Ethical Choices and Legal Obligations_1 pot

If Elizabeth as COO decidesthat Jack must either shape up or ship out, the likely reason, apartfrom the legal consequences, is that she doesn’t want to be a part of a company that tolera

that Of course, as a lawyer I also knew where we ran legal risks andwhere we did not, but beyond that basic standard, I thought aboutwhat kind of person I wanted to be I have to look at myself in themirror every morning when I shave I don’t want to be unhappy withthe man I see.

This is an ancient idea: that a key component of making ethicalchoices is the effect they have on the character of the chooser To beprecise, it is ten times older than Adam Smith and the Declaration

of Independence! It goes back 2,500 years to the Greeks, and ularly to Aristotle (384–322B.C.), arguably the most complete geniuswho ever lived

partic-But first, a quiz Does your company say it ‘‘puts people first’’? Areyou snickering? Let’s face it, your company exists to make money Sodoes my law firm, and my corporation before that To give Andrew hisdue, none of us works for the Sisters of Mercy, at least not if we toilfor profit That’s fair, but despite this sensible reality, it’s a remarkableand altogether encouraging phenomenon that large numbers of thebest people working in America’s companies—the people whom busi-nesses most desire to attract and keep—want more than just moneyfrom their jobs But the sheer corniness of some corporate-speakabout values can still be embarrassing, even for those of us who sharethem ‘‘We put people first!’’ ‘‘Integrity is the cornerstone of the way

we do business!’’ Yeah, right Window-dressing The product of some

PR consultant’s billable-hour mind These phrases are public relationsfluff without content, and no one is deceived As vapid platitudesthey’re so general and obligation-free that they’re no help at all insolving the problems that real businesspeople confront

If you’re among the best managers and business executives, or ifyou aspire to be, you won’t be satisfied by such glittering general-ities You and I spend long hours in a business environment, and

‘‘who we are at work’’ affects ‘‘who we are as people.’’ Aristotle madethis same point when he said that developing our own individualcharacter is one of our chief responsibilities We can characterizewhat he said as aiming to achieve personal excellence

The focus of what Aristotle called ethics is not how to answer thequestion, ‘‘What action is right?’’ The chief inscription at the Oracle

of Delphi was, ‘‘Know Thyself.’’ Aristotle’s brand of ethics was notabout duty, but about creating excellence in ourselves The modern,restated central issue becomes, ‘‘Who shall I strive to become inorder to achieve the kind of existence that I am meant to have as aHow to Think About Ethical Choices 31

person?’’ Who do we want to be, and who do we want our friendsand colleagues to be? What personal character traits do we careabout? Honesty Integrity Concern for others Sensitivity Goodjudgment This list could and should go on.

Our actions not only tell us about ourselves, they also help moldwho we are Linda doesn’t want to fire Tom because she doesn’t want

to be the kind of boss who’d do that If Elizabeth as COO decidesthat Jack must either shape up or ship out, the likely reason, apartfrom the legal consequences, is that she doesn’t want to be a part of

a company that tolerates such demeaning behavior Traditionally,moral thinkers have called this approach ‘‘virtue ethics.’’ Virtueethics differs from consequentialism, or the ethics of rights, because

it focuses not on an action—what is ‘‘done’’ to someone else—but itseffect on you, the person taking action

But beyond this, Aristotle and the Greeks understood the need toavoid looking at particular choices as if they were random snapshots.The choices we make are cumulative What we have done becomes

a part of us, an element of our structure, helping, guiding, and ishing what we will do; helping, guiding, and creating ourselves as

nour-‘‘good people.’’ We are, in short, talking about much more thanbusiness values We’re talking about character

I once read about a Midwestern bank that had a unique hiringprocess When it set up interviews at the business schools where itrecruited, it sent its top management team to meet the candidates.Management’s premise was that a comparison of transcripts alonecouldn’t identify the candidates the bank wanted to hire Technicalskills, as evidenced by grades, were bunched together What distin-guished individual candidates was which ones the top managementteam viewed as most capable of operating with the honor and integ-rity that was the foundation of the bank’s relationship with itscustomers

While we can’t ignore the insights of the consequentialist or theadvocate of rights in resolving questions about values, acting withyour eye on that face in the mirror is a helpful touchstone in business.There are increasing numbers of men and women who want morefrom their business lives than external marks of success, who wanttheir business lives to be a part of coherent personal lives People likethis know that ruthless, unfeeling behavior at the office can’t be leftbehind when they spend time at home with their families Net worth,

in short, is about more than subtracting financial liabilities from

financial assets Or, put differently, it’s important not to confuse your

‘‘worth’’ with your ‘‘net worth.’’

