Perspectives on Philosophy of Management and Business Ethics Including a Special Section on Business and Human Rights Ethical Economy

Ethical Economy. Studies in Economic Ethics and Philosophy

Jacob Dahl Rendtorff Editor Perspectives on Philosophy of Management and Business Ethics Including a Special Section on Business and Human Rights Ethical Economy. Studies in Economic Ethics and Philosophy

Volume 51

Series Editors Alexander Brink, University of Bayreuth Jacob Dahl Rendtorff, Roskilde University

Editorial Board John Boatright, Loyola University Chicago, Chicago, Illinois, USA George Brenkert, Georgetown University, Washington D.C., USA James M. Buchanan†, George Mason University, Fairfax, Virginia, USA Allan K.K. Chan, Hong Kong Baptist University, Hong Kong Christopher Cowton, University of Huddersfield Business School, Huddersfield, United Kingdom Richard T. DeGeorge, University of Kansas, Lawrence, Kansas, USA Thomas Donaldson, Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania, USA Jon Elster, Columbia University, New York, New York, USA Amitai Etzioni, George Washington University, Washington D.C., USA Michaela Haase, Free University Berlin, Berlin, Germany Carlos Hoevel, Catholic University of Argentina, Buenos Aires, Argentina Ingo Pies, University of Halle-Wittenberg, Halle, Germany Yuichi Shionoya, Hitotsubashi University, Kunitachi, Tokyo, Japan Philippe Van Parijs, University of Louvain, Louvain-la-Neuve, Belgium Deon Rossouw, University of Pretoria, Pretoria, South Africa Josef Wieland, HTWG - University of Applied Sciences, Konstanz, Germany Ethical Economy describes the theory of the ethical preconditions of the economy and of business as well as the theory of the ethical foundations of economic systems. It analyzes the impact of rules, virtues, and goods or values on economic action and management. Ethical Economy understands ethics as a means to increase trust and to reduce transaction costs. It forms a foundational theory for business ethics and business culture. The Series Ethical Economy. Studies in Economic Ethics and Philosophy is devoted to the investigation of interdisciplinary issues concerning economics, management, ethics, and philosophy. These issues fall in the categories of economic ethics, business ethics, management theory, economic culture, and economic philosophy, the latter including the epistemology and ontology of economics. Economic culture comprises cultural and hermeneutic studies of the economy. One goal of the series is to extend the discussion of the philosophical, ethical, and cultural foundations of economics and economic systems. The series is intended to serve as an international forum for scholarly publications, such as monographs, conference proceedings, and collections of essays. Primary emphasis is placed on originality, clarity, and interdisciplinary synthesis of elements from economics, management theory, ethics, and philosophy.

More information about this series at http://www.springer.com/series/2881 Jacob Dahl Rendtorff Editor

Perspectives on Philosophy of Management and Business Ethics Including a Special Section on Business and Human Rights Editor Jacob Dahl Rendtorff Department of Social Sciences & Business Roskilde University, Roskilde, Denmark

ISSN 2211-2707 ISSN 2211-2723 (electronic) Ethical Economy ISBN 978-3-319-46972-0 ISBN 978-3-319-46973-7 (eBook) DOI 10.1007/978-3-319-46973-7

Library of Congress Control Number: 2016962633

© Springer International Publishing AG 2017 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.

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This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Preface

Welcome to the proceedings from the 2015 EBEN (European Business Ethics Network) Research Conference. The EBEN conferences have been going on each year since year 2000, and I am happy that CBS was able to host one of these conferences. This conference was organized as a cooperative project between Copenhagen Business School, Roskilde University, and EBEN Scandinavia (the Scandinavian Chapter of the European Business Ethics Network). Inside CBS the conference is also a result of a collective work cooperation between the Center for Corporate Social Responsibility at the Department of Intercultural Communication and Management and the Department of Management, Politics and Philosophy. “Philosophical Foundations of Business Ethics” is an important topic for Copenhagen Business School and Roskilde University. CBS values research on business ethics and philosophy of management, and we find it important to ask the fundamental questions of the foundations of business ethics and of the ethical economy. The research at Roskilde University is based on an interdisciplinary approach to responsibility, ethics, and legitimacy of corporations. The role of philosophy in management and leadership is important for developing good managers and reflective leaders. Topics like philosophy of management, leadership philosophy, business ethics, corporate social responsibility (CSR), corporate governance and ethics, business, law and human rights, and cultural conditioning of business ethics are essential for developing good leaders in a complex society today. Therefore, the proceedings with the papers from the conference fit very well with the series Ethical Economy: Studies in Economic Ethics and Philosophy at Springer Publishers. It is important that many people will get access to the results of the conference. In this context the topic of the conference of business ethics is in close connection with the strategy of teaching business at Roskilde University and Copenhagen Business School. The vision of liberal education with focus on humanities and social sciences as foundation of knowledge of good management has been considered as an essential part of the ethical vision of management education. The education in business ethics is an important part of this program, and theories and practices of ethical accounting, values-driven leadership, business ethics and virtues, normative leadership philosophy, business ethics and spirituality, as well as

v vi Preface critical concepts of business ethics coming from critical management studies as well as from systems theory have emerged from this research environment. In Denmark and Scandinavia, this research and teaching in business ethics and philosophy of management have contributed to a higher level of ethical knowledge and ethical formulation competency among managers in private and public organizations. The focus on the importance of ethics is increasing in a society where the Protestant ethics is challenged by new societal problems, including concern for transformation to sustainability and development of more consciousness of ethical dilemmas of management at the national and global level. We are therefore happy in section I with the title “Business Ethics, Philosophy of Management, and Theory of Leadership” to present some of the contributions to the Copenhagen Conference in this volume of proceedings from the EBEN Research Conference, October 1–3, 2015. Indeed, we would like to express our gratitude to members of the Scandinavian Chapter of EBEN; EBEN; the Center for Corporate Social Responsibility at CBS; the Department of Management, Politics and Philosophy at CBS; and Roskilde University for the help with organizing this conference. Also in this book in section II with the title “Business and Human Rights”, we have in addition to three papers on business and human rights from the EBEN Research Conference five other papers on business and human rights. The papers on business and human rights are some of the contributions to the conference on The Power of Human Rights in Economics and Ethics in 2013. This conference was initiated by the German Philosophical Society’s Research Group on Philosophy, Ethics and Economics organized together with the Scandinavian Chapter of EBEN in Copenhagen at Copenhagen Business School and Roskilde University, November 29 and 30, 2013. These articles contribute to develop the field of business and human rights in relation to business ethics. These contributions fit very well with the general theme of the publication, which is business ethics and philosophy of management. The issue of business and human rights entered the global policy agenda in the 1990s, reflecting the dramatic worldwide expansion of the private sector at the time and a corresponding rise in transnational economic activity. These developments heightened social awareness of the impact of economic activity on human rights and also attracted the attention of the United Nations. The role of human rights in the world of commerce is officially being promoted since 2008 in a framework that consists of three normative imperatives – protect, respect, and remedy. The UN Human Rights Council has specified the role of these normative imperatives as “guiding principles”: The first principle is the duty of states to protect against human rights abuses by third parties, including business enterprises, through appropriate policies, regulation, and adjudication. The second is the corporate responsibility to respect human rights, which means that business enterprises should act with due diligence to avoid infringing the rights of others and to address negative impacts. The third is the need for greater access by victims to effective remedy, both judicial and nonjudicial. The (1) duty to protect lies at the very core of the international human rights regime, with states as the principal actors, whereas the principal bearers of (2) the responsibility to respect are corporate Preface vii actors, this responsibility being the basic expectation society has of business in relation to human rights, and (3) access to remedy is important because even the most concerted efforts cannot prevent all abuse. From the perspective of business ethics and philosophy of management, we can mention theoretically interesting and probably also practically important shortcomings in the framework at its present stage. The following are to highlight some of the points that stand in need of philosophical discussion and elaboration: (1) The semantics of human rights is barely connected to business ethics discourse and to ethical discourses about the foundations of human rights in human dignity. (2) The key notion of CSR which, according to the framework, should absorb the normative responsibility to protect human rights lacks conceptual, and specifically business ethical, clarification. (3) There is a tendency in the framework to collapse the conception of human rights into a narrowly legal conception, omitting the poly- normative character of human rights. (4) Not enough attention is paid to problems of integrating recognition of human rights into the rationality constraints under which the strategic management of corporate commercial actors has to operate in order to adapt to the forces of competition in globally integrated capitalist markets. (5) Too little attention is paid to the need to construct plausible narratives that would explain the importance and justify to skeptics from within the entrepreneurial world view the possible burdens of making human rights the business of business. With this collection of articles from the 2015 EBEN Research Conference at Copenhagen Business School and the meeting of the German Philosophical Society’s Research Group on Philosophy, Ethics and Economics, organized together with the Scandinavian Chapter of EBEN in Copenhagen at Copenhagen Business School and Roskilde University in 2013, we hope to give a picture of the state of the art in the fields of business ethics and philosophy of management and business and human rights. Moreover, we also hope that this initiates future research in these fields. We wish the reader happy reading and great joy with all these exiting articles.

Roskilde, Denmark Jacob Dahl Rendtorff August 2016 Contents

Part I Business Ethics, Philosophy of Management and Theory of Leadership 1 Business Ethics, Philosophy of Management, and Theory of Leadership...... 3 Jacob Dahl Rendtorff 2 Universal Ideology & Ethical Strategy...... 17 Alan E. Singer 3 A Genealogy of the Gift...... 31 Germán Scalzo 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body...... 47 Ghislain Deslandes 5 A Narrative Research Design into the Moral Courage of Professionals...... 61 Marion Smit 6 Understanding Value Conflict to Engage SME Managers with Business Greening...... 73 Sarah Williams, Anja Schaefer, and Richard Blundel 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility...... 93 Johan Wempe and Willeke Slingerland 8 Norms for Networks: A Contractarian Approach to Corruption...... 105 Willeke Slingerland

ix x Contents

9 Compliance, Global Ethos and Corporate Wisdom: Values Strategies as an Increasingly Critical Competitive Advantage...... 121 Friedrich Glauner 10 Dispositional Attribution of Corporate Executives: Is Self-Interest a Conscious Decision or a State of Mind?...... 139 Julian M. Clarke 11 Honour as the (New) Foundational Virtue for Responsible Leadership in the Banking Sector: A Theoretico-Conceptual Analysis...... 165 Johan Bouwer 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity of Customer Relationships...... 181 Magnus Frostenson, Nina Hasche, Sven Helin, and Frans Prenkert 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures: A Case Study in Indonesia...... 197 Bitra Suyatno, Anona Armstrong, and Keith Thomas

Part II Business and Human Rights 14 Business Responsibility for Human Rights Violations from a Theoretical Perspective: Towards a Moral Division of Labour...... 227 Aurora Voiculescu 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights...... 247 Ana-Maria Pascal 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case Study on the Nicaraguan Sugarcane Industry...... 263 Anita Aufrecht 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under the UN Guiding Principles: Communication and Human Rights Due Diligence...... 281 Karin Buhmann 18 Philanthropy and Human Rights in Business Ethics...... 297 Øjvind Larsen Contents xi

19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic Analysis...... 315 Jörg Althammer 20 Enlightened International Corporate Social Responsibility, Corporate Social Irresponsibility, and Human Rights...... 333 Aloys Prinz 21 Power and Weaknesses of the Idea of Natural Rights...... 357 Giuseppe Franco Contributors

Jörg Althammer Ingolstadt School of Management, Catholic University Eichstaett-Ingolstadt, Ingolstadt, Germany Anona Armstrong Law and Justice College, Victoria University, Melbourne, Australia Anita Aufrecht German Graduate School of Management and Law (GGS), Heilbronn, Germany Richard Blundel The Open University Business School, The Open University, Milton Keynes, UK Johan Bouwer NHTV Breda International University of Applied Sciences, Breda, The Netherlands Karin Buhmann Copenhagen Business School (CBS), Copenhagen, Denmark Julian M. Clarke EBENI – European Business Ethics Network Ireland, Dublin, Ireland Ghislain Deslandes ESCP Europe, Paris Campus, Paris, France Giuseppe Franco Ingolstadt School of Management, Catholic University of Germany, Eichstätt, Germany Magnus Frostenson Örebro University School of Business, Örebro University, Örebro, Sweden Friedrich Glauner Weltethos Institut, University of Tübingen, Tübingen, Germany Nina Hasche Örebro University School of Business, Örebro University, Örebro, Sweden Sven Helin Örebro University School of Business, Örebro University, Örebro, Sweden

xiii xiv Contributors

Øjvind Larsen Copenhagen Business School (CBS), Copenhagen, Denmark Ana-Maria Pascal Principal Lecturer, Faculty of Business and Management, Regent’s University London, London, UK Frans Prenkert Örebro University School of Business, Örebro University, Örebro, Sweden Aloys Prinz Institute of Public Economics and Center for Economic Theory, University of Muenster, Muenster, Germany Jacob Dahl Rendtorff Department of Social Sciences & Business, Roskilde University, Roskilde, Denmark Germán Scalzo Business Ethics, Universidad Panamericana, Mexico City, Mexico Anja Schaefer Department for Public Leadership and Social Enterprise, The Open University Business School, Milton Keynes, UK Alan E. Singer Department of Management, Appalachian State University, Boone, NC, USA Willeke Slingerland School of Governance, Law & Urban Development, Saxion University of Applied Sciences, Enschede, The Netherlands Marion Smit Faculty of Business and Economics, Amsterdam University of Applied Sciences, Amsterdam, The Netherlands Bitra Suyatno Law and Justice College, Victoria University, Melbourne, Australia Keith Thomas School of Business, Victoria University, Melbourne, Australia Aurora Voiculescu University of Westminster, London, UK Johan Wempe VU University Amsterdam, Amsterdam, The Netherlands Sarah Williams University of Bedfordshire Business School, Bedfordshire, UK Part I Business Ethics, Philosophy of Management and Theory of Leadership Chapter 1 Business Ethics, Philosophy of Management, and Theory of Leadership

Jacob Dahl Rendtorff

Abstract This article presents the background of the discussions of the relation between business ethics and philosophy of management. The reason for the need for rethinking business ethics and philosophy of management is the many scandals and the crisis of business in contemporary society. The question is whether it is possible to overcome the oxymoron between ethics and business with the point of view that “good ethics is good business”. In order to answer this question we need to rethink business ethics with philosophy of management. From this perspective, the paper addresses the problem of moral blindness in organizations. The extended elements of moral blindness in organizations represent the basis for our need for business ethics. The state of the art of business ethics with utilitarianism, deontology, virtue ethics, discourse ethics and recent approaches to philosophy of management within the analytical and continental traditions need to be aware of this need to rethink business ethics from the perspective of philosophy of management. On this basis the paper proposes a global philosophy of management with cosmopolitan business ethics as a foundation of the concept of the balanced company in international business. A case-study approach based on care evaluation of ethical decision-making and ethical dilemmas in particular companies may help to advance this approach.

The aim of this conference is to present the relation between business ethics and philosophy of management. Since the conference has been organized by the Scandinavian network we may say that it should have been a conference about business ethics in Scandinavia. However, in this presentation I will rather say something about the definition of business ethics in relation to theory or philosophy of management than in relation to a specific concept of business ethics in Denmark or more broadly in Scandinavia. However, we may say that there has been a lot of focus on business ethics in Scandinavia, in particular in relation to the institutionalization of corporate social responsibility (CSR) (Rendtorff 2011; Jensen et al. 2013), but

J.D. Rendtorff (*) Department of Social Sciences & Business, Roskilde University, Roskilde, Denmark e-mail: [email protected]

© Springer International Publishing AG 2017 3 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_1 4 J.D. Rendtorff indeed also in relation to philosophy of management or in particular theory of Leadership which has been the topic of many presentations for this conference.

1.1 Introduction

The topic of the conference can be said to be very important and urgent. We need to be rethinking business ethics and philosophy of management in the present life- context. It can be considered as disturbing that we face so many scandal and crisis situation in business today (Rendtorff 2014a, b, c). Just think about the recent case of the Volkswagen fraud with regard to CO2-emissions of diesel cars. Indeed the problem of sustainability and protection of the environment and to cope with climate change is important (Rendtorff 2015a). And we need to rethink business ethics after the financial crisis (Ims and Tynes Pedersen 2015). Or the accident caused by British Petroleum in the Mexican Gulf. Or go back some years to the financial crisis or the Enron and world.com scandals in the beginning of the twentieth Century. It is often mentioned that all these companies had well developed programs of ethics as a part of their risk and reputation management. So even though we have had reflections on business ethics for many years we still seem to be confronted with the oxymoron of the incompatibility of ethics and business. It is a still a problem how we can overcome or face this oxymoron that business and ethics do not seem to mix very well together. In contrast to the oxymoron we often hear that “good ethics is good business”, implying that there really is “no business without ethics” and that “business ethics is the license to operate of a business firm”. But what does this really mean? (Frederick 2002; Crane and Matten 2016) Should we still say that there is no business ethics without profits or should we rather argue that business ethics represents a much more fundamental reflection about the foundations of a business system? And what is the relation between business ethics, philosophy of management or theory of leadership? The great American pragmatist Richard Rorty infamously argued that “there is nothing business ethics can learn from philosophy” (Rorty 2006). What he meant by that may be considered as an interpretation of the oxymoron saying that there cannot be a close link between philosophy and business ethics since they present two different spheres of life and therefore cannot be combined. This may also be what the sociologist Niklas Luhmann thinks about when he argues that “there is business and there is ethics, but there is no business ethics” (Luhmann 1993). With this Luhmann also defends a kind of separation thesis where business and ethics are basically different from each other because they belong to two different social systems. In contrast to Luhmann, however, I would like to defend a point of view of a holistic and hermeneutic approach following the philosopher Paul Ricoeur, stating that we should hope that they all have a “little part of the truth” (Ricoeur 1955). But even with this charity approach to the knowledge provided by business ethics, it is possible to criticize the inefficiency of the business ethics movement. The 1 Business Ethics, Philosophy of Management, and Theory of Leadership 5 problem is that there has been little progress in business ethics the last 40 years, which is indicated by the crisis of BP and the Mexican Gulf, the Enron case and the recent Volkswagen case. This is disturbing and a good argument for rethinking business ethics with philosophy of management.

1.2 The Topic of the Conference: Business Ethics and Philosophy of Management

So this is the topic of this conference which we have tried to justify by the fact that up to recently there has been little discussion of the relation between business ethics and philosophy of management. In fact, we can say that despite the general interest in corporate social responsibility and business ethics, the contemporary discussion rarely touches upon the normative core and philosophical foundations of business (Rendtorff 2012, 2013a, b, c, d, e). Even though the actions and activities of business may be discussed from a moral perspective, not least in the media, the judgments and opinions relating to business and management often lack deeper moral reflection and consistency. Partly for this reason, business ethicists are constantly challenged to provide such moral and philosophical foundations, and also to communicate them in an understandable manner. Such a challenge is also of scientific kind. Positions and opinions in the academic field need to be substantiated by thorough moral and theoretical reflection to underpin normative approaches. Far too often, business ethicists may agree on matters which they approach from different and sometimes irreconcil- able philosophical standpoints, resulting in superficial agreement but deeper-lying disagreement. In other cases, it may be of high relevance to identify philosophical standpoints that may, despite conflicting fundamentals, arrive at conclusions acceptable to everyone. The EBEN Research Conference 2015 therefore decided to focus on the theoretical foundations of business ethics, and in particular on the philosophy of management. This implied identifying and discussing conflicts as well as agreement with regard to the philosophical and other foundations of business and management. A number of general questions related to the theme of the conference, for example: What is the relation between business ethics and philosophy of management? What is the role of philosophy in management and leadership? And how does this relate to ethics and corporate social responsibility? Do cultural differences in approaches to business ethics and corporate social responsibility also involve philosophical disagreement? Moreover, what is the role of normativity in business ethics and how do we define normative approaches to business ethics? What does the last decade’s specialization in normative approaches to business ethics means for management and leadership strategies? Could well-founded disagreement be a way to cope with such a modern challenge or should modern discourses head for rational agreement along a route of procedure and rules? 6 J.D. Rendtorff

1.3 Moral Blindness and the Need for Business Ethics

One important reason for the need for business ethics is presented by the concept of moral blindness in institutions and organizations. But what is the concept of moral blindness? Following Hannah Arendt’s philosophy of responsibility and judgment proposed in her book Eichmann in Jerusalem. Essay on the Banality of Evil (1963) we can define moral blindness as the incapacity of the administrator or manager to integrate ethical thinking and moral imagination in decision-making (Arendt 1963). Like the Nazi-SS-officer Adolf Eichmann the administrator and bureaucrat is just following orders as a part of an organizational bureaucracy without questioning the moral and ethical basis of such actions. Following Hannah Arendt’s philosophy interpretations of moral blindness, power and domination following from the concept of systemic action in, e.g. Stanley Milgram (obedience under authority), Zygmunt Bauman (Modernity and the Holocaust), Philip Zimbardo (The Lucifer effect) have been focusing on the lack of moral concern by individuals when they act in conformity with systems of obedience, technological rationality or internalized social roles based on group thinking. Moral blindness is the dark side of action in organizational systems and it manifests the need to move towards ethical principles, judgment and ethical recognition in management and administration (Rendtorff 2014a). This is the approach that we find in Frederick Bruce Bird’s bookThe Muted Conscience. Moral Silence and Practice of Ethics in Business (1996). This book provides the most comprehensive recent attempts to define the application of the concept of moral blindness in business ethics, but it can also be applied to administration. In fact Bird extends the concept of moral blindness to include moral muteness and moral deafness. Moral muteness is defined as the inability of people to defend their ideas and ideals (Rendtorff 2014a). Following these different definitions of moral blindness we can emphasize the following elements of moral blindness (Rendtorff 2014a): “(1) Moral blindness implies that the administrator or judge has no capacity of moral thinking. (2) The administrator or judge only follows orders and justifies his or her actions by reference to the technical goal-rationality of the organizational system. (3) The administrator or judge is strongly influenced by the ideology, principles or instrumental values of the organization. (4) This attachment includes an abstraction from concrete human needs and concerns in the legal or administrative system. (5) In many cases the moral blindness strangely enough includes collaborations from the victims of the harm. (6) The victims follow the rationality of the system and they identify with their roles either motivated by pure obedience or rather motivated by an attempt to minimize a greater harm. (7) Moral blindness contains a dehumanization of the victims and people or stakeholders implied in the process. They are considered not as human beings but as elements, things or functions of the system. (8) Moral blindness relies on total obedience by the administrators of the system. (9) Technology and instrumental rationality is an essential element in the administration of the organization or legal system. (10) Each participant in the organization is accomplishing 1 Business Ethics, Philosophy of Management, and Theory of Leadership 7 a specific work function with a specific task but he or she has now general overview of the organizational system. (11) Judges or administrators may behave opportunis- tically to follow their own interest with regard to the main goal of the instrumental system. (12) Judges or administrators may act irrationally beyond common human understandings of morality in order to serve the instrumental rationality of the organizational system. (13) The administrative obedience to realize the organizational aim becomes the central interest of the administrators of the organization. (14) Obedience, role identification and task commitment remains the central and ultimate virtue of the commitment of members of the organization to the organizational system. (15) Each member or administrator of the organizational system commits themselves to the values of the organizational goal of the system.” So this definition of moral blindness contributes to understanding the need for philosophical analysis of the foundations of business ethics (Rendtorff 2014a, b). The danger of moral blindness challenges definitions of business ethics and in this context philosophical reflections are important in order to understand the foundations of our concepts of ethics in business.

1.4 State of the Art of Business Ethics

This importance of philosophical reflection is documented by the state of the art of business ethics in contemporary societies. In fact, the lack of progress in business ethics may be considered as an inefficiency of the prevailing theories of business ethics in the tradition of business ethics research in the Anglo-Saxon countries and mainly in the United States (Rendtorff 2009). In business ethics the ethics of utilitarianism and consequentialism has been very dominating (Velasquez 2011). This ethical approach is practical and utility-oriented and therefore it corresponds well to the pragmatism of business. However, there is often a problem of respect of humanity involved in utilitarianism since the weakest and vulnerable are sacrificed for the greater good. Also, there is little sense of collective responsibility in economic utilitarianism since it often focusses on maximization of individual economic interest. At the same time there is potential in utilitarianism to move beyond individual maximization and focus on the collective good as maximization of the greatest good for the greatest number. Utilitarianism faces important problems of utility namely the problem of how to measure interests, utility and consequences. This is a characteristic of utilitarian business ethics, which defines the right action as the action, which is most useful and has the best consequences for the firm. We can say that business economics is built on the idea of the firm as a practical utility maximizing unit dominating (Velasquez 2011). In relation to utilitarian business ethics, we face the tension between individual utility maximization and social welfare utility maximization. Here, we need to move beyond the individualist conception of utility towards a more socially oriented conception of economic utility for the firm. 8 J.D. Rendtorff

Even though it is important to think utility-oriented and pragmatic in business, this approach cannot stand alone. The utility concept ignores human dignity and it is blind to the complexity of the ethical dilemmas of business. Utility is an important concern and it represents the economic perspective on ethics, focusing on economic rationality of preference maximizing, but on its own terms this approach is insufficient and sometimes even dangerous, leading to unintended moral blindness. Accordingly, we need to evaluate the utility ethics in terms of other ethical theories and approaches. In contrast to utility ethics and consequentialism virtue ethics looks at the importance of virtue and moral character of the business man (Solomon 1992). Virtue is about the capacity of judgment and action according to individual moral dispositions by the business man. In virtue ethics the focus has been rather on individuals and not so much on the market place or the involved organizational systems. This may be a problem of virtue ethics since it cannot really capture the system, organization and market dimensions of ethics but rests on the level of respect for individual virtue and integrity as the most important concept of business ethics. With this emphasis of individual virtue ethics is based on the concept of the good and it focusses on human capacities to develop integrity and character (Solomon 1992). Virtue ethics is based on Aristotle’s concept of ethics that emphasized human capacity of judgment and the doctrine of the mean. To find the mean in an action is to find the right middle between extremes. Here important concepts of virtue ethics in business ethics have been ideas of virtues and community, integrity and character, the good life, practical reason as well as concern for wisdom of action, integrity and decision-making (Rendtorff 2015c). The tradition of Aristotelian Business Ethics is accordingly seeing business ethics as a function of personal integrity. What is important is the capacity of individuals to be honest and trustworthy when the act in business and economic markets. The basis of economic action is the good manager who has great capacity for leadership with integrity, as it is suggested by Robert Solomon in his development of an Aristotelian business ethics (Solomon 1992). Even though it is very important with the ability to act with integrity in business ethics the problem with this approach is the lack of concern for general and universal morality. Virtue ethics tends to be too concerned with moral character and often dismisses the rule-based and universal dimensions of business ethics. Moreover, as suggested there is little understanding of the organizational and institutional dimensions of business ethics. In order to take these dimensions into account we would have to move beyond virtue ethics towards a more rule-based and deontological approach. Here Kantian business ethics has often been proposed as alternative teleological approaches like consequentialism and virtue ethics (Arnold and Harris 2012). The Kantian approach emphasizes the global and cosmopolitan dimensions of business ethics. This approach defends global corporate citizenship as the aim of business ethics. For Kantian business ethics it is essential in business to protect human dignity and human rights. In this sense the Kantian approach to business ethics has a strong focus on duty ethics (Bowie 1999). 1 Business Ethics, Philosophy of Management, and Theory of Leadership 9

From the point of view of duty ethics, ethics is dependent on the human capacity of having a rational will, to be self-legislating, to be governed by the free and good will independently to interest and pleasure. This foundation of ethics is the universal moral law, as defined by Immanuel Kant’s categorical Imperative with its three for- mulations going from the idea that is necessary for an action to be ethical that it can be accepted as a universal law that everybody can follow (Bowie 1999). Human beings should always act in a way that they consider humanity in their own person and in every person at the same time as a goal or aim in themselves and never only as a mean or instrument. The aim of ethics is to live the kingdom of ends where all human beings are respected as human beings with moral responsibility and autonomy. In this context the basis concepts of duty ethics in business ethics involve respect for the categorical imperative, personal responsibility and self-legislation on the basis of foundational rules and norms, respect for absolute human dignity and belief in humanity. In this sense duty ethics is based on a deep belief in rationality and reason in morality as the foundation of the universal moral law. Norman Bowie has suggested a Kantian capitalism (Bowie 1999). He has argued that market norms for good business involve contracts based on trust and honesty (integrity). Here it is important to focus on transparency and openness on economic market where human freedom, universal respect for rights and fair inclusion of relevant parties represent conditions for just economic action. The Kantian approach in this sense greatly focused on the importance of just and fair economic institutions, respecting human dignity and human rights as the foundation of business ethics. However, even though this approach contributes to the understanding of the institutions of business, it can be argued that Kantian business ethics is too formal- istic and is not able to capture the situational and paradoxical dilemmas of business ethics in action. It seems like we need to focus on the hermeneutic foundations of business ethics in order really to capture the ethical dimensions of business. In contrast to these classical theories of ethics applied to business ethics, another approach to business ethics would be to apply the philosophical traditions of phenomenology and hermeneutics from philosophers like Husserl, Heidegger and Ricoeur to business ethics. This approach would focus on the study of business ethics as a kind of critical hermeneutics based on understanding the ethical dimensions of factual situations of sense-making in business organizations (Philips 2003; Rendtorff 2009). Here ethics emerge as an ethical reality of meaning that we would need to face in the real life of an organization. Critical hermeneutics of ethics in business life looks at the situation of business life and tries to understand the ethical dilemmas from this perspective. A major criticism of this phenomenological and hermeneutic approach is that it does not really deal with theory, but rather focusses on the specific issues of the business life as it is manifested in concrete reality. Following the critical hermeneutics of Jürgen Habermas the position of Scherer and Palazzo has been extremely influential in the present debate on business ethics and corporate citizenship (Scherer and Palazzo 2011). This paradigm focusses on the concept of corporate citizenship as important for business ethics research. The corporate citizenship approach applies Habermas’ communicative ethics and republican philosophy of law to the reality of business (Habermas 1981, 1992). The 10 J.D. Rendtorff approach by Scherer and Palazzo is inspired by Horst Steinman who proposed the idea of social peace as the basis for his republican concept of business ethics. This concept of corporate citizenship has a great advantage by being based on the systemic and more holistic conception of business ethics that has been proposed by Jürgen Habermas (1981, 1993). In fact, we can find similarities between this systemic concept of corporate citizenship and the concept of ordoliberalism that has been very influential in German business ethics since the corporate citizenship paradigm also considers the systemic approach to business ethics as important. Here we can emphasize the great importance of integrating business ethics research not only from the point of view of individuals but seeing it in the broader framework of social systems and interactions in society. This focus on the importance of systemic dimensions of business ethics also characterizes the approach to business ethics and philosophy of management from the point of view of French philosophy and social theory. Different social philosophies in the French-speaking world may contribute with important approaches to economics (Rendtorff 2014b). We can ask for the phenomenological, existentialist, Marxist or structuralist foundations of economics or we can apply post-structuralist philosophy from Foucault and Derrida to the study of economics and business ethics. Here these approaches would contribute with critical deconstruction of the ideology of different approaches to business ethics. Moreover, there are interesting critical potentialities in applying recent French sociology to the study of business ethics. Here Luc Boltanski’s and Eve Chiappello’s sociology has proposed the new spirit of capitalism, but there has also been a criticism of this approach in the sense that Bernard Stiegler has proposed that capitalism is exhausted rather than it has required a new spirit. Indeed, it is interesting to propose the postmodern criticism of the contemporary approach to business ethics (Rendtorff 2014b). Here, the philosophy of Gilles Lipovetsky is very enlightening. He proposes to talk about an ethics of virtue rather than duty considering postmodern business ethics as struggle for combining good ethics and good business (Rendtorff 2014b). So we can find potentialities in new philosophical approaches to business ethics. This is needed when we look at the problems of dominating concepts of management in business. It may be argued that the new institutional economic approach to business ethics remains too consequentialistic. As suggested in new institutional economics the foundations of economics remain to be the rational utility maximizing individual and it seems there are problems with the concept of the acting individual in new institutional economics because in the end only economic rationality is important (Rendtorff 2009). The new institutional economics has little room for business ethics. Like it is the case with the concept of trust business ethics is considered as a useless not very rational concept. In fact, although it is becoming more and more popular we may also argue that stakeholder theory, as proposed by Edward Freeman and his followers is not sufficient for founding business ethics in contemporary society (Philips 2011; Bonnafous-Boucher and Rendtorff 2014). Like stakeholder theory, business ethics appears as too pragmatic and it seems that there is really no foundation for the ethical dimensions of stakeholder theory. In fact, it is a problem how we should justify the foundations of stakeholder theory. A similar 1 Business Ethics, Philosophy of Management, and Theory of Leadership 11 criticism may be put forward in relation to the position of shared value-theory as proposed by Michael Porter (Porter and Kramer 2011). Here, it is proposed that business ethics involves proposing shared value for society and business. This is really to harvest the low hanging fruits in the activities of businesses so that business also serves the value for society. This criticism of this is that it does not really involves an ethical approach to business but rather implies a closure in relation to ethics. This is for example the criticism of strategic CSR which seems to ignore the ethical approach to business. As Mintzberg has said it was important that corporate social responsibility did not end up in becoming nothing but a new abbreviation, where the ethical dimensions of CSR are absorbed into strategic concepts of corporate social responsibility (Mintzberg 1983; Rendtorff 2009).

1.5 What Is Philosophy of Management?

With these embarrassments of the tradition of business ethics we can emphasize that it is important to rethink that whole tradition with the help from philosophy of management (Koslowski 2010; Luetge 2013). But what is philosophy of management? We can emphasize that philosophy of management involves philosophical reflections on the foundations of management. Here we can mention topics like interactions between management and philosophy; ontology, epistemology and philosophy of sciences in management; the political philosophy of the corporation in contemporary democratic societies; political, social and ethical legitimacy of corporations in economy and society; cultural practice and aesthetics of organizations. All these issues can be discussed within the debates about philosophy of management and business ethics. Moreover, these different approaches to philosophy of management must be integrated into a theory of ethical leadership (Koslowski 2010; Luetge 2013; Rendtorff 2013c, d). This is indeed the case of many reflections about the philosophical foundations of management. Ethics of management is about the fiduciary duty of the manager towards the good of the firm. In the ethics of leadership, care, prudence and practical wisdom are important. Aesthetics of an organization is about management and cultural philosophy. This approach deals with institutionalization of values and respect for the human life-world in organizations. Accordingly, philosophy of management needs to provide new foundations of business ethics. New concepts of philosophy of management should be based on the philosophical experience of thinking (Koslowski 2010; Luetge 2013). Here we can emphasize that traditional positions in management theory and philosophy of management may also be limited. These positions include Aristotelian Leadership; Radical normative leadership philosophy; Post-structuralism, Spiritual leadership, Social constructivism; Theories about power, relationships and decision-making; Theories about culture, change management and values-driven management. All very important positions but also positions that we need to rethink by looking at the 12 J.D. Rendtorff epistemological and ontological foundations of management by asking the deep philosophical questions about the foundations of our theories of management. Indeed the ontological question to begin with is whether philosophy can inspire management? Yes! We can answer! Philosophers like Kant and Kierkegaard may give us direct inspiration for leadership that help us to be better managers (Koslowski 2010; Luetge 2013; Rendtorff 2013a, b, c, d). Indeed, we have to look for the search for truth in the philosophical theories. We might say that there is a basis for understanding the legitimacy of corporations present in the philosophical theories of leadership! Here we can say that it is important in philosophy of management to ask ontological questions? Like Plato asks the question about what is the good, the beautiful and the just, the philosophy of management asks the question of “What is?” and this question can be conceived as the foundation of the concept of legitimacy of leadership. The ontological question in management thus implies questions like What is? What is management? What is motivation? What is justice? What is responsibility? What are my foundational values? What is meaning? What is good leadership? With the help of Heidegger we can therefore ask the question “What is good management?”. Heidegger asks the question about what is important and meaningful. This could also be seen as a Socratic approach to leadership where philosophy of management asks the radical questions about “What is?”. So with this philosophy of management is a Socratic philosophy about good leadership! (Koslowski 2010; Luegte 2014).

