New transcription: Dr. William Kline spoke at Rockford University on business ethics. My follow-up interview with him on the main points of his talk are below in video and transcribed-text form:
Interview with William Kline, Ph.D., on Business Ethics
Interview conducted at Rockford College by Stephen Hicks, Ph.D.
The Center for Ethics and Entrepreneurship
Hicks: I am Stephen Hicks, executive director of CEE. With us today is Dr. William Kline, who is Assistant Professor of Liberal Studies at the University of Illinois in Springfield. Professor Kline is a philosopher, primarily specializing in business ethics, which is why we invited him here to Rockford College to speak to our Business Ethics class.
Now, Professor Kline, in your approach to business ethics you take issue with the usual statement that “Business ethics is a contradiction in terms” or that business ethics is an oxymoron. Or what we might refer to as the “negative” approach to business ethics—which is about focusing primarily on the Enron and the Bernie Madoff cases—all of the scandal cases—and presenting an litany of problems as representative of what business is about. What is wrong with that approach to business ethics?
Kline: One of the things that struck me is—I was teaching business ethics at the time that Enron happened and Tyco—and everybody wanted to talk about that. Everybody asked, “Wow, what about WorldCom?” But we had, just in terms of corporations and not in terms of business overall, on the New York Stock Exchange, something like 3,000 listed companies and, on the NASDAQ, I believe something on the order of 5,000. And I might be short on that. The number might be easily be higher than that. So we are talking about 8,000 business and five did bad things. That’s actually a pretty good record.
So why not talk about the 7,995 good cases that have gone right and what we can learn from them? Rather than, you know, the same old boring story that, well, somebody pilfered the company funds and ran off to some exotic location, which we all know is wrong. I don’t need business ethics to tell me that’s wrong.
Hicks: Is it your point, though, not that we can’t learn from the negative cases just as a doctor can learn from disease cases, but that we have more to learn from the good cases or successful cases?
Kline: I hear what you say, and it’s not that we can’t learn from the negative cases. Of course, you need rules to protect property and contracts. I think there are real issues with what stock ownership entitles you to, and those rules need to be worked out, but they just get overemphasized. Nobody is looking at all of the good that happens through business, and specifically, the individual good when you decide to enter into business or a business person decides to enter into business, how that might be conceived of as morally good.
Hicks: Your major theme was putting your business life, including the choice to go into business, in the context of your life overall, that is, putting an emphasis on the good life in a very Aristotelian sense. Can you say more about that?
Kline: I think, quite frankly, it’s tragic. I’ve had students graduate now. I’ve been teaching long enough. And I’ve had students who have gone into things that they loved and students who have gone into things that they’ve hated. And this notion that, well, here is my business and professional life, and that’s totally separate from my personal life, and totally separated from the good things I do in the world, and it’s its own entity. I don’t find that works that often. The happiest people I met are the people who have incorporated their business life into their broader goals, their broader aspirations, and see it serving a purpose within their lives.
So, yes, that’s how I want to talk about business ethics. In the Aristotelian version of it, what we want to talk about is a flourishing life, and that requires taking a holistic approach to one’s life, including business.
Hicks: So you ask what are the constituent elements of a flourishing life, and you place one’s business activities in that context. So, if we ask in an Aristotelian sense what a flourishing life is, what are the major constituent elements here? You had a list of six features, I believe. Not that we have time to talk about all of them.
Kline: Yes, so let me just take a few.
What we’re talking about is this: in order for us to flourish as beings, we have to recognize both constraints on what we are and what we can’t do but also certain abilities that we possess and that need exercising. As Mill said, famously, to be Socrates dissatisfied is better than being a pig satisfied. And quite frankly, I think part of the reason for that is that to live a life of a pig is either exceedingly boring or, if you look at people who’ve lived purely hedonistic lives, quite self-destructive.
So the question on the Aristotelian line is: given the kind of being I am, how can I do well in the world? Some of the characteristics of a flourishing life that we looked at today were that the flourishing might have to be some sort of standard for flourishing conducts, something that goes beyond my preferences, something that goes beyond my whim, or some sort of guide post to let me know when I am doing better or worse. One of those objective elements is that there is something fundamental about us in trading. Aristotle said that we are social creatures; Adam Smith said we have a natural propensity to truck and barter. I don’t see why it’s something we should deny. It’s something we should embrace, and it’s a good thing. When explorers go exploring and they want to make contact with new people, they take stuff to trade.
Hicks: Yes.
Kline: It’s far better than just annihilating who you meet. And trading is social. It’s not antisocial at all. Once again, Smith points out that economic transactions are a way of communicating, a way of persuading, which I find highly interesting. If one took a Hayekian model, one can say it’s a way to trade information. That’s exactly what I am doing when I am trading price information. I will take this for that much, and you’ll take that for that much. This is fundamental type of communication.
Hicks: So, in a broader context, this constituent element of a human flourishing life is social?
Kline: Yes.
