophical mumbo-jumbo.
  Thats all very nice and theoretical, but Ive
  got payroll to make.
• Philosophy is anything but theoretical. Every
  decision you make is driven by your philosophy
• What you think is the nature of reality
  (metaphysics)
• E.g. the world is flat vs. round
• Other examples?
• How you know what you know (epistemology)
• The role of reason in decision making
• What is right and wrong (ethics)
• Systems of economics and politics
• The only question is whether your philosophy is
  explicit in your own mind or implicit, fuzzy,
  unable to be articulated.
• By way of comparison, The absence of a decision
  is a decision

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Objection 3

• If I dont do it (e.g. source from country X)
  someone else will and then where will my company
  be?
• Congratulations, youve just become a lemming,
  having abdicated the use of your brain for
  anything better than watching TV and eating.
• Individuals are responsible for their own
  decisions and actions. Subjugating ones
  decision making to the State, the mob, your
  peers, common practice, etc. doesnt alleviate
  one of responsibility for ones actions.
• Example It is common practice in Sri Lanka to
  bribe lower level officials for permits, etc.
  Should one accept this cultural behavior and
  participate?

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Objection 4

• My impact on what goes on in the world is very
  limited this is something for governments to
  worry about. What I do doesnt move the needle
  so why sweat it?
• Again, youve just qualified to become a
  brainless automaton. Good work! ?
• Further, how we spend our goes a long way to
  shape the world. We vote with our everyday to
  support various socio-political systems, to
  promote specific corporate cultures, and to
  retard the advance of others. It is vitally
  important, and potentially of greater impact than
  specific government actions (short of the use of
  explicit force) in shaping the world.
• Ex. Taiwan and China
• As business leaders you play a major role in
  shaping the world around you.
• IMPACT Total Spendevery year!

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Objection 5

• This sounds like a prelude to Buy American
  jingoism
• Buy American is in fact jingoistic because it
  reflects an attitude that one should buy products
  from one of us rather than them on the basis
  of nationality.
• Determining from whom to buy, or with whom to JV,
  for example, on the basis of common philosophical
  grounds, and/or in a manner consistent with ones
  philosophy is an entirely different matter.
• Ex.
• Buying GM because its made in America
• Buying Toyota over GM due to their corporate
  culture, rejection of unions, etc.
• Buying GM over Toyota because I love unions.

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So, what can we say so far.

• Undertaking business consistent with ones
  philosophical beliefs and moral standards is
  appropriate and efficacious.
• It need not be at odds with strong pursuit of the
  profit motive over the long-run.
• It will undoubtedly not allow the maximization of
  near-term profits
• Why?
• Business decisions should be guided by an
  explicit standard of ethical behavior as dictated
  by the philosophical tenets adopted by the firm.
• This may sound like motherhood and apple pie,
  but in reality most firms ignore almost all
  considerations other than straight product price
  and commercial terms when sourcing.
• AVOID hear no evil, see no evil, speak no evil
• AVOID we may think of it as stealing, but they
  dont so.
• AVOID there is no black and white, only grey.
  This is a shameless cop-out.

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What are the practical aspects.

• Explicitly state the Companys philosophical
  tenets
• Who should establish these?
• What is managements obligation in
  shaping/responding to these beliefs?
• This is a significant piece of work
• Seek to work with individuals, firms, nations
  that are in concert with these beliefs.
• Heirarchy (concrete information to be favored
  over abstract)
• Individuals/business leaders - best
• Companies - good
• Countries fair to poor
• As knowledgeable, world-wise business leaders,
  you should rarely have to revert to highly
  abstract information about a country or culture
  to affect an appropriate policy. The average
  consumer is not so lucky.

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What are the practical aspects (continued).

• Consistently apply the Companys beliefs across
  all business interactions
• Choose partners accordingly seek a meeting of
  the minds (the anti-at arms length transaction)
• Work to have your standards applied
• Health and safety
• Treatment of workers
• Environment
• What does this imply as relates wages?
• Dont underestimate the scope of the firms
  influence
• It is the responsibility of management to know
  the conditions under which the products and
  services that the firm buys are produced.

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What not to do.

• Equitorial Guiniea
• Ruled by dictator Teodoro Obiang since 1979
• Routinely utilizes politically motivated murder
  and torture to subdue opposition.
• Officially sanctioned discrimination of Bubi
  tribe by Fang tribe.
• Embargoed by Western governments until 1990s,
  when.
• Oil discovered in massive quantities
• ExxonMobil, Hess, Marathon participate in JVs
  with the government and pay for security forces
  to defend their rigs and Obiangs government.
• Oil profits fund Obiang and his familys lavish
  lifestyle. Average citizen hasnt seen an
  improvement in quality of life.
• Western governments rolled back their embargoes
  and silenced their criticisms when oil was
  discovered
• Are ExxonMobil, Hess, Marathon acting
  appropriately?

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What not to do.

• WFOE Labor Practices in China
• Laws govern pay rates, overtime, hours
• Do most WFOEs follow these rules?
• Do most local firms follow these rules?

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CONCLUSION

• The world is changing fast. Its easy to worry
  about whether the changes we are seeing (the rise
  of China, the exodus of manufacturing jobs from
  the USA, the tumult in the Middle East, etc.,
  etc.) are going to lead to a better or worse
  world for our children or our childrens
  children.
• To the extent that we pursue commerce in a manner
  consistent with our values as a whole we can go a
  long way to making the world a better place.
• Commerce is the primary basis by which value
  systems compete and are ultimately adopted more
  broadly or discarded. The extent to which the
  players on the field explicitly understand,
  consistently communicate and holistically apply
  their philosophy largely dictates which will
  ultimately prevail. The adoption of one or
  another philosophy on a global scale is not a
  fait a compli, but rather a function of the
  philosophies concordance with reality and its
  consistent application by its proponents.
• Know yourself, be consistent and know your
  partners.