1.6 Global Philosophy of Management: Cosmopolitan Business Ethics and the Balanced Company

With this ontological approach in philosophy of management I would like to propose a cosmopolitan and global perspective on international business ethics and corporate citizenship (Rendtorff 2009). This approach is based on the philosophy of Immanuel Kant that is applied as foundation for the analysis of the contemporary European and Anglo-American debate on business ethics in order to formulate a theory of global business ethics. Cosmopolitan business ethics compares different concepts and schools of business ethics and philosophy of management and apply them to the contemporary debate on cosmopolitan and global business ethics. On this foundation we can address contemporary problems of sustainability, business and human rights, corporate social responsibility, stakeholder management, corporate governance in order to promote the cosmopolitan concept of business ethics and philosophy of management (Rendtorff 2010). Moreover, it is important to contribute with case-studies and propose a decision-making model for cosmopolitan business ethics to deal with the complexities of globalization. With cosmopolitan business ethics a global philosophy of management includes philosophical reflections about the values of integrity and responsibility as foundations of human rights and universal guidelines for 1 Business Ethics, Philosophy of Management, and Theory of Leadership 13

multinational corporations (Rendtorff 2015c). Applied to reflections about cosmopolitanism philosophy of management and leadership ask ontological questions about the foundations of corporate citizenship as global cosmopolitan citizenship. This involves reflections about the philosophical concept of cosmopolitanism (individual rights to free movement and governance of the world); the concept of cosmopolitanism as being defined as “world citizenship”; application of this concept to business corporations: “Global and world citizenship of business and corporations”. Accordingly, this cosmopolitan approach proposes Immanuel Kant’s philosophy as the basis for cosmopolitan business ethics. Indeed, another important question for philosophy of management and business ethics is the question of the ethical economy. Here, I would like to combine business ethics with the ethical economy. As an ethical economy business ethics is addressing micro-meso and macrolevels of the economy simultaneously. Accordingly an ethical economy is the core of a European and cosmopolitan approach to business ethics. Peter Koslowski’s definition of the ethical economy illustrates this holistic approach to business ethics and philosophy of management: “Economic ethics or ethical economy is, accordingly, on the one hand, an economic theory of the ethical and of economics and of ethical institutions and rules, and, on the other hand, the ethics of the economy. Like political economy, it has a double meaning. It is the theory of ethics that uses economic instruments of analysis, a theory of ethics oriented towards economics, just as political economy is a political theory that uses economic instruments of analysis. But ethical economy or economic ethics is also a theory of the ethical presuppositions of the cultural system of the economy, a theory of the ethical rules and attitudes that presuppose market coordination and the price system in order to function. The component of the ethical economy, which is more strongly oriented toward application, is called here “economic ethics” (Wirtschaftsethik), although the terms “ethical economy” and “economic ethics” merge and the present work also attempts to deal with fundamental and applied questions of ethical economy and economic ethics. The term “ethical economy” (Ethische Ökonomie) goes beyond the research objectives of economic ethics, understood as the ethics of the economy, to achieve an integration of ethical theory and economic theory. Ethical economy must be more than simply “economics and ethics” (Koslowski 2001, p. 3). This approach documents that business ethics function as an institutional approach to the study of ethics in economy and society. However, in order to look deeper at the practical reality of business corporations we can benefit from the hermeneutics of case-studies applying different ethics approaches to particular cases and ethical dilemmas and problems in business corporations (Rendtorff 2015b). Case-studies can be proposed as an important methodology for ethics and philosophy in humanistic management and liberal education and social sciences because they integrate a deeper reflective, philosophical and ethical understanding of the organization with business and economics. Accordingly, with philosophy of management in case-studies we combine the Harvard method of case studies with the philosophy of critical hermeneutics (Rendtorff 2009, 2015b). A typical case-study therefore consists of the fact the 14 J.D. Rendtorff

participants on the basis of well-argued choice in theory and method on the basis of an explicit reflective choice chooses a problem field in relation to a firm or a -com pany, that functions as concrete illustration, documentation, and dept-theme presentation of as well theoretical and practical issues and problems in the case that one attempts to analyze. This kind of hermeneutics can with inspiration from the French philosopher Paul Ricoeur be considered as fundamentally critical, because it combines phenomenological belonging with critical distanced analysis of the reality in organizations and business firms. This critical hermeneutics implies a critical evaluation of the practice of decision-making and action in organizations. This is also emphasized by the fact that the case-study has to be problem-oriented and focused on dilemmas and critical aspects of action in the practice of the firm (Rendtorff2015b ). Accordingly the case-study approach tries to overcome the opposition between theory and practice and in this way build a bridge between different theoretical approaches to the reality of the organization or business firm. When we deal with sciences of action like in business economics we see that the case-study gives the researcher and practitioner an improved ability for action. When dealing with ethical dilemmas of decision-making we can say that the case-study gives a better foundation for decision-making in the firm. In connection with case-studies of ethical issues we can say that in connection with this it improves the ability of the manager to make good and right decisions (Rendtorff 2015b). Ethical decision-making and case-studies imply the following dimensions as basis for leadership and judgment: Interpretation and explanation of ethical dilemmas; Analysis in terms of ethical theory and ethical principles; Analysis in terms Corporate social responsibility and corporate citizenship obligations; Analysis in terms of stakeholder theory; Analysis in terms of corporate compliance standards and codes of conduct; Decision-making and evaluations. As such case-studies improve personal integrity and the ability to do the right action and the case-study thereby contributes to the realization of the aim of educat- ing good managers and administrators in the business corporation (Rendtorff 2015b). With this the case-study is essential for rethinking the relation between business ethics and philosophy of management and leadership.

References

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Crane, Andrew, and Dirk Matten. 2016. Business ethics. Oxford: Oxford University Press. Frederick, Robert E. (ed.). 2002. A companion to business ethics. Oxford: Blackwell Publishing. Habermas, Jürgen. 1981. Theorie des kommunikativen Handelns. (Bd.1: Handlungsrationalität und gesellschaftliche Rationalisierung, Bd. 2: Zur Kritik der funktionalistischen Vernunft). Frankfurt am Main. Habermas, Jürgen. 1992. Faktizität und Geltung. Beiträge zur Diskurstheorie des Rechts und des demokratischen Rechtsstaates. Frankfurt am Main. Ims, Knut J., and Lars Jacob Tynes Pedersen. 2015. Business ethics and the greater good. Rethinking business ethics in an age of crisis, Studies in transatlantic business ethics. Cheltenham: Edward Elgar Publishing. Jensen, Inger, John Damm Scheuer and Jacob Dahl Rendtorff. 2013. The balanced company: Organizing for the 21st century, Corporate social responsibility. Farnham: Gower Publishing Ltd. Koslowski, Peter. 2001. Principles of ethical economy (2000, paperback edition 2001). German original: Prinzipien der Ethischen Ökonomie (1988, 2nd ed. 1994), Issues in Business Ethics, Springer. Koslowski, Peter (ed.). 2010. Elements of a philosophy of management and organization, Studies in economic ethics and philosophy, 19–47. Heidelberg: Springer. Luetge, Christoph (ed.). 2013. Handbook of the philosophical foundations of business ethics, Dordrecht/Heidelberg/New York/London: Springer. Luhmann, Niklas. 1993. “Wirtschaftsethik – als Ethik?”. In Wirtschaftsethik und Theorie der Gesellschaft, hg. von Josef Wieland, 134–147, hier S. 134. Frankfurt: Suhrkamp, S. Mintzberg, Henry. 1983. The case for corporate social responsibility. Journal of Business Strategy Fall 1983: 4. Philips, Robert A. 2003. Stakeholder theory and organizational ethics. San Francisco: Berrett- Koehler Publishers, Inc. Philips, Robert A. (ed.). 2011. Stakeholder theory: Impact and prospects, Collection of original essays in honor of the 25 anniversary of R. Edward Freeman’s strategic management: A stakeholder approach. Cheltenham Glos: Edward Elgar Publishing. Porter, Michael E., and Mark R. Kramer. 2011, January–February. The big idea: Creating shared value, rethinking capitalism. Harvard Business Review. Rendtorff, Jacob Dahl. 2009. Responsibility, ethics and legitimacy of corporations. Copenhagen: Copenhagen Business School Press. Rendtorff, Jacob Dahl (ed.). 2010. Power and principle in the market place: On ethics and economics. London: Ashgate. Rendtorff, Jacob Dahl. 2011. Institutionalization of corporate ethics and social responsibility programs in firms. In Corporate social and human rights responsibilities: Global, legal and management perspectives, ed. Karin Buhmann, Lynn Roseberry, and Mette Morsing, 244–266. London: Palgrave Macmillan. Rendtorff, Jacob Dahl. 2012. Business ethics. In Encyclopedia of applied ethics, red. Ruth Chadwick, vol. 12, 365–372. Edition. San Diego: Academic Press, Incorporated. Rendtorff, Jacob Dahl. 2013a. Basic concepts of philosophy of management and corporations. In Handbook of the philosophical foundations of business ethics, ed. Christoph Luetge, 1361– 1386. Dordrecht/Heidelberg/New York/London: Springer. Rendtorff, Jacob Dahl. 2013b. The history of the philosophy of management and corporations. In Handbook of the philosophical foundations of business ethics, ed. Christoph Luetge, 1387– 1408. Dordrecht/Heidelberg/New York/London: Springer. Rendtorff, Jacob Dahl. 2013c. Philosophical theories of management and corporations. In Handbook of the philosophical foundations of business ethics, ed. Christoph Luetge, 1409– 1432. Dordrecht/Heidelberg/New York/London: Springer. Rendtorff, Jacob Dahl. 2013d. Recent debates in philosophy of management. In Handbook of the philosophical foundations of business ethics, ed. Christoph Luetge, 1433–1457. Dordrecht/ Heidelberg/New York/London: Springer. 16 J.D. Rendtorff

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Alan E. Singer

Abstract Ideology has been described as a framework of ideas used to explain values and purposes. Accordingly, one might consider the possibility of constructing a universal ideology, that is, a framework of ideas that can be used to explain all values and purposes, but especially those most relevant to business ethics. A conceptual framework that meets that description is duly set out in this paper. It is comprised of four partitioned sets of concepts: ethical-theories, human-goods, market-limitations and other bi-polar components. In the spirit of philosophical pragmatism, the framework enables its users to generate systematic explanations and justifications of ethical strategies in business. It might also be used as a tool for a type of moral-diplomacy, where the intention is to promote the radical center and business strategies that compensate for selected market-limitations.

2.1 Introduction

Ideology has been described as a trap, a meta-science and as a spiritual guide (e.g. Bauman and Bordoni 2014). Significantly, it has also been defined, as “a framework of ideas used to explain values and purposes” (Lodge and Vogel 1987). The latter authors then claimed that individuals “routinely deal with issues within the limited framework of their personal ideological assumptions”. Accordingly, one might at least consider the possibility of constructing an un-limited or universal ideology, that is: a framework of ideas that can be used to explain all values and purposes; but especially those relevant to business ethics. A conceptual framework that meets that description is duly set out in this paper.

A.E. Singer (*) Department of Management, Appalachian State University, Boone, NC, USA e-mail: [email protected]

© Springer International Publishing AG 2017 17 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_2 18 A.E. Singer

Fig. 2.1 A framework of ideas that explain values

2.2 Framework

The framework is comprised of four structured sets with their inter-relationships. They are: (i) the set of human goods, (ii) the ethics-set; that is, all the distinctive forms of moral reasoning or moral-philosophical theories, (iii) the known limitations of market-based systems (the limitations-set) and (iv) a set comprised of other essentially bi-polar narrative-components of moral-political discourse (e.g. ethics now vs. later, etc.). It is then suggested that each of these, in turn, substantially corresponds to the fundamental distinction in philosophy and psychology between self vs. other or “I/we” (Etzioni 1988) and in turn to the Right vs. Left construct in politics, which is regarded by many as still being useful (e.g. Derbyshire 2006). The four sets comprise the main sub-structures of the framework (Fig. 2.1) and they are duly elaborated in the following sections. Their interrelationships and potential applications are then briefly considered.

2.3 Human Goods

The classical (Platonic) human goods (HGs) include personally-experienced conditions such as wealth, freedom, justice, friendship and happiness; but also character- traits like nobility or sociality that are prominent in modern utilitarian moral philosophy. These are listed in Fig. 2.2. These human-goods continue to be regarded almost everywhere as fundamental, or as “universal ideals that we would all like to sign up to” (Grayling 1990). The set of goods can be partitioned (fuzzily) in a way that broadly corresponds to the “limited ideologies” of the (economic-) Right vs. Left, as depicted in Fig. 2.2. The Right (e.g. neo-liberal frameworks and narratives that endorse global capitalism) 2 Universal Ideology & Ethical Strategy 19

Global Capitalism

justice & fairness positive- wealth, negative-freedom freedom (from private regimes) happiness negative-freedom (from state regimes) friendship, sociality charity pleasure, aesthetics care, nobility health

A more obviously moral approach

Fig. 2.2 The partitioned set of human goods generally give priority to wealth (or efficient wealth-creation), negative-freedom from state regimes, pleasure and aesthetics (e.g. innovation and novelty, or the overall psychological appeal of market offerings). Left-leaning priorities and arguments then comprise what might reasonably be described as “a more-obviously moral approach”, in that they emphasize justice (especially the distributive and restorative forms) sociality, friendship and caring, together with negative freedom from private regimes (i.e. corporations and the anonymous flows and circuits of capital). Several other human-goods (e.g. positive-freedom, health, charity, nobility) are broadly upheld by both Left-leaning and Right-leaning ideologies (as depicted in the intersection, in Fig. 2.1) although the sub-forms and the various causalities that are thought to co-generate patterns of the goods differ quite significantly. Universal ideology (UI) encompasses the entire set of human goods. It implicitly recognizes that the relative emphasis on the various goods in practice (i.e. the value- priorities of any moral-political agent) have to be adjusted pragmatically and in ways that suit the contexts of a policy or strategy (refer to Sect. 2.7 below), but also in ways can be reasonably balanced or compensated-for, over time. This implies that the “values and purposes” explained and upheld by the UI framework can be summarized as “a reasonably balanced mixture of the human goods”.

2.4 Moral Theories

The second sub-framework is a (fuzzily-) partitioned set of moral theories or forms of moral reasoning. The idea of thinking in terms of a “structured set” of these “forms” was originally suggested in Singer (1994) and the idea of a partitioned-set was subsequently suggested in Singer (2010, 2013). Some independent support for 20 A.E. Singer

MOMA MFoC

Consequentialism

Act-ut U + J U - J Deontology Rule-ut Logic based Golden rules(s) Egoism Utility-aspects Ethic of Care Justice constraint Inter-dependence & conditions Utility-max. Attend to vulnerable in markets Agapism (love ethic) Distributive Free exchange Multi- justice agreements Fiduciary- Fiduciary- Duty to Duties shareholders Contractarianism

Fig. 2.3 The partitioned ethics-set without the spanning theories the implied moral-dualism can be found in in Greene’s more recent (2013) neuroscience-based observation that “All moral thinking boils down to two basic conflicts: mevs . us and us vs. them”. Greene’s phrase “all moral thinking” can undoubtedly now be read as encompassing not only to personal moral intuitions, but also entire moral theories (with some important exceptions discussed subsequently, in Sect. 2.7). Furthermore, the “boiling down” can be carried out by first extracting a few core principles1 and then by further subsuming Greene’s “two conflicts” under a singular self vs. other (or I/ we) distinction. On the “self” (and Right) side of the partition one then finds, for example, utilitarianism without a justice constraint (U-J in Fig. 2.3), along with ethical-egoism, exchange-aspects of contractarianism and the principle of utility-maximization in (qualified) markets. Together, these forms constitute the distinctive moral- philosophical foundations of Capitalism (MFoC in Fig. 2.3) including its hyper- competitive global variant. On the “other” (i.e. Left) side we find deontology, the ethic-of-care and love-ethic (Agapism); but also Utilitarianism-with-justice and the contractarian difference principles. Together these theories (together with offshoots such as ISTC) constitute the normative (theoretical) core of the stakeholder model, or the stakeholder-variant of Capitalism. All of the moral theories underpin the very long-standing prescription in business law and management to give “well-balanced consideration to the interests of all parties concerned” (Littelton 1938, p. 84) and they accordingly represent a more-obviously-moral approach (MOMA).

1 The “core principles” approach is common in business ethics (e.g. Soule 2002) but it is also useful when “doing moral philosophy” by building moral-machines (cf. Dennett 1997). 2 Universal Ideology & Ethical Strategy 21

Various other philosophical theories, including virtue-ethics, pluralism, pragmatism, particularism and dialectics span the partition; as do various distinctive constructs or themes within those theories (e.g. expressive-rationalities, altruism, balance, patterns-of-goods, etc.). All these spanning-theories and themes, in turn, comprise sub-structures of a complicated and contested internal-relational-structure of the entire UI framework (discussed further in Sect. 2.7).

2.5 Market Limitations

The next part of the framework involves the set of known limitations of market- based systems, including monopolistic tendencies, un-priced externalities, the distinction between expressed preferences and well-being, to mention just a few (refer to the left side of Fig. 2.4). It has sometimes been suggested (Prakash-Sethi 2003; Heath 2006) that much of what we normally think of as “business ethics” should be re-cast, at least for educational or pragmatic reasons, in terms of prescribed strategic responses to each of these limitations. There appear to be five possible generic responses to each known limitation: a strategic-entity can exploit it (with the intention of capturing an above-normal return on capital), or refrain from exploitation, or delay, or compensate. Strategies of “compensation” might in turn be direct (e.g. the corporation seeks market power but at the same time supports anti-trust law) or else indirect (e.g. it exploits consumer preferences but supports community projects). Furthermore, the pattern (or vector) of these responses can change over time. A mixture of compensatory and exploitative projects then corresponds to yet another aspect of “moral thinking” at the personal level, namely moral-licensing (e.g. Sachdeva et al. 2009). Like mixed strategies in business, this refers to a rather common psychological tendency to justify or “license” bad personal behavior (e.g. reckless consumption) by referring to, or engaging in direct or indirect-compensatory good behaviors (e.g. going to the gym).

LIMITATIONS COMPENSATIONS Direct Monopolistic tendencies Support anti-trust, assist swarm Distributive-Justice Ability to pay Indirect Information Preference vs. well-being Healthy offerings, education Alienation Non-rival goods Indirect Externalities Restorative offerings, Public goods Community projects Direct

Fig. 2.4 Market limitations with direct and indirect compensations 22 A.E. Singer

Table 2.1 Some components Component Left-pole Right-pole of the dualism Models Stakeholder Shareholder The firm Real-entity Aggregate Politics Left-leaning Right-leaning Trust Governments Markets Timing Ethics now Ethics later Language Multi-forms Financial

2.6 Components

A fourth sub-structure of the UI framework is comprised of many essentially-bi- polar components of the relevant moral and ontological dualisms. The above three partitioned-sets (goods, theories, limitation) are perhaps obvious examples, but they can be joined by many others including strategy-models (shareholder vs. stakeholder- oriented), economic theories-of-the-firm (e.g. aggregate vs. real-entity) and political-leanings (i.e. Right vs. Left) to mention just a few (Table 2.1). Other components (Table 2.1) include, for example, objects-of-trust (i.e. markets vs. governments), timing of behavior (ethics-later vs. now) and language- deployments that are narrow or “tribal” (e.g. the phrase “forms of capital” in business settings normally refers to financial-instruments, but elsewhere to the social, cultural, ecological or moral “forms”, etc.). Yet other prominent components of the dualism involve: efficiency vs. justice (sometimes a trade-off, sometimes a false choice), negative-freedoms (i.e. from state vs. private regimes); personal passions (e.g. megalothymic vs. isothymic) and character-traits (cruel vs. kind), fiduciary duties (to shareholder vs. ‘multi’-duties, as indicated in Fig. 2.3) not to mention the self vs. other (or I/we) component discussed earlier.

2.7 Spanning & Projecting

The UI framework (Fig. 2.1) constitutes an explanation of the entire spectrum of values related to business-ethics, whilst also pointing to other available explanations. It does this in much the same way that Porter’s “classic” (1980) five-forces framework (in strategic management and marketing) explains or points to the distinctive factors involved in oligopolistic business competition. In accordance with the spirit and tradition of pragmatism (found in strategy-models) the UI framework is incomplete, diagrammatic and useful. It is incomplete, for example, because various components are deemed to be “bi-polar” even though further inquiry reveals greater complexity or multi-dimensionality. Furthermore, the framework as depicted and described so far omits (i) various distinctive themes that span the partition, such as character and intention; as well as (ii) other moral-theories that span the partitioned ethics-set, such as virtue-ethics, moral-pluralism, dialectics and particularism. 2 Universal Ideology & Ethical Strategy 23

These are all parts of a more detailed internal relational-structure, which is both infinitely complex and endlessly contested (consider, for example, the relationship between an ethic-of-care and the co-production of wealth).

2.7.1 Dimensions

Bi-polar oppositions such as trust in “governments vs. markets” or “Left vs. Right” political leanings almost always conceal further controversies regarding the essential nature of each of the separate poles themselves. In the case of politics, for example, a noteworthy debate on “What is Left, what is Right?” in The American Conservative (2006) not only endorsed the general usefulness of dualisms, but also captured the spirit of the entire proposed UI framework in the following quote: I have some math books showing five-dimensional solid figures projected down into two dimensions so that they can be printed on an ordinary page. That’s the kind of thing we do when we talk about Left and Right. Like those geometric projections, it’s not very satisfactory; but it’s not useless, either. (Derbyshire 2006) Extending Derbyshire’s metaphor, when we do “talk about Left and Right” the projected dimensions normally depend on the particular issues under discussion, whether it be international trade policies2 or an individuals’ willingness to pay tax. Nonetheless, across all such issues there does indeed remain a useful and perhaps rather obvious alignment of the political “Left vs. Right” construct with the four partitioned subsets and bi-polar components in the UI framework.

2.7.2 Spanning Themes

Within that framework, the spanning-themes include character, intention, and emotion, together with sociological themes such as culture and macro-trends. The explanatory role of these “themes” differs from that of the bipolar-components, in that they former are (i) more general and abstract, and (ii) are often deployed to qualify selected component-poles. For example, when explaining values or purposes, one might point to “an intention to achieve justice (on the Left), or to improve economic efficiency (on the Right)” or point to a generous or selfishcharacter and so on. Many distinctive contributions to business ethics have duly examined selected components in relation to such themes (as depicted in Fig. 2.5).

2 The Left-Right component is a simplification or “projection” of complex political issues for various reasons. For example, “protecting a nations’ workers against outsourcing” and “ending global poverty” are both priorities of the Left, but they conflict to the extent that the latter might be achievable (or already partly achieved) through global capitalism. Another issue involves citizens’ willingness to pay tax. It is a function not only of their general trust in government, but also of their approval of specific policies. The left, for example, often oppose paying taxes to the extent that the funds are used for military projects (i.e. doves vs. hawks). 24 A.E. Singer

COMPONENTS ETHICS-SET Span Span Justice Efficiency Ethic of Care U - J

SPANNING-THEMES SPANNING-THEORIES e.g. intention, character e.g. pluralism, virtue ethics

Mutually Inform

Fig. 2.5 The spanning-themes and spanning-theories

Table 2.2 Moral –theories that span or transcend the partitiony Theory A moral-agent ought to… Pluralism …apply the entire set of forms of ethical reasoning, strive for a cognitive equilibrium Particularism …strive to identify the morally-relevant features of each situation, which vary Virtue-ethics …cultivate character traits like striving for excellence and integrity Pragmatism …emphasize inquiry and inventiveness, in the search for ideals and truths

2.7.3 Spanning-Theories

Distinctive ethical theories, indeed entire schools of moral philosophy, also span (or in some cases transcend) the partition (Table 2.2). For example, contractarianism is a spanning-theory because it emphases negative-freedom and un-coerced agreement (on the Right) but also the difference-principles of distributive justice (on the Left), as indicated in Fig. 2.3 (above). Moral-pluralism quite obviously spans the partition. It prescribes some consideration of the entire ethics-set and a search for a cognitive equilibrium through disciplined reflection. Particularism also transcends (and challenges) the partition, in that morality is deprived of any distinctive structure like the map in Fig. 2.3. Instead, particularism prescribes the identification of distinctive morally-relevant features for each encountered situation or episode. Virtue-ethics informs the theme of “character” just as it also spans (and arguably transcends) the partition, whilst exploring the claim that personal integrity is the key to understanding ethics. Finally, philosophical-pragmatism spans (and reflexively underpins) the partition, because it emphasizes continuing inquiry in a search for all ideals and truths, quite in accordance with the UI framework itself. In addition to the various moral spanning-theories, there are also some other distinctive spanning themes within those theories, including the themes of “character” and “intention” mentioned earlier. For example, expressive-rationality (associated with positive freedom) is prominent within ethical egoism, but also in Marxist-dialectics. Similarly, aspects of “altruism” feature prominently in the ethic- of-care on the Left, but also in the (Right-side) theories involving rational-utility- 2 Universal Ideology & Ethical Strategy 25

Table 2.3 The human-goods emphasized by the moral-theories Theory Emphasized human goods Utilitarianism without justice Happiness, pleasure, wealth; patterns Utilitarianism with justice As above, plus justice Ethical egoism Positive and negative freedoms Deontology Justice, friendship, care Ethic of care & Agapism. Care, love maximization and dynamic games. Yet another example is the theme of “patterns-of-goods”, found in utilitarianism with and without justice, and so on.

2.8 Meta-Relations

The spanning themes and theories together comprise just a part of the skeletal or internal structure of the UI framework, as further inquiry reveals endless complexity and a contested nexus of inter-relationships. The latter can never be specified completely and finally. More generally, the UI framework expresses a pragmatic- philosophical approach in that it: (i) yields or generates explanations of values who validity or truthfulness is only approachable, not final, and (ii) presents concepts and constructs that are themselves mutually-constituted; that is, they can only gain their full meaning and significance “within the context of each other” (Rosenthal and Buchholtz 2000). (iii) makes use of diagrammatic representations (like much strategic thinking in business and indeed the entire discipline of ‘strategic-management’) seeing these as an important part of inquiry and analysis. Nonetheless, the nature of the relationships between the four partitioned sets (goods, theories, limits, components) can indeed be described in quite general terms. Firstly, one can see that moral theories “selectively emphasize” the human goods (Table 2.3 and Fig. 2.6). Variants of utilitarianism emphasize happiness, pleasure, wealth, or justice, or else patterns of those goods. Ethical-egoism emphasizes positive-freedoms, just as the Left-side theories generally emphasize aspects of justice and care, and so on. Various other relationships between the sets can also be described at a similar level of generality (refer to Fig. 2.6). For example, the market-limitations (e.g. monopoly) variously “constrain the co-production” of the human goods (e.g. wealth and justice, etc.), or some reasonably balanced mixture of those goods, whilst the “classical” human goods in turn serve to “stabilize” the various values that are selectively emphasized in the ethical theories, or within the very idea of “market limitations”. Continuing at this same level of generality, the bi-polar components-set serves to contextualize the market limitations (e.g. the ethics-now vs. later component indicates an important temporal context) just as the components themselves (e.g. self vs. 26 A.E. Singer

HUMAN selectively GOODS constrain co- emphasize stabilize production of values in

explicate tensions in re-cast ETHICAL MARKET THEORIES LIMITS Justify stabilize responses values in to elaborate & span inform contextualize Bi-polar COMPO -NENTS

Fig. 2.6 The general relationships between the sets other) can usefully inform, or be elaborated within, or spanned by, the various moral theories (the ethics-set). These theories, in turn, can be recast as (i.e. replaced by a discussion of) the market limitations or else serve to justify strategic responses to the limitations. Finally, the bi-polar components can be used to explicate the tensions within the human-goods-set. For example, the tension between pleasure and care might be explained with reference to broad ontological dualisms such as male/ female, or Yin/Yang, and so on.

2.8.1 Within the Sets

Other contested relationships exist within each of the four sets, that is, between their elements or subsets (Fig. 2.7). Within the goods-set, for example, one might inquire into the relationship between wealth and distributive- justice (as in Amartya Sen’s comment that “The size of the cake depends on the way that the cake is divided up…in complex ways” Sen 1993); or the relationship between friendship & wealth: (e.g. when a wealthy person has friends, their authenticity might be doubted); or the relationship between health & freedom where it might be argued that a healthy individual can create their own sense of freedom regardless of wealth (“I can be bounded in a nutshell but count myself the king of infinite space”), and so on. Turning to the internal structure of the market-limitations-set, one might devise explanations as to why, for example: 2 Universal Ideology & Ethical Strategy 27

Inter- relationships HUMAN GOODS Inter- relationships

ETHICAL MARKET THEORIES LIMITS

Meta- ethics

Bi-poler COMPO -NENTS reinforcements

Fig. 2.7 Relationships within the sets

(i) monopolistic-tendencies generally become more harmful when they are combined with marketing appeals to short-term consumer preferences, or (ii) the most important criterion of distributive-justice might be that everyone should have an “ability to pay” for life-sustaining food and medical treatment, and so on. Then within the components-set more generally, there are endless further opportunities for mutual reinforcements. For example, in the long-lasting debate about business stakeholders vs. shareholders, just about every component-pole has been invoked at some point in an attempt to support one side or the other (for example, the “ethics-later” component helps to justify the shareholder-model, and so on). Finally, one might move up to the meta-ethical level and construct explanations of the relationships between distinctive ethical-theories, or attempt to assess their relative merits (i.e. evaluative meta-ethics).

2.9 Application

Turning now to some potential applications of the UI framework (Fig. 2.1), one might first note that well-known corporate strategy “models” (like Porter’s “five forces” or D’Aveni’s conceptual model of hyper-competition, or the stakeholder model) have undoubtedly influenced the value-priorities and understandings of business school students and executives over the last 30 years or so. The UI framework might now be “used” in essentially the same way, but to promote an appreciation of what might be called the radical-center3 in business ethics and in politics. It

3 According to Philip Weiss (2006) we’re in a period of ideological disarray and realignment…and “my best hope is … a kind of radical center”. 28 A.E. Singer essentially provides a vantage point from which to “bombard the other side with reasonableness” (a phrase attributed to the Left-leaning economist Yanis Varoufakis; although it applies both ways). Such bombardments are often necessary, essentially because, our “doxa (is) a collection of beliefs (that) we think with, but seldom if ever think of” (Bauman and Bordoni 2014: 46). Put differently, we are often quite unaware of the existence and effects of our beliefs, but people are generally too self-satisfied, distracted or lazy to strive for any fuller awareness.4 In business and politics there is a tendency to express (or chant) mantras like “freedom is more important than equality” (or vice- versa) and then to invoke that same “mantra” when complicated political, strategic or social issues are assessed. The mantra then leads people astray, quite like misap- plied cognitive heuristics (which have often been discussed in cautionary or prescriptive terms in management research journals). If a person can indeed be encouraged to think of their own doxa then several generic factors normally affect the outcome (and indeed ought to affect it, according to a classical-pragmatic ethics-of-belief). These include: (i) the expected medium-term effect of any doxa-revision on the attitudes of proximate-others (i.e. colleagues, friends, tribe-members, etc.) For example, an executive might be deemed suspect or disloyal if they subsequently express their revised beliefs. (ii) the expected overall lifetime effects on the thinking person’s experienced-HG- mix (e.g. in the long term, the executive might expect to prosper by joining other organizations that share the new value-priorities), and (iii) the cognitive availability of and the personal level of commitment to particular moral principles or theories (e.g. do no harm, etc.) The overall result of any such reflective process (Fig.2.8 ) can then be either: (a) no change, or (b) a modification of doxa to accommodate the new information (i.e. in-formation), or else (c) a change in the opposite direction (i.e. psychological-reactance). The UI framework (Fig. 2.1) can obviously be used to initiate or trigger this kind of reflective process, but also specifically to guard against psychological reactance. This is because it includes everyone’s prior political “beliefs” with their associated value-priorities. Quite like Yin/Yang symbol (another diagrammatic component of the dualism), the framework exploits the most basic aspect of perception and cognition, which is the figure-ground distinction (the partition), thereby helping all people to “see” the merits of alternative and wider ideologies. Accordingly, the framework might be deployed as a tool of moral-diplomacy on behalf of “the radical center” (e.g. Weiss 2006). It might also be taught in any cross-cultural or interna-

4 According to Adler (2002, p. 29) one is “fully aware of a belief when one attends to the fact that one has the belief and considers why one believes it”. Furthermore, any conscious decision to “consider” or think of doxa (Bauman and Bordoni 2014) involves some preliminary estimation of the level of cognitive-effort that is likely to be needed, as well as the overall costs and benefits of the various possible outcomes. The first phase is quite like a computer calculating whether it has enough space to save a file. 2 Universal Ideology & Ethical Strategy 29

Fig. 2.8 Factors affecting the revision of political beliefs tional educational programs, such as the Japanese “Integral education for a viable human future” (Hiwaki 2014); not to mention any responsible course on the moral foundations of capitalism, or CSR, or sustainability, or social-entrepreneurship, or business-ethics.

2.10 Conclusion

The UI framework has quite obvious relevance to business ethics as a subject. With regard to ethics more generally, however, it might seem rather odd to claim a “universal” relevance for any framework of ideas that are entirely secular. In response, one might note that moderate theological doctrines (doxa or ideologies) that remain responsive to secular circumstances also fit quite well in the UI framework. With reference to Catholic doctrines, for example, one can observe significant historical shifts5 between “Right” and “Left” leaning positions; but these, in turn, might indicate a broad underlying endorsement of the “radical center”. With religion and politics still in mind, it is often said that there can be no peace without justice; but it is also said with similar frequency that peace comes from

5 Several contributors to the American Conservative noted that the very terms “Left” and “Right” originated in the French National Assembly prior to the French revolution of 1789. Those who favored equality sat on the speaker’s left; those who wanted Catholic churchmen and nobles to retain privileges sat on the right (e.g. Derbyshire 2006). Exactly 200 years later, with the fall of the Berlin Wall (1989), the church once again “sat” on the Right, in opposing communism and the Soviet Union. However, in 2015 Pope Francis proclaimed that “Working for a just distribution of the fruits of…human labor is… a moral obligation” and that “an unfettered pursuit of money”… is… “the dung of the devil”. 30 A.E. Singer prosperity (wealth) or from strength. A more pragmatic position might therefore be that peace flows from serious efforts to achieve a “reasonably balanced distribution of the human goods” or, put differently, some “reasonably integrated spiritual- material balance” (Hitachi 2014). Such super-ordinate values or ideals are now easily explained, justified and perhaps also cultivated with reference to the “universal ideology”.

References

Adler, J. 2002. Belief’s own ethics. Cambridge: MIT Press. Bauman, Z., and C. Bordoni. 2014. State of crisis. Cambridge: Polity Press. Dennett, D. 1997. Cog as a thought experiment. Robotics & Autonomous Systems 20: 251–6. Derbyshire, J. 2006, August 28. In What is left? What is right? Does it matter?, The American Conservative. Etzioni, A. 1988. The moral dimension: Towards a new economics. New York: Free Press. Grayling, A. 1990. Comment made by Professor Anthony Grayling in Global Capitalism (a BBC TV broadcast). Greene, J. 2013. Moral tribes: Emotion, reason and the gap between us and them. London: Penguin. Heath, J. 2006. Business ethics without stakeholders. Business Ethics Quarterly 16: 533–557. Hiwaki, K. 2014. Own culture-based integral education for a viable human future. Human Systems Management 33: 121–138. Littelton, A. 1938. A substitute for stated capital. Harvard Business Review 17(1): 75–84. Lodge, G., and E. Vogel. 1987. Ideology and national competitiveness. Boston: HBS Press. Prakash-Sethi, S. 2003. Globalization and the good corporation. Journal of Business Ethics 43(1): 21–31. Rosenthal, S., and R. Buchholtz. 2000. Rethinking business ethics: A pragmatic approach. New York: Oxford University Press. Sachdeva, S., R. Iliev, and D. Medin. 2009. Sinning saints and saintly sinners: The paradox of moral self-regulation. Psychological Science 20(4): 523–528. Sen, A. 1993. Does business ethics make economic sense? Business Ethics Quarterly 3(1): 45–54. Singer, A.E. 1994. Strategy as moral philosophy. Strategic Management Journal 15: 191–213. Singer, A.E. 2010. Integrating ethics and strategy: A pragmatic approach. Journal of Business Ethics 92(4): 479–492. Singer, A.E. 2013. Teaching ethics cases: A pragmatic approach. Business Ethics: A European Review 22(1): 16–31. doi:10.1111/beer.12004. Soule, E. 2002. Management moral strategies: In search of a few good principles. Academy of Management Review 27(1): 114–124. Weiss, P. 2006, August 28. In What is left? What is right? Does it matter? ed. The American Conservative. Chapter 3 A Genealogy of the Gift

Germán Scalzo

Abstract This chapter takes a look at the gift, in which academic interest has recently grown, especially after the release of Benedict XVI’s social encyclical Caritas in Veritate. It outlines a genealogy of the gift, briefly presenting the three main stages of its evolution: (1) the ceremonial gift, typical of the ancient world and found in the cultural anthropological approach that the French tradition later adopted (Mauss, Caillé, Hénaff, etc.); (2) the moral gift, which Aristotle first outlined to explain the emergence of the city; and (3) the personal gift, developed in the Middle Ages thanks to Christian Revelation and its corresponding idea of the person.

Keywords Gift • Economics • Mauss • Aristotle • Caritas in Veritate

3.1 Introduction

Academic interest in the gift markedly increased after the 2009 publication of Caritas in Veritate, an encyclical whose wealth overflows any attempt to summarize it (Rubio de Urquía et al. 2014) and that is presented as a continuation of Paul VI’s Populorum Progressio and John Paul II’s Solicitudo Rei Socialis (CiV, 8, 10–20). Against the progressive reductionism that modern rationality has undergone, Benedict XVI argues that the “broadening [of] our concept of reason and its application” is indispensable if we are to succeed in adequately weighing all the elements involved in the question of development and in the solution of socio-economic problems” (CiV, 31). While he certainly clarifies that he does not intended to provide clear technical solutions or to get tied up in state politics, he offers some guidelines for social life that come from “fidelity to the truth, which alone is the guarantee of freedom and of the possibility of integral human development” (CiV, 9) under the premise that “both the market and politics need individuals who are open to reciprocal gift” (CiV, 39).

G. Scalzo (*) Business Ethics, Universidad Panamericana, Mexico City, Mexico e-mail: [email protected]

© Springer International Publishing AG 2017 31 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_3 32 G. Scalzo

Indeed, the gift is the encyclical’s main theme: Charity in truth places man before the astonishing experience of gift. Gratuitousness is present in our lives in many different forms, which often go unrecognized because of a purely consumerist and utilitarian view of life. The human being is made for gift, which expresses and makes present his transcendent dimension (CiV, 34). A proper understanding of the logic of gift is essential for attaining full human development. However, this understanding is not simple because it involves a very deep anthropological conception that, in addition, has evolved over time. In what follows, this chapter presents the essential elements of this evolution, analyzing its three main stages, including the ceremonial gift, the moral gift, and the personal gift.

