The Practical Soul of Business Ethics: the Corporate Manager's Dilemma and the Social Teaching of the Catholic Church

• Publication year: 2005
• Citation: Vol. 29 No. 01

SEATTLE UNIVERSITY LAW REVIEWVolume 29, No. 1FALL 2005

The Practical Soul of Business Ethics: The Corporate Manager's Dilemma and the Social Teaching of the Catholic Church

Leo L. Clarke, Bruce P. Frohnen, and Edward C. Lyons(fn*)

Introduction

When the twenty-first century opened with a spate of corporate swindles and scandals,(fn1) the American public demanded renewed attention to business ethics. Congress immediately legislated on the matter,(fn2) the stock market took its revenge on perceived cheaters, and regulatory and private actions proliferated.(fn3) All of these phenomena, however, merely addressed the lowest rung on the ethical ladder: "Do not lie, cheat or steal."

This Article looks beyond the scandals and crooks to the "Manager's Dilemma" faced by those thousands of corporate officers who must choose between what their business judgment tells them is economically best for their employer and what their consciences tell them is morally right. Stride Rite, a shoe company recognized for its social commitments, provides a representative example. Faced with a difficult decision on whether to close a plant in New Bedford, Massachusetts, the Chairman of the Board commented: "Our hearts said, 'Stay' but our heads said, 'Move.'"(fn4) The Chairman's statement exemplifies the head/heart dilemma faced sooner or later by almost all managers. The head represents remorseless economic realities for the company and its investors. The heart represents the humane considerations often entertained as a response to those economic demands in view of the manifold consequences of company decisions on the lives of individual workers. Such dilemmas can range from Stride Rite's socially significant plant closing to the simple question of how to deal fairly with a supplier, and can include myriad factual situations from approving an advertising program to setting a pricing structure or reducing product support services. Yet, from the sublime to the ridiculous, every Manager's Dilemma begins with a situation where economic decisions trigger the consciences of managers and employers and raise questions about moral responsibility and doing the right thing.

Our analysis focuses on and attempts to dispel an overly narrow view of the moral responsibilities of corporations and their managers. Many businessmen and lawyers, relying on prevailing approaches to business ethics, labor under the misperception that the moral ladder in the business world has only one rung: "Be honest." Americans, however, should, can and do expect more from the managers of our large corporations, and virtually every Fortune 100 company publicly espouses a "social responsibility" far exceeding mere honesty. Further, as we demonstrate, American jurisprudence is consistent with those expectations.

Our thesis is that Catholic Social Teaching provides a reliable set of principles for resolving the Manager's Dilemma because it provides a consistent basis for evaluating the human aspects of the nature and purposes of economic relationships that corporate law, business ideology and popularly accepted economic theory fail to adequately address.(fn5) In other words, we propose a strategy for resolving head/heart dilemmas consistent with a manager's corporate fiduciary duties. In Part I, we introduce the ethical dilemma facing officers and managers in today's corporate environment. In Part II, we consider the purportedly conflicting notions of ethical responsibility imposed on a corporation and its actors, and focus on the various interpretations that have been offered in defining the scope of that ethical responsibility. In Part III, we describe the basic elements of the social teaching of the Catholic Church and the pertinent concepts of natural law philosophy that follow from and support that teaching. In particular, we argue that this social teaching can be an effective source of guidance for corporate managers wanting to synthesize their moral, ethical, and professional lives.(fn6) Finally, in Part IV we offer five examples of how Catholic Social Teaching would apply to specific business scenarios.

I. The Inadequacy of Common Approaches to Resolution of Ethical Dilemmas

Whether moved by survival instinct, greed, or brotherly love, corporate directors and managers regularly face apparent zero sum decisions affecting the fortunes and futures of investors, creditors, employees, vendors, customers, neighbors, and broader communities. For every alternative course of action, there are benefits and costs, winners and losers. One alternative may often be the "best" for a given constituency of the enterprise, but doubts usually exist, given the competing interests of all stakeholders, concerning whether any one alternative is "best" overall. Further, even if the choice were limited to the impact on shareholders, managers may still have to choose between long-term shareholders, day-trading speculators, mutual fund managers, pension plan participants, and so on.

The conscientious manager may be provided with cadres of experts from disciplines as varied as engineering, economics, finance, labor relations, materials management, law, and anthropology as she considers alternative analyses, but there is little guidance available to determine the criteria for evaluating and choosing between these presumably well-analyzed options. It is not clear under existing practice and business law where the manager is expected to look for answers to questions of what she "ought" to do.

Too often, managers-even of corporations that profess to be good corporate citizens-yield to glib substitutes for hard ethical analysis. One common placebo is to graciously forsake short-term profits for long-term profits.(fn7) While it has never been widely believed that corporate fiduciaries must maximize short-term profits,(fn8) the strength of the profit maximization myth has led many CEOs to insist that they are satisfying all the applicable ethical demands of being a "good corporate citizen" and "socially responsible" whenever they forego short-term profits, as long as there is a neutral or positive effect on long-term profits.

A second substitute for what we would consider to be a comprehensive ethical approach consists of limited, albeit grandiose, corporate reliance on honesty and fair dealing in transactions-practices that are certainly consistent with long-term profit-maximization, yet fail in many instances to incorporate all relevant ethical concerns.(fn9) In fact, it often appears that such minimalist corporate ethics standards are limited, if not in essence motivated, by "market-driven" analysis, and therefore fail to demonstrate a commitment to fully ethical behavior.(fn10) As tritely illustrated in the popular post-war movie Miracle on 34th Street(fn11) managers sometimes justify ethical business practices on the view that in the end they will actually increase profitability and consumer demand. In a similar vein, statements of company officers often seem to display a willingness to do the right thing to the extent it means sacrificing short-term profits for long-term profits, but conceal an unwillingness to do the right thing if it actually means reducing long term profits to any material degree.

More sophisticated approaches to managerial behavior have been proposed. For example, the political right demands that managers act in accordance with notions of fiduciary duty and the tenets of neoclassical economics, specifically the economics of the firm.(fn12) The problem with this approach, however, is that it leaves the Manager's Dilemma unresolved: It acknowledges the "head," but never addresses the manager's intuitive sense that mere economic analysis is insufficient because it ignores the "heart," i.e., the ethical demands, similar to those experienced by Stride Rite's Chairman, that go beyond the needs of the firm.

At the left end of the spectrum, structuralists would have managers' decisions dictated solely by governmental regulation.(fn13) While a Marxist view of government involvement in business may no longer be discussed with any seriousness, today's structuralists contend that certain industries or aspects of business necessitate heavy regulation.(fn14) This view, often associated with the welfare state,(fn15) is based on the assumption that corporations will not or cannot effectively self-regulate. Therefore, government must intervene and demand a certain standard of behavior from corporations and their managers. Such a view, ironically, has little faith in either individuals or markets. As a result, it is either totally unhelpful to the manager in those instances where no regulation applies, or is suggestive of no ethical responsibility whatever in non-regulated industries. Structuralism, therefore, offers no definitive ethical guidance to the manager.

More recently, the work of business ethicists(fn16) and statements of principles by management groups such as the Caux Roundtable(fn17) and the Business Roundtable(fn18) have led to increased awareness that considerations beyond fiduciary duty, economic efficiency, and regulatory compliance should factor into the decision-making process of corporate managers. In general, these sources suggest that a manager should choose the alternative that:1. Most efficiently allocates corporate resources, that is (a) optimizes benefit (generally measured in profit) to the corporation and...