Actionable Ethics

By Daniel Natal

Actionable Ethics is part of a larger regimen of ethics training, for the company (but, more broadly-speaking, for life). What makes it different is the fact that it shares techniques gleaned from neuroscience on how to make moral behavior habitual. As Aris

• Language: English
• Publisher: Daniel Natal
• Release date: Aug 5, 2022
• ISBN: 9781088054437

Book preview

Actionable

Ethics

with

A Practical Guide to ESG

Daniel Natal

Copyright © 2022 Daniel Natal

All rights reserved.

CONTENTS

PREFACE

The business world is naturally concerned with ethics. According to economist Alexander Wagner of the University of Zurich, one out of seven companies operating today engages in systematically fraudulent behavior. His data indicate that this costs shareholders and consumers an estimated $380 billion a year in the United States.

  There’s a cost to companies as well. As Wagner reminds us: Reputation is very important to future business. We find, for example, at the University of Zurich that Swiss banks who get caught up in media in the context of tax evasion or tax fraud have bad media coverage. They lose net new money in the future, and therefore make lower profits. That’s a very powerful reputational force.

  A company’s brand is just another name for its reputation. Damage the reputation and you destroy the brand.

  According to a study (Gibson, Sohn, Tanner and Wagner, 2017), investors prefer to invest with companies whose CEOs are perceived as honest, and the market believes companies more when managers in the past have not engaged in earnings management.

  Clearly, the abandonment of ethics has long-term effects on a company’s viability.

  But moving away from senior management, unethical behavior among rank-and-file employees also has troubling effects on companies. According to a 2012 report from the Association of Certified Fraud Examiners (ACFE), the typical U.S. business loses 7% of its annual revenues to employee fraud and small businesses have the most cases and the highest losses.

  Unethical behavior hurts companies (to say nothing of the toxic impact on the wider society in terms of social decay).

  Ethics, after all, creates a common language, one that surmounts the differences of varying groups. Historian Peter Turchin makes this case. He asserts that societies collapse when they don’t have a common ethical structure. He cites how large states first burst onto the world scene and observes the fact that, for most of human history, large tracts of territory were impossible to bring into an interconnected system. Then, suddenly, around the time of the emergence of the great moral revolutions, humanity finally broke the million square-kilometer threshold.

Axial.jpg

  The X-axis represents time (starting in the third millennium, BC) and the Y-axis plots the territorial extent of the largest cooperative systems (i.e., empires). Note that the scale is logarithmic. In Antiquity, empires had problems breaking through the threshold of one million square kilometers. And then, between 800 and 200 BC, suddenly there was a breakthrough and the social scale of integration increased by an order of magnitude. This period starts with the Persian Empire, then the Roman Empire, the Han Chinese Empire, and so forth. Karl Jaspers calls this the Axial Age, the time when a number of world religions and philosophies sprang into being.

   The parallel emergence of large cooperation zones and new iconic belief-systems (says Turchin) is no coincidence. Societies need a common social bond that can overcome racial differences, tribal differences and language differences. Common belief-systems help surmount those challenges. Turchin is quick to point out that it doesn’t have to be a religion, per se. For instance, the Romans had Stoic philosophy. Buddhism was an atheistic code that taught one how to live without the gods. So, you can have a society that cooperates, without mysticism. The main point is to have a common ethical code. Without this, large states break down.

  Whereas in the past, we strove for a cohesive society and unified culture, after the Industrial Revolution, specialization started to erode this. Philip Lesly in his book The People Factor, comments: Segmentation is also a consequence of the growing specialization in most fields of endeavor. Almost everyone is becoming more involved in the complexities of his field of interest. Each field tends to become more fragmented, with each individual concentrating his training and attention on a narrower segment. Accordingly, he devotes his attention to other fields or even segments of the broad field he’s in, such as medicine, or law, or architecture; and at the same time, each field becomes less understandable to others. In spite of increased levels of education—which used to be considered the hope for broader understanding—education is intensifying specialization and therefore segmentation and alienation.

  In modern statecraft, this is why the phenomenon known as Identity Politics arose, whereby political messaging was no longer targeted at a generic American Public, but at specific demographic target groups (with the messaging being tailored differently for each).

  This, naturally, conduces toward what writer Gillian Tett has called The Silo Effect. She describes this phenomenon with regard to corporations that become so large that each individual business unit within the corporate structure stops being able to effectively communicate with the others, culminating in collapse.

  Just as in business, so in society. We need a common ethical structure, a common language, so to speak, to be able to achieve effective collective action.

  Most people in the business world are highly ethical individuals. They are deeply concerned with ways to ameliorate the situation.