3.2 The Ceremonial Gift

To understand the meaning of the economy, it is best to start from the differences that can be observed between animal and human life. While all animal species conform to certain rules for breeding and feeding, leaving no room for reflection or knowledge, in the case of human beings, this process is not necessarily fixed, but rather depends on culture and history. Moreover, these rules are not intended for the mere survival of the species, but rather aim to achieve the best way of life. Human beings, therefore, do not live in the wild in the same way that other living beings do; rather, humans inhabit their own world, to which the spirit gives unity and meaning and in which the symbolic dimension of speech and discourse prevails within a community. In fact, man can only live in community, the most basic of which is the family, which is where the idea of economics acquires its meaning (etymologically oikos-nomos means household management)1 as the acquisition and administration of the means for a good life. Ethnographic studies and cultural anthropology that Mauss led in early last century revealed the evolution of the human bond between families and the resulting social structure. The gift appears as something universal (Mauss analyzed its presence in Northwest America, Melanesia, Polynesia, Samoa Islands, Trobriand, etc., as well as in Scandinavian, Celtic, Roman, Germanic and Indian societies.) It has been present in all human communities, especially in ancient societies. The work of Marcel Mauss, who was Durkheim’s nephew, is found halfway between sociology and cultural anthropology and was fundamental in reviving the topic in the mid twentieth century.2 In his seminal work Essai sur le don (English translation: The Gift. Forms and functions of exchange in archaic societies), Mauss claims that gift,

1 This point goes beyond the scope of this article. For an idea of economics in the ancient world, see: Scalzo (2014). 2 Cfr. Mauss (2009). Although the original version is from 1924, Lévi-Strauss was responsible for its dissemination, having popularized Mauss’s work after his death in 1950. Currently, the Revue du Mauss, edited by the Mouvement anti-utilitariste dans les sciences sociales (M.A.U.S.S. http:// www.revuedumauss.com), shows the evolution of leading intellectuals works on this matter. 3 A Genealogy of the Gift 33 freedom, liberality and interest in giving, are back, reappearing as a key reason after being long forgotten. (2009, p. 234). In The enigma of the gift, Maurice Godelier critically dialogues with Mauss to conclude that “the gift has objectively become a matter primarily subjective, personal and individual. Is the expression and the instrument of personal relationships that are beyond the market and the state,” (1998, p. 295) which eventually became known as the third paradigm: “today, given the scale of social problems, and the apparent inability of the market and the State to solve them, gift is becoming again a socially necessary objective condition for the reproduction of society” (1998, p. 295). On the initiative of Alain Caillé—one of the main authors in gift studies today— the group Mouvement anti-utilitariste dans les sciences sociales (MAUSS) was founded in Paris and its acronym makes an honorific reference to Mauss. This group has contributed to the fact that the French have taken the lead on the interpretation of the gift. Caillé is a great admirer of Mauss, who “showed that ritually codified, generous reciprocity constituted the dominant fact in relationships between groups in traditional societies and formed the very cement of the social bond” (2010, p. 107). The highlights of Caillé’s work include the Anthropology of the gift3 and his collaboration in Jacques Godbout’s work, The Spirit of the Gift (2000), a book that has become necessary to understand this movement, and in the French tradition in general.4 Caillé is especially responsible for the consideration of social relations from the logic of the gift as a “third paradigm,” a multidimensional theory of action beyond the individualism proper to the market and holism of the state (2010, p. 14–21).5 “The paradigm of the gift makes donation the first constitutive moment of human reality, the moment at which personal identity and social bonds are founded because of that donation” (Moreno 2010, p. 7). In short, with different perspectives and diverse methods, it can certainly be said that many current interests in the humanities and social sciences are showing that the concept of gift, an ancient notion, whether rehabilitated or proposed anew, is an especially privileged key to understanding the person and human nature, as well as contemporary social and economic problems (González, 2013, p. 15). In general terms, in the ancient world there are three big stages in human groups that express progressively greater ownership of the natural habitat: the first was dedicated to hunting and gathering, while the next was structured by grazing or an incipient kind of agriculture, and finally, the emergence of crafts and trade. In the first two stages, human bonds were founded on the practice of the ceremonial gift, regulated by vindictive justice. In the third phase, in which cities were consolidated, human bonds were based on political authority, regulated by arbitral justice.

3 Original version: Anthropologie du don. Le tiers paradigme, Desclée, París, 2000. 4 See also Godbout, J. (2000). 5 Holism points to the fact that the totality of the social sphere, which preexists individuals and their actions, explains by default everything that makes up the individual parts of society. From the scientific point of view, it has taken the form of functionalism, culturalism, structuralism, etc. see: González (2013), p. 16. 34 G. Scalzo

In the practice of the ceremonial gift, the bond of blood and honor or status of each person within the clan or tribe prevailed. Exchanges were conducted in order to establish and maintain partnerships between parental groups through their representatives; the delivery and receipt of the gift—whether things or people—expressed mutual recognition. The ultimate expression of an alliance between different groups was marriage, i.e., the delivery and reception of wives, which shows that the gift did not correspond to the delivery and reception of something neutral, but rather was a “pledge,” something that was of upmost importance to the parties involved.6 A pledge is an object that is delivered as sign of fulfillment of an obligation towards someone, while it expresses what is most valuable and intrinsic to the subject that gives; it is the gift of self in he who gives. The goods exchanged according to this logic are priceless assets; they focus on the relationship and constitute “the development of a powerful network of interpersonal bonds” (Hénaff 2010, p. 107). Hénaff studied the evolution of the gift in The Price of Truth: Gift, Money and Philosophy, based on Mauss’s studies of ceremonial gift in ancient societies and he showed how, over time, it acquired some verticality with the practice of offering to the gods, which he called ritual gift.7 He first used the case of the Maori tribe to show that giving assumes the obligation to respond: “After giving something of himself, he must receive something of the other,” (2010, p. 125) but especially, that one gives himself in that which he gives: “The implication of the giver in the thing given is not a metaphor: it involves a transfer of soul and substantial presence” (Ibid, p. 127). The practice of the ceremonial gift was a way of ensuring the recognition of stable and public alliances between groups of families and its name derives from the fact that this gift was carried out according to very detailed ceremonial rules. It is “total social fact” because it creates a bond that holds people together.8 The justice that corresponds to these societies is vindictive justice,9 intended to restore, in the case of an offense, the order established by the ceremonial practice of gift-exchange.

6 The exchange of useful goods developed in parallel, but it was not of great importance since these groups’ subsistence economies were, in principle, self-sufficient. 7 The idea of sacrifice, although it is important in the history of the gift, exceeds the scope of this article. See, for example, Hénaff (2010), p. 156–202. As well as: Llano (2004). 8 Hénaff gives an example with by hau and taonga. The spiritual hau always has to return to its origin, the motivation to give, while the giver, taonga, is omnipotent. He also gives an example with a kind of exchange called kula, which involves a 3-month journey by ship where one tribe goes to visit another resulting in a competitive exhibition and then exchange of precious goods called waygu’a takes place: precious necklaces (soulava) that are viewed as masculine, worn by women and move East to West are traded for bracelets (mwali) that are viewed as feminine, worn by men and move West to East. According to the trobiandés myth, mwali and soulava tend toward each other, as man tends toward woman. Exchange is a festive ceremony in which the giver is not seen as losing, but rather gaining. Moreover, he who gives more than he receives is superior. These differences in rank founded the social order. Denying the gift (not accepting it) was tantamount to spurning an invitation to alliance, which was equivalent to declaring war. The other example he uses is potlatch, one chief’s celebration to honor another that he considered a rival, which augmented the rivalry because the more ostentatious one celebration, the more ostentatious the reciprocal recognition had to be. See Hénaff (2010), p. 116–138. 9 The typical example of this kind of justice is “an eye for an eye.” 3 A Genealogy of the Gift 35

3.3 The Moral Gift

In his gift genealogy, Hénaff makes it clear that the ceremonial gift is social, not moral (2010, p. 109–125). The emergence of cities represented an important step in the evolution of human relationships and the structure of social organization. Mutual recognition, which had previously been established horizontally through partnerships between families, was replaced by a central authority’s establishment of law, i.e., the emergence of political authority. This signified a shift from vindictive justice to arbitral justice. As part of vindictive justice, the fundamental mode of justice was revenge: “eye for an eye, tooth for a tooth.” However, in an arbitration system, authority acts as a mediator that “administers the debt” of the community, which it evaluates and sanctions. However, “the difference between vindictive justice and arbitral justice is not reduced to an opposition between violence and lawlessness on one side and rule of law and reasonable mediation on the other” (Hénaff 2010, p. 297). The key is not the relationship to justice, but rather the relationship to debt: in the case of the gift, there is a debt to pay back; in the latter, an exchange price is determined, resulting in parity between symbolic and financial debt (Ibid, p. 283–298). Aristotle was the first to perceive the passage from personal reciprocity proper to vindictive justice to the proportional reciprocity of arbitral or political justice. While for the ceremonial gift, the gift’s symbolic value or pledge received from a group matters over the utility of things, the new configuration of the gift focuses on utility, such that exchange moves to center stage. Aristotle devoted Book V of the Nicomachean Ethics to justice. He distinguished universal justice from particular justice, and within the latter he parced the difference between distributive justice—equality according to a geometric proportion— and corrective justice—equality according to an arithmetic proportion.10 Immediately afterwards, in the fifth chapter, and in the context of corrective justice, he addressed the issue of justice in exchanges—voluntary transactions—as a form of reciprocity; “in associations for exchange this sort of justice does hold men together –reciprocity in accordance with a proportion and not on the basis of equality” (NE 1132b). The aim of this kind of justice is to correct the gains and losses that occur in exchanges to maintain proportional reciprocity, which is proper to the city. In Politics I, Aristotle discusses the genesis of exchange and he distinguishes different forms: bartering—or exchange without the intermediation of currency—, the use of money as a means to acquire something that is needed, buying and selling to make money, and lending money at interest, which is known as usury. Aristotle examines the evolution of relationships of exchange over time, while exploring the nature of exchange value and its effects on human behavior. In relation to the respective ends (telos) of these forms of exchange, he concludes that there are two differ-

10 “Distributive justice is based on man’s ‘natural’ inequality, while corrective justice is concerned with the equality of man, which is instituted by ‘convention.’” Soudek (1952), p. 47. 36 G. Scalzo ent types: one that is natural to the good life in community and another that is contrary to it. The key to understanding the difference is made clear in his Ethics and is related to currency and the distinction between the use of goods to satisfy a need and the possibility of exchanging it.11 Chrematistic is a part of the economy that deals with the acquisition of property necessary for the good life, that is, its purpose is provision, pointing to consumption or use. Indeed, Aristotle distinguishes between natural chrematistic, which pursues things that are useful because of the value proper to them in their use, and bad chrematistic, which is unnatural because it is guided by exchange value, i.e., by the desire for money (Pol. 1258b). The exchange value quantifies things, gives them a logical category that differs from their inherent nature, i.e., their use value. This logical distinction, which shows the two major purposes that arise according to which one takes precedence, is sufficient for analyzing exchange. When the use value takes precedence the end is limited because “the elements of true riches; for the amount of property which is needed for a good life is not unlim- ited” (Pol. 1256b). On the other hand, corrupt chrematistics “is thought to be concerned with coin; for coin is the unit of exchange and the limit of it. And there is no bound to the riches which spring from this art of wealth-getting” (Pol. 1256b). When the exchange value takes precedence, the search for profit is endless, as shown in the following poem Aristotle took from Solon: “No bound to riches has been fixed for man” (Pol. 1256b). As Meikle points out “the underlying thought at this point is that, since it is a quantity, exchange value (and its bodily form of money) has no inherent limit” (1995, p. 50). Exchange has “arised at first from what is natural, from the circumstance that some have too little, others too much” (Pol. 1257b). Aristotle presents the necessity of exchange and its first form, i.e.,, the direct non-monetary exchange of one commodity against other –barter–, as a natural process. In the first community, indeed, which is the family, this art is obviously of no use, but it begins to be useful when the society increases. For the members of the family originally had all things in common; later, when the family divided into parts, the parts shared in many things, and different parts in different things, which they had to give in exchange for what they wanted (…) This sort of barter is not part of the wealth-getting art and is not contrary to nature, but is needed for the satisfaction of men’s natural wants (Pol. 1257a). The exchange of goods without the intermediation of money can be represented by C-C′ (commodities).12 Aristotle immediately adds that “this sort of barter is not part of the wealth-getting art and is not contrary to nature, but is needed for the

11 Aristotle’s sharp distinction between exchange value and use value may lead to a certain ambiva- lence on this point since the exchange value of a good does not correspond to its proper and peculiar use. However, Aristotle fails to say that the use of an object in exchange is “unnatural” (para phusin), precisely because using an object in a way other than its proper and peculiar use does not mean that this use is bad. 12 It was Marx who first used the letters C and M (commodities and money) to represent the circuits by which Aristotle describes the various exchange forms. See Capital, I, 3 y II, 4. 3 A Genealogy of the Gift 37 satisfaction of men’s natural wants, and it was natural to complete self-sufficiency” (Pol. 1257a). However, the other form of exchange grew out of this one, “when the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily come into use” (1257a). This other type that he discusses is an evolution of the first, a consequence of the mediation of money, the response to which is known as the problem of commensu- rability: how to determine how much of a good to exchange for another according to justice, which calls for a pattern of measurement: All goods must therefore be measured by some one thing, as we said before. Now this unit is in truth demand, which holds all things together (…); but money has become by convention a sort of representative of demand; and this is why it has the name money (nômisma)– because it exists not by nature but by law (nômos) (NE 1133b).

A good is sold (C-M) and with the money gained, another is purchased (M-C′). This form is represented as C-M-C′ and as long as one sells to buy, money is a means for obtaining a good that one wants to consume. Aristotle is lenient with the C-M-C′ form because its purpose is consumption, however, when buying (M-C) to sell to a larger amount (C-M′), i.e., when the M-C- M' circuit is generated, then currency is sought after as an end in itself and one's profit means someone else’s loss, which is an affront to justice. The problem is that, in reality, both types (C-M-C′ and M-C-M′) overlap, and “the source of the confusion is the near connection between the two kinds of wealth-getting; in both, the instrument is the same, although the use is different, and so they pass into one another; for each is a use of the same property, but with a difference: accumulation is the end in the one case, but there is a further end in the other (…) to increase their money without limit, or at any rate not to lose it” (Pol. 1257b). It is key to distinguish between the two ends, because, “though they appear to be different ways of doing the same thing, they are really similar ways of doing different things” (Meikle 1995, p. 88). With C-M-C′ satisfaction of needs prevails, while with M-C-M′ profit constitutes the end. To illustrate this idea, Aristotle uses the example of the “Delphian knife,” (Pol. 1252b) a crude, cheap tool that had various uses, none of which dominated. In its design, instead of use, exchange prevailed and therefore many things could be done with it, but it was not really good for anything. The difference between C and C’ in the first case is qualitative (they are not commensurable); they refer to things with different uses. However, the difference between M and M′ is quantitative; M′ must necessarily be a larger amount given that this is the only difference that can exist between two sums of money since currency is commensurate. Now if M can become M′, nothing prevents it from becoming M″ and so on without recognizing any limits: “in this art of wealth-getting there is no limit of the end, which is riches of the spurious kind” (Pol. 1257b). The fourth form of exchange is between money without the mediation of any good, i.e., M-M′, which is known as usury. “The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at 38 G. Scalzo interest (…) of all modes of getting wealth this is the most unnatural” (Pol. 1258b). For Athenians, moneylending was a sign of friendship whose end was to help cement bonds of philia for the stability of the polis (Millet 1991; Meikle 1995, p. 65). Indeed, justice in exchange is fundamental in Aristotle’s analysis because, as Ritchie points out, it provides a form of philia in an activity (commerce) that could threaten the unity of the polis (1984, p. 185). Aristotle was aware of how important exchange is for the unity and development of a community. Therefore, before analyzing proportionality, he mentions the spirit of gratitude (kharis): This is why they give a prominent place to the temple of Graces –to promote the requital of services; for this is characteristic of grace– we should serve in return one who has shown grace to us, and should another time take the initiative in showing it (NE 1133a). According to Aristotle, proportionate return is secured by cross-conjunction. Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter’s work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be affected (NE 1133a). This section has been interpreted to serve as the basis for numerous attempts to build a mathematical theory of just exchange. However, too much attention has been paid to the formula and its possible mathematical implications. Why, when referring to ratios, does Aristotle introduce producers when talking about justice in such relationships (to dikaion)? There is great debate and confusion on this point among commentators, who agree that it is one of the most ambiguous developments in Aristotle’s contribution to economic thought (Finley 1970, p. 8; Meikle 1995, p. 132). To dikaion involves four terms: two people and two goods. Justice is found in the correct proportion (analogia) between these four, which is the “equality of ratios” (between persons A:B and between things C:D). What Aristotle is doing here is nothing more and nothing less than maintaining a reference to the logic of gift, which always originates in people. The French tradition discussed above defines the gift as “any provision of goods and services without obligation, guarantee or certainty of return, undertaken with the intent to create, maintain or regenerate a social relationship” (Caillé 2000, p. 124). Within the exchange that takes place in the political community, we see a breakthrough in “commercial” terms, where the exchange of goods is somewhat removed from the parties involved. However, the gift is not eradicated, but rather acquires a different hue. Here, the parties are considered equal— commutative justice—but the gift is still related to things. Aristotle insisted that politics was based on the realm of the gift, which is why the Temple of Graces acted as a reminder of the obligation to give and receive in terms of mutual service, kharis, and philia, without which the city would be inconceivable: 3 A Genealogy of the Gift 39

Several conditions are requisite if there is to be a genuine koinonia: (1) the members must be free men; (2) they must have a common purpose, major or minor, temporary or of long duration; (3) they must have something in common, share something, such as place, goods, cult, meals, desire for a good life, burdens, suffering; (4) there must be philia (conventionally but inadequately translated “friendship”), mutually in other words, and to dikaion, which for simplicity we may reduce to “fairness” in their mutual relations (Finley 1970, p. 8). The gift then takes on a new perspective: “it had become a virtue and that it was no longer a gesture of reciprocal recognition but had become a gesture of mutual assistance” (Hénaff 2010, p. 251). In his genealogy of the gift, Hénaff equates the moral gift to the Greek idea of kharis, i.e., “an entire model of gift-giving as favor developed around the Greek notion of kharis” (2010, p. 246). This is so important because this paradigm contains the essence of subsequent economic thought.

3.4 The Personal Gift

With the notion of person introduced by Christianity,13 the idea of the gift takes on a different hue, which does not depart from earlier traditions, but that rather renews them, giving them a more solid foundation. The revelation of the mysteries of the Creation and Incarnation not only introduce radical innovations in the way of understanding the relationship between God and men, but also between men themselves. St. Thomas and his teacher, St. Albert the Great, are the most recognized representatives of medieval thought and they were the first to consider that the gift had ontological significance (Martínez Echevarría1983 , p. 15–18), i.e., that gift meant ontological Being. St. Thomas Aquinas found an excellent basis for better understanding the Christian message in Aristotle’s work. In fact, his treatment of economics is merely a commentary on Aristotle’s vision with an added supernatural perspective (S. Th, II, II). Aquinas added the call that all men have to human perfection through civic friendship to Aristotle’s political scheme, as well as man’s call to full perfection— holiness— with the help of grace. All living beings tend toward an end. They have a substantial form or internal, constitutive principle of unity. Unlike machines, living things are open, autopoietic agents that interact with the environment according to their nature. Man is a living being in the highest degree and tends toward the maximum fullness of being. The person is not exhausted with the completion of a form proper to his own nature, but

13 Without the notion of creation, the idea of the person is unattainable because radical contingency and the distinction between being and nothingness go along with it and, therefore, essence and existence cannot be distinguished. For a metaphysics of the person see: González (2006), Polo (1999) and Haya (1997). 40 G. Scalzo rather has a supernatural end that transcends his own nature.14 Furthermore, determination towards that end is free— he can come closer to or back away from it, or what is the same, improve or degrade himself. Action is a manifestation of what he is and, in the case of a free and rational being, he is a moral, accountable, and responsive actor. Man’s act of being allows him to know and love and he is therefore higher than other living beings. The person has intimacy and is neither identified with his essence nor his actions; he is always beyond immediacy, he can look at himself from a distance and he experiences time. The person can always be more and go beyond the merely necessary. Man can freely destine himself to realize his unique way of being, which he will only come to know if he finds the right way and which he has received as a gift. The person starts with a received life that gives rise to a realized life since growth and contribution thereto are personal. People are created as unique and unrepeatable, analog participations in God’s uncreated love, beings who can freely give themselves to God through the rest of the creatures, but especially through other men. The grace of the beatific vision would be meaningless if man did not possess a natural desire to see God. In short, for Aquinas, ethics is how nature and grace are articulated so that man can reach his ultimate end.15 With a free response to grace— a divine gift— man can turn his service to the city into love for God and men since, as St. Augustine had already showed, men belong to two cities, both earthly and heavenly (Civitas Dei), which do not oppose each other, but rather the former is the path to the other. Here we can anticipate a conclusion: the radical novelty of Christianity with respect to the gift is found in considering that man, created in the image and likeness of God, can only be deeply understood as a gift (Sellés 2007, p. 618).16 According to Polo, the creature is “achieved reality. The achievement is as radical as reality. But this means that the creature is not assumed: it is created out of nothing” (1996, p. 114). Understanding man as a person implies recognizing that he is essentially a someone open to relationships. The end of man is common; he cannot achieve it alone. St. Thomas also recognizes that it is in the nature of man to live in community. Knowledge and human love should be shared, reciprocated, and objectified in their manifestation. Communication is intrinsic to man, who, through language and work, carries out an expansion of his corporeality, through which he can personalize himself even more. There are natural relationships between people— kinship, fraternity, parentage— that are manifested in giving and receiving. The manifestation of that existential community is the essential community, i.e., society, which

14 For other created beings, fulfilling that which they tend toward is necessary and completely determined by their nature. Their end is, therefore, a finite external consummation from an instinctive and unthinking tendency. 15 Grace is necessary as a consequence of original sin. Before the fall, man knew that he should love God, his origin and the end towards which he tends, all of which freely united him to God. 16 See also p. 95–105 y 596–597. 3 A Genealogy of the Gift 41 naturally arises because, through mutual help, people achieve their own perfection; through the care of others, people find a remedy for mutual needs, compassion and sympathy, gifts and exchanges, and other manifestations of the human need to love and be loved.17 The social end is the common good, which aims to achieve the necessary conditions for men and families to reach their highest development, conditions that are usually summarized into three areas: peace, material well-being and values. Peace must be internal and external, individual and social, the result of a voluntary and spontaneous, rather than imposed, acceptance. Following the classical tradition of viewing society as a natural unit of order, Aquinas does not exclude the gift from the field of justice,18 although he relates it to liberality (justice gives the other what is his, while the posture of the gift gives what is one’s own) and integrates it, therefore, in a paradigm of love and gratitude: “The word ‘gift’ imports an aptitude for being given. And what is given has an aptitude or relation both to the giver and to that to which it is given. For it would not be given by anyone, unless it was his to give; and it is given to someone to be his” (S. Th., I, q.38 a.1). Thus, besides commutative and distributive justice, a way towards transcendental justice is opened up. In establishing justice within the order God imposed on the world, it acquires a transcendent and personal basis: eternal or divine law. This law is closer to man than himself; it is a knowledge of the truth that gives full meaning to his freedom and that is at the heart of all the saints, that is, it is revealed to man when he reaches the beatific vision of God. Under the basic premise that “love is superior to the good,” (Sellés 2007, p. 596) St. Thomas highlights two points that were present throughout classical philosophy on the gift: gratuity and love. As Aquinas notes, In proof of this we must know that a gift is properly an unreturnable giving, as Aristotle says (Topic. iv, 4)—i.e. a thing which is not given with the intention of a return—and it thus contains the idea of a gratuitous donation. Now, the reason of donation being gratuitous is love; since therefore do we give something to anyone gratuitously forasmuch as we wish him well. So what we first give him is the love whereby we wish him well. Hence it is manifest that love has the nature of a first gift, through which all free gifts are given (S. Th., I, q.38, a. 2), In Tener y dar, Polo (1996) claims that man is not only defined as being able to have, but especially as a being capable of giving, whose contributions come from his intimacy, which characterizes the person. That the gift is free means that it is not mechanically caused, but rather that it is a novelty:

17 As we saw, for Mauss, the gift system is the fundamental form in which human groups express relationships. It does not deal with giving, but rather with giving of oneself in whatever is given, which is the manifestation of personal being. 18 “Charity goes beyond justice, because to love is to give, to offer what is “mine” to the other; but it never lacks justice, which prompts us to give the other what is “his”, what is due to him by reason of his being or his acting. I cannot “give” what is mine to the other, without first giving him what pertains to him in justice. If we love others with charity, then first of all we are just towards them. Not only is justice not extraneous to charity, not only is it not an alternative or parallel path to charity: justice is inseparable from charity, and intrinsic to it” (CiV, 6). 42 G. Scalzo

The phenomenology of the gift describes the manifestation of a reality that is not contained in antecedent conditions. The gift is not a gift if the gift giver is just waiting for it to be deployed or made explicit. The gift in action is gratuity in the sense that the gift giver has no need beforehand and the gift giver is only called as such in the very act of giving (Haya 1997, p. 324).. This is the radical difference between man and other living beings, namely, man has intimacy and it is not closed, but rather is openness. In Polo’s words, “intimacy is not an enclosed area, but rather is inwardly open in as much as the person is a gift. On the other hand, both operational immanence and virtue can be called modes of having. Human having is affirmed in giving” (Polo 1999, p. 208–209). This openness and indeterminacy is what allows man to “build his world,” unlike the animals, which are embedded in nature as mentioned earlier. “To cause and to produce are not the same things;” (Polo 2005, p. 13) production, something particular to man, presupposes freedom and intent. Man produces because he has a spirit (…) while the other animals have needs and vital requirements that are clearly defined by environmental adaptation, man has desires, as well as open and undefined needs. Although human desires are rooted in animal nature, they are not established by adaptation, but rather are mediated by reason and go beyond needs. Animals do not seek utility, but rather passively adapt to changes in their environment. Utility involves the use of reason; it requires interpretation and overcoming what is merely natural (Martínez Echevarría 2015, p. 5–6). Modern economics focuses on the technical side of production, assuming efficiency as the ultimate goal, with the false belief that “liberation” from moral obligations allows people to finally exercise their freedom. Just as the idea of classical society is based on the gift, modern society later replaced it with the contract.

3.5 Beyond the Logic of Gift

While the broad and interesting topic of modern economics goes beyond the scope of this article,19 it is important to highlight that the eighteenth-century modern economic project— in which Adam Smith, who was influenced by Hume, stands out— intended to limit production to the realm of technique and create a world that governs itself without the need for ethics. Exchange, which occurred in the area of justice, shifted to being governed by the “passions and interests” under the assumption that social order would not be achieved by the efforts of men, but rather by an inexplicable “invisible hand,” that would act from the deepest wisdom of nature (Scalzo 2008; Martínez Echevarría 2004).

19 I recognize that the scope of this thesis goes beyond the scope of this article and will be the subject of a future one. For now, it is enough to accept that the modern project is a deliberate attempt to eradicate the gift from social order based on an inaccurate anthropological conception. “Idealizing technical progress, or contemplating the utopia of a return to humanity’s original natural state, are two contrasting ways of detaching progress from its moral evaluation and hence from our responsibility.” (CiV, 14) 3 A Genealogy of the Gift 43

What are the main differences between the gift and the contract in terms of exchange? The first difference is gratuity. While the gift is free and forms part of the things that the subject values, exchange goods have a price that respond to a kind of equilibrium-equality logic. The second difference is that, when putting himself in the gift, the gift giver offers himself for the recognition of the other; in the case of exchange, exchange goods are evaluated regardless of who buys or sells them. Gift giving is a challenge given that accepting (the object and, therefore, the person) requires requiting (just as refusing implies denying the other); exchange is the result of a negotiation in which the parties consider their own interests. The aim of the exchange based on the gift is to found and sustain a bond or relationship that creates a new identity for both gift givers. Contractual exchange, on the other hand, is impersonal and the involved parties appear as subjects of law; they aim for a situation of equilibrium (zero-sum). Proportional reciprocity emphasizes that there is no equality. Finally, the gift can withstand insurmountable debt because its object is a personal relationship, while the logic of the contract demands all debt be repaid. The presence of the gift is fundamental to getting beyond the crossroads to which modern thought has brought us.20 Although mainstream economic theory has followed a different course, there are some isolated efforts to include this reality, which, although it is inherent in economic rationality, has been regarded as “extra- economic” by those who have mapped out a positivist intellectual itinerary.21 Benedict XVI himself placed the gift in the center of his social encyclical Caritas in Veritate, saying that “Charity in truth places man before the astonishing experience of gift” (CiV, 34) and that this “makes it possible to hope for a ‘development of the whole man and of all men’” (CiV, 8).

References

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20 In my doctoral thesis, The Origins of Modern Economic Rationality: An approach from the philosophy of economics, I analyzed how economic theory has evolved to eventually arrive at a dead end. See: http://hdl.handle.net/10171/23846. 21 In this regard, the development of the so-called “civil economy” is noteworthy and has mainly been developed by Italians Stefano Zamagni and Luigino Bruni. See, for example, Zamagni and Bruni (2013); Zamagni (2008); Bruni (2006); Bruni (2008). 44 G. Scalzo

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Marx, Karl. 1988. El capital. Barcelona: Antalbe. Millet, P. 1991. Lending and borrowing in ancient Athens. Cambridge: Cambridge University Press. Moreno Almárcegui, A. 2010. Ensayo sobre el don. Actas del Seminario del grupo de investigación en Economía Política y Filosofía, Universidad de Navarra. Moreno, A. 2015. Consanguinidad y gracia. El culto a María y José en Occidente. Siglos I-XX. El caso de España, Actas del Seminario del grupo de investigación en Economía Política y Filosofía, Universidad de Navarra. Muralt, A. 2002. La estructura de la filosofía política moderna. Madrid: Istmo. Muralt, A. 2008. La apuesta de la filosofía medieval. Estudios tomistas, escotistas, ockhamistas y gregorianos. Madrid: Marcial Pons. Orléan, A. 2008. Pour une aproche girardienne de l’hommo oeconomicuos. Cahiers de L’Herne consacrés à René Girard 89. Polo, L. 1993. Presente y futuro del hombre. Madrid: Rialp. Polo, L. 1996. Tener y dar. In Sobre la existencia Cristiana, 103–136. Pamplona: Eunsa. Polo, L. 1997. Ética. Hacia una versión moderna de los temas clásicos. Madrid: Aedos. Polo, L. 1999. Antropología Trascendental 1. La persona humana. Pamplona: Eunsa. Polo, L. 2001. Nominalismo, idealismo y realismo. Pamplona: Eunsa. Polo, L. 2003. Quién es el hombre. Un espíritu en el tiempo. Madrid: Rialp. Polo, L. 2005. Lo radical y la libertad. In Cuadernos de Anuario Filosófico, 179. Pamplona. Polo, L. 2012. Filosofía y economía. Pamplona: Eunsa. Rieff, P. 2007. Charisma. The gift of grace and how it has been taken away from us. Nueva York: Pantheon Books. Ritchie, D. 1894. Aristotle’s subdivisions of particular justice. Classical Review 8(May): 185–192. Rubio de Urquía, R. y Pérez-Soba, J. (eds.). 2014. La doctrina social de la Iglesia. Estudios a la luz de la encíclica Caritas in veritate. AEDOS, Biblioteca de Autores cristianos, Madrid. Sánchez de la Cruz, C. 2012. Don y gratuidad en el pensamiento de Joseph Ratzinger. Claves para la teología moral. Madrid: Perpetuo socorro. Scalzo, G. 2008. Génesis del concepto de interés propio. Cuadernos Empresa y Humanismo, vol. 108. Pampona: Servicio de Publicaciones UNAV. Scalzo, G. 2012. La racionalidad en Max Weber. Cuadernos Empresa y Humanismo, vol. 118. Pampona: Servicio de Publicaciones UNAV. Scalzo, G. 2014. Génesis del pensamiento económico: dos visiones en pugna. Cauriensia IX: 341–374. Sellés, J. 2007. Antropología para inconformes. Una antropología abierta al futuro. Madrid: Rialp. de Simone, R. 2011. An analysis of the history of gift. Pamplona: Reconstructing Personal Gift. Soudek, J. 1952. Aristotle’s theory of exchange. An inquiry into the origin of economic analysis. In Proceedings of the American Philosophical Society, vol. 96, 1. Weber, M. 1984. Economía y Sociedad. México: Fondo de Cultura Económica. Weber, M. 1982. Ensayos sobre metodología sociológica. Buenos Aires: Amorrortu. Weber, M. 2008. La ética protestante y el espíritu del capitalismo. Edición crítica de Francisco Gil Villegas M. México: Fondo de Cultura Económica. Yepes Stork, R. 1977. Fundamentos de antropología. Un ideal de la excelencia humana. Pamplona: Eunsa. Zamagni, S. (2008). Reciprocity, civil economy, common good. In Pursuing the common good, ed. M. Archer et al, 467–502. Vatican City: The Pontifical Academy of Social Sciences. Zamagni, S., and L. Bruni. 2013. Handbook on the economics of reciprocity and social enterprise. Cheltenham/Northampton: Edward Elgar. Chapter 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body

Ghislain Deslandes

Holly Martins: “Have you ever seen any of your victims?” Harry Lime: “Victims? Don’t be melodramatic. Look down there. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare?” (The Third Man, Carol Reed (1949))

Abstract The Self has been the question of numerous studies in management that set a dualist and essentialist definition against a postmodern conception, which operates through successive detours and makes room for a divided and fragmented subject. Such investigations tend however to situate the question of Self alongside that of representation – notably by making use of images of managers, employees or leaders in order to better decrypt their respective self-identities. In opposition to these currents of thought, Henry erects an immanent and radical conception of the Self in life, in an onto-phenomenological territory situated upstream from identity and from reflexivity. In this paper, I present Henry’s material phenomenology as a first and critical philosophy of ontological monism, before delving deeper into his conception of the Self as a subjective body. Then, I draw some political and ethical lessons from this distinction and sketch out a few avenues for future research.

Keywords Life • Michel Henry • Philosophy of management • Self-identity • Subjective body

G. Deslandes (*) ESCP Europe, Paris Campus, Paris, France e-mail: [email protected]

© Springer International Publishing AG 2017 47 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_4 48 G. Deslandes

4.1 Introduction

Suspected by Holly of being the mastermind behind the black market trafficking of diluted penicillin in post-war Vienna, Harry looks down from the top of the Prater Ferris wheel, overlooking the devastated Austrian capital, on the people below who appear to him as tiny, irrelevant specks. The moral lesson that the linguist Raphaelle Simone (2013, p. 60) draws from this scene from one of the great classics of film noir is the following: “The vision is not empathetic. If one considers others as mere images then cynicism is almost obligatory.” In the universe of contemporary organisations, do we not first consider human beings in the form of images? Is the organisational world not the place where we find, to borrow a phrase from Aubert and Haroche 2011( ), the worst “tyrannies of visibility”? From the top of the control tower, the man or woman who has just been named CEO takes pleasure in contemplating the stakeholder map of the organisation, the organisation chart of the management team and the photo of colleagues taken at the end of the first internal seminar. But what idea do CEOs form of the people they manage and contemplate? What definition would they give if asked this question? That those people are “selves” (Parker-Follet 1919)1? Followers (Thoroughgood et al. 2012)? Talents (Tansley and Tietze 2013)? Bodies (Hassard et al. 2000)? No doubt they would answer that in their eyes these people are employees expected to provide the highest possible level of performance. In the classic free-economy approach, a man/woman is a “resource” (Inkson 2008) that, when properly managed, helps to develop the business and contributes to the growth of economic prosperity. Management research has naturally endeavoured to tackle this question of identity and of the Self (Rhodes and Wray-Bliss 2013). But as Alvesson (2010, p. 211) points out modestly, “the field is very messy and shifting.” Indeed, an immense literature has grown up, largely based on research in social psychology and it behav- iouralist foundations (Mead 1934; Ashforth and Mael 1989; Ford and Harding 2011, p. 468), and expanded, essentially within the field of critical management studies, primarily under the influence of Michel Foucault’s work on the theme of subjectivity. Alvesson (2010) uses what he calls a “loose framework” to map out the scholars in the field according to the degree of agency attributed to the individual – a most logical criterion for classifying research in the social sciences – which leads him to distinguish between humanist and non-humanist approaches. But, considering the mass of managerial studies on identity and on the Self and recognising that “identity is a difficult theme to study and it can easily involve everything and nothing,” (p. 212) he soon ends up falling back on images. Paradoxically, it is through the living and expressive representations of images that we can best “capture how the individual is conceptualized and portrayed in the identity construction process.”

1 “The individualist says, Be true to thyself. The profounder philosophers have always said, Know thyself, which carries the whole process a step further back: what is the self ?” Follet. M. P., Community is a process, Philosophical review, XXVIII, 1919. 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body 49

(2010, p. 209; Dutton et al. 1994). That this important article resorts to images does not indicate a desire to collect all of them that punctuate the research on personal identity, but rather to make a selection of them (self-doubters, strugglers, storytellers, surfers, etc.) and analyse them to come up with “a set of alternative ways of conceptualizing identity” (p. 197). The final goal of this research is to help researchers in the field “at a deeper level” (p. 196) and then to answer the question already posed in the previous paragraph: what idea might we form of the people we come across in our professional life? In this article we would like to rekindle the debate on the way the question of the subject has been apprehended in organisation studies in recent years, in the manner suggested by Jones and Spicer for whom the debates on the subject in management “have become unnecessarily closed off and… complacent and repetitive” (2005, p. 237), though from a different perspective than theirs, as we shall see later. To do this, we will draw on the phenomenology of life put forward by the philosopher Michel Henry (Faÿ 2007a, b; Faÿ and Puyou 2013; Letiche 2009). If Henry opposes the becoming-an-image of thought and exclusive objectivism, its corollary, it is because he founds his thinking and all possible thinking on radically immanent interiority, lived and therefore experienced, which excludes any “seeing”. “The appearing of the world illuminates everything it illuminates in terrifying neutrality without making any exception for things and people,” explains Henry. “There are victims and torturers, acts of kindness and genocides, rules and exceptions, atroci- ties, wind, water, earth and all of this stands before us in the same way, in the ultimate way of being that we articulate when we say ‘it is’ and ‘there is” (2003, p. 198). It is in fact the being of the subject that has never been recognised as such by Western philosophy. According to Henry, the errant ways of modernity, which are prolonged in postmodernity and the human and social sciences, should come as no surprise: right from the first moments of the philosophy of the Subject (Descartes/ Kant) and up until these critical prolongations, this philosophy believed that it found a subjectivity before it, i.e. in a world where it could never be. To bring such an endeavour to successful completion, I will begin by presenting Henry’s material phenomenology as a critical philosophy of ontological monism, before delving deeper into his conception of the Self as a subjective body. In the last section I will draw several lessons for management studies on both an ethical and political level.

