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Global Inequality and the Social Contract: The New Context for Business Ethics

by Robert Gordon

Posted: 3 Feb 2015

We continue to be challenged by the fact that a large proportion of global society are left out of, or directly marginalised by, the economic activity allowing others to flourish.  What does this mean for the way we should consider the ethical conduct of business?

The push for ethical discernment throughout the private sector provides an important opportunity to reassess the role that business plays within the wider community.  How it relies upon society, provides for it, and how as a productive activity it can best serve our needs.  Amongst this is a growing call to return to the basics of customer service, in the hopes that by putting the customer first we begin to quickly rebalance the purpose and practice of business.  A lot of what we are seeing is therefore very promising, presuming of course that it isn't just reputational window dressing...

Calls to overcome short-termism with a long-term view on returns and incentives are, of course, necessary and a great source of leverage.  In the grand scheme of things, though, such change amounts to a relatively minor alteration of the profit-driven status quo if everything else were to remain the same.  It is evident that the nature of the private sector has become more extractive than many elements of society are willing (or even able) to allow.  As the sociologist Daniel Bell stipulated in his 1972 essay on capitalism: "the ultimate support for any social system is the acceptance by the population of the moral justification of authority."

To be clear, we have so far failed to place business ethics within the broader context of equality and fairness and by doing so are moving towards a breakdown of the social contract that our economic and political activities depend upon.

For those who ask for a road-map, in the hope perhaps that none will be forthcoming, a clear picture is emerging.  Amina Mohammed, Assistant Secretary-General and Special Adviser on Post-2015 Development Planning at the United Nations, has synthesised the outlook succinctly:

"We know what we need: inclusive economies in which men and women have access to decent employment, legal identification, financial services, infrastructure and social protection, as well as societies where all people can contribute and participate in global, national and local governance."

Moving forward thus requires us to view the private sector within the context of economic inequality, social marginalisation and political disenfranchisement.  Currently, the key focal points of business ethics relate to how companies do business between themselves, whether or not internal procedures are in line with regulatory systems, or the ability to retain investors, loyal staff and satisfied customers.  We need to add to this the idea that a primary duty of private enterprise is to integrate usefully into society in an ongoing relationship of mutual wellbeing, rather than one that only seeks to maximise profit without concern for societal cost.

This isn't necessarily an argument against wealth accumulation or even capitalism more generally.  Rather, it is an attempt to show that without a clear understanding of the indebtedness that corporations have to the society (and environment) that sustains them, along with a genuine display of reciprocity that follows on from such, the license to operate that private enterprise relies upon is at risk.  In turn, the very foundations of business become increasingly shaky - which damages the integrity of any economy that needs reliable structures of production and distribution (whether of physical or more abstract products) to maintain effective levels of activity.  As Michael Porter and Mark Kramer have convincingly argued, we need to discover a sense of shared value that creates wealth whilst facilitating social progress:

"Shared value holds the key to unlocking the next wave of business innovation and growth. It will also reconnect company success and community success in ways that have been lost in an age of narrow management approaches, short-term thinking, and deepening divides among society's institutions."

This ties directly into the notion of rebuilding trust.  There are a number of key issues within the narrative of global inequality that are linked to this and must be incorporated into business ethics if the stability of the social contract is to be restored, namely: political access, tax avoidance, and community integration.

We need to openly address the role of business lobbying in policy-making, and in particular the ability of money to generate political access.  The too-close relationship between big business and political establishment is catalysing widespread mistrust and eroding the institutional legitimacy of both sectors.  Engagement between the private and public sectors is certainly a central component of a well-functioning society, but it is counterproductive to allow self-serving and exclusionary closed-door consultations if our goal is truly to formulate an inclusive social framework.  These practices limit access for large sections of society that are impacted by the consequences of government policies.  In a very real sense they are dismantling the values of modern democratic life and leading to an increasingly disenfranchised citizenry, and therefore must be seen as an integral part of any attempt to understand the role of business ethics today.

The other two issues listed (there are plenty more, of course) are closely tied to one another.  Tax avoidance and sheltering puts maximising profit above any concerns for those that generate the products and consumer base that all businesses rely upon.  Because political will has in recent years been so heavily focused on attracting business through a race to the taxation bottom, combined with an impulsion to maximise shareholder value, we have encouraged a taxation mind-set where minimisation is the norm.  Shifting the definitions and locations of wealth in these ways is an attack on local communities around the world, and is an area particularly to blame for the current rise in global economic inequality.

An approach to business ethics that seeks to operate with integrity and honesty must ask larger questions about where wealth is generated and whether it is being tangibly shared with those that provide the infrastructure for its creation. Developing a comprehensive view of the total impact of operations on communities is vital to building trust, covering aspects such as pollution, use of infrastructure and resource consumption to name just a few.  Taxation then becomes a straight-forward and overt way to contribute to these societal costs by sharing profit and facilitating local prosperity.  From this perspective, the aggressive avoidance of local taxation structures becomes an inherently unethical and detrimental activity to pursue.  Just because it is legal, does not make it ethical.  Furthermore, threatening those same communities with capital flight if they attempt to mobilise solutions is to hold society to ransom and should be considered a deeply hostile act.

The new context for business ethics must center upon the social contract, and global inequality is the greatest threat to the license to operate currently faced.  There is a massive opportunity for corporate leadership in these areas, and public sentiment is ready to embrace innovative responses that work towards notions of shared value.  This will require a far more interdisciplinary approach, with wider skillsets - particularly at a senior level - including broad knowledge of and ability to foresee the needs of society.  Those that can successfully lead the way and harness a mutually beneficial and loyal relationship with society, as opposed to an ultimately extractive or manipulative business model, will be rewarded greatly by the public trust placed in their enterprise.

About this author

Robert Gordon is the Manager of St Paul's Institute.

nick mottershead - Posted: 12 Feb 2015

Good stuff for the debate although unfortunately I disagree that changes in corporate ethics will be "rewarded greatly by the public trust placed in their enterprise". If you are just focusing on banking maybe, but the issue is far greater and permeates most industries. The history of for example, unchanged consumer shopping habits despite disclosure of oppressive supply chains, disinterest in CSR attestation by investors and consumers, disregard for the Bribery and Corruption Act in many overseas transactions....I could continue.

A key point that seems missing is that business ethics are about individual behaviours within an organisation framework and its eco-system, everyone involved is accountable. We need to get away from suggesting this is about "corporate" behaviours, ie someone elses fault and as if "we" aren't accountable. More often it is about an individual's behaviour within a corporate that relates in many cases to their moral choices and the moral choices of their customers ie "us".

We have too many today who believe any "means justify our ends" as to how we operate within organisations and how they manage their supply chains, across all industries including the charity sector. Also an attitude of 'what the 'eye doesn't see' within organisations and these supply chains. We also shouldn't just blame the Execs & Boards, that's too easy and it isn't just them with this attitude.

Change will only happy when we all start to put "our money where our mouth is" i.e. when we take a stand that unless our goods, services, investments, pensions etc come from transparent and attested ethical organisations and supply chains, we are will move custom and not transact them. Unfortunately I don't have your confidence consumers inside or outside organisations or investors who often work on our behalf and under our instruction, have changed


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The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.