CONSEQUENTIALISM, RIGHTS, VIRTUE—ANDTHE LONG ARM OF THE LAW

Consequentialism, rights, and virtue ethics constitute the threemost important ways of thinking about the ethical choices you have

to make I’ve never been satisfied that there’s a rank orderingbetween them Each has a part to play But there’s one caveat Somepeople argue that in business, none of them matter So far as values

or rights are concerned, these people would say, all that counts iswhether there’s legal risk in what you’re doing In this view, ethics isbunk, businesses exist to make a profit, and businessmen and womenare justified in doing—indeed, only should be doing—whatever theycan to make a profit Questions of value or of right or wrong arise,these people say, only if the value or right is embodied in the law.The argument pretends to be tough-minded, but is in fact fuzzy Ittypically involves a lack of understanding of how the law works, and,more fundamentally, of where the law comes from The questionsraised by this argument are sufficiently common that we’ll spend thenext chapter sorting them out

How to Think About Ethical Choices 33

of physics are not the same in different universes, the different verses are mutually incomprehensible There’s a parallel between theastronomer’s imagined other universes and the problem of how tosolve the quandaries of business ethics effectively The difficulty isthat there are three universes that hardly know how to talk to oneanother The first is the world of economics; the second is the world

uni-of the law; and the third is the world uni-of ethics or, if you will, moralphilosophy If these three disciplines are not literally unknowable toone another, as are different universes with different laws of physics,its practitioners sometimes act as if they were

If we’re going to make genuine progress in figuring out how toaddress issues that impact others, whether we mean financially or interms of their self-respect, we have to understand the premises ofthese three ways of thinking, these three universes Then we can seehow they interact A surprisingly large number of businesspeople,and lawyers, think that law is a substitute for ethical choice, that lawentirely subsumes ethics To understand that view, however, we have

to backtrack to those businesspeople who view both law and ethics

as a hindrance to business Once we dispose of that position, we’lldevote most of our attention in this chapter to the law and how theadvice lawyers give their business clients relates to ethical choices.

THE ECONOMIC MODEL: BUSINESS IS ABOUTMAKING A PROFIT

The way in which practitioners of one discipline seem to inhabittheir own universe, and view other disciplines as equivalent to uni-verses with different and incomprehensible laws of physics, is clearwhen we think about what I call the profit-driven view of businessethics In this view, a businessperson decides whether or not to dosomething, or which choice among a number to accept, by makingthe choice that maximizes profit, or, in the more precise phrase of

an advocate of this view, ‘‘long-term shareholder value.’’1 Now, evenwith this approach, gnarly questions arise when what maximizes thecompany’s bottom line is different from what maximizes an individu-al’s bottom line They’re significant enough that we’ll devote awhole chapter to them, under the umbrella of conflicts of interest.Let’s put them aside for the moment Our present task is simply toexplore the idea that there’s really no such thing as an ethical prob-lem in business All questions are reducible to dollars and cents Wecan call this view the ethics of the marketplace For those trained ineconomics or in business school with a heavy economics focus, it’sappealing As Andrew in Chapter 1 would say, ‘‘All’s fair in love andwar—and in business.’’ But all is not fair in love, all is not fair inwar—and all is not fair in business

To understand this narrow way of thinking, let’s return to Linda’sstory We explained it in a way that Andrew, Linda’s boss, could treatthe decision of whether or not to fire Tom, the underperformingsalesman, purely as a matter of revenue production To allow for thispure, unimpeded focus, we deliberately chose to imagine Tom as awhite male under forty We also made Tom a regular member of thesales force, and not a high-level executive By doing it this way, weremoved all the legal constraints that could have hindered Andrew’sbottom-line focus Tom is white, so there’s no question of racial dis-crimination Tom is male, so there’s no issue of gender discrimina-tion And Tom is under forty, so age discrimination doesn’t kick in.(Yes, forty If you haven’t worked in human resources, you may not

know that a person is protected by federal age discrimination tion beginning on his or her fortieth birthday That, incidentally,means that approximately 53 percent of the adult American work-force is protected by this legal regime.) Finally, as an ‘‘ordinary’’member of the sales force, Tom would be what the law calls an ‘‘atwill’’ employee This means that the company can fire him at anytime for pretty much any reason (A senior executive, by contrast,likely would have an individual employment contract that wouldcontrol the circumstances under which the company could fire him

legisla-or her, and what it would have to pay if it did so.)