4.2 The Phenomenology of Michel Henry as a First Philosophy

“What does the Word of the World say about the ego?” asks Henry. “This word wants to make the ego visible by positing it before, by installing it in the light of a clearing, that is, in the language of modern metaphysics, by representing it. But if the ego in its ipseity expels all conceivable exteriority from itself and therefore its 50 G. Deslandes light, the ego’s appearing before itself can signify only its own disappearance. Thus Lacan reduces the subject to the fact of saying itself to the intention of an other and the cogito to its utterance” (2000b, p. 221). Thus, in pretending to oppose it, it should be added that psychoanalysis is, in a sense, the final point on this wrong path, this errant way taken by the philosophy of the Subject (1985). Philosophy of the Subject in which Western philosophy has been carried off and walled in, even as far as the naive objectivism of contemporary sciences, and human sciences in particular, where “the ek-stasis of being is their unwitting foundation” (Henry 2011a). The aim here is not therefore to cause the philosophy of the Subject to go back- wards, or to have it play a new role. Nor should it “be ashamed of its past, much less turn nostalgically toward it: it does not have any past,” comments Henry in his text entitled La Critique du Sujet. It is a matter however – running counter to the great continental philosophies that have marked the twentieth century, for which the meaning of being can only be found through detours– of recognising this mode of giving to oneself called affection. Constituting the only irreducible and infallible knowledge that each human being possesses, i.e. the immediate ability the individual has to experience him/herself in every point of his/her being. With this first overture on the originality of Henry’s position, we would now like to try to better situate his philosophical project. The central thesis put forward by Michel Henry is the recognition of two phenomenalities that irreducibly co-exist with each other (Puyou and Faÿ 2013). One is transcendence, whose structure is intentionality and which is deployed in the light of the world, i.e. before our eyes. The other is the power to feel oneself, to experience oneself – the capacity for auto- affection that is identical to the original essence of subjectivity that Henry calls “auto-affection”. The reason we use the term “first philosophy” here is because affection by the world only ever comes after affection by self. Within this ontological dualism, the mundane phenomenon can only be admitted on the condition that there first exist a pathos that is unique to our humanity. It should also be pointed out here that this affective, immediate and immanent sphere that characterises us can neither be represented nor objectified. If it could, there would be no point in disputing the philosophy of the Subject because that is precisely its perspective. By depriving the subject of its radical interiority, reducing it to an objectification, it thereby loses any chance of finding any trace of it. This is why the philosophy of the Subject is fundamentally “a self-deconstruction” (Henry 2011a). It has never needed anybody to self-destruct, not even the scholars who believed throughout modernity that they were opposing it. Which has not however prevented it from being, since the modern age, the very principle of the shared conception of knowledge and science, as Rappin (2011) observes in an article on “the ontological unity of management epistemologies”, and therefore in management in particular. But should we say then that Henry refutes – in a kind of solipsism so to speak – the reality of the world itself? We must immediately answer this question in the negative. On the contrary, his sole research programme concerns the very condition of any possible objectification, and nothing else. His research concerns the phenomenality of phenomena, which makes the phenomenon itself possible. This leads him 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body 51 to think first and foremost about the question of appearing, the very essence of manifestation (which was the title of Henry’s doctoral thesis). Manifestation is in the essence of self, what Maine de Biran, a philosopher he often refers to, would call “the immediate apperception of self”, which always prevails over seeing (2011b). This is when Heidegger’s rejection of subjectivity is refuted by Henry: “How can one describe the relation to the world (In der Welt sein, a transcendental relation by Heidegger’s own admission) while claiming to stand outside subjectivity? What is this “standing outside” if not a subjective act? …subjectivity is nothing in the world; only that which is in the world may be limited – because subjectivity is outside the world, it is the absolute Open.” (2012, p. 196). This coming to self of the essence is the necessary precondition, the irrefutable basis of any objectification. As Henry says in his Généalogie de la psychanalyse, the cogito as “the most Cartesian of the Cartesians” (Malebranche) understood it, is not the clearest of self-evident propositions, but on the contrary “an chasm of obscurity” (1985, p. 82). This chasm of obscurity, which is not by definition therefore enthroned under mundane ecstasy, is what properly forms the first question and the originality of Henry’s research, though the latter cannot be termed autarkic research – on the contrary. If the world bears a direction or a meaning it is precisely because it does not reveal itself in an impersonal way, but because the Self goes through the experience of life there. So far we have proceeded as though Henry had undertaken an absolutely novel research project with (almost) no reference to the history of ideas. We must rectify this false impression very quickly for at least two reasons. The first is that we can find in Henry’s writings an entire series of authors that he prefers. Augustin, Pascal (Berlanda 2013; Deslandes 2011); Maître Eckart (Henry 1963), Maine de Biran (Henry 2011b) and Kierkegaard (Hatem 1997, 2006) all belong to this first category. The second concerns the debate he engages with a few of the great thinkers of the tradition that holds his attention and to whom he sometimes feels very close: Schopenhauer (Henry 1985), Marx (Henry 1976a, b); Nietzsche (Henry, 1985) and finally Husserl (Henry, 1963). An analysis of these proximities, even a cursory one, would far exceed the scope and possibilities of this study. However, we consider it essential at this stage to illustrate the way Henry constantly engages with the philosophical tradition, notably with one of the philosophers in the second group, Arthur Schopenhauer, who occupies a particularly important place in his writings.

4.3 Living Carnal Self and Subjective Body

“It is always and solely as a self-appearing of appearing that subjectivity is constructed internally and deploys its essence,” says Henry in Phénoménologie matéri- elle (2011a p. 25). Since that is the main theme of our investigation, let us attempt to define the terms “ego”, “self” and “subject” that appear so often in Michel Henry’s writings and which constitute a progressive continuity between the figures of individuality. 52 G. Deslandes

The ego refers first of all to the interiority of self-presence, one’s immediate presence. For Henry, “egoity” is what can be experienced as self. Thus the essence of the ego is ipse, it is that which auto-affects, it is an ego that experiences itself as a self. In other words, the ego is not the person but the essence, the eidetic structure of the being, which is subjective. This ego is not therefore a being in the Heideggerian sense, because it is in fact the precondition for any manifestation; it is the first ontological principle of it. What this definition gives us to think about here is that the first structure of human beings, their “matter”, cannot be apprehended in an exclusively empirical, psychological, biological or social dimension. Henry calls this pathos “affectivity” (Letiche 2009). Affection being pure manifestation. In reality, this pathetic life is an auto-affection in life that opposes, in quite a heterogeneous way, what appears in the world in the ek-static mode. Affectivity in Henry’s terms is the location of the possible upwelling of the being, the location that is inseparable from its advent, to which it remains inextricably attached. Indeed, he explains that “whether a representation is affective, and whether it might be, does not therefore come a posteriori from its chance encounter with other empirical elements of experience, but a priori from its very upwelling and its own constitution.” (1985, p. 232). But for the author, calling into question all the assumptions of contemporary psychology, except that these are the affects and impulses that form the primordial structure of the human being – this affectivity as suffering and as joy cannot be apprehended in a strictly empirical dimension. The individual who suffers cannot understand or map out or analyse his/her suffering, but only bear it given that it is what constitutes him/her. This suffering has no mirror that can reflect it to the individual’s own eyes. He or she who suffers is made of this suffering. “Thus misery is not what it always has been – an unhappy accident, a natural particularity or the necessity of an incomprehensible fate,” adds Henry, “it has become the a priori structure and innermost possibility of all that is, or as Nietzsche, following Schopenhauer, said, the Mother of Being.” (1985, p. 219). The lesson that we can draw from this is that the auto-affected self is that which can never be separated from itself. This auto-affection is not a faculty of the self, but constitutes this self considered in itself. Thus the subject who can never be separated from self is not the ego as it appears in the history of metaphysics, but one that only exists in and through an ipseity that self-gives in order to constitute a self. As Henry says, “it is not a declination of ek-stasis, it is there before it, before the Difference, it is the Beginning, that begins since the beginning and never ceases to begin, the initial self-appearing of appearing, the invisible self-coming of life” (1985, p. 123). But, if each of us is this carnal self, what can be said of the status of corporality? In Michel Henry’s philosophy this question is primordial and never eschewed (2003, 2000a, 2011b). The starting point of his investigations is found mainly in his in- depth study on the treatises of the French metaphysician, Maine de Biran (1766– 1824), who defines the body as the originary and sensed movement in its very fulfilment. It is the location of all power, the place where everything is revealed, where the intensity of life is given and shown. The body is the power that is given 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body 53 to us to accomplish our life and through which we originally take possession of our faculties, our senses and our limbs. If we were not this body, no effectuation and no action would be possible. Henry founded his exposé and his definition of the body, drawing on of an essential distinction that constitutes his theory of three bodies. Indeed, for Henry the power of the body as the origin of all power is that of the subjective body (or the originary body, that Henry calls “the flesh” in his final writings). This must neither be confused with the representation body (the visible body), which management generally refers to, nor with the “biological” (chosique) body, i.e. the body as a physical, chemical, molecular, neuronal entity. In distinguishing between the con- stituent body, which is immanent and the “mundane” and constituted body, Henry signifies the primacy of the former over the latter because it is the former that we live in and desire. It indicates the ultimate and intimate place of our essence. Does this mean that Henry has returned to the old dualism between body and mind? On the contrary, Henry attempts to move beyond the confused definitions of the past. This is why he defines the human being as a living“ carnal self that has nothing to do with the definitions that shape, in diverse forms, this compound of mind and matter, soul and body, ‘subject’ and ‘object’ where it is impossible to understand anything whatsoever” (Henry 2003, p. 176). At bottom, Henry advocates a unified view, insofar as it is our flesh and nothing else that gives us access to material reality (Gschwandtner 2012, p. 124).

4.4 Political and Ethical Implications

“It is indeed political economy,” writes Henry, “that purports to reduce vital relations to a relation of interest, despite their essential disparity, and that is its illusion, the very illusion of the bourgeois.” (Henry 1976b, p. 102). We understand that, for Henry, this error ought to be denounced and also studied. For it is the role of a first philosophy, an onto-phenomenology, to endeavour to know reality – not economics and political science, which are defined by their own phenomena and their own concepts. Only elucidation and critique on an ontological level, situated outside these fields of research, can say what one and the other relate to. For Henry, it is on the basis of life that economic processes and political determinations take on their full meaning; they relate to life and not the other way round. While Adam Smith investigates work as the foundation of political economy, at no time does he investigate “the essence behind production” (Henry 2004, p. 20), i.e. the Being of work. An economic analysis should therefore trace back to the place where reality is situated, i.e. actual life, the doing, vital praxis. For Henry, who draws mainly on Marx and the Economic and Philosophic Manuscripts of 1844, this refers to “a real action, that of the craftsman or the worker, it refers to the actual activity of the individual who handles, hits, lifts, carries, jigs, etc.” (Henry 2004, p. 30). By praxis, Henry means a notion that allows no place for idealistic and abstract representation of consciousness, but an intimate experience that coincides with one’s doing. It 54 G. Deslandes therefore has nothing to do with a process in the third person – like the movement of a piston (Henry’s example) – which has no relation to this praxis and with the being of work. A political analysis would therefore be faced with the same problem, namely its conditions of possibility. But the conditions necessary for the emergence of a “living-together”, which constitutes politics as such, cannot ignore that which makes this living-together possible. All social and political activity cannot do away with the foundation it rests on and which is the reality where its origin and its desti- nation are located: the affectivity through which we experience others and the world. Consequently it is “individual activity, private life, affectivity, sensitivity, sexuality, [that] must themselves be political” (Henry 1976a p. 57). The language of fraternity and equality only has meaning if it is based on the acknowledgement of each individual, of each citizen, of each worker. Indeed, the principle of individual action is the basis on which all social praxis, all social organisation, every collective undertaking, made public and visible to all, can find its effective reality. Social praxis, which is the representation of all the acts accomplished by the managers and employees of a collective undertaking, only originates in vital praxis and nowhere else. The shift from individual to Being-in-common is none other than the relation of reciprocal phenomenological interiority in which the living recognise themselves as borne by the same absolute Life, that others and me are in. The only “general affair” that exists is the recognition of Life by living individuals. The only aim of any policy anchored in reality is the deployment of the originary subjectivity of individuals, i.e. to be the locus of the accomplishment and growth of their respective possibilities. Here, an original definition is being expressed of what might constitute a collaboration. Every collaboration is founded on an original community, accounted for by its politics, but of which it is neither the source nor the precondition. This is why every institution is a mediation first – because it can in no way supplant action and change, which always come from acting selves without which there would ultimately be no institution, nor change, nor collaboration possible. Beyond every organised process, every cooperation emerges from a desire for meeting and sharing which is that of feeling alive. Observing the management accountants in charge of controlling costs and revenues in airport shops, Puyou (2013, p. 550) observes: “It is indeed the pursuit of a feeling of proximity, the desire to experience joy and mutual aid and to have the immediate experience of a shared praxis that is the driving force of every collaboration… a constantly-regenerated confidence in life is rooted in the interplay of the powers of each of these ‘characters’.” It is because individuals want to engage their power to act in living work that they take on a social role which alone makes possible this mediation towards others. The notion of “character” – borrowed from Gély (2007) – which signifies active communication between an individual and a social role, is indispensable because it is the precondition for essential mediation so that individuals can achieve common objectives. And so they might experience affective solidarity that shatters the functional and formal- ist framework of work relations – all too often a place of dissatisfaction and dispos- session of self. 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body 55

For Gély, “character” is basically the dynamic that refers to an ethical requirement. Politics and ethics are inextricably linked here (Rhodes and Wray-Bliss 2013, p. 39). On one hand, the growth and valorisation of self would be unable to deny the same desire for development in others. On the contrary, any potential growth is amplified when it comes into live contact with the person of others. According to the analysis of Puyou and Faÿ (2013, p. 11), “talking, listening and acting collectively express the conjunction of powers and sharing of a common life. Jobs are also a way to get to know other people better and experience the pleasure and dynamism of collective cooperation.” On the other hand, according to Henry (2012, p. 138), taking on a character does not amount – as it does for Sartre and Freud – to exteri- orising evil, even in the unconscious, so as not to have to answer for it; it entails responsibility. What Henry is fighting against is representation purporting to exert its power of evidence and appearance, but more precisely it is to resist the philosophies of “suspicion”, to use the expression generally attributed to Ricoeur, in their propensity to make the human being “the victim of objective processes that he is unaware of” (1988, p. 94). Against humankind’s objective knowledge, Henry’s ethic raises the recognition of the affective aim of our behaviour and our decisions. “If I perform my movements without thinking about them,” explains Henry, “it is not because these movements are mechanical or unconscious, it is because their being belongs entirely to the sphere of absolute transparency of subjectivity. There is no intermediary between the soul and the movement because there is no distance and no separation between them” (2011b, p. 82). The ethic is therefore situated in the doing, the acting, and not on the level of objective thought or in the interiority of a good soul. The common ground between Henry’s and Schopenhauer’s ethics is that they always reject a normative conception of ethics (which is nevertheless so prevalent in the research on applied ethics in business): the will cannot conform to the moral code, only thought can and it is not able to act on the will (2008). Any institution concerned about ethics would ultimately be one that allows employees to take on a role where they could experience the radical singularity of their life. Put more modestly, ethics in organisations concerns the question of knowing whether employees and managers are considered as resources, robots of whom automatic objective behaviour is expected, or as living individuals, capable of taking on and investing a “social role” and not only a function. In the next and final section, I will endeavour to discuss in greater detail the possible contributions of Henry’s theory of the self with respect to the research done in this area in management, particularly in critical management studies and consider several avenues for future research.

4.5 Agenda for Future Research

In an interview conducted at the end of his life Henry made the following statement: “The purpose of my phenomenology of life is not to replace the phenomenologies of the world. The phenomenology of the world obeys its own laws. There are 56 G. Deslandes extraordinary descriptions of this world in Husserl and Heidegger… I have worked upstream in another area” (2005, p 130). In our analysis we have tried to show that this area was not located in ontological monism and unilateral phenomenality which, according to him, characterises the place where Western philosophy has always been principally situated, from the Greeks to Heidegger and beyond. Still, Henry’s statement should lead us to explore, more than we have done so far, what the possibilities are, if not of reconciliation, at the very least of a dialogue between the philosophies where the subject is inseparable from the world, where the relation to self is constructed in life and Henry’s model where the subject is inseparable from life. The point from which a dialogue does become possible is the reminder reiterated by Henry that the transcendental world of the appearing of the world does exist (even if by itself it is unable to account for reality). There is a co-existence of a double ontological receptivity toward the world and toward the self within the auto-receptivity of the living subjectivity. It is absolutely not therefore a matter of withdrawing like a good soul into one’s inner being, as we said above, but of situat- ing oneself where reality is located, at its core, i.e. in life. Thus the material world should not be denigrated and the biological body (corps chosique) keeps its value as it is “precisely this ambiguous element that conceals, beneath the determination of the being-there, the infinitude of subjectivity that inhabits it in secret” 2011b( , p. 297). While the originary self distinguishes Henry from most of his contemporary philosophers, he acknowledges nevertheless that a mundane self does exist and is transformed through the experiences of life – particularly cultural and professional ones (Ducharme 2012). In a way, this mundane self is the theme of identity that recurs, a theme that Henry scarcely ever touches on, except in C’est moi la Vérité when he emphasises cultural, functional and sexual identities, all of which are linked to habit,2 according to him, i.e. linked to the concrete modalities of praxis.3 In Henry’s thinking, if I were not what I do, that would imply that there is being outside of appearing. But such a theory would be antithetical to the phenomenological credo (that he subscribes to throughout his writings). We note that this theme of practice is inseparable from current research in management, particularly those studies that draw on the work of Michel Foucault (2001, 2008; Deslandes 2011). But everything seems to occur as if, for these two scholars, the movement were reversed: ascending movement of professional practices and cultural mediations toward ontology for Foucault, and descending movement of immediate apperception of self and an onto-phenomenology toward the concrete modalities of existence for Henry. In spite of their differences4 and perhaps because of them, we feel that it is interesting to compare these two approaches in the critical perspective of developing strategies of resistance to the “self monitoring” proposed by human resource management practices (Townley 1994; Painter-Morland 2013).

2 On the subject of the habitus, Ducharme (2012a, p. 42) notes: “the habitus is understood as a habit of the body and is founded, to use Henry’s formula, ‘on practice as practice’.” 3 Whether they are elementary (work, need) or more elaborate (art, ethics and religion). 4 For Henry, leaning on the identity returns on the basis of the representation of a thing rather than the ipseity of a self. 4 To Be or Not to Be a Dot? Philosophy of Management and the Subjective Body 57

It is true that in the writings of Foucault we find the will, faithful to antiquity, to produce the self, to invent it, while for Henry, the self is received in the life that gives values their value. But, at bottom, does constructing the self, restoring it in the world not paradoxically amount to finding it again? For example, Henry’s approach could strengthen the Foucauldian argument put forward by Ford and Harding (2011) concerning the tendency – that they criticise – of the “authentic leader” to only see within him/herself the interests of his/her organisation (a quasi-subject stripped of agency) and, on the outside, followers reduced to the significance of “abject objects”.

4.6 Conclusion

With respect to the dualist, rational and essentialist definitions of self on one hand and the postmodernist, fragmented and anti-essentialist definitions on the other, this text has sought to show that Henry’s perspective offers a plausible alternative to the numerous managerial studies preoccupied with the ontological aspect of subjectivity. This perspective makes the question of self its primary concern, before the investigations into identity so often discussed in management research. Such investigations tend to situate the question of self alongside that of representation – something we have tried to avoid for ethical as well as political reasons. Of course I am not unaware of the importance that studies on self-identity may have, and this is why we have drawn on some of the best work devoted to the subject, but I have chosen to focus my attention on an onto-phenomenological territory situated upstream from identity and from reflexivity – not after it (Rhodes 2009). I have sought, to borrow Henry’s phrase, “to wrest this life from the fantasies and myths of an afterworld” (1985, p. 9) and place it where it is and where it comes from, within ourselves. Through Henry’s writings we are offered the opportunity to think about a conception of mankind that neither submits to its representation nor to its purported “suspicious” critique. Still, he does not dispute the manifestation of the world as such – quite the contrary. This is why I have also sought to point out that this phenomenology of life opens up possibilities of dialogue with the philosophies of representation and object – and this with post-structuralism as well as Freudian psychoanalysis. The Kierkegaardian term “contemporaneity”, insofar as it allows us to affectively reconcile the self and its representation, or at least to think about them simultaneously without this ever being done in an impersonal way, i.e. posed here or there, but never in an “atemporal nowhere” (Stokes 2008), may philosophically allow us to set out the terms of this relation. I are well aware that this contribution to a phenomenology of life in managerial studies is more rebellious to the modes and the usual ways of envisaging the traditional framework of social relations than it might appear at first sight. Because this contribution stands in opposition to terms like “manage”, “negotiate”, “cut”, “restrict”, etc., which are the terms of typical management language, which never cease to disparage an affective and sensitive approach to problems. But that these 58 G. Deslandes terms, under the scientific and technical banner that they pledge allegiance to, only cause us to deceive ourselves about ourselves – this is Henry’s meaning. Because public space remains primarily a place for discussion between subjectivities and personal and professional achievements. To encourage this, we ought to begin by repudiating that which is unreal and promote that which is not: the driving force of life in its abundance and its extravagance, even as enjoyment.

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Marion Smit

Abstract Narrative research is an appropriate method for studying the constructs and sensemaking of moral courage. Moral courage or speaking up by professionals is needed for maintaining ethical checks and balances in organizations. Personal narratives give the researcher and the researched increased understanding of real- life individual and implicit behavior that encourages moral action by professionals. By reflecting on reasons for morally courageous actions, prototypes and implicit patterns become clearer. These insights fit the focus of a sensemaking-intuitive approach as most current approach to ethical decision-making. Insights from individual narratives can encourage and strengthen the professional in performing his or her much needed ethical role in the organization.

Keywords Narrative • Ethical decision-making • Sensemaking • Professional • Follower • Moral courage

5.1 Introduction

Long ago, kings appointed jesters who reminded them of the fragility of power and who could raise issues that others couldn’t. The difficulties of dissidence is clearly described in Groupthink (Janis 1982), for it requires a lot of courage to raise one’s voice and sing a different tune from the dominant one. Research shows that behavior in an organization is heavily influenced by group culture/climate and style of leadership (Brown and Treviño 2014; Lasthuizen 2008; Zhu et al. 2011). Unfortunately, not all leaders are ‘authentic transformational leaders’ (Zhu et al. 2011) or ‘ethical leaders’ (Brown and Treviño 2014) and therefore voice of employees is an important subject within Business Ethics (Kaptein 2011; DNB 2013; Mayer et al. 2012). Acting on principles becomes courageous when principle-driven

M. Smit (*) Faculty of Business and Economics, Amsterdam University of Applied Sciences, Amsterdam, The Netherlands e-mail: [email protected]

© Springer International Publishing AG 2017 61 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_5 62 M. Smit action is not directly accepted in the social context: ‘…the morally courageous person often goes against the grain, acting contrary to the accepted norm’ (Kidder 2006, p. 10). What encourages the professionals of the organization to examine organizational decisions for ethical consequences and raise their voices? Has modern management organized or domesticated its jesters? This article focuses on the moral courage of business professionals. It discusses the importance of listening to the narratives of these professionals about their own acts of moral courage. These narratives offer not only insight in their (post hoc) rational and conscious reasons, but also their irrational and unconscious reasons. Researching the narratives will have an encouraging effect by itself and an analysis of personal deliberations can also offer valuable insights for empowering the voice of professional followers. A design for narrative research goes against the grain of a dominant quantitative research tradition, but fits recent developments in theoretical progression in Business Ethics and the call for interdisciplinary actions. First, a summary of the current theoretical progression to ethical decision-making and the impact of these approaches on the interpretation of moral courage is given. The next section focuses on research design and offers an overview of the difficulties of researching ethical behavior, especially considering the current approaches to ethical decision-making. Narrative research is introduced as a possible answer to these difficulties, in particular with the SQUIN, a narrative inducing interview method. This paper concludes with possible drawbacks of the suggested research design and a conclusion.

5.2 Current Approaches to Ethical Behavior in Organizations

What prompts people to act ethically? This process is often referred to as ethical decision-making, moral reasoning or ethical reasoning. This mirrors the powerful focus on cognitive skills and on deciding ‘the right thing to do’. Recent publications on Business Ethics show a change in approach. In A Review of Theory Progression in Ethical Decision-making Literature (MacDougall et al. 2014) one can recognize a general progression in ethical decision-making towards more consideration for intuitive and unconscious reactions and for the complexity of the ethical issues themselves.

5.2.1 Rationalist Approach to Ethical Decision-Making

The most influential approach to ethical decision-making was mainlyrationalist . This approach was initiated with the cognitive developmental approach by Kohlberg and expanded upon by Rest (Rest and Naváez 1994; Rest 1986). The focus on the 5 A Narrative Research Design into the Moral Courage of Professionals 63 cognitive moral development of the individual was expanded by attention to situational factors and the stages of the process of ethical decision-making: moral awareness, moral judgment, moral motivation, and moral behavior. Treviño’s (1986) person-situation model added variables of individual difference (i.e., ego strength, field dependence, and locus of control) and situational considerations (i.e., organizational culture and characteristics of work). The issue-contingent approach of Jones (1991) added attention to the characteristics of the issue at hand: moral intensity. The focus remained on linear, deliberate, conscious, and cognitive decision- making. Still, the theory not only expanded to other influencing factors, but also deepened understanding with attention to the intuitive. Even Treviño, one of the scholars of the rationalist approach, acknowledged the inspiration from other disciplines: ‘Most recently, a number of trends have pointed us in new directions aimed toward understanding the less rational, less deliberative, and less conscious aspects of ethical decision-making’ (Treviño 2010, p. 763).

5.2.2 Neurocognitive Perspective on Ethical Decision-Making

An inspirational influence for understanding Business Ethics has been advanced results in neuroanatomy, neurophysiology, and neurochemistry (Treviño et al. 2006). This added a neurocognitive perspective to decision-making. According to Reynolds (2006), ethical decision-making is mostly done reflexively: …electrochemical representations of incoming stimuli are matched against prototypes. To the extent that the pattern matches a prototype, the results of the analysis are presented to consciousness. In the event that a match is not made, that result is presented instead. As a reminder, the processes of this system are referred to as “automatic” because they operate reflexively in a nonconscious realm—they are not activated by deliberate thought but instead by the mere presence of stimuli. (Reynolds 2006, p. 739) Decision-making only becomes a more rational process when the issue is very complex and available prototypes do not match with the presented pattern. But in both cases, the decision-processes are not linear and they don’t consist of delineable stages. The outcome (image, concept, idea, decision, desire or puzzlement) of the processes are transported to the relevant parts of our body and result in actions (which includes doing or saying nothing). Next to this nonconscious and reflexive process, the neurocognitive perspective identifies a more conscious process that is comparable with the rationalist approach. For if the match with a prototype can’t be made, or if the match is with the prototype unidentified, the judgement is handed to the higher order conscious reasoning cycle, which takes up more time and awareness than the reflexive prototype matching (Reynolds 2006). This reasoning cycle is a more conscious process, but still not linear or purely cognitive. According to the neurocognitive approach, both processes of decision making are at best tacit knowledge, still more often a black box process. Post hoc reflection helps the actor to clarify personal patterns and to strengthen (bet- 64 M. Smit

Fig. 5.1 The Sensemaking-Intuition Model (SIM) (Sonenshein 2007, p. 1028) ter) decision-making prototypes, but can be more a construct than an actual representation of the process that took place.

5.2.3 Sensemaking-Intuition Model of Ethical Decision-Making

Where the neurocognitive approach details the how of the neurological process, the content or meaning of that what is processed is not described. The model introduced by Sonenshein (2007) focuses not on the how, but on the what with a sensemaking or social constructive approach. The Sensemaking-Intuition Model (Fig. 5.1) recognizes three stages that are interconnected but not necessarily chronological ordered. These stages are issue construction, intuitive judgment, and explanation/justification (Sonenshein 2007). Ethical decision-making is seen as largely unconscious and the underlying psychological process as influenced by expectations, motivational drives, and personal experience. Comparable to the Person-Situation Interactionist Model (Treviño 1986), the individual factors are met by sociological influencers, in this case social anchors, representations, and social pressures. Sonenshein focuses on the construction of sense. Sensemaking is a well- established term (e.g. Weick 2001) and Sonenshein combines this with the social- constructive and intuitive approach of Boland and Tenkasi. ‘We narrativize our experience almost continually as we recognize unusual or unexpected events […] and construct stories which make sense of them’ (Boland and Tenkasi 1995, p. 353). According to Sonenshein, most action stems from reflexive, non-lineair, and intuitive processes. The process of deliberate, more rational ethical decision-making, is particularly used in a posteriori explanations and justifications. Boland and Tenkasi compare the description of the rational decision-making process to the presentation of Science as a paradigmatic and linear process. They argue that this is a retrospective construction, based on a concept of what Good Science or Good Decision- Making should be. In reality several intuitive and divergent narrative accounts are constructed and judged continually (Boland and Tenkasi 1995). This makes the 5 A Narrative Research Design into the Moral Courage of Professionals 65 sensemaking-intuitive approach a circular and largely unconscious process, leaning heavily on personal narratives as interpretations of meaning and importance of not only individual but also situational factors. Though Rationalist, Neurocognitive and Sensemaking-Intuitive are presented by MacDougall et al. (2014) as different approaches, they are related as well. Rest wrote about the Kohlberg stages that they: ‘…are underlying conceptions that are tacitly held. They are intuitive notions that work behind the scenes of cognition, and therefore may not be explicitly articulated as creeds or verbalized belief systems’ (Rest and Naváez 1994, p. 8). These intuitive notions could be interpreted as patterns of sensemaking that have become decision making prototypes, patterns that could have originated in rational approaches to decision-making and by repetition became less explicit cognitions and more implicit beliefs. Therefor the three approaches can be seen as explorations into ethical decision-making with the Sensemaking-Intuition Model as the most recent and broader hypothesis. The next chapter will discuss the implications of this progression in Ethical decision-making theory on the concept of Moral Courage.

5.3 Moral Courage of Professionals

Moral courage is a difficult concept to define. For where is it? Has anyone seen it? Some argue that it doesn’t exist; that a correct decision on ‘the right thing to do’ is only correct when all dangers are adequately weighed and taken in account. All that is then left is ‘Just do it’, as the commercials encourage us. Others consider Moral courage to be the bridge from decision to action. This is in line with the model of Planned behavior (Fishbein and Ajzen 1975) and the classical rational approach in which a moral issue was first recognized, then deliberated, decided, and only then acted upon (Rest 1986). Frustration of managers or ethics teachers was often a reaction to individuals expressing wonderful ethical intentions, but not putting them into practice. This can be interpreted as a lack of individual moral courage, influenced by individual and situational factors. However, even within this rationalist approach, this is under discussion: ‘For example, we need more investigations that combine intentions and behavior in a single study so that we can better understand their relationships’ (Treviño 2010, p. 763). The Neurocognitive perspective points out that hypothetical cases and real-life situations involve different stimuli ‘going in’ and that is therefore not surprising it leads to different outcomes (Reynolds 2006). Only real-life situations and not hypothetical situations will show the true attitude of the actor. Also, both the Neurocognitive perspective and the Sensemaking-Intuition model reject the linear process of deliberation – decision/intention – action. Moral courage is seen as intertwined in the whole process leading to (abstinence of) ethical action. Aristotle in the Nicomachean Ethics, characterizes moral courage as a disposition. Not a mechanistic instinct or a blind obedience to rules or laws, but an attitude based on experience and cultivation of good habits. These habits can be seen as 66 M. Smit

Fig. 5.2 Moral courage (Kidder 2006, p. 73)

patterns or prototypes. Action is only considered to be courageous when danger is involved and when it serves a higher cause. Kidder characterizes the danger part of moral courage as follows: ‘Moral courage is not only about facing physical challenges that could harm your body – it’s about facing mental challenges that could wreck your reputation and emotional well-being, your adherence to conscience, your self-esteem, your bank account, your health. […] Acts of moral courage carry with them risks of humiliation, ridicule, and contempt, not to mention unemploy- ment and loss of social standing’ (Kidder 2006, p.10). Because some of these dangers are not a single event, but a taxing situation, he adds a third element to moral courage; endurance (Kidder 2006). As shown in Fig. 5.2, moral courage is situated in the overlapping middle of; 1. Commitment to moral principles (a personal/sociological aspect) 2. Awareness of danger (a psychological/situational aspect) 3. Endurance of danger (a personal/psychological aspect) Moral courage is often associated with taking an unwavering stance in a long and painful process, often in the form of whistle blowing. However, moral courage is also involved in all sort of daily decisions to act (or not). It can be seen in asserting an opinion, putting something on the agenda, refusing to re-adjust estimates. Moral courage is not a binary quantity. It is a scale; it is possible to be more or less courageous at any point in time or in any situation (Zweegers and Karssing 2012). Moral courage of professionals is needed in any organization without official jesters. For managers may state that autonomy, authenticity, and empowerment are essential in the organization, it still takes an individual lots of courage to voice personal or professional opinions when they go against the grain. Actual professional empowerment results from an intricate combination of intentions and assumptions concerning power, safety, and personal beliefs of all concerned parties. ‘At the same time, CEOs subtly undermine empowerment. Managers love empowerment in theory, but the command-and-control model is what they trust and know best. For their part, employees are often ambivalent about empowerment – it is great as long as they are not held personally accountable’ (Argyris 1998, p. 98). Argyris’ analysis of 5 A Narrative Research Design into the Moral Courage of Professionals 67 empowerment hasn’t lost any of its relevance (Brown et al. 2005; Detert and Edmondson 2011), not only for identity and well-being of the individual (Koerner 2013), but also for the organization: ‘Enabling individuals to speak up to those in power is inherently challenging, given the presumed risk-reward asymmetry that favors silence. In short, voice’s benefits are primarily collective (organizational), but individuals bear voice’s costs’ (Detert and Edmondson 2011, p. 484). When studying moral courage in its occurrence (and not in its lacking), is it possible to recognize a moral courageous act if one looks from an outsider perspective? The act cannot be recognized as morally courageous, for the action itself doesn’t show the principles it is driven by. At the same time, the danger that is perceived by the actor might not be obvious to an outsider or the endured process of (re)actions and deliberations that this single act is part of. As the three elements of moral courage show, it is a very personal interpretation of the situation, of personal stamina and abilities, and of what the individual contributes to what is the ‘correct’ action. Without this very personal sensemaking of identity and responsibility, no action will be undertaken.

5.4 Researching Moral Courage

Moral courage might be a complicated concept, but why is research on moral courage challenging? For one, both the Neurocognitive and Sensemaking-Intuition approach emphasize that stimuli and sensemaking are particular to the situation and that actual behavior cannot be studied with hypothetical situations. Even presenting real-life vignettes for ethical deliberation, is a questionable methodology. Sonenshein (2007, p. 1035) describes that even James Rest acknowledged that by presenting dilemma’s, the researcher precoded and interpreted the situation, including courses of action, stakeholders, and consequences. This implies that the construct of the researcher is easily imposed. Sensemaking and construction of a situation that might ask for ethical action, begins in recognizing ethical aspects of that situation. Therefore, a researchers delineation of the case influences definition and what is included or excluded. Pointing out a situation as an ethical dilemma would be directing the professionals to choose an issue that they would otherwise not consider to have ethical implications. Allowing the professional to define moral courage, asks for letting go of pre- defined theoretical concepts and research boundaries and especially of dominance by the researcher. In that case the researcher has to follow the professionals in what they choose as a moral courageous situation from their own experience. This could ask for a lot of moral courage from the researcher in the current academic climate. Secondly, researching real-life situations by following the professional and waiting for an ethical issue to occur, poses another difficulty. For how can an action that goes ‘against the grain’ be predicted to happen? And what will be the impact of the presence of a researcher? This makes observation an unlikely method for data collection. 68 M. Smit

Finally, moral courage is a personal and intuitive field of study. As argued above, the linear process of ethical decision-making is perhaps only consciously followed in case of complex ethical dilemmas that are pointed out as something to be decided upon. Ethical decisions are often talked about with phrases like gut-feelings, sixth sense and intuition (Toffler 1986). Deliberations are seen as implicit (Detert and Edmondson 2011). How do you research something that is even unconscious to the researched? Certainly not with surveys in which question and categories of answers are defined by the researcher and in which non-verbal signals are ignored.