  In his work 50 Psychology Classics, Tom Butler-Bowdon says: Our environments shape us into what we are. And we change the course of our actions according to what is good for our survival. If we want to construct a better world, we need to create environments that make people act in more moral or productive ways.

  Bob Chapman, CEO of Barry-Wehmuller agrees: Business could be the most powerful force for good if it embraces the responsibility and impact [it] makes on people’s lives.

  The proposition advanced in this book is that it is possible to shape both the climate and the culture of the workplace to create a more ethical atmosphere, and, by doing so, to create an actionable ethics. One that is not vague, or arbitrary.

  But it requires overcoming arthritic ways of thinking and ingrained habit.

  Toward that end, it might be good to remind the reader that when Newton first suggested that gravity affected planets in the solar system, he was denounced for peddling pseudo-science. Influence at a distance? his detractors scoffed. What you’re describing is magic!

  This prejudice was still in play centuries later when Michael Faraday suggested that flows of electrons generated an electric field. The chorus of dissenters echoed Newton’s antagonists by charging that the existence of fields suggested magic.

  To explain this erroneous belief, it might bear pointing out that, ever since the 1500s, European scientists conceptualized the universe as being composed of bodies and vacuums. They assumed that all of reality was the result of particles suspended in a void.

  It never occurred to them that there were fields connecting particles, one to the other. And, as you change the field, you can influence the particles in the field.

  For our purposes, this habit of thinking can be pointed out in economics, where people assume that individuals are isolated atoms, hovering in a void, pursuing their own enlightened self-interest after rational calculation.

  In reality, people are submerged in an invisible field . . . that we call culture.

  Change the culture and you can change the behavior of the individuals within the energetic field.

  Eduardo Porter in The Price of Everything offers the observation, "A common, and in my view accurate, critique of economists’ worldview is that it often ignores how culture affects our choices—positing people as calculating, self-involved creatures oblivious to any notion of ‘social good’. Homo economicus is expected to approach life as a string of cost-benefit analyses, evaluating the prices involved in each decision to maximize his individual well-being. He adds that culture often influences us to surrender our own Narcissistic needs to help the wider community. It codifies acceptable forms of behavior. . . . Collective notions of propriety often determine individual calculations."

  Neuroscience may shed some light on the phenomenon. The human brain contains things called mirroring neurons, which incline humans to imitate people around them. For instance, if you hold up a baby that is only twenty minutes-old and stick your tongue out at it, the infant will respond in like manner. Though the infant has no idea what a human is, or any consciousness that it has a tongue, it is primed to imitate the adult. This is thanks to those mirroring neurons in the F4 and F5 regions of the human brain.

  This is powerful evidence that humans do not exist in a void, but are outfitted by nature to operate in groups. In other words, they’re united on a neuro-physiological level to a larger set of behavioral patterns that, in hindsight, we call a culture.

  Can an ethical atmosphere be promoted not just inside a country, but inside a company?

  It is the assertion of this book that it is quite possible, and far easier to do than popular conception would lead one to believe.

  According to the Hay Group, it’s the leader in an organization who impacts climate by up to 70 percent.

  If a CEO signals that he genuinely prizes ethical behavior, and expects it from others, then a natural tendency will arise in those within his sphere of influence.

  Cybernetics expert Dr. Paul Pangaro shared an anecdote bearing on this phenomenon, saying, A colleague of mine noticed that when an executive at DuPont favored wool cardigans, everyone else in the company started spontaneously wearing wool cardigans.

  The influence of senior management on the culture of a company cannot be overstated.

  If the CEO signals that there is a certain amount of prestige associated with ethics, then that cultural cue will ripple down to the rest of the company. If signage promoting ethics is placed on the walls of the business, if perks are tied to ethical behavior, if new employees are assured that they were hired due to their high ethical standards, then a message will be sent.

  According to Jean Murray, in an article entitled Detecting and Preventing Employee Theft and Embezzlement, one of the ways to tamp down on theft is to communicate your message about employee honesty: From the first day of work, employees should know that you require them to be honest.

  In the workplaces of the future, Ethics Directors will be commonplace in Human Resources departments, as will annual Ethics Awards for employees and Ethics Retreats for senior management.

  It will be part of the energetic field created within the organization that invisibly sets the parameters of the culture within the company . . . a far more effective methodology than forgettable H.R. guidelines that few people read and even less people remember.

  It is the goal of this volume to sketch out the map of a system to re-organize a company or institution to subtly establish a culture that will not only aid in making the organization more profitable, but will also assist the wider society in promoting ethics.

CHAPTER 1

wHAT IS ETHICS?