Hicks: The rich values that we get as social beings interacting with each other, which then carries over to the business world, which is essentially social through trade. So we’re productive individuals trading with each other to mutual benefit. Your point, then, is that business is tapping something deeply social in us.
Kline: Well, absolutely.
Hicks: And, positively, the social is a constituent of a good life.
Kline: Yes, exactly. I mean, people recognize that when they meet at the local club they are being social. People will recognize when they meet on Facebook, they are being social. People aren’t as apt to recognize the fact that when you meet to trade, whether it’s in a bazaar or a Wal-Mart, you actually are being social.
Hicks: Though you might not know much about particular people you’re trading with.
Kline: Right, but that’s a good thing too. I don’t need to know everything about somebody to trade. I can productively engage in a fun, social interaction that mutual benefits both of us and I need not worry about what religion you are or what political beliefs you had. How horrible that would be if I had to litmus test everybody on their political views or religious views before I interacted with them.
Hicks: Another element of the social boldness that you mentioned is that business leads people to be willing to overlook many things they ordinarily wouldn’t overlook historically, like ethnicity, race, religion, or gender. Are people in business more likely to be tolerant and peaceful?
Kline: Tolerant, peaceful, and there are real incentives in the market and in business to not discriminate. There are real incentives to include anybody within your trading or productive enterprise as long as they can in turn trade or be productive with you. I am not saying that business answers all questions or solves all problems in humanity, but there is a critique of market systems out there that they are inherently racist or inherently sexist, and that’s simply not true.
Hicks: To go from flourishing in general to business in particular. In the former you mentioned Aristotle a lot, and in the latter you rely on Hume a lot. What is it that makes business business? What makes business a distinctive kind of human enterprise?
Kline: I think that the purpose of business is to produce a good or a service for trade. That that’s what makes distinctive. Someone would argue that perhaps the purpose of businesses is to serve a social good. For various reasons, I don’t think that that’s the purpose of a business. That’s the purpose of charities. That might be the purpose of certain political mechanisms. But if you look at what business is, it fundamentally involves trading. It involves using money as a method of calculation for making your decisions. To overlook that is to overlook the nature of business.
Hicks: If the purpose of business is not primarily to produce a social good, then what is the contrast purpose to that? Is business primarily individuals mutually satisfying their individual purposes?
Kline: Business allows you to do that, but I can solve my individual purpose. I can be an artist, I don’t have to trade. I can make my art works. I could be a philosopher. Socrates didn’t trade his thoughts and he had, you know, a life of his own that satisfied his preferences.
I really think that saying that you are going into business means that you are accepting a body of rules and goals and obligations that center on this notion that you are going to productively engage with other people on the basis of trade. If I am not trading, if I am just giving you something as a gift, then that’s not business. If I am just taking from somebody, that’s theft: that’s not business. Once we engage in this mutual give and take of what’s called trade with goods that we have produced without violating property rights or contract rights, then that’s business.
Hicks: You are critical of two major models that currently dominate business ethics discussions: the stakeholder model and the stockholder model. You use Milton Friedman as the major representative of the stockholder model. You’re critical of the idea that business should be defined in terms of a social responsibility to produce profit. What is wrong with that definition or account, in your judgment?
Kline: The majority of my business colleagues know the purpose is to make a profit. Well, stop. If one is on the financial services industry where the good or service one provides is actually an optimization of money accounts, whether it through hedge funds, mutual funds, monetary instruments, or derivatives, then that’s true. But that doesn’t mean that it applies to everything. I mean, people get involved in family businesses because they like the business. People start second careers in different businesses just because they’ve always wanted to operate a tiny theater in a small town. I am thinking of Berkeley, West Virginia. There is a small theater that people opened up because they just always wanted to do that. Profit is important; without a profit you go out of business. As I said before, money is a method of making your decision procedures. And profit also allows you to get what you want out of life, so it’s very important. I am not saying it’s not, but I don’t think it’s the purpose of business to gauge how well you’re doing business.
Hicks: Would you put that in the context of a corporation, say, where there’s a division of labor between management and the stockholders? Is there any role for saying that the managers have a fiduciary responsibility to maximize profit for the stockholders? Or is that merely a limited case of business closer to the hedge fund people, for example, you mentioned earlier?
Kline: There is a tendency in business ethics to over-corporatize everything so that if you want to talk business ethics we have to talk about either Enron or GM. And, if you look at the business sensitive data, at least half of all businesses are smaller than, I think, 500 people, with sizable chunks even in the lower registers.
So the reason I don’t like talking about fiduciary responsibilities of managers to stockholders isn’t because it isn’t important. It’s because everybody is talking about it, and what I want to talk about is this practice called business. And whether you’re a corporation, a privately-held company, a professional, or whether you’re operating out of your garage or some multi-billion-dollar complex, this is something that has importance to you.
Hicks: So the profit-as-the-primary-purpose model, which is sometimes called the stockholder model, you criticize. But you also equally criticize the stakeholder model. What is your criticism of the idea that the purpose of business is to satisfy the interests of all relevant stakeholders?