5.5 Narrative Research into Moral Courage

Researching individual and unconscious behavior, requires putting the spotlight on actors and (social) networks, and raising issues of human agency. Franzosi (1998) argues that attention to human agency is the contribution of sociological methods of narrative analysis. Researching narratives leads us into to this more personal, intuitive field of study that holds promises for better understanding ethical behavior in organizations. Narrativity is also an intrinsic part of the ethical dilemma in organizational life. An ethical dilemma is never a simple single word issue, but always an experience with opposing relationships, values, and stakes. As Barbara Toffler found when she asked managers in her study about ethical problems they had faced in business; ‘no single word or phrase was ever offered in response. To identify the problem, every individual had to tell a story’ (Toffler1986 , p. 20). The focus of narrative research is, not surprising, the narrative. But what is a narrative? It is a specific kind of story; a chronologically and logically connected sequence of events (Franzosi 1998). It becomes a narrative when there is a plot, which happens when a structure of balance becomes imbalanced and is then re- balanced. This pattern of narrative is broadly recognized, beginning with Aristotle’s examination of the Greek tragedy in Poetica: ‘There is a classic structure with “a beginning, middle, and an end” (sequence rather than haphazard organization). There is plot, “the ordering of the incidents,” which constitutes the life blood of a narrative, […] Something goes awry: there is a breach in the expected state of things (peripeteia)’ (Kohler Riessman 2008, p. 4). This plot, that distinguishes narrative from story, is essential for exploring moral courage, which is called upon when something goes awry. But researching moral courage is not only about understanding the sequence of events, but also about understanding this sequence from the perspective of the narrator. Narrative methodology delivers this, for the narrator reports both the action itself and his/her personal considerations related to this action, as experienced in a specific situation. ‘…[T]he evaluative theorizing is being done in a concrete relation to particular event-stories (rather than in just an abstract fashion as might happen in an “attitude” survey),…’ (Wengraf 2006, p. 116). Narratives can have the form of a moral tale, with an explicit evaluation at the end (Kohler Riessman 2008). However, assumptions and norms can also be implicitly expressed, for instance by omissions, non-verbal clues, vague references or 5 A Narrative Research Design into the Moral Courage of Professionals 69 analogies. ‘One of the key arguments used to justify narrative research is that many of the assumptions and purposes, feelings and knowledge, that have organized and organize a person’s or a society’s life are difficult to access directly. The less contested and controversial they are, the less an interviewee will be aware of them and able to talk about them’ (Wengraf 2006, p. 115). Indirect expressions are not easy to recognize or interpret by a researcher, but certainly undetectable in database- searches, surveys or heavily-structured interviews. ‘…the narrative mode of cognition provides access to the implicit assumptions and interpretive structures’ (Boland and Tenkasi 1995, p. 353). A specific form of interview within narrative methodology that allows actors to express their personal considerations, implicitly or explicitly, is the Single Question aimed at Inducing Narrative (SQUIN). It was developed in the biographic-narrative interpretive method in the context of interactionist and phenomenological research traditions (Wengraf 2006). The original design of the interview is that it starts with a single question and lets the narrator speak without interventions. When the narrator completes the narrative, the interviewer can ask further narrative inducing questions on specific topics. After a preliminary analysis, the interviewer returns for a second session with further questions on (theoretical) clarifications. The design of this method enables the respondent to personally delineate the action and interview and to offer factors that make sense from the actors’ perspective. The narrative inducing questions and the second session enable the interviewer to deepen further understanding and to ask after known influencers, but leaving the interviewee in the lead.

5.6 Discussion

Narrative research is personal and explores a deeper level of sensemaking and intuition. Drawbacks of this methodology are on the one hand the demands on time of narrator and interviewer and on the other hand the particularity of conclusions. Narrative interviews take 2 to 3 sessions and the time investment for the narrator will be approximately 3 to 4 hours, not including reading interview transcriptions and other additional activities. The study must be considered interesting enough by the interviewed professionals to invest their time in it. With an emphasis of organizations and organizational members on rationality and ‘time is money’, narrative inducing research that focuses on personal experiences and the intuitive or unconscious, is seen as a dubious investment. The return in the form of more consciousness of personal biases, thought patterns and ethical assumptions, is not as quantifiable as time. The time constraints for narrators and researchers, have an effect on the number of interviews and respondents that can be researched. Quantitative studies need countable answers and large numbers of respondents. Conclusions are drawn by statistical distributions and significance. Narrative analysis can’t deliver this generalizable data and prefers not to. No attempt is made to quantify or formulate general 70 M. Smit statements that apply to large groups. The focus is on Verstehen and not on Erklären, not to formulate recommendations with a broad impact. Studies with a mixed method methodology have tried to remedy this (Detert and Edmondson 2011). But it can be argued that by losing the particularity of results, the additional value of narrative methodology is also lost.

5.7 Conclusion

Researching the unconscious and intuitive process of professional ethical decision- making is necessary for understanding moral courage of professionals that can lead to encouraging interventions in organizations to balance the hierarchical power of possibly unethical leaders. Narrative interviewing puts the spotlight on the individual and pays attention to their constructs and sensemaking. The personal attention that narrative research offers, empowers professionals and highlights their courage. By reflecting on reasons for morally courageous actions, prototypes and implicit patterns become clearer. Although narrative analysis leads more to individual understanding than to broad general causality, insight in individual encouraging factors can help to experiment with organizing situational factors that strengthen moral courage in other professionals. It might be that this qualitative narrative research design goes against the grain of the dominantly quantitative research strategy in the field of Business and Organization. It is not for the faint at heart, but only for courageous researchers who value jesters.

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Sarah Williams, Anja Schaefer, and Richard Blundel

Abstract The objective of this chapter is to contribute to the understanding of why SME managers engage with business greening. Ethical tensions are understood through use of the Schwartz Value System. The starting assumption is that the business framing of the environment, to save money and save the planet (win-win), is not value free but instead draws on conflicting values of power and universalism. The empirical research for this chapter engaged 31 SME managers in semi- structured interviews from a variety of business sectors within the East of England. The results showed that ‘power’ values are not the only way of filtering and constructing business greening. Managers were found to be drawing on the full range of values with marker values linked with ‘achievement’, particularly clear. It is concluded that manager values, especially within SMEs, are key to understanding the interplay of motivations for engaging with business greening. The ‘win-win’ concept needs to evolve to take managers beyond quick financial savings. It is argued that one way to do that may be to reframe environmental issues for business to stimulate values other than power. Practitioner work, in partnership with Bedfordshire Green Business Network (GBN), reports the usefulness of such approaches.

Keywords SMEs • Sustainability • Engagement • Values

S. Williams (*) University of Bedfordshire Business School, Bedfordshire, UK e-mail: [email protected] A. Schaefer Department for Public Leadership and Social Enterprise, The Open University Business School, Milton Keynes, UK e-mail: [email protected] R. Blundel The Open University Business School, The Open University, Milton Keynes, UK e-mail: [email protected]

© Springer International Publishing AG 2017 73 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_6 74 S. Williams et al.

6.1 Introduction

In this chapter, the personal values of managers of small and medium sized enterprises (SMEs) are explored in relation to their business approach towards environmental behaviours. The issue of why environmental issues matter for SMEs is explained before the complex interplay of motivations that managers described to discuss their engagement with greening is explored. Management narratives were analysed using a thematic analysis, with the Schwartz Value System (1996) as the theoretical lens. This enables an exploration of managers’ constructions of greening in the context of the personal values that motivate them, therefore linking more closely with implicit ethical assumptions and motivations. Finally opportunities for policy and business support organisations to reframe business greening to SMEs are described, along with other preliminary work with practitioners. Small and medium sized enterprises (SMEs) are an integral part of modern economies, in terms of employment, technological and economic innovation and as contributors to greenhouse gas emissions. While the role of small and medium sized firms in efforts to address sustainability issues has been somewhat neglected in the past (Bradford and Fraser 2008; Revell and Blackburn 2007; CCC 2008) they constitute over 99 % of UK and EU businesses (SBA 2014), provide 53 % of UK, and 67 % of private European employment (Dumitrescu 2014) and may account for 20 % of total UK carbon emissions (AXA 2008). This makes the ethical decisions of actors within SMEs vital in addressing the collective impact of SME activity on sustainability in general and climate change in particular (Gadenne 2009; Revell and Blackburn 2007).

6.2 SME Engagement with Business Greening

Although research into SMEs’ environmental engagement remains far less extensive than similar research into larger firms (Triguero et al. 2014; Carr 2003; Spence and Rutherfoord 2003) a body of work has been built up over the last decade. Much existing research into SMEs’ environmental engagement has been motivated by an objectivist concern to determine the extent, as well as motivations for and barriers against such engagement. The findings have mostly suggested that the business case for environmental activity is not widely accepted among SMEs (Gadenne 2009; Simpson et al. 2004; Revell and Blackburn 2007; Ackroyd 2002; Purvis et al. 2000; Hillary 2000). External pressures such as regulation (Simpson et al. 2004; Bradford and Fraser 2008; Environment Agency 2007; Gadenne 2009) or customer pressure are seen to be common drivers (Masurel 2007; Dawson et al. 2002; Stohs and Brannick 1999). The most important barriers were found to be scarce managerial and financial resources (Biondi et al. 2000; Gerrans and Hutchinson 2000) as well as low levels of eco-literacy and limited access to environmental information (Williamson et al. 2006; Hillary 2000; Tilley 1999). These issues mean that 6 Understanding Value Conflict to Engage SME Managers with Business Greening 75 successive UK Government’s have seen SMEs as difficult and expensive to engage with greening and have consequently based policies on a voluntary, ‘win-win’ approach (Revell and Blackburn 2007).

6.3 Explaining the ‘Win-Win’ Approach

The ‘transition to a low carbon economy’ (Vickers et al. 2009) has an ‘economic imperative’ (Raingold 2009, p. 5). In order that the UK is competitively placed to maximise opportunities, Government policies have deliberately framed low carbon skills as resource management so they would ‘have more direct relevance to the majority of businesses and translate to tangible economic benefits and competitive advantage’ (ibid, p. 15). Thus a business engagement strategy for dealing with climate change was born built upon existing waste minimisation and business greening arguments: save money, save the planet it is a ‘win-win’ strategy. In this way, the ‘win-win’ strategy presents a prescriptive policy to SMEs that describes what they ‘need’ to do; what ‘must’ happen; how they ‘should’ be responding (Newton 2002). Through the Business Resource Efficiency and Waste programme (2005–2008) and landfill tax funding (2008–2010), the approach has received a minimum of £240 million and £214 million from UK Government funds respectively (NAU 2010). Resource efficiency is still the principle European Union tool for engaging business with environmental improvements (EU Communication 2011). In reviewing the business greening literature, Vickers et al. (2009) conclude that initiatives such as win-win strategies have been generally disappointing with smaller businesses slow to take up environmental-improvement related ideas. Certainly, Patton and Worthington (2003) found that while larger SMEs did show an awareness of environmental performance being linked with economic performance, they only engaged at the level of making short-term savings. The National Audit Office (NAU 2010) evaluation of the Business Resource Efficiency and Waste (BREW) programme is also inconclusive regarding the programme’s impact on business behavioural change however this is partly due to criticisms of how the programme was managed by DEFRA. Certainly of the 328 businesses surveyed only 7% of respondents had heard of the BREW programme and 5 % had received support directly. In addition, it is clear that that environmental awareness is a complex issue for SME managers Friedman et al. (2000) and that more needs to be understood about the interplay between the different motivations for greening (Marshall et al. 2005) as well as how business managers arrive at their environmental strategy (Tilley 1999). One major study exploring the impact of win-win as a driver was conducted by Andrea Revell and Robert Blackburn for the ESRC. In addition to the ESRC report ‘SMEs and their Response to Environmental Issues in the UK’ (2004), two journal papers (2007; 2007 with Blackburn) and a conference paper (2003) each discuss different aspects of the overall research. Of particular interest is the focus on win- win as a business driver for SMEs within the context of Ecological Modernisation. 76 S. Williams et al.

The research study used a mainly qualitative approach to explore how 40 managers from the construction sector (separated between builders and architects) and restaurant sectors ‘connected’ with the win-win philosophy. In both sectors, it was concluded that legislation was considered to be the most effective way to improve environmental performance along with efforts to change the behaviour of consumers in order to increase (create) market demand. As Revell explains: Clearly even where the financial returns from eco-efficiency are supposedly obvious, such as waste minimisation and recycling, under resourced and busy owner-managers may not feel that such returns are significant enough to warrant the initial investment in time and resources required to pursue them. Because small firms are typically more concerned with short-term survival than the long-term environmental impacts of their businesses, eco- efficiency measures may thus be rejected if the payback is not perceived to be immediate. (2007, p. 121) Interestingly, a slightly later study by Revell et al. (2009) of 220 SME tenants of Workspace Group offices in London and the South East asked whether SMEs were beginning to ‘turn over a new leaf’. While suggesting that media coverage concerning climate change (including the documentary An Inconvenient Truth1) appeared to be triggering business managers to engage with the ‘business case for sustainability’ the authors argued that managers still appeared to be sceptical of the overall profitability of win-win. Furthermore, they argued that it was not clear whether managers were going so far as to take a strategic approach to resource efficiency/ environmental awareness (beyond ad hoc measures) or that their approach was such that they would continue to invest time and resources to improve performance beyond the achievement of quick wins. In summary, whilst the UK Government and EU has invested significant sums of money into encouraging SMEs to voluntarily reduce carbon emissions through a win-win, voluntary approach, SMEs are found to be largely sceptical (Boiral et al. 2014) such that, despite efforts in the last 10 years, it is unlikely that resource efficiency alone will deliver the transition to a low carbon economy (Scott et al. 2009) and clearly research needs to understand the interplay between different motivations for greening (Williams and Schaefer 2013).

6.4 Pro-environmental SME Behaviour

While the business greening literature argues that SMEs are generally resistant to environmental engagement and only engage where there are financial benefits to be made, the pilot project for this current research into pro-environmental SME behaviour (Williams and Schaefer 2013) identified actions over and above those that would be explained solely by cost reductions or an engagement shaped by business arguments.

1 2006 Documentary see http://en.wikipedia.org/wiki/An_Inconvenient_Truth 6 Understanding Value Conflict to Engage SME Managers with Business Greening 77

Pro-environmental managers in the pilot project (ibid) explained how an holistic approach meant that environmental considerations were thought about as part of every decision and, by doing so, a wide range of less obvious, deeper actions were addressed. Managers described how every stage of their operations was thought through in terms of environmental impact. Managers sought to identify points at which their activities had an environmental impact and proactively sought the least harmful option. All managers in this earlier study demonstrated an ability to recognise and consider the relevance of the environment as a stakeholder in decision making. While it was acknowledged that such an environmentally proactive approach took time to pursue, each of the managers considered the investment to be worthwhile from a business perspective. While managers rejected any idea that they were ‘tree huggers or bunny lovers’, it was clear from this research that personal values were important to understanding managers enactment of business greening but that these values were not necessarily environmentally-based.

6.5 SME Owner-Manager Values

Building from this earlier research, Schaefer et al. (2011) take a theoretical approach to arguing that in understanding the greening of SMEs it will be important to consider the personal values of their owner managers. Unlike managers and leaders of large firms, founders of small business organisations often build firms that are in line with their personal aspirations and philosophies. They often have greater strategic and operational discretion over their business, and it is usually within their power to disseminate their own vision to permeate organisational values and culture (Hamann et al. 2009; Heugens et al. 2008; Schein 2004; Dawson et al. 2002). Thus, personal ethics and business ethics may be more closely aligned in SMEs than in larger firms (Jenkins2004 ; Spence 1999; Werner 2008; Vyakarnam et al. 1997). The owner-manager is widely recognised within the SME literature as the dominant focus of the company with the company developing to reflect their individual persona (Lloyd-Reason and Mughan 2002; Baden et al. 2009; Gray 2002; Hamann et al. 2009). Most SME founders report going into business in order to be independent and Gray (2002) suggests this may link with SMEs being seen to be generally reluctant to accept outside advice. This raises other questions about motivation. In addition to internal intrinsic motivation, Parker et al. (2010) discuss two forms of external motivation: integrated regulation and identified regulation. Integrated regulation relates to the enactment of behaviours as an expression of personal values that helps to bring about a long term vision of the self. Identified regulation accepts that externally identified goals are important for the benefit of others so that the individual takes on personal responsibility and ownership of the actions required and thus internalises external values. These findings are supported by Williams and Schaefer (2013) whereby participants in the earlier pilot project described how the enactment 78 S. Williams et al. of environmental actions enabled an expression of personal values related to how their understood climate change as an ethical and emotional issue of concern to them.

6.6 Research Approach

The research design takes a qualitative approach based on in-depth case studies with managers of different types of SMEs, in different industries and of various degrees of environmental pro-activeness. Semi-structured interviews with 23 owner- managers (coded M#) and 8 environmental champions (Coded C#) were conducted between January and April 2011. Respondents were engaged to the study via a number of routes, including promotion by third party business support agencies along with the main researcher’s own face to face and online networking. Respondents were predominantly white male (60:40 male to female with eight per- cent of other ethnic origin), most frequently in the 45–50 age group running a company with an average of 35 employees. Rokeach (1968) argues that “a person’s values, like their beliefs, may be consciously conceived or unconsciously held, and must be inferred from what a person says or does” (p. 142). He then mapped how the values of equality and freedom were used in three political writings through the language used (p. 171). The work of Shalom Schwartz (e.g. 1996) builds on Rokeach to move from exploring associations with single values to build sets of values that maybe recognised across different cultures. In this current study, the Schwartz Value System (SVS) as described by Ralston (2011) was used as a framework for exploring how the language managers used to describe their motivation for business greening could provide an insight into their values. In this, values are considered motivational goals (Schwartz and Bilsky 1987) that are both hierarchical and dynamic; meaning that while values are considered, relative to attitudes and beliefs, stable and deeply-held, our value priorities can and do change over time. The interview data was approached using thematic analysis (Braun and Clarke 2006). In particular, in order to explore ‘win-win’, this chapter focuses on the two self-enhancing values of ‘power’ and ‘achievement’. Self enhancing values ‘indicate how one is motivated to promote self-interest, even when they are potentially at the expense of others’ (Ralston et al. 2011). Table 6.1, below, offers definitions of these two values and lists the marker values that Schwartz associates with them. The marker values of self-respect and social recognition were included in earlier versions of the SVS and are included here for completeness. Crompton (2010) draws on the SVS to show how ‘win-win’ is not value free. He argues that the first ‘win’, to save money, triggers power values; while the second ‘win’ to save the planet attempts to trigger conflicting environmental values, which Schwartz places within universal values. Schwartz and Boehnke (2004) developed the circumplex model that corroborated the theoretical structure of values. This demonstrated the relationships between values – which can be both neighbouring and complementary, or distant and in tension. As can be seen from Diagram 6.1, 6 Understanding Value Conflict to Engage SME Managers with Business Greening 79

Table 6.1 Marker values for power and achievement Power Achievement Motivational goal of power values is the The primary goal is personal success through attainment of social status and prestige, demonstrated competence. Competence is and the control and domination over evaluated by the system or organisation in which people and resources the individual is located. Marker values Social power, control over other Ambitious, hard-working, aspiring Wealth, material possessions, money Influential, having an impact on people and events Authority, the right to lead and command Capable, competent, effective, efficient Preserving my public image/face Successful, achieving goals Self- respect, belief in one’s own worth (SVS 57) Schwartz 1996 Social recognition, respect, approval by others (SVS 57, Schwartz 1987, achievement RVS) After Ralston et al. (2011)

180 degrees Openness to opposition/conflict Change Self- Self- Universalism Transcendence Direction Social Justice, Creativity, Equality Freedom Stimulation Benevolence Exciting Life Helpfulness

Hedonism Conformity Obedience Tradition Pleasure Humility Devoutness Security Achievement Power Social Order Success, Conservation Self- Ambition Authority, Enhancement Wealth

0 degrees

Diagram 6.1 Schwartz value system redrawn (After Crompton 2010) 80 S. Williams et al. below, Crompton (2010) uses the Schwartz Circumplex Model to show that power and universalism can be seen as directly opposed and in conflict with each other.

6.7 Findings

“And that’s what I mean when I say if my values don’t align with something, or people’s values don’t align with something, they just tend to be ignorant towards it because they feel, well they don’t feel empowered enough to do something. If it’s not in your values, you just don’t hear it”.

This section will explore managers’ motivations for business greening through the lens of the Schwartz Value System, looking specifically at marker values for power and achievement.

6.7.1 Power Values

Of the four marker values that Schwartz identifies for power, three were drawn on by managers in this study in their sensemaking of business greening.

6.7.1.1 Social Power, Control Over Others

In describing their reasons for and approach to business greening, managers expressed two ideas. Firstly, that “knowledge is powerful” (M15) and secondly, “it’s not what you know it’s who you know” (M14). Although these two ideas at first may seem contradictory, they are both about the manager feeling that they know something that someone else does not know in a way that enables a position of relative power, when they otherwise feel weak. For example, (M14) described how he felt powerless in the face of power and did not trust organisations that he was working with. However, through someone that he did trust personally, he was linked in with two low carbon advisors and knowledge had been gained that he felt helped him to “differentiate” his company. (C4) used his knowledge of environmental management to “save his skin”. He described himself as “a little weakling, largely ignored” who was in “battle” with the company directors and in a position to “make big changes in the little part of the world” he was able to control. He held on tight to his knowledge and resented any interference with his work. This had implications for how they approached greening within their business as (C4) kept knowledge to himself rather than looking to engage and share ideas with staff. (M8) also described 6 Understanding Value Conflict to Engage SME Managers with Business Greening 81 a sense of battle, this time with larger customers, and being proud to make a bit of profit from them. Similarly, (M6) looked to defend his company’s USP rather than share their experience of working with local suppliers with potential competitors, even though this would have supported his larger goal of stimulating the local economy. Ideas within the ‘win-win’ framing that relate to increasing competitiveness through environmental improvements would appear to be reflected in the descriptions of managers drawing on social power values.

6.7.1.2 Preserving My Public Image/Face

Four managers made reference to the need to preserve their public image as part of their motivations for business greening. For example, (M23) talked about doing simple things, such as recycling, in order to support the image he was trying to por- tray. This was in order to carry a green message that would make the company different. Similarly, (M15) hoped that her green credentials were seen as credible through her involvement with a local environmental project. (M14) was concerned that other people would see his business greening as shallow and as a “veneer” while he dismissed the efforts of other companies as “just PR to win business”, from which he “recoiled with cynicism”. Being motivated by “wanting to look good” (C4) meant that the focus on business greening was about personal image and credibility rather than on reducing environmental impacts. In a similar way, (M17) observed with cynicism the preservation of image by politicians in relation to climate change as shallow.

“I think it’s a vote looser if you can’t tick the box rather than a vote winner if you can. I mean, can you imagine anybody today saying we promote the use of petrol cars, we encourage coal fires? I think they would lose votes” (M17)

6.7.1.3 Wealth, Material Possessions, Money

Eight managers made reference to being motivated by money and being “just like everyone else on this planet; a materialistic, greedy so and so with a mortgage to pay and a car to drive” (C4). (M9) explained that he needed to think about the money because “everything I buy is my money and I regard it as my money” (M9) and “at the end of the day, you’re in business to make money” (M23). This meant that business greening was a “nice side effect” (M23) but the motivation was “saving money” (M21). The motivation was to save money through reducing inefficiency rather than to make money through new green innovations and opportunities. (M15) would insulate her premises if a grant could reduce the cost to her and she felt she was “getting something towards it”. While managers could be “very keen on how we can drive down costs and get a quick bang for our buck” (M21), this needed to be without financial investment. So when potential actions were highlighted through the 82 S. Williams et al. free business audits that both projects provided, they were only accepted if they did not require much investment in terms of time or finance. So recycling ink cartridges was an idea that (M21) was “quite happy to go along with because it’s not a big overhead”.

“It was very much my own idea really. We were looking to make savings. You know, our key drivers are always about competitive edge, business advantage, efficiency as much as possible and saving money ultimately. In this day and age, saving money is probably the key driver. What we can do to save us money” (M21)

Of the managers interviewed for this study, only two managers referred to quan- tified business savings. (M13) intended to reduce running costs by £2–3000 per year while (C4) had reduced costs by £58,000 per year. The cost savings by (C4) had been made through improving waste management systems and by working more closely with waste contractors to reduce collections, fill skips more efficiently and by bailing waste to compact it. There was no reference to environmental improvements or a focus on reducing costs through waste reduction initiatives. Two managers expressed concern that “selling” (C7) environment on the basis of cost savings might not provide an impetus to act should energy prices, in particular, stabilise or fall: Indeed it was questioned what would happen to environmental projects once “the savings had stopped” (M5). In this, both managers expressed concern and frustration that savings could be achieved under an environmental project that was more about renegotiating contracts than changing mind-sets.

6.7.2 Achievement Values

Managers could be seen to draw on each of the marker values for achievement, except ‘ambitious, hard-working, aspiring’ and ‘self- respect; belief in one’s own worth’.

6.7.2.1 Influential, Having an Impact on People and Events

In describing their sense making of business greening, managers drew on the desire to influence others and make a difference to explain what they did in terms of energy efficiency, waste reduction, as well as broader sustainability issues including climate change. For champions, the opportunity was to engage staff in change as well as “persuade management” (C5). For managers, there were opportunities to make a difference by both engaging staff and influencing other businesses through both words and example. For instance, (M10) described how he had set up a staff 6 Understanding Value Conflict to Engage SME Managers with Business Greening 83 viewing of The Inconvenient Truth and The Age of Stupid for “dictatorial, altruistic reasons and because I think this is important and they need to know”. In addition, (M10) described how he used his influence to work with clients and peers to encourage them to think about what more they could do towards sustainability and to help make environmental sustainability more important. In his view, society was constantly changing and by being on the “leading edge” of what was allowed, he could help “push it in a certain direction”. (M5) described how she “communicated closely” with other local businesses to encourage them to follow her example in using local suppliers, which (M16) also described as where he “could have an effect”. (M8) described how he explicitly drew on the knowledge he had of his customers “personalities” to determine how he framed his conversations with them about making greener decisions. (M7) recognised his business and is customers and staff as his sphere of influence and felt proud that he could “achieve a big difference in the local area” while still being aware of the bigger picture such as “rainforests disappearing”. Managers drew on positive and empowering emotions such as feeling proud, passionate, involved and happy to describe their influencing roles.

“I like to set an example of being a lady on a bike, you know, in business clothes and high heels because I think it’s important to say to the world, this is acceptable and it’s about leading the way and saying to people, hey we’re doing this how about you” (M19)

6.7.2.2 Successful, Achieving Goals

Managers described how they worked hard towards their goals. With specific reference to business greening, this could be reflected in achieving the goals set in environmental action plans (C5) or in achieving accreditation (M24). (M24) described how the recession was making business very difficult but that they had recently “won two big contracts which is tremendous”. She said that they had always done a lot of construction work in schools but that contracts were becoming increasingly difficult to win. She saw the hard work necessary to obtain an environmental accreditation as an achievement that would help the business in the longer term. For (C5) having an environmental action plan empowered her to focus on achieving a set of goals by working on individual attainable actions. In the first year, she was able to reduce the company gas bills by 30 % and she was “astonished” at what she had achieved through “boring little incremental measures”.

6.7.2.3 Capable, Competent, Efficient, Effective

In addition to the need to influence, this set of values was the most clearly illustrated by managers in discussing their engagement with business greening. This is shown in two ways. Firstly, where managers valued competency and efficiency, they could be 84 S. Williams et al. frustrated and disappointed by seeing inconsistency in others, especially in Government policies towards green business. For example, (M1) saw inconsistency and inefficiency with Government carbon taxes and the UK feed in tariff scheme, arguing that “the Government is inconsistent…as far as I am concerned if they want to put a solar farm in, let them; it’s probably more efficient than 100 households”. Similarly, (M7) argued that the REACH regulations added no value at massive expense and inefficiency: “the problem could have been solved much more simply if substances identified as high environmental concern were just taken off the market”. The concept of a ‘problem’ to be solved was reflected in the second way that this value was illustrated. Managers talked about working in “continuous steps” (M1) to improve and develop better products that were more sustainable for the future and to overcome technical challenges in doing so. The environment could be seen as a “component” (M22) of quality and of management where managers could take “pride” (M10) at overcoming inefficiencies by exploring challenges and becoming “quicker, better, more efficient” (M24). The ability to see business greening as a component could be empowering and enable managers to deal with a range of current and future issues. In the past, (M22) described how businesses had reformed components to do with health and safety and increasingly they would deal with governance components and social responsibility components in the same way. For example: Yes there are technological challenges but people, each individually, if they put their minds to it, every time they’re building something new, they’re thinking about it, every engineer, every builder is thinking how can we make this more efficiently, how can I make this better… (M22) In this way, improving efficiency was linked with reducing wastefulness and while this included reducing unnecessary costs, it also took a wider, longer term view so that they “always weighed up cost with efficiencies with carbon footprint” (M24). This meant they had identified inefficiencies, such as bringing back waste and then having to unload and reload it and take it to landfill. Rather than just reduce costs through renegotiating waste management contracts, they had looked for more creative solutions. In doing this they had achieved additional business benefits as well as reducing their environmental impacts. For example, they invested in a Talbot Wood Burner that “uses up a lot of our waste and heats our workshops” (M24) as well as using rainwater that was better for their treatment processes and reduced bills; and they invested in an onsite recycling area that reduced waste to landfill, increased waste recycling and reuse, and reduced driver time and fuel.

6.7.2.4 Social Recognition, Respect, Approval of Others

Although this value was dropped from the universal Schwartz Value System, as he did not perceive it to be a value reflected across all cultures, it was included as a value in earlier versions. It is included here as two champions plus one manager clearly demonstrated this value in connection with business greening. For (C3) 6 Understanding Value Conflict to Engage SME Managers with Business Greening 85 motivation to engage with greening included a sense that she had done something for the environment along with the sense of approval that she received from her manager. She saw that the environment was important to him and she valued both his support and his feedback to her. In a similar way, (C5) demonstrates this need by her reaction when it was not given. While (C3) was motivated and empowered, (C5) found she felt disempowered, disappointed and hurt. Indeed, she expressed her own surprise at how, as a mature professional woman, she had been so hurt by a lack of recognition for her environmental achievements and efforts within the business. She felt that she had been personally very committed to the green project but now wondered why she had bothered. She said: “I really stuck my neck out I really went for this and put a lot of effort in and I know it sounds petty but sticking those certificates down the corridor out of sight that hit me and I just thought, wow, to hell with it”. When I am gone, I want the world behind me to think, great guy, he did good. I want them to see the things I did and how they added value. I want people to think yeah he did some good stuff (M18)

6.8 Self-Transcending Values

Self-transcendence values “indicate the extent to which one is motivated to promote the welfare of others (both close friends and distant acquaintances) and nature” (Ralston et al. 2011, p. 20; and see Schwartz 1994, p. 25). There are two self- enhancing values. Universalism relates to the goal of “understanding, appreciation, tolerance, and protection of the welfare for all people and for nature” (Ralston et al. 2011, p. 19). This can be compared with Benevolence, where concern is for a closer group of others and with a narrower focus on the “preservation and enhancement of the welfare of people with whom one is in frequent contact” (ibid, p. 19). The second half of the win-win message draws on the environmental values within Universalism. Thirteen respondents, eight male and five female, drew on Universalism in how they talked about climate change and business greening. Each of these managers also drew on the self-enhancing value of Achievement but none drew on Power. Managers spoke with passion about how climate change was a moral issue for them. By seeing the consequences of small actions connected to bigger issues, managers described how they understood that climate change was wrong because it was a consequence of Western greed and waste and how people elsewhere, who were poor and vulnerable, would suffer. This compassion and concern for other people was extended to consider environments and ecosystems as morally significant, regardless of whether respondents had direct experience of those environments. Respondents described feeling a connection that could be both spiritual and/or of personal intrinsic value and related this to their own sense of conscience. In particular, this meant that climate change could be seen as an ethical concern and that business greening was an extension of their own sense of morality. Not only was wastefulness and destruction of the environment seen as wrong in itself, it was important to managers that they considered the environment in all 86 S. Williams et al. aspects of their business decision-making in order to do least harm. It should be noted that managers drew on a range of Universalism values, which suggests that their concern was not overtly ‘green’ but was as much a social as an environmental concern. Indeed, the interconnectedness of ideas meant that it was impossible not to see issues as holistic and this could make deciding on the best course of action problematic. Only 6 out of the 31 respondents drew explicitly on the need to protect the environment as a motivation and only 5 did so in terms of business greening. However, 18 respondents demonstrated Benevolence values; 12 drew on the self-enhancing value of Achievement and 6 on Power. This suggests that Benevolence is a value that resonates more easily with more managers than Universalism. The results showed how respondents were concerned for the people close to them and how this could feed into their motivations for business greening. Improving the sustainability of their business through environmental actions could be a way for managers to demonstrate their concern to staff and local communities. However, this local focus could also mean that climate change was seen as outside of their day-to-day activities and responsibilities.

6.9 Practitioner Implications

Starting with a two hour seminar for members of Bedfordshire Green Business Network (GBN) in February 2012, an understanding of values and values conflict has been used in a number of ways by the researcher with UK SMEs. The first session looked at how managers might adapt their business for climate change. A model was presented that moved climate change from being a ‘big issue but not my issue’ to one that re-framed engagement in terms of achievement values. In this way, managers were encouraged to view their greening actions as ‘components’ that linked their projects to delivering the bigger issue. For example, actions to reduce their business use of carbon, such as energy reduction, were framed in terms of efficiency. Effectiveness and self-sufficiency were used to frame actions that would reduce their business’ reliance on sources of carbon, such as alternative energy generation. The need to influence others and make a difference was drawn on to encourage managers to take a longer-term view regarding resilience to climate change and engagement with their supply chains. During the workshop and feedback sessions, managers reported that this was a new way of thinking about climate change and one that helped them to understand the elements of it, in a way that made sense to them. In the workshop exercises and discussion that followed, managers described how they could recognise their own, and key staff members in the narratives. They reported a willingness and ability to use the SVS individual level markers to recognise the values of staff and to reframe their own messages to them in order to stimulate their existing values and motivate them towards desired environmental behaviours. Managers also reported that it was clear the approach could be used 6 Understanding Value Conflict to Engage SME Managers with Business Greening 87 more generally to support and motivate staff by recognising what was important to them. Managers suggested the approach could support existing engagement techniques that point towards ‘what’ to do with a clear ‘how’ to. For example, in identifying and engaging key individuals to join a green team and in supporting them to cascade engagement within their own staff groups. Following the first session, a series of seminars for GBN have been developed with and for members between 2012 and 2015. The work has taken a number of forms, each based on helping environmental managers use an understanding of values and values based messages to reduce values conflict and maximise engagement. For example in June 2015, participants explored the values implicit in messages to internal and external stakeholders. They built on earlier seminars to recognise when values were being made reference to in communication messages and how they could avoid using conflicting values. Earlier in 2015, members also looked at understanding the values of groups and sub cultures within the business in managing change and supporting environmental champions to engage their team by recognising the values of key individuals. Of particular interest is the use of an explicit values-based approach to engage senior management with sustainability. This is likely to be a useful tool for practitioners with the revised ISO14001: 2015 that will require senior management commitment and alignment with company environmental policies.

6.10 Conclusion

This chapter has explored the values that managers draw on in describing their motivation to engage with business greening. Results suggest that some managers can draw on power values to see the environment as part of their competitive arena. They do so in a way demonstrated by the greening business literature that describes managers as sceptical and largely dismissive of environmental issues. These managers were clearly motivated by saving money. Where environmental improvements promised quick cost savings, without financial investment, they would act. However, this was just a small part of a larger, more complex picture. Cost savings and business efficiency as motivations were closely interwoven and environment was an important part of that thread and could benefit from improvements from either aspect. However, managers who focussed on cost savings first, focussed on short term cost savings and quick wins. Here, the focus was on saving money and improving control. However, this research shows that ‘power’ values are not the only way of filtering and constructing the environment for SME managers. Managers engaged in delivering sometimes significant environmental actions within their business were found to be drawing on marker values that Schwartz (1996) links with ‘achievement’. In particular, these managers framed what they did in terms of being effective and efficient. They wanted to be seen to be capable and to have an impact on people and events. Managers did not draw on both achievement and power in their 88 S. Williams et al. constructions; it was one or the other. Managers who were motivated by efficiency looked to reduce wastefulness first. Wastefulness included wasting money, along with time, product and resources and allowed longer term thinking and more creative solutions. Improvements were about doing business better. Environmental investments were less of a barrier because longer term thinking invariable meant that the environmentally preferable solution would also be the financially preferable solution too. It is evident that win-win has had success in helping to make the environment a business issue. This supports Revell et al. (2009) suggestion that SME managers are becoming more generally accepting of greener approaches to business. As (M21) explained:

“If you spoke to me about environmental issues a few years ago, we’d say we weren’t interested. We don’t know if it’s going to affect our business because people didn’t really understand the implications of what was happening with global warming and what a big political football it was going to become. But I think these days, if you’re blind to environmental issues, then you’re not very intelligent because everybody is now aware of what’s happening in the world and starting to be more forward looking” (M21)

It is also apparent that ‘win-win’ will continue to be a key part of the EU strategy for engaging SMEs voluntarily with environmental issues, including climate change (EU Communication 2011). At a conference funded by the EU Directorate for Enterprise and Industry in June, 2012 (SME Advisors 2012) it was clear that SMEs within different EU states are at different stages of environmental awareness. Advisors from Eastern European states explained how the SME managers they worked with looked to the UK to learn from the experience of UK businesses. They were currently at a relatively early stage of engaging businesses predominantly on the basis of cost savings. This research argues that ‘win-win’ is useful but is limited and, as an idea for engaging with SMEs, it needs to be able to evolve to take managers beyond quick financial savings once those savings have been made. It is argued that one way to do that may be to reframe environmental issues for business to stimulate values other than power. In addition to helping to move managers beyond quick wins, this would also increase the tools available for business support organisations while still fitting with the ‘win-win’ concept they are familiar with. The research that this chapter is based on also explores the role of other values including self-direction, creativity, benevolence and security. It is suggested that future research should explore these ideas more widely by engaging managers in a pilot support project to explore the difference that reframing can make to their engagement with environmental issues. It is suggested that by reframing environment it will be possible to engage managers with deeper actions that go beyond immediate cost savings. Encouraging managers to think about the components of climate change and how they can do things better may help SMEs make a greater 6 Understanding Value Conflict to Engage SME Managers with Business Greening 89 contribution to the transition to a low carbon society. In addition, comparative research with other EU states should include an exploration of manager motivations to green focussing on the role of values in different economic, political and social contexts.

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Johan Wempe and Willeke Slingerland

Abstract In this article, we analyse whether it is possible to hold a loosely organised collective responsible for the effects it has on others. We consider the possibility of holding a loosely organised collective responsible by comparing it with a well-organised collective such as a corporation, a joint action (a collective lacking a formal organisation) and an aggregate. We explore the concept of responsibility of a loosely organised collective by analysing a concrete example: the responsibility of the major oil producers for climate change. We will argue that it is possible to apply the concept of responsibility to such loosely organised collectives. To understand this responsibility it is necessary to decouple the concept of responsibility from the concept of acting and to develop forward-looking (prospective) ethics. We will argue that individuals and organisations belonging to a loosely organised collective have a joint responsibility: to some extent, they are each other’s brother’s keeper.