The anthropologist describes the world as it is; the ethicist describes the world as it ought to be. –Kant

  There is a problem with the educational system today. Cicero said that a liberal education derives from the Latin word liber, which translates as a free man. Thus, a liberal education is an education worthy of a free man. The education of a free man, said Cicero, consists of teaching a person how to think, whereas the education of a slave consists of teaching him what to think.

  Most of what passes for ethics today is actually etiquette. People (and people who should know better) often confuse the two. Etiquette is a collection of practices. Ethics is a collection of principles.

  Etiquette instructs you on how to behave in a very formulaic manner to stereotyped situations. It gives you a long list of do’s and don’ts. Ethics, on the contrary, gives you a mental model on how to behave in situations that aren’t on the lists.

  All people perceived as great created mental models. The models are useful insofar as they help us make sense of the world around us. For instance, John Dalton presented a mental model of the atom through which we now perceive the physical world. Adam Smith, in The Wealth of Nations, presented a mental model of economics which is hard for people to think beyond now. Today, everyone assumes that nations operate as a result of economic conditions and that even people’s behaviors are driven by them. There was a time when no one conceptualized this. They thought of history as random events. Smith taught them otherwise.

  Natural Selection was a mental model by Charles Darwin, based on applying economic theory from Thomas Malthus to the field of Biology. Just as Malthus discussed the problems of overpopulation with not enough food, Darwin applied this to nature to see life as a struggle for resources, with lots of births and even more deaths. Just as the field of economics saw competition as making the surviving companies stronger, so Darwin saw the surviving animals in a species as being the strongest who passed on their hearty DNA to offspring.

  At any rate, we shouldn’t be too concerned about the substance, per se; but in the mental models: i.e., the ability to see old things with new eyes.

  Ethics is just the same. It provides a mental model through which to see the world. For instance, Immanuel Kant distinguishes between two types of people: those who engage in ethical behavior and those who engage in utilitarian behavior. Utilitarian behavior consists of not doing what’s right, but doing what’s advantageous, and boils down to the idea that the end justifies the means. For instance, to the utilitarian man, if the end-goal is obtaining a million dollars, he doesn’t care if he has to lie, cheat and steal to obtain it. The only thing that’s important to him is the end. The ethical man, by contrast, isn’t concerned with the end, but with the means. He cares about the process. Socrates, for instance, knew that he might come to a bad end as the powerful demanded his death for teaching the youth critical thinking skills, but he didn’t back away. He was willing to accept his death-sentence. His integrity, however, would not allow him to veer from what he saw as the truth. What was important to him was not the end, but the means.

Ethical Behavior Versus Utilitarian Behavior

What is Utilitarian Behavior?

  If a surgeon, for example, could save two innocent lives by killing a prisoner on death row to retrieve his heart and liver for transplantation, this outcome of saving two lives would have the highest utility under the circumstances, but the surgeon’s action would be morally indefensible. –Principles of Biomedical Ethics

  Utilitarian behavior is placing self-interest above all else. It consists of doing the advantageous thing instead of the right thing. Illustrative of this mindset was the Spartan tyrant Lysander, of whom Plutarch wrote: Lysander, who was a clever quibbler, and given to employing cunning deceptions to further most of his designs, counted justice as mere expediency and honor as that which is advantageous. He said that the truth is better than falsehood, but that the worth and value of either is determined by the use to which it is put.

  Lysander was clearly an adherent to Utilitarianism, if by Utilitarianism we use J.C.C. Smart’s definition of Utilitarianism as the doctrine that the rightness of actions is to be judged by their consequences. Of Lysander, Plutarch continues: When others censured him about his violation of his oaths which he had made in Miletus, he said that one must trick children with the game of jacks, but men with oaths.

  Note how to the utilitarian man, oaths, promises and commitments were not taken seriously.

  This strikes quite a contrast with the ethical man, who is guided not by what is useful to his narrow immediate interests, but by what is right. In the Theory of Moral Sentiments, Adam Smith asserts, The utility of those qualities, it may be thought, is what first recommends them to us; and, no doubt, the consideration of this, when we come to attend to it, gives them a new value. Originally, however, we approve of another man’s judgment, not as something useful, but as right.

  But stepping outside of the airy realms of philosophy and looking at our more immediate world, utilitarian thinking is still very much alive in the modern era.

  In advertising, for instance, there’s a psychological technique called Deflection to the Result. According to the article Ten Psychological Effects That Affect Our Behavior, We often judge the correctness of a decision by the final result, not by the actions taken to achieve it. This effect is often used by those ads which concentrate us only on the final result (for example, on buying). So, if now you're using a brand-new iPhone, you cannot claim that the decision to spend all your money on it was right.

  Outside the world of advertising, the political sphere is also affected by this kind of thinking. Promoted as early as Machiavelli, the concept of "the end justifying the