Kline: That is my objection. The purpose of business is to produce a good or service for trade. Once you figure the good or service you want to offer, that you want to be an accountant, that you want to make widgets, etc., and you’re now doing that and making trades, there are multiple decisions one has to make in the means of production, where one wants to locate, who one is going to hire. And money is the method to make these decisions. What am I going to get if I invest in this? And it’s a multi-attribute decision problem made on the basis of money. That’s the key, as I said, methodology of business. The stakeholder thesis says No, if that’s all you are taking into consideration, you actually being immoral. I have to equally consider the interest of all my stakeholders. So, if I make a decision, I have to consider the interests of the community, interests of the workers, the interest of consumers, the interest of the suppliers, the interest of … I am probably missing one now. Stockholders actually count as well. Or the interest of the owners—mighty nice that they count sometimes, huh? I have to balance all their interests. Well, if it’s not going to be with money, then how do I balance it? And it turns out that it’s a political decision process to balance it. So that notion of business ethics I actually think it’s antithetical to business. It’s political ethics.
Hicks: But rather relying on the narrow stockholder approach or the narrow stakeholder approach as you’re arguing here, we need to think more generically about the nature of business, which can come in many forms and serve many different purposes with different individuals. Thus your definition of business as purpose-driven production of goods and services for the purpose of trade, that’s where we should start.
So on the positive side of business ethics, you then say that this generates a kind of principled commitment that can come out as an ethos: if you want to decide what it is to be a good business professional or what it is to commit to the best kind of business life, you think of what are the needs of the production part of the business and what are the needs of satisfying the trade. You then come to be committed to productivity and committed to trade.
Then, towards the end of your discussion, you mentioned that this serves as a principle for deciding what is unethical in business. Even if we rule out the clear cases of crime as not being part of business, how does your account of what business is help us deal with cases like discrimination, say, in the workforce or the owner who uses the business as his personal piggy-bank, and so on? How does it provide us a guide in the negative cases?
Kline: Let me go back to the positives briefly.
Hicks: Fair enough.
Kline: Remember we are looking at us as human beings, and the trading actually touches something within us, something that’s very peaceful, something that’s exciting, something that’s social. That’s important. Business can serve that because trading is a fundamental aspect of business. I’m producing goods and services for trade. So, in general, business is a good thing. Now, I have to decide specifically what I want to do within business. There is something specific I have to do—I want to be an accountant or whatever. So that funnels down. Now I’ve decided to be an accountant, or I’ve decided that I want to make hamburgers, or I have decided I want to sell whatever.
Now I have specific obligations that go along with each of those. If I am going to sell chicken, I have a specific obligation not to kill people with salmonella or kill people with e. coli. I have these specific obligations as I provide this on the market, certain things that I have to do. So it’s very action-guiding in a good sense to tell me what ought I focus on, which just making a profit doesn’t tell me, as I am focusing on these productive activities.
Now, to help me on the other side with when I’ve gone wrong. What am I going to do right? Well, I want to focus on the productive side and the trading side, but when I’ve gone wrong I have stepped outside of this. And people will do self-justification all the time. It’s my business, so I can discriminate. Or, it’s my business, so I can hire the secretary to sleep with. Well, that’s precisely just self-justification. And why is it just self-justification? Because you’ve agreed and you’ve broadcast that you’re in business. We have said that this is what business is and now you’re doing entirely opposite. You don’t get to have your cake and eat it too. You are really doing business or you’re not. And if you are using your business as your personal piggy-bank, if you are using it as your personal sex-playpen, or if you are using it just to lord it over other people, you are not engaging in business and I think you are violating the telos of it. I think you’re doing something fundamentally wrong.
And, by the way, in the process of that, people say, well, you’re violating the goals. But remember what you’re violating. You’re violating this trading, so we’ve gone from a trading model to an authoritarian model which doesn’t serve flourishing the way the trading does. You’re not being productive in this sense. You’re actually probably being some sort of—I wish I could find a better term—but some sort of leech. You are sucking the productive abilities out of people or the company. You are not engaging in this mutually productive trade anymore. So when I say you violate the goals or the ends of business, there are some very real effects, both on your individual flourishing and on the flourishing of those around you as well.
Hicks: So one should think of business as a principled calling in the context of a flourishing life, given the kinds of beings that we are. When you then enter into business you’re committing to productivity and trade. Take those seriously, internalize them, and then also externalize them in business and remain true to that. That’s business as a noble cause?
Kline: Yes, and if you don’t want to do that, then do something else.
Hicks: Fair enough. Thank you Professor Kline.
Kline: Thank you.
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This interview was transcribed by Matheus Pacini and edited by Jennifer Harrolle.
See the video of this interview at YouTube.
Kline’s talk was sponsored by the Center for Ethics and Entrepreneurship, and the above video is cross-posted at CEE’s site.
Related: My video interview with Professor Kline on David Hume, who, according to a recent vote by contemporary philosophers, is the most influential dead philosopher.