7.1 Background

Society faces many complex issues in which we find it difficult to place responsibility. For example, issues such as climate change (our responsibility for future genera- tions), the Bangladesh factory tragedy (chain responsibility in the textile chain), the financial crisis (the responsibility of the financial sector), child obesity (responsibility across sectors) and the network corruption in the phone-hacking scandal in the UK (responsibility in an elite-network) and in the city of Roermond in the Netherlands (responsibility in a municipality-network).1

1 The phone-hacking scandal in the UK and the network corruption in Roermond are described and analysed in Chap. 8 of this volume: Willeke Slingerland. “Norms for Networks: a Contractarian J. Wempe (*) VU University Amsterdam, Amsterdam, The Netherlands e-mail: [email protected] W. Slingerland School of Governance, Law & Urban Development, Saxion University of Applied Sciences, Enschede, The Netherlands e-mail: [email protected]

© Springer International Publishing AG 2017 93 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_7 94 J. Wempe and W. Slingerland

These are issues where the prevailing notions of responsibility no longer work. In these cases, it is not possible to talk about the responsibility of specific concrete individuals, and attempting to assign responsibilities to organised collectives, such as companies, also fails. Still, it is important to localise responsibility, not only to talk in terms of liability, but more importantly to try to prevent future tragedies and crises and to address them when they happen. Moral responsibility is generally associated with individuals: individuals can bring about good – or bad, and can be held responsible for the effects of their actions. However, without knowing and willing action by an individual, there is no moral responsibility: only where a person causes an unacceptable situation as a result of their knowing and willing action, can they be held morally responsible for the result. This moral responsibility is the reason why such a person is perceived as guilty and blamed for his action. The 1980s and 1990s saw debates on the responsibility of collectives, and especially of companies. This debate dealt with the question as to whether it was possible to assign moral responsibility to a collective such that this responsibility was distinct from the responsibility of the individual members of the collective. A range of business ethicists, such as Donaldson (1982), Werhane (1985), French (1984) and May (1987) debated this issue. Although a clear conclusion was never reached, the debate ceased. A major reason for this was that firms accepted they had such a responsibility. In a sense, the emergence of business ethics can be seen as a direct result of the acceptance of the idea that a company has moral responsibilities. Since then, the main focus has been on how to organise this corporate responsibility: the more fundamental question has disappeared from the business ethics agenda. However, the examples described above are not about the responsibility of concrete individuals nor about the responsibility of well-organised collectives, such as companies, but about the responsibility of ‘loosely organised’ collectives, such as an industry, a chain, a region or a social network (Wempe 2009). Within this sort of ‘organisation’, there is no formal leader (a CEO or director), there is no formal hierarchy, there are no selection criteria to become a member of this collective, it is not possible to dismiss people and the loosely organised collective has no legal basis. At the same time, there is a form of responsibility that cannot be reduced to the individual responsibilities of the members of the ‘loosely organised collective’. In this article, we examine the question of responsibility associated with climate change. Here, we will focus on the responsibility of the major oil companies who have yet to announce a curtailment in the extraction of their oil reserves. The extraction should be reduced, but who is responsible for this? This case can act as a model for the various examples mentioned above.2

Approach to Corruption.” 2 This is essentially the social dilemma described by Hardin (1968) that is known as the Tragedy of the Commons. As such, Hardin refers to the broadening of the notion of responsibility, the idea we are advocating here. In the subtitle to the article (Hardin 1968). Hardin states: “The (…) problem has no technical solution, it requires a fundamental extension in morality.” 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility 95

7.2 Climate Change and the Responsibility of the Large Oil Producers

It is almost universally accepted that climate change is caused by human activity: we consume too many fossil resources (Wempe 2015). As a result of global warming, the polar ice is melting and sea levels are rising. Floods and droughts are consequences of climate change which are already noticeable. The current emissions of greenhouse gases have already caused a global average temperature rise of 0.8 °C. Climate scientists have calculated that, if policies do not change, there will be an increase of 3.5–4 °C. A temperature rise of 2 °C is seen as the limit within which we, as a global society, must stay if we are to avoid disruptive effects on the environment. This requires short-term action by the world community. To meet this 2 °C ceiling, the major oil companies have to limit the use of their oil reserves. The question is who will pay for the depreciation in the value of the reserves? How do we allocate the loss? This is a difficult task. Each of these companies has made significant investments to acquire these reserves. It is also a zero- sum game. Whatever one company is willing to relinquish makes it possible for others to leave more on their balance sheet. So how can we organise this? Who has the responsibility to first hand back some of their reserves? Maybe we look towards a powerful national or international government. In that case, we are expecting the government(s) to determine the oil companies’ room for manoeuvre. As such, we are relying on a hierarchical responsibility model – the companies have no responsibility at all. Why do the large oil companies not take responsibility, alone or jointly, to find a solution to the climate problem? Do the companies not have any responsibility? An important reason why the sector is not taking steps is that there are serious doubts within the oil sector about the desirability and feasibility of the 2 °C target. Even the large oil companies that do acknowledge the desirability of this norm, do not expect that the world society will be able to achieve this in the coming decades. In their opinion, governments are not able to arrive at a joint approach. Governments will look to the interests of their domestic industries. Many international oil companies are (part-)owned by governments. Most authorities therefore have dual interests, and will not readily take the initiative to restrict production and use. Most consumers will continue to buy fossil fuels. Every large oil company will anyway continue to serve a large part of that market and meet the growing demand for energy. The top management of these companies also experience strong pressure from their investors. These gain by having large oil reserves on the balance sheet. Every oil producing company therefore sees itself as a pawn subjected to market and social forces. They view global energy consumption as a non-controllable process. However, by thinking in this way, it becomes a self-fulfilling prophecy! Who or what is responsible for the failure of the energy system, i.e. the lack of cooperation between the energy companies to reduce oil production and energy consumption? In this article, we attempt to analyse whether it is possible to hold oil-producing companies, as a loosely organised collective, responsible for the 96 J. Wempe and W. Slingerland

collective result of their individual actions. Is it possible to hold the collective of oil companies responsible for the failure to reduce overall oil production? Further, if one can justify attributing responsibility to this form of collective, we have further questions to address. What is meant by the attribution of responsibility to this type of collective? Who or what is supposed to take action? What kind of norms apply? Who or what can be blamed for insufficient measures?

7.3 Collective Responsibility

The concept of collective responsibility is applied in various contexts. It reflects a variety of collectives, their potential to act and the responsibility that one may attribute to that collective. It is possible to make a distinction between an aggregate, which is an unstructured collection of individuals, and a conglomerate, as a collection of individuals that are, in some way, structured.3 Aggregates can be divided into coincidental aggregates and statistical aggregates: • A coincidental aggregate refers to a largely coincidental group of people, such as the residents of a street or spectators at a sports event. In the latter example, an interest in the same game brings people together. Another example of such an aggregate is a group of individuals who attack a police officer or plunder a shop without prior consultation with each other and without any form of decision- making procedure. Spontaneous public demonstrations are also this sort of aggregate. Another, slightly different, example of such an aggregate is the 37 people who witnessed the murder of Kitty Genovese but did not call the police (Gansberg 1964). • A statistical aggregate includes people who are put together on the basis of a certain characteristic. One may think of people of a certain age, women, the unemployed in a region. A key characteristic of aggregates is that there is no structure or any form of cohesion. A conglomerate is an organisation of individuals. The joining or leaving of individuals has no consequences for the identity of the conglomerate. A conglomerate cannot be comprehensively described by describing the sum of the individuals. What can be attributed to the conglomerate cannot necessarily be ascribed to its members. Members joining or leaving the conglomerate do not necessarily affect its identity. The moral responsibility of a conglomerate cannot be distributed among its members because the characteristics of a conglomerate cannot be reduced to the sum of individual characteristics. If all the members of a conglomerate left and were

3 See also: Kaptein and Wempe 2002. Chapter 3 offers a fuller description of the aggregate and conglomerate concepts as used here. This interpretation of the ‘aggregate’ and ‘conglomerate’ differs from that of French (1984). 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility 97 replaced by new members, the responsibility of the conglomerate would remain unaltered. Again, it is possible to distinguish between two forms of a conglomerate: joint action and actions of an organised collective. • Joint action • Examples of joint actions are two individuals who play chess, several individuals who make a trip together, or commit a robbery together. A joint action is a form of cooperation where individual actions are directed towards a common goal. In a joint action, the contributions of everyone involved are required to achieve the goal. This form of cooperation relies on some form of communication and is often incidental in nature. In addition, there is no intention or expectation that the cooperation will continue into the future. This joint action of individuals has traits that are part of acting: a conscious intervention in the course of events where each individual has control over what he or she does. There is also an element of freedom: those involved could have decided not to take part (Spit 1986, 43–44). • Actions of an organised collective • A strike called by a union or the dumping of environmentally harmful waste by a corporation are examples of actions of a collective. A collective can also be an actor. A collective has the ability to act if several members of the collective make decisions for the whole and are able to carry them out (involving powerful leadership and effective coordination). Here, too, the characteristics of action are applicable: conscious and causal intervention, control and freedom. The question we now turn to is how one should understand the loosely organised collective of oil producing companies? Is it an aggregate of businesses – might we perceive this failure to limit production as a joint action by the companies involved? Alternatively, can we understand the collective as some form of organisation of the companies involved, and therefore as an organised collective? If we perceive the oil companies as an aggregate, then there is no question of moral responsibility since we are not inclined to hold an aggregate, as a collective of individuals or of companies, responsible for its ‘acting’ or for ‘failing to act’. The main reason is that there is no conscious and intentional acting by the aggregate. An aggregate of companies can be comprehensively described by putting the characteristics of the separate companies together. The moral responsibility of an aggregate can therefore only be described in a distributive sense: each member is responsible according to its share. The moral responsibility of an aggregate is nothing more than the sum of the individual responsibilities. The fact that an aggregate cannot be held responsible for the collective effect of all the individual actions does not imply that it is not possible to hold separate actors accountable for their actions or inaction. The point is that the collective as such, and also the members purely for their membership of the aggregate, cannot be held responsible for the effects that the aggregate brings about. However, in the literature, it has been argued that it is possible to hold certain types of aggregates morally responsible. Gilbert (2000) refers to this using the idea of a “plural subject”. Based on the vision of Kutz (2000) we could perceive a loosely organised collective as a collective that can be held responsible due to the participa- 98 J. Wempe and W. Slingerland tory intentions of its members (Gilbert 2000). The examples that Gilbert and Kutz give relate to particular situations such as the responsibility of men for the subordination of women and the responsibility of the present-day white population for the slavery in the past and its consequences today. It seems that the oil companies, if we consider them as an aggregate, cannot be held accountable for not reducing the oil production and thus for the failure to meet the 2 °C limit. However, it might be possible to hold the companies accountable for their lack of commitment to getting the sector organised in order to achieve this. This is a view put forward by Held (1970, 479). According to her, it is possible to hold a random collection of individual agents responsible for the violence done towards victims due to the “failing to transform itself into an organised group capable of taking action rather than inaction” to prevent the harm that is done. Following this argument, we could hold the oil companies accountable for their failure to establish an organised collective. If we perceive a loosely organised collective, here the collective of oil companies, as a conglomerate, we can understand this conglomerate as both a joint action as well as an organised collective. These forms of collective action can be judged in moral terms. However, the moral arguments that would be used to assess the collective of oil producing companies differ widely in the two situations. Firstly, a joint action by two or more corporate agents may qualify as morally good or bad, and it is reasonable to hold each corporation morally responsible for the effects of the joint action. This is because the contribution of each enterprise is a prerequisite for joint action and all the companies involved are aware of the joint action and its consequences. Each of the actors participating in the joint action therefore bears full responsibility for the effects of that action. However, in our example, this clearly goes too far. You cannot say that the contribution of each oil company is necessary in order to bring about the joint result. Therefore, it is not fair to hold one company responsible for the failure by the collective of oil producing companies to reduce oil production. If, instead, we look at the oil companies as an organised collective, it is possible to assess this collective in moral terms. In particular, we follow here the line of thinking of French (1984). A crucial element in speaking of an organised collective is that there is intentional action by that collective. That is, the intentions and actions of the collective can be distinguished from the intentions and actions of the individual companies. Therefore, we have to address the actions and intentions of the collective of oil producing companies. Both aspects are problematic: is the collective able to act and, if so, is this acting intentional? A collective can act through its members through “secondary action” (Copp 1979, 177–186). An agent’s action is secondary if, and only if, it is correctly attributable to this agent on the basis of either an action by some other agent, or actions by some other agents. Secondary action can apply to a natural person, who is represented by another person, but it can also apply to a collective that is represented by others. In the latter case, it is the collective that is acting secondarily. If, for example, the director of a corporation enters into a contract (in his capacity as director) 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility 99 on behalf of the corporation, the corporation is bound to it. Although the director is the one who actually signs the contract, the ensuing rights and obligations are incumbent upon the corporation. The natural person thus carries out the physical act of signing but the collective acts in a secondary, indirect sense. Natural persons can act in both primary and secondary senses, a corporation only in the latter. French (1984) argues that it is possible to attribute intentional acting to an organised collective such as a company. Consequently, it is possible to hold the company accountable for any damage it causes. However, this argument does not seem to hold for a loosely organised collective, such as the collective of oil producing companies. It is not possible to perceive the actions of an individual company as an act on behalf of the collective because these actions cannot be rephrased as a secondary action on behalf of the collective of oil-producing companies. None of these concepts appear helpful when it comes to analysing the responsibility of a network-like collective, such as the responsibility of the oil producing companies for not reducing their oil production. At the same time, this outcome is counter-intuitive. Further, the same type of argument could be applied to the various national and international governmental bodies that fail to bring about a sufficient level of organisation to realise the necessary 2 °C limit.

7.4 Attributing Responsibility to Loosely Organised Collectives

An important reason for the failings of current ethical concepts in relation to these sorts of issues is that we use the model of individual responsibility as the model for all forms of collective responsibility. As such, we need to have an actor that is intentionally (knowing and willing) acting, third parties that are harmed and a link between the act and the harm. It is because of this cause–effect relationship between the act and the negative consequence that we feel able to hold the individual or the organised collective responsible. However, it is difficult to apply this model when attempting to attribute responsibility to loosely organised collectives. The problem with loosely organised collectives is that although there is a clear irregularity (a harmful situation such as climate change) we do not have a clear agent and a clear form of secondary action. We only have a connected set of actions by a number of people or organised collectives (corporations). The model used in the previous part of this article for assigning responsibility to organised collectives is largely based upon the analysis of French but does not work when it comes to loosely organised collectives. There are at least three aspects that could be helpful when attempting to gain a better understanding of the responsibilities of loosely organised collectives: the conduct-related character of responsibility, its causal character and the retrospective way in which we assign responsibility. If we want to analyse the responsibility of loosely organised collectives, we need to develop a concept of responsibility that is: 100 J. Wempe and W. Slingerland

–– not necessary connected to acting, –– not based upon a mechanistic (causal) way of perceiving responsibility, and –– not solely used retrospectively to assign responsibility. Within ethical analysis, we are inclined to perceive responsibility as being connected to acting. We judge an action in a retrospective (backward looking) way. If there is something wrong, we want to know whose fault this was. Which act led to the harmful situation and who performed that act? A forward looking (or prospective) ethical approach might look at the roles that every agent that participates in the loosely organised collective might play in that collective and in what way a person or an organisation is able to solve societal problems. That is, what is one’s role within the bigger wholeness? (Wempe 2011). How can participants find the courage to address the collective responsibility, and are they able to put the competition between them aside? This is a form of prospective ethics (Fourastié 1966). One could compare the responsibility of a loosely organised collective with that of children to care jointly for a parent suffering from dementia. The collective of children in this situation is a model for the collectives we are analysing4: A hospital doctor consults with the three children of a ninety-year-old man suffering from mild dementia. The man, who still lives alone and refuses any form of assistance, is being treated for a broken hip after an accident at home. The hip has now healed, and the doctor wants to discharge the man from the hospital. The doctor tells the three children that the man can go home, but only if arrangements are made by the children to guarantee sufficient care for their father. She wants to ensure that she will not find the man back next week with another injury. However, an extended stay in the hospital will not be reimbursed by the health insurance company because medical care is no longer necessary. In this situation, we cannot point to concrete actions by concrete individuals if the children fail to take care of their father who is in need of help. It will be sufficient if one child takes care of the parent. If one of the children does this, then the collective responsibility is adequately addressed. If they fail to do this, they fail as a collective. In that case, we may hold the collective of children responsible for failing to organise the help required. We might even distinguish between the responsibilities of the different children. Often one may recognise different roles within such a collective. In a family, one of the adult children will often have an informal ‘leader’ role and another the communication role, etc. Given these roles, it is possible to recognise an informal structure within this loosely organised collective. These different roles imply different sorts of responsibility within the collective. The collective responsibility of the children to help their demented elderly relative can serve as an ideal model for other situations where a loosely organised collective has joint responsibility. When it comes to harmful situations, such as climate change, and the responsibility of loosely organised collectives, it is possible to show that the interrelated activities of the various persons or parties form the conditions under which a detrimental situation may arise or continue to exist. The

4 This case is taken from (Wempe 2010, 282). 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility 101 collective responsibility entails getting the loosely organised collective sufficiently organised to address the societal problems that they find in their way. Perhaps, therefore, it is possible to justify assigning responsibility to loosely organised collectives. If so, the next question will be what this really means. How can we interpret the assigning of responsibility to a loosely organised collective such that it is distinct from the responsibilities of the members of that collective? Perhaps we can define the meaning of this form of collective responsibility in the way that the collective is (loosely) structured. What conditions does the structure have to fulfil to further a solution to the societal problem? The concept of role responsibility might also help. Accepting the responsibility of such a collective implies the presence of role responsibilities. In particular, specific members of the collective should have responsibilities for stimulating conditions that foster the good functioning of the collective.

7.5 Climate Change and the Responsibility of the Oil Producing Companies

Climate change is an example of a major social issue that cannot be solved at the level of a company. It needs to be analysed at the joint level of the oil-producing companies, or at the level of the whole energy system. The climate change issue thus takes us back to the former debate on the moral responsibility of a company. When the question as to the responsibility of the collective of oil companies for reducing oil production is analysed, we see that the individual oil companies do not feel engaged. In practice, an oil producing company will refer to the governments that allow them, and to the market system that ‘forces’ them, to act in this way. When authorities fail to set binding frameworks, the overall energy system becomes uncontrollable and the world is left to head for catastrophe. Several major oil companies operate within the oil sector and there are numerous ways they are able to steer the industry. For years, a number of the large companies were able to regulate overall production and through that the prices. One may ask whether the major companies in the oil industry have a responsibility within that industry as a whole to take the lead in finding a solution to the climate problem. The leadership role allocated to the major oil companies entail these companies bearing responsibility for leading the energy system in which they operate. As such, if the production and use of energy has unacceptable consequences, such as disastrous climate change, those companies that have their hands on the control panel are partly responsible for that system. These key players cannot hide behind ‘external factors’, such as pressure from shareholders who want to see new oil reserves on the balance sheet or the failure of government regulations to reduce the use of fossil fuels. The company has a moral responsibility as a representative of the energy system: that is moral leadership. 102 J. Wempe and W. Slingerland

7.6 Conclusions

In this article, we have argued that it is possible to hold a loosely organised collective responsible, and that this responsibility cannot be distributed over the members of the collective. Following the line of thought elaborated in this article, one can identify a loosely organised collective as a new level of responsibility. Several authors5 have wrestled with the concept of responsibility of loosely organised collectives: they use various terms and address the issue in radically different contexts. The impact for the business environment has yet to be fully established and this article is a step in that direction. A loosely organised collective can be understood as constituting a responsibility level that shares characteristics with the responsibility of an accidental aggregate, a joint action and an organised collective. It has the characteristics of an organised collective insofar as it exists apart from its members. The collective of oil companies relies on a degree of organisation in which various roles can be distinguished, including one comparable to a leader of the network. The next question to answer is what standards can be applied to a loosely organised collective. This will be addressed in the subsequent chapter.

References

Copp, David. 1979. Collective actions and secondary actions. American Philosophical Quarterly 16(3): 177–186. Donaldson, Thomas. 1982. Corporations and morality. New York/Englewood Cliffs: Prentice Hall. Fourastié, Jean. 1966. Essais de morale prospective. Paris: Gonthie. French, Peter A. 1984. Collective and corporate responsibility. New York: Columbia University Press. Gansberg, Martin. 1964. Who saw murder didn’t call the police, New York Times, March 27. Gilbert, Margaret. 2000. Sociality and responsibility: New essays in plural subject theory. Lanham: Rowman and Littlefield. Hardin, Garret. 1968. The tragedy of the commons. Science 162(3859): 1243–1248. Held, Virginia. 1970. Can a random collection of individuals be responsible? Journal of Philosophy 67: 471–481. Kaptein, Muel, and Johan Wempe. 2002. The balanced company. A theory of corporate integrity. Oxford: Oxford University Press. Kutz, Christopher. 2000. Complicity ethics and law for a collective age. Cambridge: Cambridge University Press. May, Lary. 1987. The morality of groups. Notre Dame: University of Notre Dame Press. Spit, Ireneus W.M. 1986. Multisubjectieve Activiteit en Morele Verantwoordelijkheid. Thesis, Utrecht. Wempe, Johan. 2009. Industry and chain responsibilities and integrative social contract theory. Journal of Business Ethics 88: 751–764.

5 In this article we have refer to Held, Gilbert, Kutz and May. 7 My Brother’s Keeper: A New Phase in the Debate on Corporate Responsibility 103

Wempe, Johan. 2010. Chain responsibility. Collective responsibility of loosely structured organizations. In The collaborative enterprise. Creating values for a sustainable world, ed. Antonio Tencati and Laszlo Zsolnai, 267–288. Bern: Peter Lang. Wempe, Johan. 2011. From task to role responsibility: Towards a prospective business ethics. In Business ethics and corporate sustainability. Studies in transatlantic business ethics series, ed. Antonio Tencati and Francesco Perrini, Ch. 3. Cheltenham: Edward Elgar Publications. Wempe, Johan. 2015. Shell moet voortouw nemen in energietransitie. Volkskrant, 2 October. See: http://www.volkskrant.nl/opinie/shell-moet-voortouw-nemen-in-energietransitie~a4154821/. Accessed 22 May 2016. Werhane, Patricia H. 1985. Persons, rights and corporations. New York/Englewood Cliffs: Prentice Hall. Chapter 8 Norms for Networks: A Contractarian Approach to Corruption

Willeke Slingerland

Abstract This paper explores whether it is possible to consider a microsocial contract as the basis for the norms of a social network. It links the corruption debate with social contract theories as developed within political philosophy and business ethics. Hereby, the hypernorms of the macrosocial contract expressed in (inter) national laws are compared to the norms of social networks. Social networks are considered to be distinct moral agents. In this paper, recent corruption scandals in the United Kingdom, Germany and the Netherlands illustrate common patterns of norm development in social networks. These cases provide an insight into communal norm development and the possibility that this will conflict with societal norms. The paper offers practical solutions to ensure that norms can be applied to social networks and that social networks themselves take greater responsibility in monitoring norm development to prevent network corruption.

8.1 Introduction

Corruption cases continue to make the headlines in Europe. In the United Kingdom, well-known journalists bribed police officers so that they could hack the mobile phones of celebrities and even that of murdered schoolgirl Milly Dowler. In the Netherlands, there have been cases concerning corruption at the local level, involving dense webs of key figures from the public and private sectors. At the same time, multinationals such as Siemens, Philips, Petrobras and SBM Offshore have been found to have been involved in foreign bribery. Both the EU and its Member States try to curb corruption through anti-corruption legislation and anti-corruption agencies. Policymakers and public prosecutors have difficulty in prosecuting such activities: these affairs seldom result in prosecutions or the prosecutions fail during the trial. The main reason for this is that the focus is primarily on the level of the individual

W. Slingerland (*) School of Governance, Law & Urban Development, Saxion University of Applied Sciences, Enschede, The Netherlands e-mail: [email protected]

© Springer International Publishing AG 2017 105 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_8 106 W. Slingerland corruptor and the corrupted, and sometimes on the individual firm involved. The network as such is not taken into consideration. In Chapter 7, I have argued that it is both desirable and possible to see a network as a loosely organised collective moral actor. An important argument used to exclude networks from criminal law applications is the lack of norms for networks. However, even if we reject this argument, there is a related problem. The norms that emerge within these networks, and which ‘steer’ these networks, are assessed in two ways: from an all-encompassing macro- perspective and from a perspective that sees them as rooted in a local community with its own logic. There also appears to be a wide gap between the norms codified in related laws and the community-level norms. Ethicists and lawyers have failed to close this gap or develop concepts to analyse and assess corruption that emerges within communities, and especially in social networks. Network corruption offers a way to understand and address such corruption in law and in practice. Network corruption can be understood as the collective ‘immoral conduct’ of a network. It is only sensible to talk about the moral responsibility of a network if there are moral norms that can be applied to it. The purpose of my research is to gain a better insight into network corruption and to lay a foundation for its assessment in order to find norms for networks that can be used to prevent network corruption. This paper’s central question is what norms can be applied to (the conduct of) networks whose violation can be determined such that it is possible to talk about network corruption.1

8.2 Corruption and the Macrosocial Contract

Corruption and bribery – two words often used to refer to more or less the same criminal conduct. Public sensitivity to such conduct has changed and, nowadays, practices such as favouritism, nepotism, collusion and trading influence are also labelled as corruption by the media, social scientists and the public at large, although they are not always criminal offences under national criminal law. Some EU Member States2 have made a distinction in their criminal laws between various

1 I use the term ‘network corruption’ to attribute the responsibility for the abuse to a network as an autonomous moral actor. 2 The Council of Europe’s Criminal Law Convention on Corruption No. 173 covers the following forms of corrupt behaviour: active and passive bribery of public officials (domestic and foreign); active and passive bribery of parliamentarians (national and foreign) and of members of international parliamentary assemblies; active and passive bribery in the private sector; active and passive bribery of international civil servants; active and passive bribery of judges (domestic, foreign and international) and officials of international courts; active and passive trading in influence; money- laundering of proceeds from corruption offences; and accounting offences connected with corruption offences. The monitoring of compliance with the CoE’s Corruption Conventions is entrusted to the Group of States against Corruption, GRECO. GRECO initiates ‘Evaluation Rounds’ in which it monitors the process of criminal law reform and compliance, in the various legal systems. In the ‘Thematic Review on Incriminations’ (Macauley (n.d.)), an inventory was made of the differences in terms of criminalisation. Paragraphs 39–41 of the Review concluded that the largest variation 8 Norms for Networks: A Contractarian Approach to Corruption 107 forms of corruption, while others have only criminalised bribery. International organisations, such as the United Nations (UN), the Organisation for Economic Cooperation and Development (OECD), the Council of Europe (CoE) and the European Union (EU), are urging states to take a tougher stance on corruption and strongly recommend states to criminalise the various appearances that this phenomenon can take. This international and national body of law on corruption has developed rapidly and includes provisions under criminal, administrative and civil laws that aim to prevent and redress corruption in the broad sense and in all sectors. As such, not only the criminalisation of corruption, but also rules concerning public procurement, the financing of political parties and lobbying regulations (Johnston 2006) are part of the legal anti-corruption framework. This normative legal framework is dictated by contract thinking. Social Contract philosophers such as Rawls (1999) argue that society agrees on a hypothetical contract that is an expression of morality, thereby determining the norms that distinguish good behaviour from bad. Social contract theorists argue that a person’s moral obligations are dependent upon a contract or agreement among them that forms the society in which they live. Society, as we know it, is underpinned by the establishment of a basic hypothetical social contract, according to which individuals agree to live together and assign part of their sovereignty to a superior authority. Macrosocial agreements such as constitutions and statutory laws codify this macrosocial contract and serve to protect the fundamental principles. Individuals, it is argued, can only agree to the content of such a social contract if they can be positioned behind a ‘veil of ignorance’, as if they were in an ‘original position’ of not knowing their own or each other’s position in terms of gender, profession, marital and economic status, where they can then decide on fairness and justice. By being in this imaginary position, individuals can uncover the pure nature of justice and what this implies in terms of the rights and duties of individuals and of the social institutions that shape society. The philosophical argument is that because no one would then have specific knowledge or information they could use to determine principles to benefit their own particular situation; the principles chosen from such a perspective are necessarily just. Everyone would use the same method to choose the basic principles for society and, therefore, the principles would be rational, universal and just. These principles was in addressing the offence of ‘trading in influence’ (article 12 of the Convention). Denmark and Germany consider the offence as too complicated and difficult to define, but also as unnecessary since the charge of bribery can be applied in such cases. In Poland and Estonia, the laws require a violation of some kind of norm. The Netherlands, Sweden and the United Kingdom do not want to criminalise such conduct because they are afraid it would include legitimate forms of lobbying. Paragraph 35 of the Review highlights the issues that Member States have in complying with the articles on private sector corruption (articles 7 and 8 of the Convention). Andorra does not criminalise private sector bribery, and Spain only to a limited extent. In paragraph 18 of the Addendum to the Second Compliance Report on Spain, GRECO recalls that the offence of abuse of authority in the private sector fails to fully meet the requirements of the Convention because Spain’s legislation does not cover “any persons, who direct or work for, in any capacity, private sector entities”. In Spain, the scope is restricted to those in management positions. In comparison, some countries including Armenia, Portugal, Sweden, Hungary and Lithuania have very comprehensive measures to deal with private sector bribery. 108 W. Slingerland would regulate a just society by constituting ethical norms by which all other (derived) norms would be judged. In this perspective, the norms written down in European and national anti-corruption laws can be regarded as deriving from the macrosocial contract. These ethical norms include among others: the right to be treated equally, the right to protection of property, the right of fair competition, the right to fair elections and the right to a fair trial. The corruption definition most commonly used by the international community is that of Transparency International and the World Bank, which defines corruption as the“ abuse of entrusted power for private gain” (OECD 2008, 22). This form of abusing entrusted power in return for a favour is considered to violate all the ethical norms laid down in the macrosocial contract. From a contractarian perspective, the macrosocial agreements provide adequate guidance as to what conduct is considered corrupt because this amounts to a violation of these norms. However, if we look at the recent allegations of corruption in European Member States, it appears that supporting these norms at the level of the macrosocial contract does not automatically imply that these ethical norms are respected in communities. The following cases illustrate how norm deterioration emerges in social contexts and results in corruption.

8.3 Corruption and Microsocial Contracts

8.3.1 Cases

Selecting recent corruption cases for this article is far from easy because so many have been reported in European Member States. The criminal cases described below are exemplary of the struggle felt by policymakers and law enforcement officials in corruption cases across the European Union. This struggle is due to the current legal provisions to investigate and prosecute corruption being unfit for purpose in dealing with the collective corrupt behaviour that is emerging in social networks. In attempting to evaluate these networks from the macro-perspective, one is confronted with local community norms that have grown and developed over time.

8.3.1.1 Germany: The Volkswagen (VW) and the Wulff Cases

In 2014, fraudulent diesel emission tests by VW were uncovered by a research team at the University of West Virginia. In Autumn 2015, VW admitted using software that allowed its diesel cars to effectively fool emissions tests by releasing fewer pol- lutants during the tests than in normal driving conditions. Many nongovernmental organisations and the public at large believe the fraud to be a consequence of too close relationships between the automotive industry and politicians, whereby the latter protects the auto industry rather than overseeing it. Although the VW case is under criminal investigation and responsibility for the fraud has yet to be attributed, 8 Norms for Networks: A Contractarian Approach to Corruption 109 newspapers such as the New York Times (Smale 2015) have presented overviews of German politicians who have sat on the board of Volkswagen. As such, they are highlighting the role this network played in the emergence of the fraud. Amongst others, former president Wulff, former chancellor Schröder and current vice- chancellor Gabriel have been or still are board members. A former deputy spokes- man for Schröder and for Merkel, Steg was appointed chief lobbyist for Volkswagen in 2011 (Smale 2015). The second case, the Wulff case, was dealt with by the regional court in Hanover and it displays similar processes as those which are suggested to be applicable in the VW-case. In 2012 former German president Wulff stepped down from his presi- dency amid German media coverage of his improper ties to rich businessmen and the favours exchanged between them. Wulff was considered corrupt because friends in business benefited from his administration. However, the only accusation that was legally addressed was that Wulff used his influence to promote a film produc- er’s projects with senior management at Siemens, allegedly in return for a contribution to his hotel costs at the 2008 Oktoberfest (Dempsey 2012). The prosecution attempted to link these two events, but failed to prove its case (Gillan 2014). Nevertheless, the case led to a shift in public opinion about the desirability of the close relationships that exist in Germany between politicians, businessmen, journalists and lobbyists. Transparency International Germany’s chair claimed to have the “the impression that something positive will come out of the Wulff scandal” (Dempsey 2012), thereby referring to the need for greater transparency to strengthen democracy and improve the standing and the reputation of German parliamentarians. Even as the German political culture seemed to be heading in the direction of greater transparency, the concerns about close connections between industry and politicians again ended up as front-page news with the VW case (which again features former president Wulff). The German revolving-door climate, in which leaders switch from top posts in government to positions within automotive firms, is seemingly being debated by all except those involved. The Survey on Business Attitudes’ towards Corruption (European Commission 2014) revealed that over half of the businesses surveyed believed that German procurement deals are, as a rule, either insider deals or pre- arranged. More than half of the companies declared that favouritism towards friends and family is widespread in the German business community (European Commission 2014, 26). The media have reported on the role that networks played in the VW and in the Wulff cases.

8.3.1.2 United Kingdom: News of the World International Phone- Hacking Scandal

Also in the United Kingdom, corruption scandals have exposed elite networks. In the case considered, the network involved senior politicians, London’s Metropolitan Police Service and media tycoons. The United Kingdom was confronted with a phone-hacking scandal in which employees of the News of the World newspaper 110 W. Slingerland engaged in phone hacking, police bribery and exercising improper influence in the pursuit of stories. The Leveson Inquiry Part I3 examined the culture, practices and ethics of the press and, in particular, the relationship of the press with the public, the police and politicians. The culture and ethics of the British newspaper industry and its connections with London’s Metropolitan Police Service and politicians were scrutinised. Through these connections, power and influence were exchanged in the interests of the key figures involved, thereby sacrificing the rights of ordinary citizens. The owner of the News of the World, Murdoch, is the founder, chairman and CEO of global media holding company News Corporation, and newspapers with a once strong reputation, such as The Wall Street Journal and The Times, have been accused of becoming ‘instruments’ to help politicians favoured by Murdoch. Brooks, the editor of the News of the World between 2009 and 2011, started as a secretary for one of his newspapers and rose through Murdoch’s news empire. The two became close friends, and a social network with Murdoch and Brooks at its centre became intertwined with the highest levels of government. The media reported Brooks to be a friend of the current prime minister, Cameron, and also of his predecessors Brown, Blair and their wives (Hanning and Bell 2011). She was seen as very influential in gaining access to the political contacts that Murdoch sought. Cameron’s then director of communications, Coulson, had preceded Brooks as editor of News of the World. Hall, a former News of the World editor, described Brooks as an “arch-networker” (Lyall and Becker 2011). The Leveson Inquiry highlighted the fact that “the owners of newspapers – not inaccurately described as ‘press barons’– exercised very real influence on public affairs” (Leveson Inquiry 2012, 6). The informal social network in which Murdoch and Brooks were active included senior politicians and journalists and, although the Leveson Inquiry Part 2 has not started, the general impression is that politicians gave journalists scoops (which would help sell more copies) in return for favourable stories about the politicians and their political parties in the newspaper. Through this reciprocal cooperation between individuals, the elite’s social network grew and resulted in economic and political benefits for the collective and for its members. All the network members shared the goal of becoming successful in financial and political terms. Although the interactions between journalists and police officers involved more conventional forms of bribery, it was particularly the close social network surrounding Murdoch that led to infringements of the privacy and confidentiality rights and violated the freedom of speech of those outside the network. The criminal investigations into Brook’s conduct lasted 8 months but, in 2014, she was cleared of all accusations including those of bribery and planning phone hacking. Several journalists, among which ex-News of the World editors, were convicted for their part in the UK phone- hacking scandal.