If, by contrast, Tom had been African American or over forty, or

if he had an individual employment contract, or if Tom were Tamaraand female, legal considerations would intrude themselves intoAndrew’s and Linda’s decisions

Now, there obviously are going to be many situations in which abusinessperson’s decision to maximize long-term shareholder valuewill be constrained by legal requirements Indeed, one of the reasonsthat so many ‘‘economics-oriented’’ people favor ‘‘limited govern-ment’’ is because their economics outlook prompts them to thinkthat ‘‘optimum’’ results are more likely to the extent government-imposed rules, that is, laws, don’t inhibit their individual profit-maximizing activity But these legal requirements are viewed entirelywithin the profit—or long-term—owner valuation model Lawsimpose costs—nothing more, nothing less We can readily see this if

we change Tom in our story into Bob and make him a year-old African American

fifty-two-From Linda’s perspective, these changes make no difference Theguy’s wife is dying—the color of his skin, or whether he’s fifty-two

or thirty-two, don’t matter For Andrew, at one level, the changesalso make no difference Whatever negative we can say aboutAndrew’s cold-heartedness, we haven’t seen anything to lead us tobelieve that he’s a racist or is particularly unfeeling about peoplewho have a little gray in their hair What Bob’s racial and age char-acteristics do, however, is to add to the cost of firing him Thesecosts are multiple, and we’ll identify them separately, but theirsignificance will be clear in the next section where we describe thelawyer’s universe First, if the company fires a fifty-two-year-oldAfrican American, without the protection of a solid paper trail docu-menting subpar performance, there’s a real possibility that the em-ployee will commence proceedings against the company either beforeEconomics, Law, and Business Choices 37

the federal Equal Employment Opportunities Commission (EEOC),

or similar state agency, or in federal or state court Now, being citedbefore the EEOC or sued itself is a cost This is true even if theemployee has little chance of prevailing or if the company has insur-ance that will cover the cost of the defense Valuable managementhours will be spent working with lawyers, recovering documents,testifying and preparing to testify, and the like It may be difficult toput a precise dollar figure on these costs, but it’s certain that theyare costs

Second, of course, the company may actually have to fork outmoney The case could go to trial, and the company could lose andsome or all of the damages they’d owe Tom might not be covered byinsurance Or the insurance policy limits might be exhausted—insur-ance talk for used up—in the course of the defense, so that the com-pany would have to pay the lawyers’ fees to complete the defense.Third, and finally, being sued for race or age discrimination cancreate indirect costs These costs may be lumped together under therubric of reputational injury Twenty years ago, when I taught acourse in strategic management in a business school, I used Wal-Mart

as the poster child for how a company could be hugely profitable andsuper-responsive to the needs of its customers and the communities

in which it was located The protracted gender-discrimination tion in which Wal-Mart has been involved since 2004 has tarnishedits reputation beyond recognition In a sense, this kind of cost is likethe damage to morale on the sales force that, in Chapter 1, we offered

litiga-as Linda’s possible ‘‘bottom line’’ justification for delaying Tom’s ing Race or age discrimination has the potential of harming attitudes

fir-in the community at large

ECONOMIC ETHICS: THE WORLD OF THE EIP

On the economics/market approach to business, legal costs are justlike any other costs Some costs may be more difficult to estimatecorrectly than others, but that is purely a technical problem Suppose

a lawyer advised the company that, based on his or her experience,there was a 60 percent likelihood that firing the fifty-two-year-oldAfrican American Bob would produce a jury award, above and beyondinsurance coverage, of $100,000 In figuring out the cost of Bob’ssubpar performance, sales management could figure in a projected cost

of $60,000 to pay the court’s judgment against the company Thecompany could also factor in other costs we’ve mentioned, like lostmanagement time to litigate the claim and the cost to pay the com-pany’s PR firm to devise and implement a damage-control strategy

in the community where Bob’s story might make the paper or the11:00 news

If we were speaking precisely we’d call this approach ‘‘economicnonethics.’’ For simplicity’s sake, though, I’ll call it ‘‘economicethics.’’ Nothing matters except the dollars and cents on the bottomline Its like the consequentialism we discussed in Chapter 2, but it

is much narrower Consequentialism takes into account human ues and feelings Its weakness, we saw, is the inability to assignmeaningful numerical values to such nonnumeric phenomena Theeconomic view doesn’t have this concern If something doesn’t makemoney or costs money, you can forget about it Racial discrimination

val-is neither good nor bad and the psychological consequences to a tim are irrelevant It’s just a cost The only measure of that cost isthe fine and litigation expense the law imposes

vic-Adherents of this view are the ethically indifferent people, or EIPs,

we met in Chapter 1 EIPs live in their own universe They can’tunderstand why you ‘‘should’’ do something because it’s ‘‘right.’’ Theycan’t understand that you should obey the law because, in general,obeying the law makes society a better place in which to live Theyonly can understand that not obeying the law is cost

Economic ethics appeals to many I’d bet that most readers havemet at least a few people in their own or other companies who fitthe model Let’s think about its appeal First, it’s simple, by which Imean not simple as in the opposite of hard, but simple as in the op-posite of complex If we return to the problem of accurately estimat-ing the legal costs to Linda’s company if it fires a fifty-two-year-oldAfrican American, we see right away that it’s darn tough to come upwith any realistic numbers But tough is not the same as complex

On the economic view, there is only one criterion to consider: mizing long-term owner value If you adopt this view you don’t haveany worries about depriving a man in his fifties of his job, or of wor-rying that you may be acting from racial prejudice There are noconflicts arising from other values you may hold, because, at least asfar as business is concerned, you haven’t got any If you really believethat ‘‘ethics’’ has no place in the world of business—and we’ll arguethat, thankfully, few men and women think that way—you’ll have noEconomics, Law, and Business Choices 39

maxi-lost sleep, no pangs in your stomach, and no prickings of science’’ about what you’ve done.