3 Part 2 of the Inquiry will examine the unlawful and improper conduct of the actors involved (including corruption and complicity in misconduct) but cannot commence until the current police investigations and any subsequent criminal proceedings have been completed. 8 Norms for Networks: A Contractarian Approach to Corruption 111

8.3.1.3 The Netherlands: The Dutch City of Roermond

In 2012, Dutch citizens were informed about ongoing criminal investigations into allegedly large-scale corruption in the city of Roermond. The main suspects were Senior Council Officer Van Rey who was responsible for economic affairs, real estate planning and housing (a member of the VVD political party, and also a member of the provincial parliament and a member of the Senate) and the city’s largest project developer (Goossen and Sniekers 2014). It was believed that, between 1998 and 2012, Van Rey took bribes (in the form of cash, construction work on his own house and holidays in the project developer’s home in France) from the project developer in return for leaking information and making favourable decisions concerning real estate developments. The project developer is thought to have ‘won’ the bidding competitions for projects estimated to be worth a total in the hundreds of millions of Euros. Further, the project developer transferred money to a consultancy bureau owned by Van Rey’s two children. This bureau financed the national election campaigns of several VVD candidates, including one who would later become the state secretary for finance in the national government. Later, this state secretary decided that the regional office of the Tax Authority in Roermond would remain operational while other offices in the region would be closed. This was a deviation from the original plan, which was to close the office in Roermond. Suspicions arose as to whether this was in return for services and advantages granted by Van Rey. In addition to the bribery accusations, Van Rey was suspected of having passed confidential information on the job interview process for city mayor to one of the candidates (Goossen and Sniekers 2014). Van Rey told Offermans, a party col- league and mayor of the smaller town of Meerssen, the questions that would be asked at the interview and what answers the panel wanted to hear. Offermans was convicted of breaking confidentiality agreements but the court ruled that the public prosecutor had not established that Van Rey sought anything in return for the information and, therefore, bribery could not be proven.The Court believes that due to the information provided by Van Rey Offermanns came out with an advantage and as such the “favour of service” was proven, but that it could not be proven that Van Rey did this with the intention to receive a return favour at some point in time. (ECLI:NL:GHDHA:2015:533). It is more likely, according to the court, that this way of acting by Van Rey had to do with his desire to ensure the political party VVD (to which both were a member) would gain a strong position in the region, without that bringing any direct benefits to himself or this party. However, this is not enough to prove the intention to receive a return favour. Van Rey resigned from all his positions following these accusations. Other VVD councillors in Roermond then stood down out of solidarity. His political friends in the VVD faction then created council work for the disgraced alderman by using him as an advisor. In 2014, Van Rey won the local elections with his new local political party, the LVR. Further, Roermond’s city council asked him to be a member of the integrity commission that has the task of screening councillors for their integrity. In 2015, Van Rey was summoned to appear before the courts for suspected corruption (active public bribery, passive public bribery, money laundering and election fraud). 112 W. Slingerland

The project developer and another Senior Council Officer were also summoned for suspected bribery. The court sentenced van Rey to a 240 h community service.The court continues that through these decisions the strong impression emerged that it is a matter of a ‘favour and return favour’- fraud culture, to which favouritism and conflicts of interests were common; a culture of abuse of power and corruption. (ECLI:NL:RBROT:2016:5272). The leaking of confidential information was proven and Van Rey trespassed the boundaries of the law. Proving corruption is far more complicated. Van Rey asking gifts from project developers with whom he had to do business as an alderman was wrong. It could, however, not be proven that he received millions of euros. The advantages he received were football matches and trips to international real estate fairs and the donations received were given to the VVD-election fund. Van Pol got a sentence of 100 h of community service. (ECLI:NL:RBROT:2016:5280). The public prosecutors had asked for a sentence of 24-months imprisonment. Van Rey, Van Pol and the public prosecutors have all filed an appeal to these verdicts.

8.3.2 Social Capital

Social networks, such as the ones described above, constitute a type of social capital that encompasses the connections that people have with family, friends, acquaintances and those with whom they are linked professionally. Networks bring potential advantages because members have power and influence they can use to favour other members. Social networks have become communities that are dictated by communitarian thinking in which the community restores solidarity and goodwill in society, resulting in a strong moral awareness (Sandel 2009). The relationships are based on the principle that people have a mutual concern for each other’s welfare and wellbeing. What differentiates social capital from other forms of capital is that this capital is not located in the actors but in the relationships they have with others (Adler and Kwon 2009, 94). Putnam (2000) sees social capital as referring to the collective value of all ‘social networks’ and the inclinations that arise from these networks to do things for each other. The source of social capital is located in the structure of the network. No single actor has exclusive ownership of these rights. Social capital creation is the result of building a network with others through which both individual and collective actors can gain access to valuable contacts and information (Adler and Kwon 2009, 93). The social network is seen as an important social organisation, or structure, in our society. Some academics highlight the failure to recognise the importance of these networks of personal relationships in the economic system (Adler and Kwon 2009, 14–16). Social networks do more than fulfil an economic function, their “embeddedness” generates trust, creates expectations and creates and enforces norms (Adler and Kwon 2009, 15). The cases have illustrated the impact that social networks can have and that social networks are able to achieve results. 8 Norms for Networks: A Contractarian Approach to Corruption 113

When these cases became public, the initial responses of politicians, citizens and civil society were of shock and disapproval. Later statements followed observing that, actually, the public at large had always known about the existence of such close social networks, which were at the centre of the corruption allegations, and that this was nothing new. In fact, it was even claimed that, on the contrary, the elite-network of politicians, journalists and the Metropolitan Police in the United Kingdom, the symbiotic network of captains of industry and politicians in Germany and the local municipality level networks in the Netherlands had, to some extent, always been welcomed because of what they achieved in terms of economic success and higher employment. The dominant norm in such networks is one of reciprocity. Sometimes this reciprocity is specific, with an individual doing something and somebody else doing something in return (Putman 2000, 20). Putnam describes how a more generalised form of reciprocity in a network is even more valuable: “I’ll do this for you without expecting anything specific back from you, in the confident expectation that someone else will do something for me down the road” (Putman 2000, 20–21). This form of generalised reciprocity has value in our society because not every single exchange needs to be balanced. This norm is derived from the network’s purpose and is an intangible element that steers the behaviour of the individual in the direction of the network’s purpose. In Germany, the automotive industry flourished because politicians ensured a favourable legal and tax climate that would not hinder the manufacturers in producing and selling their cars. The Leveson Inquiry described how the cost base and economic model used by UK newspapers led to severe competition (with its consequent pressures) in news coverage and that “in turn, this has increased the pressure for exclusive stories” (Leveson Inquiry 2012, 6). Through reciprocal cooperation between individuals, the UK elite’s social network grew and resulted in economic and political benefits for the collective and for its members. All the network members shared the purpose of becoming successful in financial and political terms. The informal network in Roermond also proved to be solid and successful. Through the developed connections, Van Rey’s insurance company, Van Pol Beheer BV (real estate investment and project development), and the consultancy firm of Van Rey’s children could be certain of lucrative business. Van Rey was known for his willingness to help anyone in the city of Roermond but that, in return, he expected political support (Goossen and Sniekers 2014). This is the mutually beneficial way he connected with others. However, the advantages that social networks bring are only one side of the coin. The fact that the social networks in Germany, the United Kingdom and the Netherlands have been subjected to corruption investigations shows that there are risks involved in network creation whereby the network’s reciprocity norm comes into conflict with norms expressed in anti-corruption laws. As such, it is necessary to consider what norms can be applied to a social network. 114 W. Slingerland

8.3.3 Norms for a Social Network

What these cases all have in common is that the initial accusations pointed towards large corruption scandals involving gross misconduct by several individuals. In all the cases, a lot of time and money was spent investigating the alleged corruption but, in the end, public prosecutors struggled to produce hard evidence of actual criminality because the questionable conduct had to be reduced to individual-level offences. The general impression remains that unlawful practices, including the abuse of power, did take place, but that proving them is difficult because the norms used to assess the conduct of a social network are unclear. Reports refer to the role that connections, or social networks, played in the emergence of the suspected corruption. The network members were key figures from the public and private sectors, most of them combined several professional positions and many were members or affiliates of a political party. These social networks formed strong informal circles in which the real decisions were made. Although formal institutions were present, in reality, democracy was set aside. The informal social networks formed communities within the formal institutions and the latter no longer served the general interest. Although there were concrete accusations of corrupt behaviour in all three cases, the essence of the corruption is the trading of power and influence within these social networks. The norm has become to use one’s discretionary power in the interest of the network and its members: sometimes in return for a favour but more often with an implicit expectation of gaining something in return in the future. As such, the norms upheld by the social network violate the norms codified in international and national laws on fair elections, fair competition, independent press etc. The problem for policymakers and public prosecutors is that while the social network plays the major role in this form of corruption, and needs to be made visible, the legislation at their disposal only recognises individual corrupt behaviour. The cases described above illustrate how the norms of the microsocial contract conflict with the abstract hypernorms of the macrosocial contract and result in abuse of power. Given that this microsocial contract is a social process, it is difficult to identify the precise turning point when social capital becomes corruption. People make group-serving or “sociocentric” attributions to boost the performance of groups to which they belong, and this can turn into network corruption if: • The norm becomes to exclude third party companies from public project assignments; • The norm becomes to select, hire or appoint network members to official positions without offering third party candidates a real opportunity to gain the position; • The norm becomes that favours to politicians results in favourable legislation or policies; • The norm becomes to take account of network members’ interests when decision- making while assigned to serve the general interest. 8 Norms for Networks: A Contractarian Approach to Corruption 115

In effect, these communal norms violate the hypernorms that macrosocial agreements seek to protect.

8.4 Conflicting Norm Systems

8.4.1 Donaldson and Dunfee’s Integrated Social Contract Theory

The corruption examples offered in this paper show that society generally welcomes social networks that grow and flourish, but neglects the social process through which the social capital can gradually slip into corruption. A good question is what makes the application of norms in a social network so difficult? A network grows over time and its norms slowly develop in the direction of increasing the wellbeing of its members. Society is confident about the usefulness of a network (creating social capital). However, at the same time, a network needs to fit into this wider society, and so apply the applicable hypernorms to itself. Donaldson and Dunfee (1994, 1999a, b), as Social Contract thinkers, have tried to resolve this conundrum by applying the contract approach to ethics. They distinguish two distinct kinds of contracts in their Integrative Social Contract Theory (ISCT). First, there is the macrosocial contract, which has a normative nature (what “ought to be”). This is a hypothetical societal contract in line with Rawls’ contract thinking, and defines the normative ground rules (hypernorms) for the microsocial-level contract (Fort 2000, 384). Second, there is a microsocial contract which is more concrete and occurs among members of a specific community and reflects the values of that community that have developed over time, thereby governing the community’s behaviour (the what “is”). For instance, firms, industries, chains, universities, municipalities and social networks can all be regarded as communities with their own microsocial contracts (Donaldson and Dunfee 1994; Wempe 2009, 2010). Such norms are ‘simply there’ and not the result of conscious agreements. These microsocial contracts have a largely communitarian character. Donaldson and Dunfee (1999a, 38–39; b, 139–173) regard such a contract as a moral-free space in which communities can develop their own community norms. Contrary to communitarian thinking, such microsocial contracts should not only be regarded as an agreement developed over time by a community, rather they should be structured along the lines of the social- contract model. Donaldson and Dunfee set out conditions under which they consider microsocial contracts to be valid, thereby building on the overarching supremacy of the macrosocial contract. That is, within the norms of the macrosocial contract, there is freedom for a community to develop its own norms. The macrosocial agreement simply sets limits to that freedom. Donaldson and Dunfee offer a few conditions that determine the legitimacy of the microsocial contract. As such, the ISCT does not specify requirements for the development of moral norms in a 116 W. Slingerland microsocial contract beyond that the norms should be authentic, based on informed consent and the individual’s right to exit (Donaldson and Dunfee 1994, 262–263).

8.4.2 Preventing Network Corruption

8.4.2.1 Recognising a Network as a Community with Its Own Norms

The value of social networks and of communities has been highlighted. When considering norms for a network, it is important not to forget the strengths of such networks and to recognise the network as a moral actor with its own norms. A network is responsible for monitoring its own norm development and addressing the situation when, in practice, it violates the norms of the macrosocial contract. However, in reality, most communal norms are not discussed by the community itself but, rather, addressed by society at large. Network corruption is not the only instance of a conflict between microlevel norms and macrosocial norms. Recently, the Netherlands has been confronted with serious criticism and allegations of discrimination because of the national celebration of Sinterklaas, whose helper Zwarte Piet (Black Pete) is viewed by some as an example of negative racial stereotyping of people of African descent. The UN Committee on the Elimination of Racial Discrimination told the Netherlands that even a ‘deeply rooted cultural tradition does not justify discriminatory practices and stereotypes’ (United Nations Committee on the Elimination of Racial Discrimination 2015, 4). This celebration of Sinterklaas is important in Dutch culture and dates back more than 100 years. The counter-argument is that Zwarte Piet has black face-paint because he goes down chimneys to deliver presents. The Committee recommended the Netherlands to find a reasonable balance, such“ as a different portrayal of Black Pete and ensure respect of human dignity and human rights of all inhabitants of the State” (United Nations Committee on the Elimination of Racial Discrimination 2015, 4). Comparable examples are that of bull fighting in Spain and whale hunting by Denmark, both of which receive considerable international criticism because they are considered to violate animal rights because the animals suffer a painful slow death. The countries themselves consider these activities to be an important aspect of their unique culture, and the norm has developed over time that this is a just and good way to act. In these situations, the principles established in the ‘original position’ have changed and the macrosocial contract have resulted in international laws that now conflict with the communitarian norms. One way to deal with these tensions between macrolevel and microlevel norms is to accept the tensions and discuss how to find an acceptable balance in interpreting them in a specific context at a certain time. 8 Norms for Networks: A Contractarian Approach to Corruption 117

8.4.2.2 Ensuring That There Are Moments and Places for Local Communities, the Networks, to Reflect

For anti-corruption efforts to be effective, the norms of social networks need to receive greater attention. Network members should attempt to keep a certain distance when reflecting on their microsocial contract to ensure that their viewpoint meets the ‘original position’ criterion. Rawls (1999; see also Stanford Encyclopedia of Philosophy 2012) acknowledges that there is a process, or a ‘four-stage sequence’, in which the restrictions established in the original position are gradually loosened. The first stage is the original position itself: what principles serve a just society, regarded from a ‘veil of ignorance’. The second stage is translating these principles into constitutions and laws. The third stage is ensuring that corresponding regulations and policies are in place. The fourth and final stage is the stage in which institutions and citizens carry out the laws and policies designed in the previous stages. In this way, general principles can be tailored to the particular conditions of a specific society. The ‘veil of ignorance’ that is supposed to screen out information, becomes thinner, and individuals can gradually use information about society’s economic and political status, and their own position, to decide on the application of general principles in their community context. This will lead to an agreement on general laws, and this will be followed by specific policies and the application of these laws and policies in particular cases.

8.4.2.3 Stimulating Parties to Discuss and Agree Upon Their Microsocial Contract

The concepts of network ethics and network integrity imply that a collective of individuals creates moments and identifies situations in which they can reflect on the development of norms in their social network. This is something that can be expected from communities, such as local or regional networks but also from production chains and branches. Social network contracts can be a concrete realisation of a social network’s collective responsibility. Such contracts need to specify those who are considered to be contract partners, what procedures will be followed in decision-making and how the microsocial contract meets the requirements of the general principles (the third and fourth stage of Rawls’ original position) (Stanford Encyclopedia of Philosophy 2012). Here, the abstract provisions should be translated to the particular ‘communal’ situation. The contracting parties have to devise a set of rules in which they express how they can do each other favours and return these favours (e.g. buying goods, hiring a friend, recommending a network member) without violating the equal-opportunity principle defined in anti-corruption laws. 118 W. Slingerland

8.5 Conclusions

In this paper, an analysis is presented that shows that discussing microsocial contracts is useful when considering ways to make anti-corruption efforts more effective. It is a contribution to Donaldson and Dunfee’s ISCT, and an attempt to close the gap between the norms codified in laws and the norms applied at the community level. Although such communities represent valuable social capital, there has been a longstanding failure to address the way norms seem to deteriorate in social networks. This paper’s argumentation offers a comprehensive framework for legisla- tors and policymakers in their attempts to address this network corruption. More importantly, it not only attributes responsibility to the policymakers and law enforcement agencies, it also offers practical recommendations to all those who are members of such networks. If social networks would take the time to reflect on their identity, their functioning, their members and the norms that steer their behaviour, they could still thrive by using the moral space that the macrosocial contract and the body of anti-corruption laws and regulations provides.

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Leveson Inquiry. 2012. An inquiry into the culture, practices and ethics of the press. Executive Summary. Lyall, Sarah, and Jo Becker. 2011. A tenacious rise to the top in the Brutal men’s world of Tabloids. New York Times, July 7. Macauley, Roderick. n.d. Fighting corruption. Incriminations. Thematic review of GRECO’s third evaluation round. Strasbourg: GRECO. Organisation for Economic Co-operation and Development. 2008. Corruption. A glossary of international standards in criminal law. Paris: OECD. Putman, Robert D. 2000. Bowling alone: The collapse and revival of American community. New York: Simon & Schuster. Rawls, John. 1999. A theory of justice. The Revised edition. Cambridge, MA: The Belknap Press of Harvard University Press Sandel, Michael J. 2009. Justice; what’s the right thing to do? New York: Farar, Straus and Giroux. Smale, Alison. 2015. In Germany, a Cozy relationship between carmakers and government. New York Times, October 1. Stanford Encyclopedia of Philosophy. 2012. John Rawls. 24 September 2012. http://plato.stanford. edu/entries/rawls/#InsFouStaSeq. Accessed 10 May 2016. United Nations Committee on the Elimination of Racial Discrimination. 2015. Concluding observations on the nineteenth to twenty-first periodic reports of the Netherlands. http://tbinternet. ohchr.org/Treaties/CERD/Shared%20Documents/NLD/CERD_C_NLD_CO_19-- 21_21519_E.pdf. Accessed 26 Oct 2015. Wempe, Johan. 2010. Chain responsibility. Collective responsibility of loosely structured organizations. In The collaborative enterprise, ed. Laszlo Zsolnai. Oxford: Peter Lang. Wempe, Johan. 2009. Industry and chain responsibilities and integrative social contracts theory. Journal of Business Ethics 88:751–764. Chapter 9 Compliance, Global Ethos and Corporate Wisdom: Values Strategies as an Increasingly Critical Competitive Advantage

Friedrich Glauner

Abstract Values and corporate cultures will be the key drivers guiding the development of tomorrow’s competitive advantages. They help solve the paradox of modern management, leadership and business strategy, of staying highly flexible yet at the same time unmistakably distinct. This requires the ability to build high performance teams in which diversity is channelled in a manner which reduces rather than increases complexity. It is precisely this task of reducing complexity by raising diversity where ethical values enter the scene, evidenced by the socio-psychological downsides of the phenomenon of compliance. Biologists, psychologists, sociologists, historians and philosophers as diverse as Hannah Arendt, Solmon Asch, Joachim Bauer, Sönke Neitzel, Harald Welzer and Paul Watzlawick have observed that humans frequently tend to comply with the habits and opinions of the groups they inhabit (Arendt, Elemente und Ursprünge totalitärer Herrschaft. Piper, München 1986, 1951; Eichmann in Jerusalem. Ein Bericht von der banalität des Bösen. Piper, München 9. Aufl. 2011, 1964; Asch, Sci Am 193:31–35, 1955; Psychological Monographs 70, Nr. 416, 1956; Bauer, Prinzip Menschlichkeit: Warum wir von Natur aus kooperieren. Heyne, München/Zürich, 2006; Das kooperative Gen. Abschied vom Darwinismus. Hoffmann & Campe, Hamburg behavior in business, 2008; Neitzel and Welzer, Soldaten. Protokolle vom Kämpfen, Töten und Sterben. Fischer, Frankfurt am Main, 2011, Watzlawick, Wie wirklich ist die Wirklichkeit. Wahn – Täuschung – Verstehen. Piper, München, 1976). This triggers a dialectical development in which compliant behaviour, organized according to alleged expectations of what the system and the individuals within it expect from us, leads to a leveling of diversity and vice versa. To avoid this leveling of diversity, corporate cultures must focus on two continuous tasks: first they need to address the challenge of keeping diverse perspectives alive while secondly chan- neling diversity in ways that minimize complexity and conflicts. To accomplish this double task corporations ought to draw on a set of values which go beyond those

F. Glauner (*) Weltethos Institut, University of Tübingen, Tübingen, Germany e-mail: [email protected]

© Springer International Publishing AG 2017 121 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_9 122 F. Glauner typically included in discussions of corporate cultures, corporate ethics and corporate values. This set of values is embodied in the concept of the global ethos (Küng, Handbuch Weltethos. Eine Vision und ihre Umsetzung. Pieper, München, 2012) which is based on the principles of humanity and the golden rule. If implemented within corporations by way of the instrument of the ethical truth table (Glauner, Future viability. Values strategies to the competitive advantages of tomorrow. Springer, Berlin/Heidelberg/New York, 2016a; Values cockpits. On measuring and steering corporate cultures. Springer, Berlin/Heidelberg/New York, 2016b), corporations can harness these values to build strategies of excellence which will give them a critical competitive advantage in tomorrow’s increasingly challenging and rapidly evolving business environment.

9.1 Strategic Approaches Towards the Challenges of Corporate Future Viability

When we reflect on the manifold challenges corporations are facing today, we have to acknowledge that values and corporate cultures will be key drivers for developing the next range of future competitive advantage. Unleashed by global capitalism (Bryan and Farell 1996) and its counterpart – namely, the technological changes of modern information technologies and life sciences – all corporations need to find answers to the challenge of dealing with a multidimensional transformation of markets and business models (Foster and Kaplan 2002; Gilbert et al. 2013; Brynjolfsson and McAfee 2014; Aurik et al. 2015; Dobbs et al. 2015). Within global competition ever more products and services are being copied in ever shorter periods of time. Thereby a growing number of unique selling propositions (USPs) and competitive advantages erode, putting pressure on margins and earnings (Simon-Kucher 2014). This trend is exacerbated by technology-driven disruptions of business models and markets, which are placing even some of the most perenially successful ventures in existential jeopardy. In addition to this, corporations face the complex challenges of global information overload, which is triggered by the continuous acceleration of both information technologies and global markets. These developments are reflected by the spread of so-called ‘affluent markets’, in which more products and services are available for consumption than people have the time to perceive or money to buy. Finally, the overuse of natural resources, the shift in consumer habits and other megatrends like an aging society, mass population or migration affect corporations in additional ways. In facing these multidimensional challenges, corporations need to find answers to four macro-dimensional developments that shape their individual markets (Glauner 2016a, b): 1. Firstly they will need to address how to react to the acceleration of all aspects of running a business. 9 Compliance, Global Ethos and Corporate Wisdom 123

2. Secondly they need to learn how to react to the erosion of USPs and competitive advantages. 3. Thirdly they must foster intercultural team-building abilities which 4. Fourthly help further develop, embed and sustain corporate cultures capable of accomplishing the first three tasks. Meeting these challenges contributes to resolution of the paradox of modern management, leadership and business strategy (Glauner 2015b), the challenge of ensuring that business models, products and operations retain their unique and distinct character while at the same time being highly flexible. Solving this task requires a significantly different approach to corporate strategies than the mere striving for competitive advantages (Porter 1985, 1996), the development of core competences (Hamel and Prahalad 1990, 1995) or establishing shared value (Porter and Kramer 2011). This new approach rests on the understanding that all corporations are social systems. And as with all other social systems they are determined by two facts. Firstly corporations are not naturally given entities but man-made ones. People found corporations to establish products and services which one person could not make by herself. This holds as true for manufacturing planes, cars or iPhones as performing Beethoven’s 5th Symphony or transplanting a liver or heart. As manmade entities, corporations are founded to produce and deliver benefits which could not be produced on a mass scale by more subsistence-based ventures. Therefore, corporations are founded on, and driven by, core values which determine the ambitions of the corporation as well as its products, business models and culture. Definitions: Values, as I will use the term in this paper, are the core elements by which we give meaning, sense and relevance to the world. Values determine what is important and precious to us. As an interwoven fabric of beliefs and convictions about what is good and worth striving for, values constitute the specific belief systems of our social realms. They characterise the real and distinct social systems we live in – whether a specific family, clan, corporation, religion, state or culture. In this sense and with a view to corporations and economics, values define the core of business purpose. Thereby they direct the aims, strategies and business models of a corporation, its processes and operations and the ways in which workers interact with each other and with customers, suppliers, distributors, the market and all other stakeholders. Seen from a social-psychological point of view (as distinct from a philosophical and economic perspective), the values a corporation is living determine how it will act and develop. The development of sound corporate values systems therefore is one of the key drivers for developing the competitive advantages of tomorrow. It is the one element which competitors are incapable of copying. This can be shown most clearly by focusing on the issue of compliance. 124 F. Glauner

9.2 Downsides of Compliance, or the Swarm Stupidity of Group Behavior

If we look into the literature on compliance, compliant behaviour is regarded as having a positive effect on corporations (Driscoll et al. 1998; Schwartz 2001; Thomas et al. 2004; Norman 2011). –– Dressed as the principal agent problem, it appears as the question how and by what means a corporation can guarantee that agents, i.e. employees, will act in the interests of the principal and not in their personal interests, thereby defecting from corporate aims (Jensen and Meckling 1976). –– Dressed as corporate social responsibility, it appears as the question how to ensure that individual and corporate actions will be in accordance with corporate, legal and other rulings such as the Corporate Governance Codex, the UN Global Compact, ISO 26000 or DIN EN ISO 14001. –– Dressed as the economic benefit of legal action, it appears as an approach to raise revenue and reduce transaction costs by raising brand and employer reputation (Gray and Balmer 1998; Hutton et al. 2001) and by lowering follow-up costs for noncompliant behavior. If we take these aspects together, the myth of compliance points to the triple bottom line of business success. It claims that linking the legal, social and ecological interests of stakeholders outside the corporation to the economic aims of raising revenue and corporate value for corporate shareholders would be the optimal road to sustainable business success (Elkington 1997; Fisk 2010). However, if we address compliance not from a CSR and business-ethical point of view but from an action-theoretical, social-psychological, epistemological and cognitive science perspective, we need squarely to face what I call the ‘downside of compliance’. Like all other social systems, corporations turn on a specific dialectic which I call the counter-rotating spin of values. This reverse dynamic of values within corporations stems from the quite distinct psychological and systemic roles which values play in social systems. With respect to psychology, values determine how we perceive the world and act upon it. Encountering people with complementary individual values frames, we tend to constitute social systems with a specific values DNA, since people with more homogenous values systems tend to affiliate in the first place. Once established, these systems have a significant bearing on members, who are attracted by the values of the system. In this continuous reinforcing feedback loop, the values of the individuals and their social systems are control parameters according to which actions are oriented towards the values and behaviour of the social systems of which they are a part. The psychological feedback loop functions clockwise in three steps: Individuals affiliate by way of values, thereby constituting the social systems of which they are a part, which in turn reinforce the values of members. From a systemic perspective, values drive social systems in a counter-clockwise feedback loop. By injecting personal values into social systems, individuals may 9 Compliance, Global Ethos and Corporate Wisdom 125 shape and transform the values of the complete system, depending on the degree of resilience within the system. As a resonance chamber to flesh out individual values, the thus transformed social systems will influence and shape the actions of all other members of the system. In this reverse feedback loop the values of the dominant individuals of a social system serve as the active parameters by which the system will be shaped and will bear on all other members. The systemic feedback loop thus functions in three steps: (1) individuals transform the systems they are a part of by injecting into them their individual values; (2) the transformed values of the system influence the attitudes and actions of all other members; In this reinforcement cycle, (3) the initial transformation process is strengthened. It is this dialectic which reveals the downside of compliance, as becomes quickly apparent when we focus on the social-psychological dimension of group behavior. Following biologists, psychologists, sociologists, historians and philosophers as diverse as Hanna Arendt, Solmon Asch, Joachim Bauer, Sönke Neitzel, Harald Welzer and Paul Watzlawick, we can safely assert that human beings tend more often than not to play down personal convictions in order to comply with the habits and opinions of the groups to which they belong (Arendt 1951, 1964; Asch 1955, 1956; Bauer 2006, 2008; Neitzel and Welzer 2011; Watzlawick 1976). This form of compliance is rooted in a much deeper realm of social boundedness than the mere striving to be superficially obedient (Milgram 1974). This boundedness comes to light when we examine how we organize our actions. Most human actions are designed to mirror and reflect the expectations of those with whom we interact. This holds true at both ends of the spectrum of theories of human nature – namely, that the bio-psycho-social condition of the conditio humana is evil and selfish (Duerr 1988; Dawkins 1976), and its antithesis, the supposition that empathy, social and emotional intelligence drive our human mingling (Bauer 2006, 2008; Salovey and Meyer 1990; Mayer et al. 2004). On both these models, we act on expectations and show allegiance to our counterparts and to the social systems within which we act, triggering a dialectical development in which compliant behavior – i.e. behavior organized according to alleged expectations of what the system and its members actually expect from us – leads to conformity within the system. The concept of swarm intelligence viewed in the context of bubble formation well illustrates this. Bubbles result from group behavior where everybody acts according to similar views, values and aims. Accordingly, what is termed swarm intelligence often equates more to swarm stupidity. When we take this form of swarm stupidity as a result of unreflected compliant behavior, the lesson for corporate cultures can be drawn as follows: all social systems are driven by a movement in which individual values drive the values of the social system and vice versa. In this dialectical movement, corporations develop individual cultures which tend to converge on a growing uniform set of views, expectations and values. Consequently the development of corporate cultures tends to lead to conformity. This intrinsic movement towards conformity may be called the downside dialectics of compliance in social systems. Because individuals tend to comply with the culture of the social system they live in, a levelling of diversity is inevitable. This then leads in turn to systemic blindness and an aversion to the 126 F. Glauner expression of critical and opposing points of view. This again leads to an even stronger pressure on compliant behavior. Compliance is not the route to sustainable business conduct; the usual perspective on compliance is short-sighted and misses the point, because it rests on wishful thinking about how corporations should act and ignores the insight that it is the deep-rooted values forming a corporate culture which determine individual and corporate action, not legal decrees or voluntary self-commitments. If we look at corporations like Royal Dutch Shell, Deutsche Bank, Lehmann Brothers or most recently VW, we have to acknowledge that all these splendid corporations have or had high- profile compliance and governance regulations in place which were codified and communicated but critically not acted upon when they were most required. With this in mind we therefore have to acknowledge that claims for compliance run empty if they are not embedded in a corporate culture already oriented towards the promotion of ethical behaviour. If we want to show how and why corporate values will be crucial for surviving in an ever-accelerating world we therefore have to go beyond mere insistence on compliance.

9.3 High Performance Teams as a Solution to the Paradox of Modern Management

As we have argued in the opening section, one of the many challenges facing business management today is the dilemma associated with keeping the corporation highly flexible yet at the same time recognisably distinct. A solution to this challenge can be found if we analyze the deeper-rooted connection between the organization as a system with a specific purpose and the organization as a human social system. What does it really mean when we say that corporations are organizations founded on purposes? On a superficial level it means that the purpose of a corporation consists in delivering a particular niche of products and services. On a deeper level, however, it may mean that the purpose of the corporation is something more than the mere delivery of products and services. We can distinguish three different second-order possibilities: 1. According to the economic focus of the shareholder approach, the aim of a corporation consists in raising revenue for its shareholders, thereby increasing the wealth of the nation of which a corporation is an integral part (Rappaport 1986; Goedhart et al. 2015) 2. According to the stakeholder or triple bottom line approach, the aim of a corporation consists in acting responsibly by raising benefits for all affected by corporate activities (Elkington 1997; Fisk 2010). 3. According to the micro-systemic approach to corporate survival, the aim of a corporation consists in raising competitiveness in order sustain future corporate viability (Glauner 2016, 2017). 9 Compliance, Global Ethos and Corporate Wisdom 127

The most striking feature of these approaches is not so much that they all rest on an already presupposed understanding of what the aim of a corporation should be, but that they all take a different stance towards the fact that organizations are human social systems. From an economic perspective, corporations are entities which secure their competitive advantages by developing internal core competencies and selecting market niches according to clearly framed Business to Business (B2B) or Business to Customer (B2C) strategies. In the CSR tradition, these relations are extended towards Business to Stakeholder (B2S) and Business to Triple Bottom Line (B2TLP) perspectives. The micro-systemic view takes another approach. By understanding that any business relationship is always a relationship between human beings, it replaces the inside-outside thinking of organizational theory (von Krogh and Roos 1995; Probst et al. 1992) with a simple Humans to Humans (H2H) approach. If we look at corporations from an H2H perspective, we gain an understanding of why the lived values of a corporate culture contribute so decisively to its success (or failure). All corporations face a multidimensional transformation of markets and business models; this transformation is driven by disruptive business models on the one hand and affluent markets, in which more products and services are available for consumption than people have the time to consider or money to buy, on the other. To excel in such an environment, corporations must establish open relations between human beings both within and outside their organization. Such open network relations deliver substantial benefits to all who are part of the corporate enterprise, including employees, customers and suppliers, thus contributing to the overall health and sustainability of the market as a whole in which they operate. Corporate strategies therefore have to deal with two key values-related questions. First, they have to address for whom, why and how they want to be productive. Second, they have to ask seriously how they can sustain H2H relations which strengthen corporate competitiveness but also yield holistic benefits beyond the narrow frame of a focus on the corporation’s own people. This kind of strategic thinking leads to a shift in focus on what corporate purpose should be. It shifts away both from the economics-driven focus on value, capital and revenue and from the CSR-driven focus on responsibility, focusing instead on establishing networks which form mutually beneficial feedback loops for all who are an integral part of the network. Seen from an H2H perspective, the task of staying both flexible and unique in a highly diverse, complex and quickly changing environment thus requires more than sharing value (Porter and Kramer 2011). It requires first and foremost the ability to transform a corporation into a high performance team for delivering substantial benefit to all those affected by the organization’s activities (Glauner 2015b, 2016). If corporations want to transform themselves into high performance teams, a prerequisite is that they need to establish an ethically sound corporate culture. This can be shown if we compare the efficiency of regular teams, individual experts and high performance teams in problem solving. High performance teams are those whose results outperform not only those of regular teams but also of individual experts, which in turn usually exceed the results of regular teams. In teams we often 128 F. Glauner find the situation whereby expertise is neglected. This is due to the fact that experts are either not outspoken enough (some can tend to be rather still and introverted) or that they do not hold the key power position(s) within the team. Thus the team frequently goes along with the suggestions from the most outspoken team members, even if they are not of the highest value or do not offer the optimal solution. Consequently individual expert solutions often exceed the solutions resulting from the deliberations of regular teams. However, and in comparison with high performance teams, we often find a further kind of limitation associated with individual expert solutions. All expertise building takes time and is inevitably specialized. In the words of Paul Watzlawick, experts are often people whose expertise rests on very specific instruments, like a hammer or a screw driver. Familiar with this specific tool, the expert will see the whole world as a compilation of nails or screws. High performance teams in contrast will include the collective expertise of people who themselves are the best at using a variety of tools such as hammers, screw- drivers and pliers. And maybe the most crucial, the team-members accept the expertise of the various experts. Thus they activate and incorporate different perspectives and abilities, even those which initially may not seem relevant to the problem but may subsequently become vital if situations transpire which demand a multidimensional focus or unforeseen change. The main difference between solutions produced by individual experts and high performance teams is that the multiple perspective and problem-solving talent of high performance teams goes far beyond the individual expert’s specific mental frame or perspective. Consequently, high performance teams fare better in environments and markets which are quickly changing, complex and opaque. Here the problem of compliance pops up again. All strong teams, like all other strong social systems, tend to converge on similar values and perspectives. High performance teams must therefore foster a culture of diversity. For the task of building high performance teams this means that a corporation must not only develop ways of nurturing diversity as a source of corporate assets (Hunt et al. 2015), but also that it must foster a corporate culture in which diversity is channeled in ways that reduce rather than increase complexity. To accomplish this task, corporations must focus on two aspects: first of all they must address the challenge of keeping diverse perspectives alive. Secondly they must channel diversity in ways that minimize complexity and conflicts. Only when both tasks are conducted successfully can a corporation develop high performance teams which respond to the challenges of external complexity by increasing internal diversity. It is precisely this task of reducing complexity by raising diversity where ethical values enter the scene. These values are not those of the traditional CSR and business ethics discussions regarding the triple bottom line arguments for responsibility and sustainability. Rather they are the ethical values which organize sound H2H interactions. As such they are conceived as a set of values which go beyond those typically included in discussions of corporate cultures, corporate ethics and corporate values. This set of values incorporate the concept of the global ethos which is based on the principles of humanity and the golden rule. The first principle states 9 Compliance, Global Ethos and Corporate Wisdom 129 that every human being has a sacrosanct and inalienable dignity which is imperative and all-embracing. The second principle is that we should act upon the maxim, not unique to Kant but uncoverable in all the major world religions and spiritual traditions, according to which I will not treat others in ways that I myself would not want to be treated. Both principles are qualified by the following values: non-violence and respect for the living, justice and solidarity, truthfulness and tolerance, mutual- ity and partnership. As Hans Küng (2012) showed, this ‘global’ set of values has already developed in one form or another within all major religions and human cultures. As a central part of specific cultures materialized in space and time they establish a common ground for dialogue among the existing multitude of cultures without neglecting or neutralizing specific and crucial differences between them. Occupying the space between culturally specific moral stances and an abstract striving for universal ethical principles, the global ethic values are not determining but, in Kantian parlance, prima facie ‘regulative’ in nature, activating a critical approach to moral problems without taking sides in specific dilemma situations. Extending the analogy with Kant to the famous Kantian distinctions between the ‘world in itself’ and the multitude of possibilities of describing reality (Kant 1781/1787) and between a reflective and a determining form of judgement (Kant 1799), the global ethic values can be understood as a macro-level construction which has no direct one-to-one relationship with the multitude of specific microlevel situations thrown up by everyday life (Glauner 1997, 156f). It is only by dif- ferentiating this abstract and critical positing from our culturally diverse materialized forms of life that we can hold on to the ideal of a universal set of ethical values which has a bearing on all cultures and forms of life. In contrast to Kant’s Regulative Ideas (Glauner 1990, 117ff), the global ethic values are therefore amenable to practical day-to-day application, since they represent procedural scripts for situational judgments of rules and actions by which a corporation yields benefit. As practically effective regulative ideas by which we bridge the difference between ideals and their materialized counterparts in a multifaceted reality, they can thus serve to activate diversity in a way that minimizes conflict and complexity.