‘‘con-The second reason why economic ethics has an initial appeal isthat it describes itself as the corollary of the definition of what busi-ness is, namely, an institution in our society uniquely designed tomake a profit It seems scientific, not subjective Since the beginning

of the last quarter of the twentieth century, no macrotrend has beenmore apparent worldwide than the global embracing of ‘‘capitalist’’ideas that economies work better when individuals engage in thebusiness of their choice with the avowed aim of making a profit.The approach seems to fit with the movement of history

Third, economic ethics presents itself as a corollary of the pline of economics Economics used to be called the ‘‘dismal science.’’Not anymore Now it often acts as if it were the imperial discipline.Its rise to eminence can probably be traced to the British economistand polymath John Maynard Keynes (1883–1946), whose work beganthe process of teaching governments how to manage aggregate demand

disci-so as to avoid catastrophes like the Great Depression that began in1929–30 In the last third of the twentieth century, Milton Friedman ofthe University of Chicago and his followers exerted enormous influence

on how people think about policy Economics’ successes have beenmanifold Through the work of many, including Friedman, we nowunderstand that the Great Depression was caused not by the wealthyWall Street malefactors of FDR’s rhetoric, but by a lack of knowledgeand actions by central banking institutions in managing the money sup-ply; and awareness that managing that money supply can prevent thedouble-digit inflation that plagued the United States in the last years ofJimmy Carter’s administration, and the first years of Ronald Reagan’s

NOBODY CROWNED ECONOMICS EMPEROR

If anyone claims that ‘‘progress’’ is always an old-fashioned lectual Pollyanna, point that person to economics What we’velearned in the last seventy-five years or so is astonishing and hugelybeneficial to mankind But the universe in which economic premises,economic arguments, and economic conclusions prevail is not theonly universe The legal universe, for example, doesn’t march to thebeat of economic arguments and purely economic considerations.The law threatens sanctions if we don’t follow its strictures While

intel-those sanctions are easily and correctly understood as ‘‘costs’’ thathave to be accounted for, the law is not just another cost center in theeconomist’s universe The law tells us to do things because society,through its laws, has said we should Unless the word is trivialized(and distorted) to mean only ‘‘seek the most cost-effective,’’ should is atough word for economics The problem lies in the limited perspec-tive of economic thinking, not in ideas of what we should andshouldn’t do Nobody crowned economics the imperial discipline.Let’s think back to our modified version of Linda’s story, in whichthe nonperforming salesman, Bob, is a fifty-two-year-old AfricanAmerican We’ve seen how firing a person who falls within two pro-tected classes in the federal antidiscrimination laws—race and age—makes such a termination cost more than firing someone who isn’tprotected Consider two possible variants on which Andrew could

be basing his order to terminate Bob In the first variant, Andrewtells Linda, ‘‘Look, I’ve checked with our legal department They tell

me we’d have a great case given his subpar numbers for three years.Compared with the cost of living with his performance, it’s a no-brainer As I said, fire him Today.’’ In a second variant, Andrew saysexactly what we’ve just recounted, but, after he clicks the send key, hemutters to himself, ‘‘Damn those [blacks] Can’t stand having to hire

’em for sales positions I’m so glad we can get rid of one of ’em.’’

If you believe that business is just about making a profit, you’recommitted to saying there’s no difference between the two scenarios.Whether Andrew is simply a tough-as-nails, bottom-line-orientedguy, or a closet bigot, doesn’t matter If the numbers work, the num-bers work End of story I don’t think many of us would agree thatAndrew’s motivation is irrelevant Putting it that way, however, isn’tnearly strong enough The two scenarios are quite different The firstvariant, in which Andrew just talks about the cost of firing a personwho is a member of two protected classes may seem callous, butthere’s an element of consequentialist fairness to it

The racial innuendo in the second, however, is repulsive Most of

us don’t want to live in a world where expressions of, and actionsbased upon, unbridled racism are perfectly OK This isn’t specula-tion It’s a fact Congress, which is elected by the adult voting popu-lation, passed broad antidiscrimination legislation in the periodbetween 1964 and 1972, and there has been no significant movement

to repeal it Thinking that racial discrimination is wrong isn’t just

my private view or yours; it’s that of the United States, evidenced inEconomics, Law, and Business Choices 41