9.4 The Ethical Truth Table

The ability to manage high performance teams in a way that minimizes conflict and increases diversity in a context of growing external complexity is only the first aspect of the relevance of the global ethos values for corporations. A second and even more crucial element of the discussion is the power of these values to develop new future viable business models. This becomes clear when the global ethos values are taken as a means of establishing an ethical truth table (Glauner 2016, 2017). In an adaptation of Wittgenstein’s logical truth table (Wittgenstein 1989), the ethical truth table determines not only whether a corporate culture is ethically sound but furthermore scrutinizes whether the business model, the 130 F. Glauner

Behavior Behavior Inward-Oriented Outward-Oriented

(Corporate Culture, (Aims, Goals, Business Model, TreatmentofInternal TreatmentofExternal Stakeholders) Stakeholders)

Ethical Ethical

Ethical Unethical

Unethical Ethical

Unethical Unethical

Fig. 9.1 The ethical truth table substantial aim and purpose of yielding benefit, is itself compliant with the values of the world ethos (Fig. 9.1). Seen in the perspective of the ethical truth table, ethical business practice resembles a truth sentence of the following form: ›Corporation X has an ethically driven corporate culture which sustains an ethically sound business model‹. The other per- mutations cover, respectively, corporations which nurture an ethically sound internal corporate culture but behave unethically in their external business practices, such as the famous examples of Deutsche Bank or, more recently, Volkswagen. The reverse includes social entrepreneurs with ethically sound business models but unethical corporate cultures which exploit suppliers or employees in systematic ways. The final category of businesses includes all kinds of criminal and/or unethical business models which treat both internal and external stakeholders alike in unethical ways. But why should corporations buy into such an ethical truth table in the first place? Even a brief glance at the corporate landscape forces us to acknowledge the fact that most corporations routinely argue, according to their own self-understanding of their priorities and purposes, that they strive to act in an ethically sound manner in compliance with a strong governance structure. At the same time, however, we are faced with the reality of a market dynamic which leads to the systematic margin- alisation of the responsibility and sustainability claims raised by Business Ethics and CSR initiatives. This shows that the way business may actually be conducted is anything but responsible, sustainable and ethically sound, thus leading to a self- fulfilling feedback loop in which the moral character of businesspeople will systematically erode over time (Dawes 1980; Babiak and Robert 2007; Elegido 2009; Godwyn 2014, 2015). Why and how then should corporations aim to get to the top 9 Compliance, Global Ethos and Corporate Wisdom 131

The economic perspective of increased Growth The company value operational perspective of increased company value

Revenue Profits Risk The strategic perspective of Competitive increased The Advantages company value substantive perspective of increased company value

Core Competences

Values of the Corporate Culture

Fig. 9.2 The revenue-oriented understanding of corporate venturing of the ethical truth table? The answer will be found if we turn our focus to corporate wisdom.

9.5 Corporate Wisdom, Corporate Virtues and Global Ethos: Values Strategies to the Competitive Advantages of Tomorrow

Corporate wisdom may be summarised as the ability to navigate a corporation in a calm and steady manner through heavy weather and storms. These storms consist of the corporate challenges addressed in the opening section, including rapid technological advances and the multidimensional transformation of markets and business models. Corporate wisdom thus consists in raising competitiveness by keeping the corporation highly flexible and unmistakably unique at the same time. To excel in both tasks a corporation must develop a deep understanding of itself, an understanding of being not only an organization with a purpose but first and foremost a social system with a purpose. This changes the focus of management away from the merely economic concern to raise equity and value (Fig. 9.2) towards a holistic approach to increasing value added to all who play a role in the overall production and consumption cycle. To excel in this task, all stakeholders have to be drawn into the corporate system. In this understanding of corporate reasoning, Porter’s model of five forces (Porter 1980) is a useful point of reference. Suppliers, Customers, Competitors, New 132 F. Glauner

The substantive perspective of increased The Growth company value strategic perspective of increased company value

Benefits Profit Risk The operational perspective of increased Principal Values The company value (Core Competences) economic perspective of increased company value Procedural Values (Performance)

Business Model

Fig. 9.3 The substance-oriented understanding of corporate venturing

Entrants and New Products which previously were viewed as factors of an adverse environment can now be perceived as internal factors for raising value added. In this new model, the corporate system is not just producing something for someone, but rather doing so in cooperation with someone. Thus the needs and interests of customers, consumers, suppliers, employees and aftermath users and disposers are drawn inside the sphere of corporate reasoning. This can be managed by a corporation only if it changes its focus on the tasks of organizational and human resource management. The narrowly economic, ‘business school’ understanding of organizational purpose as a mere function of aims, goals and strategies for yielding revenue and value is replaced by a systemic understanding of the organization as an expression of values. This change in focus replaces the self-directed view of revenue with a view focusing on high performance teams delivering substantial benefits and value added (Fig. 9.3). What this means in practice can be illustrated by way of two charts, the first addressing the aim of corporate venturing according to the ‘business school’ model (Fig. 9.2), and the second according to a substantial value added perspective (Fig. 9.3). In this shift of corporate focus from a mere self-referential interest in yield and profits towards an outward-looking perspective of fostering benefit and value added, the role of corporate values and corporate cultures also changes. Corporate Culture is no longer a mere necessity for securing smooth and lean team work but a means of establishing high performance teams delivering benefit and value added. It is precisely this shift towards the micro perspective of corporate venturing which explains why future viable business conduct needs to encompass the more macro 9 Compliance, Global Ethos and Corporate Wisdom 133 and values-driven perspective associated with the tool of the ethical truth table. From the inward-looking perspective, the ethical truth table serves as a litmus test which determines whether the corporation can raise social capital and develop cohesion, trust and team play (Badura et al. 2013; Dasgupta and Serageldin 2000; Ostrom 2000, Sennett 2006) as a means of minimizing external complexity and internal conflict potential by raising diversity. From the outward looking perspective, it serves as a litmus test of whether the corporation is focusing on business models which foster substantial benefits and value added for all those who participate in the product cycle and process chain (Glauner 2016). In this double role the values of the world ethos are the regulative principles for building a strong corporate culture dedicated to fostering substantial and holistic benefit. In regulating the inward-outward focus on conducting business, the world ethos values serve within corporations as ›The Small Multiplication‹ for setting up future viable corporate cultures. This ›Small Multiplication‹ of a world ethos-based corporate culture must be set forward in order that corporations can realize ›The Great Multiplication‹, essentially a business model which establishes substantial value added for all involved in the process chain of developing, delivering and consuming products and services. To establish such value-added business models, corporations must understand that like all other social systems they too are rooted in values spaces which grow out of the dialectic forces of compliance, a form of compliance which creates space for different and diverse options instead of levelling diversity and creativity. Therefore the proper configuration of the core values of corporate cultures will lead to recognition of competitive advantages in the future. Regarding the relationship between business ethics, economics and business management, this leads to a substantial reframing of the mental models of all three disciplines. If a corporation wants to stay in the market it has to excel in ›The Great Multiplication‹, delivering substantial benefit and value added. This entails the development of a high performance team which caters effectively to the needs and interests of customers, consumers, suppliers, employees and aftermath users and disposers. To accomplish this task, the corporate culture must manage all processes not only according to the traditional understanding of business excellence but also according to the ethical truth table. This in turn leads to the insight that the discussion on whether ethics or economics should have the final say in the running a corporation can be left behind altogether. To manage an organization with corporate wisdom requires neither a concentration on ethics nor on profits first, but rather on the establishment of a corporate culture which fosters substantial benefit and value added. On this line of reasoning, ethical values are meta-values, the prerequisites which allow a corporation to achieve its ›Great Multiplication‹ and to ensure future viability (Fig. 9.4). 134 F. Glauner

Fig. 9.4 The ethical foundations of future viable business models

9.6 Values Strategies and the Competitive Advantages of Tomorrow

The central question in business ethics is no longer how to establish ethical or compliant behavior, but how to establish a culture which serves as a foundation for corporations as a means to excel and survive (Glauner 2014, 2015a). Ethical reasoning is thus drawn from the meso and macro perspectives of the reasoning associated with CSR and Business Ethics towards the micro logics of corporations as social systems with purpose. This renders the primacy discussion between ethics and economics entirely obsolete. Working with corporations as business ethicists therefore entails not so much arguing from within the theoretical traditions of ethics and philosophy as from a perspective of enhancing corporate wisdom. It is this wisdom of delivering unique value added which makes a corporation distinct. Regarding the philosophical foundations of business ethics, this means that we have to shift away from any universal foundation of ethical principles devoted to meso and macro claims regarding corporate venturing. Instead we have to concentrate on the micro-systemic logic of corporate survival. In this shift we must learn to re-interpret the Kantian categorial imperative, embodied in myriad forms in non-Western spiritual and cultural traditions and enshrined in the ‘global ethic’ values of Hans Küng, according to the principles of substantial benefit and value added. Instead of both the self-referential focus on value and value-chains and the CSR focus on the ethical ‘soundness’ of corporate cultures it is not the establishment of shared value but rather of shared values which will increase future competitive advantage. 9 Compliance, Global Ethos and Corporate Wisdom 135

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Julian M. Clarke

Abstract This paper attempts to begin to bridge a gap which the author believes may have developed between those who research how people ought to behave and those whose expertise is analysing why people behave as they can do in business. John Milton observed in ‘Paradise Lost’ in 1667: ‘The mind is its own place, and in itself can make a heaven of hell, a hell of heaven.’ This paper seeks to consider why some leaders appear more conscientious than others and inculcate admirable ethical standards amongst their colleagues while for others ‘winning at all costs’ dominates proceedings throughout their organisation, by way of considering the ‘dispositional attribution’ of corporate executives: their personal traits and internal characteristics as opposed to the situational or external influences which arise from environment or culture. A cornerstone assumption of business ethics research would appear to be that all corporate decision makers are actually capable of reasoning morally. This paper seeks to consider whether this may be a valid assumption and what the implications could be for both business leadership and business ethics research if it transpires not to be. The fact that those lacking in the emotions which most people possess have been shown to so readily and perhaps unwittingly engage in high levels of pathological lying and deceit, cunning manipulation and egocentric, callous and impulsive behaviour, characterised by a lack of responsibility, empathy and remorse, are also well versed in using their charm, confidence and arrogance to hide their true traits even from experienced psychologists poses many implications for the direction of business ethics research. Wide industry experience with over 300 organisations on all continents suggests to the author that the factors outlined in this paper may, being based on observations of a multitude of real life situations across a wide diversity of industry sectors, contribute towards a better understanding of business ethics as it is actually practiced or malpracticed.

J.M. Clarke, BA MBS PDA FCA (*) EBENI – European Business Ethics Network Ireland, Dublin, Ireland e-mail: [email protected]

© Springer International Publishing AG 2017 139 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_10 140 J.M. Clarke

At its most basic, much of the business ethics debate discusses why fundamentally good people do something wrong, usually under some form of pressure. This paper proposes that unethical acts may also be performed by people who may themselves be fundamentally bad, doing what comes most naturally to them, causing harm to others, but who have developed a well-practiced expertise at portraying themselves as being good people. Most of the time. Then someone crosses their path when their true nature and covert characteristics may be exposed. Their thinly veiled lack of concern for others, camouflaged emotional poverty, hidden hatreds, cloaked or even absent conscience and other previously concealed attributes and clandestine traits are no longer obscured by their charming veneer and disguised by their mask of sanity. Twenty five years in industry after first posing himself the question, the author is of the belief that he has finally found a plausible answer; that it is character traits such as these which may contribute to an explanation for the behaviour resulting in the query “how can someone set out to damage another in business without scruples”? Hence the reason for this paper is to share at an outline level his research findings concerning the dispositional attribution of corporate executives with the wider business ethics community. Further research is consequently proposed into the personal psychology of both ‘moral exemplars’ most responsible for admirable corporate cultures including the field of ‘Positive Organisational Ethics’ and those ‘difficult people’ whose very persona contributes to adverse cultures and ethical transgressions incorporating the field of ‘clinical psychology’. It advocates further exploration of a potential causal relationship between business ethics failures and leaders displaying what psychologists term ‘consistent irresponsibility’, capable of routinely acting against the common good and doing so with what they describe as ‘emotional impunity’. Ultimately this paper queries at a macro level the ethical consequences of some business people potentially lacking the psychological capacity to reason morally. For some in society is self-interest a conscious decision or a state of mind?

Keywords Business ethics • Moral reasoning • Dispositional attribution • Conscience • Moral exemplars • Clinical psychology • Cluster B personality disorder • Virtue ethics • Character • Trust • Reputation

10.1 Mind the Gap – The Business Ethics Fallacy

This paper attempts to begin to bridge the gap which has developed between those who specialise in researching how we ought to behave and those whose expertise is analysing why we behave as we do in business. The author lays no claim to being either. The degree of personal integrity of an organisation’s dominant individuals contributes significantly to the prevailing level of corporate integrity, with some cultures facilitating and promoting and others prohibiting and hindering the personal integrity of employees coming to the fore. Intolerance of low integrity by leaders of high personal integrity ensures unethical instances are not condoned or repeated, while the acceptance of low integrity by 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 141 lesser leaders ensures instances are permitted and hence more likely to be repeated by the corporate culture prevalent within their organisation. This author admits culpability for an error of principle in a prior paper in which it was proposed that “education in virtue is important for furnishing a vision of business leadership”. In discussing values (core ideas accepted by the majority of people within a community or society) and virtues (a trait of character or intellect that is morally laudable) we observed that “virtue ethics is an ethics of character, concerned to promote “integrity” and “excellence.” It is the approach of the ancients, including Plato, Aristotle, neo-Platonists, Stoics and Epicureans. The ethics of virtue provides important elements of a possible riposte to the serious financial scandals currently affecting business globally and contributes to an environment for business that fosters best practice. Clearly ethics plays an important role in creating a business environment in which virtues and values are brought into a reciprocal relationship for the good of all. In this regard, character and, in particular, the character of leaders is paramount.”1 In advocating a “virtue-based approach to business ethics” notably that “leadership based on integrity engenders trust”, the error which has surfaced following subsequent research into “the character of leaders” is the assumption that business leaders are capable of considering the interests of others in their deliberations and consequently of being “morally laudable” or “virtuous”. This paper intends to directly address this issue including the implications both for business leadership and business ethics research. The poet John Milton wrote in ‘Paradise Lost’ in 1667: “The mind is its own place, and in itself can make a heaven of hell, a hell of heaven.”2 Some organisations can be heaven in which to to work. Others can be hell. Some leaders and managers can make a heaven of hell. Others a hell of heaven. Some leaders instill a positive, inclusive culture. Others exploit fear. Why is this so and what are the implications for business ethics research? Many employees of organisations globally may unfortunately have reason to describe their workplace environment as “paradise lost”. When the leaders of an organisation insufficiently appreciate their own people and their multitude of talents and interests, they fail to recognise that a happy, inspired workforce is more likely to contribute to collectively achieving corporate goals than a disenchanted group of individuals who operate in an unnecessarily competitive and perhaps even combat- ive and ethically challenging environment. In addition to a well educated, English speaking workforce with internationally recognised creativity, ready access to the EU market, low corporate taxes and a pro- business environment, another of the myriad of reasons why many international firms continue to choose to locate and grow in Ireland is the rarely cited“fun factor”. People often find the Irish not only creative (described in Asia as the ability of the Irish “to think around corners”) and industrious but also easy to get along with. Their naturally friendly and casual demeanour, sense of humour, quick wit, interest

1 Flynn, Gabriel and Clarke, Julian, 2011, Leadership and Integrity: Crisis and Challenge for the Global Economy; Philosophy of Management, Volume 10, number 1, 2011, pp 9–28. 2 Milton, John, 1667, Paradise Lost, Book I, 254–255. 142 J.M. Clarke in others and ability to laugh at themselves has exported well and resulted in many multinational corporations enjoying working both with the Irish overseas and over 1000 locating in Ireland. With some workplace cultures welcoming and pleasant (perhaps even fun) places to work and others unwelcoming and more challenging for employees, an important question arises. Why do some leaders appear more conscientious than others and inculcate admirable ethical standards amongst their colleagues while for others ‘winning at all costs’ dominates proceedings throughout the organisation? This paper seeks to address this issue by way of considering the ‘dispositional attribution’ of corporate executives: their personal traits and internal characteristics as opposed to the situational or external influences which arise from environment or culture. This paper also aims to address one question which has intrigued the author since he faced his first ethical dilemma while managing a finance function for a financial institution in Australia in 1990 and has since had the good fortune to work with over 300 organisations and leaders on all continents which conduct business: “how can someone set out to damage another in business without scruples”? Another way of approaching this question is to consider whether all corporate executives may actually be capable of moral reasoning, one of the cornerstones of business ethics research. Of course such research is invaluable for enhancing academic discourse and it can be doubly beneficial if the authors also seek to augment the ability of corporate executives to deliberate morally. Pat Werhane in discussing “five traditional theories of moral reasoning” which “lay out minimum standards for an acceptable moral decision that can serve as criteria for moral business judgments” observes that “the task of justifying moral beliefs and integrating them into business situations and the process of applying ethical standards to everyday decision-making are incomplete and can be exasperating. But the business manager has recourse to the long tradition of ethical study.”3 Such ‘long tradition’ incorporates many approaches including Virtue Ethics (character, traits, habits, personality), Egoism (self-interest, self, needs), Stakeholders (balance interests of key relationship holders), Utilitarianism (most pleasure/least pain of greatest number); Rights (justice, different stakeholders), Deontology (duty, intentions, human reason, freedom), Social Contract (beyond contractual agreements), Care (relationships, vulnerability, empathy), Natural Law (balance), Relativism (different people in different communities), Universalism (moral objectivism, universal application), Discourse (agreed by all affected), et al. An important issue to be addressed is whether business ethicists make the assumption that business leaders are themselves personally aware of the wide range of philosophical approaches and consequently further assume that they actually deliberate on these bases?

3 Werhane, Patricia H., 2008 A Note on Five Traditional Theories of Moral Reasoning. Darden Case No. UVA-E-0092. Available at SSRN: http://ssrn.com/abstract=1277027 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 143

Wide industry experience across many sectors would also suggest we should be querying whether those most likely to be engaging in unethical acts are themselves inclined towards “ethical study”? Furthermore are the cohort of business leaders outlined in this paper likely to engage in “moral reasoning”? While many invigorating theories and approaches are discussed at conferences, seminars and lectures (including at the nine business ethics events the author has organised) with many authors contributing papers, books, theses and case studies, is there a common denominator amongst the multitude of topics under discussion within the business ethics arena? Is there a key assumption which the author refers to as the ‘business ethics fallacy’? Do we assume that all corporate decision makers are actually capable of reasoning morally? This paper seeks to consider whether this may be a valid assumption and what the implications might be for the field of business ethics research if it transpires not to be.

10.2 The Social Responsibility of Business & Role of Corporate Executives

The late economist Milton Friedman in a particularly well known 1970 New York Times magazine article “The Social Responsibility of Business is to Increase its Profits” asserted that “a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible”. Indeed his statement is often cited to suggest that ‘profit maximisation’ be the dominant priority of businesses, almost to the exclusion of other factors. However closer examination shows that Friedman concludes his article “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Indeed his assertion concerning the ‘profit maximisation’ role of ‘a corporate executive’ actually states “make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom”. This appears to be a clear statement that socially acceptable behaviour even in what is to some the ruthless world of business involves not only recognition of but also adherence to both law and ethics. If this applies to the supposedly cut-throat, profit-maximising business arena, is any argument valid that other areas of society should not also be subject to both law and ethics? “Business ethics begins where the law ends” is a phrase also often cited, notably in instances when exposure of wrongdoing is justified by statements from the culpable that their actions may have been legally compliant. With Al Capone remarking “it’s strange that people should take up crime when there are so many 144 J.M. Clarke legal ways to be dishonest”,4 the distinction between what is legal and what is ethical can vary from minimal to dramatic. Business people are not the only members of society who plead innocence or attempt to ‘defend the indefensible’ on purely legal grounds. When compliance with ‘the law’ is permitted to become the only measure of right or wrong, other overlapping factors including ethics, morality, conscience, virtues, values, respect, dignity, character, trust, reputation, integrity and professionalism are all too easily subjugated and can ultimately be ignored at times of key decision making, conve- niently facilitating the task of ‘justifying the unjustifiable’. Those who quote Friedman supporting their belief that ‘anything goes’ in business, including those who believe in ‘light touch regulation’, may have insufficiently recognised that even one of the most passionate exponents of ‘free markets’ believed that corporations and their executives should aim to maximise their profitability and earnings in both a legal and ethical manner. A more subtle interpretation could be that Friedman would appear to have made the assumption that corporate executives were capable of: • staying within the rules of the game, • engaging in open and free competition without deception or fraud, and • conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. But are such assumptions valid? Are all corporate executives actually capable of such moral reasoning? Are some so focused on themselves that they insufficiently recognise the interests of others and the critical importance of factors including trust and reputation? For a smaller minority, is self-interest a conscious decision, or a state of mind?

10.3 Something Very Basic… Missing

In the foreword to “They Could Not Trust the King: Nixon, Watergate and the American People” by William V. Shannon of the New York Times, historian Barbara Tuchman writes about the Watergate hearings: “The witnesses, all of them officials or agents of the Nixon Administration, left a stunning impression of something missing – some ordinary, familiar component of the human make-up, taken for granted when present but sinister by its absence. Leaving aside differences of personality and position, collectively the cohorts of Mr. Nixon were deficient, like the Man Without a Shadow, in an attribute the human being was supposed to have. They were without a sense of wrong…” “One wondered where did they go to school? Who were their parents, their teachers and pastors? Did all of them somehow skip what used be called Civics in the eight grade?”

4 Peter, Laurence J, quoting Al Capone, Ideas for Our Time, p 141. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 145

The New York Magazine book review of the time, February 1974, added: ‘Citing such conventions which “evolved in the long process up from savagery in order to make human society bearable” as fair play and courtesy, Shannon adds “sense of community”, a shared minimum responsibility to something beyond self, to best potentials, to the future. Tuchman notes that “humanly if [no longer] judi- cially… there is some sense in the idea that a person who does not recognise wrong has something wrong with him”.5 Both in business and elsewhere in life, the challenge for those who are capable of recognising wrong is to identify the absence of this ability in others and hence gain a better understanding of their behaviour. This challenge is exacerbated by the apparent improbability that a minority in society may actually be incapable of recognising wrong. This paper will provide evidence from the field of Clinical Psychology confirming Tuchman’s assertion that indeed “a person who does not recognise wrong has something wrong with him” or her. Perhaps the combination of admirable and unsavoury aspects of human psychology, irrespective of position and role in society, is what led one of Nixon’s predecessors, Abraham Lincoln, to observe during his 1860 Cooper Union Address that “human action can be modified to some extent but human nature cannot be changed”.6 Of the multitude of characteristics of leaders and indeed all people of integrity, the ‘ordinary, familiar component of the human make-up’ of the ability to know right from wrong is perhaps so basic that it is insufficiently addressed, indeed rather taken for granted, even by experienced business ethicists. Yet its absence at the top of an organisation places all the more responsibility on a leader’s lieutenants to display the characteristic of ‘recognising wrong’ which is ‘taken for granted when present but sinister by its absence’. Anyone tasked with responsibility for others has ‘a shared minimum responsibility to something beyond self’. When a leader perceives the welfare of the group at large to be a primary responsibility, trust, reputation and indeed people are in safer hands. However when a ‘minimum responsibility’ is not ‘shared’ and insufficiently, infrequently or never stretches ‘beyond self’, the integrity of all concerned, as well as trust and reputation, both individual and organisational, may be in jeopardy. The organisation risks degenerating into one of ‘compliancy’ which Friedrich Glauner defines as “swarm stupidity from unreflected compliant behaviour”.7 Are some too proud or intoxicated by their pursuit of power to recognise a responsibility to other people and indeed society? Or is the problem with and the challenge presented by the most unethical leaders a far deeper one?

5 New York Magazine Vol 7 No 5, 4th February 1974 p 61. 6 Lincoln, Abraham, Cooper Union Address, New York February 27th, 1860; http://showcase. netins.net/web/creative/lincoln/speeches/cooper.htm (Accessed 30th November 2012). 7 Glauner, Friedrich, 2015, Compliancy, Ethics and Corporate Cultures: Values Strategies to the competitive advantages of tomorrow, Unpublished Paper, European Business Ethics Network Research Conference, Special Track Business Ethics & Psychology, October 2015. 146 J.M. Clarke

10.4 Power, Pride & Trust

Power is of course a critical component in business success. Leaders need it to gal- vanise their people and make progress in attaining the organisation’s strategy and goals. Like money, perhaps power itself may be neutral – it can be used and abused. With all power comes responsibility and again most power is used responsibly. However, many scandals – reported and unreported – arise from the abuse of corporate power. The abuse of power often arises when those entrusted with it make its preservation their primary concern. They don’t appreciate it is bestowed on them for the purpose of service. Those who want to keep it most are the most likely to compromise their integrity, often irrespective of the cost to others, with Robert Mugabe of Zimbabwe and Bashar al-Assad of Syria being unfortunate examples of a trait also very evident in the corporate arena. Many people of integrity with an active social conscience may well query how such people can so readily prioritise their own pursuit and maintenance of power with apparent ‘emotional impunity’, oblivi- ous to the consequences for others, and with some justification ask themselves“do they not have a conscience?” One office entrusted with a great deal of power is that of the US President. Abraham Lincoln suggested that “nearly all men can stand adversity, but if you want to test a man’s character, give him power.” One of his successors, Harry Truman, advises “if a man can accept a situation in a place of power with the thought that it is only temporary, he comes out all right. But when he thinks he is the cause of the power, that can be his ruination”.8 Many of the high profile business and political scandals arose when the leaders developed a ‘sense of entitlement’ which Abraham Zaleznik describes as being “an aspect of a narcissistic personality who comes to believe that he and the institution are one. So this produces a sense of entitlement: that he can take what he wants when he wants it.”9 Ultimately, though, abusive CEOs and other leaders, like dictators, live on borrowed time. When their lack of integrity is publicly exposed, their personal reputation and that of the organisation frequently suffer. Yet for some corporate executives, this is not a concern. If life were consistently fair, ‘those who abuse power, lose power’ would be a more frequent occurrence. But it is not. Instead many choose to change organisations rather than continue to work for abusive and untrustworthy leaders. Those who stay, whether they remain silent or try to speak up and inspire a change in direction, may be consistently ethically challenged and face dilemmas – well described as “situations seemingly beyond satisfactory resolution” – which may force them to consider whistleblowing.

8 Miller, Merle, 1974 “Plain Speaking: An Oral Biography of Harry S Truman, Berkley/Putnam”, reviewed in New York Magazine Vol 7 No 5, 4th February 1974 p 60. 9 Zaleznik, Abraham, 2002, Bloomberg Business Magazine Online Extra: The CEO as Thief: A Psychological Profile, December 22, 2002; http://www.bloomberg.com/bw/stories/2002-12-22/ online-extra-the-ceo-as-thief-a-psychological-profile (Accessed 30th November 2012). 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 147

Could it be that some corporate leaders are simply not concerned with the opinions of others or indeed whether they are trusted? And could it be that their ‘proud’ personality prevents them from considering that any wrongdoing they may engage in may ultimately be exposed? Salient advice to such people is to suggest that before they engage in a course of action they first consider the potential impact on trust and reputation – personal and organisational – should their covert actions subsequently be publicised and to remind them of Blanchard & Peale’s assertion that ‘there is no right way to do a wrong thing’.10 An effective introduction to business ethics for business people is to ask them “would you do business with someone you don’t trust? Most wouldn’t. Yet although trust is fundamental to building long term relationships, it may not be the primary driver in evaluating and making business and other decisions. Indeed many of these decisions appear to be taken without fully assessing the likely impact on relationships with employees, customers, suppliers, investors, local communities and other ‘stakeholders’ – the very people who contribute to an organisation’s reputation”.11 Leaders capable of associating with the mindsets of all these stakeholders breed trust by naturally displaying a greater interest in the affairs of others than their own. Just as ‘integrity’ is derived from ‘integer’, a whole number, their passion is directed towards the success of the organisation as a ‘whole’, achieved by recognising that genuinely appreciating the needs of their colleagues produces an enthusiastic commitment to co-operatively achieving common-goals far greater than that associated with leaders more interested in satisfying their personal needs. Such leaders are described in this paper as ‘givers’ in stark contrast to the firms where uninspired people struggle to motivate themselves to travel to work, often managed by ‘takers’ more interested in themselves than their colleagues or the organisation at large. For some reason, evaluated later in this paper, even when pride visibly does more harm than good, proud people can still persist in the behaviour that can cause damage, sometimes irreparable, even though they may be aware it could also result in their personal undoing. Others even appear totally unaware that their excessive pride is visible to others. It may be the only way they know how to behave and they relish using (and abusing) the power associated with their position, irrespective of the impact this may have on others. Such behaviour, being part and parcel of human nature, is nothing new, with Shakespeare, Dickens and more recently CS Lewis observing the detrimental effects of excessive pride. As Shakespeare remarked in 1613: “I can see his pride peep through each part of him”.12

10 Blanchard, Ken & Peale, Norman V, 1988, The Power of Ethical Management. Harper Collins, ISBN-13: 9780688070625. 11 Clarke, Julian, 2007, Trust Reputation Integrity & Professionalism – Reflections on Business Relationships, Accountancy Ireland, February 2007. 12 Shakespeare; Henry VIII 1.1.68–9, Abergavenny to Buckingham (1613) http://www.shakespeare-online.com/quotes/shakespeareonpride.html (Accessed 30 Nov 2012). 148 J.M. Clarke

Pride has many positive and worthwhile qualities which inspire people to do better. It is undoubtedly good to have pride in one’s work, achievements and family. It is also helpful to have a sense of self-worth and confidence in what one does. Nevertheless an exaggerated sense of self-worth can create difficulties. The writings of Dickens and Shakespeare perhaps endure because of their keen observations of human nature. Dickens noted the barrier presented by pride in 1839: “but struggling with these better feelings was pride”.13 The old expression, ‘pride comes before a fall’ can also be so appropriate. Shakespeare observed both the vagaries of business and the potential impact on ego of those who acquire position or wealth or both from business: “my pride fell with my fortunes”.14 When humble people suffer a setback, people tend to be supportive. But when proud people fail at something, consider how many may be privately delighted. CS Lewis well describes why pride can also cause significant problems. During a series of 1941 radio broadcasts which were subsequently published he noted that “pride leads to every other vice… because it is competitive by nature… being better at something than someone else. Each person’s pride is in competition with everyone else’s pride. Pride gets no pleasure out of having something, only out of having more than the next person. It is the comparison that makes you proud: the pleasure of being above the rest. Once the element of competition is gone, pride is gone.”15 Excessive pride would appear to be a common denominator among many failed high profile business people, allied to a lack of ‘scruples’. Former ‘Australian of the Year’ Alan Bond was ‘blackballed’ when he initially applied to join the Royal Perth Yacht Club, deemed to be an unsuitable member. He subsequently used his then wealth and that of his Bond Corporation to form a team to build a yacht which became the first non-American to win the prestigious America’s Cup race. The then national hero was subsequently accepted into the RPYC but in due course was imprisoned for his business dealings. Much earlier in life Bond was reported to have been selling plots of land in a hilly rural location knowing there was little likelihood of sufficient running water being made available to many of the homes. He didn’t seem to care that his future customers could be so disadvantaged. So when a ‘WA Inc’ Royal Commission of enquiry into dealings between government and business found some of his business dealings to have been unscrupulous, leading to imprisonment, this would not have been a surprise to those who had experienced his lack of scruples much earlier in life.

13 Dickens, Charles, Oliver Twist, Paper 41 (1839); http://www.online-literature.com/dickens/oli- vertwist/41/(Accessed 31st December 2012). 14 Shakespeare, William, 1600; As You Like It 1.2.242, Rosalind to Orlando (1600) http://www. shakespeare-online.com/quotes/shakespeareonpride.html (Accessed 30 Nov 2012). 15 Lewis, CS, Mere Christianity; Originally 1941 radio broadcasts; ISBN-10: 978061350214 ISBN-13: 9780061350214. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 149

10.5 Humility

Prescient leaders are naturally aware that in setting an admirable “tone at the top” it is far preferable to assist, guide and inspire colleagues in their collective endeavours than seek personal gain and advancement from situations, although this by-product may well also be the eventual reward when collaborative efforts prevail. As Blanchard and Peale observe in ‘The Power of Ethical Management’: “People with humility don’t think less of themselves… they just think of themselves less”.16 However, when leaders find it impossible to praise or encourage others or admit to failings, a ‘blame culture’ can develop which can be a significant barrier to progress, personal and organisational. People find it difficult to trust such leaders and ‘fiefdoms’ and ‘silos’ can be particularly evident in their organisations which can often be as competitive internally between supposed colleagues as externally with their more overt competitors. Irrespective of role in society, many would do well to consider whether a touch more humility would work better than a dose of ego, arrogance, hubris or pride. Pride can blind people to their own faults, other people’s needs and integrity pitfalls lying in their path. Benjamin Franklin said “the hardest of our natural passions to subdue is pride” and the fact that it may require “subduing” shows what a challenge this can be. Indeed the full section from his autobiography indicates he well recognised its antithesis is humility: “In reality, there is, perhaps, no one of our natural passions so hard to subdue as pride. Disguise it, struggle with it, beat it down, stifle it, mortify it as much as one pleases, it is still alive, and will every now and then peep out and show itself; you will see it, perhaps, often in this history; for, even if I could conceive that I had completely overcome it, I should probably be proud of my humility”.17 While excessive pride may not be overcome as rapidly as Lewis predicted, await- ing the next opportunity to present itself, often when least appropriate, contrary to popular belief the hallmark of many successful leaders is actually humility, not the pride, ego and arrogance which may provide some personal satisfaction but which ultimately commands less respect. When people in senior positions display the level of humility to downplay their own involvement in achievements and praise the role of others, provide encouragement to their colleagues or admit to their own errors and visibly forgive colleagues for their failings, others throughout the organisation are more likely to follow suit. Such organisations ‘live and learn’ from decisions which transpire to be mistakes and are not subsequently prevented from taking courageous decisions when in due course they are required. People trust such leaders and ‘genuine teamwork’ can be particularly evident in their organisations.

16 Blanchard, Kenneth H & Peale, Norman Vincent, 1988, ‘The Power of Ethical Management’ Harper Collins. 17 Benjamin Franklin Autobiography, p 42; This section written at Passy, 1784 (Accessed 6th January 2013). 150 J.M. Clarke

Contrary to previous expectations of strong, dominant leaders also being self- centred and proud (typical ‘takers’), those ‘givers’ who also display humility should most certainly not be associated in any shape or form with weakness. Jim Collins and his team examined many companies to find those which went from ‘Good to Great’ and their research found that all such companies, in contrast to less successful ‘comparison companies’ in the same industry, had what they describe as ‘Level 5 leadership during the pivotal transition years’. Citing five leadership levels, Collins notes that ‘Level 5’ leaders who ‘build enduring greatness through a paradoxical blend of personal humility and professional will’ also ‘channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self- interest. Indeed they are incredibly ambitious, but their ambition is first and foremost for the institution, not themselves… They set up their successors for success in the next generation, where others set up their successors for failure… They are resolved to do whatever it takes to make the company great, no matter how big or hard the decisions… They attribute success to factors other than themselves, yet when things go poorly, blame themselves and take full responsibility… They display a compelling modesty, are self-effacing and understated. In contrast, two thirds of comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company’.18 Persuading those more interested in themselves to focus their primary attention on the group at large can pose an enormous challenge to their colleagues, as self- centred people often fail to recognise themselves as being selfish, even when alerted to the trait. If Abraham Lincoln was right to remark that “human action can be modified to some extent but human nature cannot be changed”,19 great caution should therefore be shown before appointing ‘takers’ to leadership positions, irrespective of their other talents, lest their personal agendas and inability to empathise with colleagues or show remorse for their actions should lead their firms down a slippery ethical path. The same cannot be said about ‘givers’. Organisations are far more likely to be successful when leaders are selected who display a ‘paradoxical blend of personal humility and professional will’, who ‘channel their ego needs away from themselves and into the larger goal of building a great company’ and whose ‘ambition is first and foremost for the institution, not themselves’. Undoubtedly people better respond to leaders who show a greater interest in others than themselves. Of course being a ‘giver’ alone does not make a great leader; many other characteristics are also required. Having been fortunate to have had the opportunity to work with hundreds of leaders, perhaps the most critical other characteristics in the author’s opinion would be integrity, vision and courage, because without these all their other talents have little value if the organisation is to make real progress.

18 Collins, JC, 2001, Good to Great, Random House, pp 20,21,29. 19 Abraham Lincoln, Cooper Union Address, New York February 27th, 1860; http://showcase. netins.net/web/creative/lincoln/speeches/cooper.htm (Accessed 30th November 2012). 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 151

However, all things being equal, in this era when corporate values and those of their leaders are deemed to be of such importance, which ‘tone at the top’ is most likely to be preferred? The values displayed by ‘givers’ or ‘takers’? And in advocating humility in management another key question which arises is whether ‘takers’ are indeed capable of displaying humility? Or even considering the interests of others let alone society? Having now ‘set the scene’, let us explore this issue further for the remainder of this paper.

10.6 The Best and Worst in Businesspeople

Whether in the seventeenth century of Shakespeare or the 19th of Dickens or in the more connected world of the twenty-first century, the world of business can be an extraordinary place. Few other walks of life can offer quite the same breadth of risks and rewards, thrills and challenges, frustrations and disappointments, successes and failures, variety and pressures, highs and lows and even friendships made and lost. Indeed business and competition can often bring out the best in people, inspiring their enthusiasm, endeavour, commitment, collaboration and co-operation. There is little to better the satisfaction of seeing people co-operate, firms contemplate, take responsibility for their actions and collectively progress. When decisions are made with a win-win mindset by management considerate of the needs and interests of all concerned, customers benefit, suppliers benefit, employees benefit and sometimes many other ‘stakeholders’ can also benefit. Some organisations naturally excel at client service while others give lip-service but ultimately fail to meet their customer’s expectations. Experience would suggest that ‘customer-responsive’ organisations are staffed by people well capable of displaying politeness, respect, patience and consideration, amongst other related qualities, in a generally co-operative environment more characterised by praise than critique. Leaders who give credit where due, keep their promises (especially when more opportune not to do so), refund overpayments on their own initiative, offer a dis- count when not requested or extend credit terms when unexpected reap the benefit in terms of inspired colleagues and satisfied customers more likely not only to return but also pass on the word of mouth referrals which all firms require. Undoubtedly a policy or culture of being fair and decent with stakeholders, notably when this is a direct result of the ‘tone at the top’, builds the critical quality of trust. However business and competition can also bring out the worst in people as they delay or refuse payment, make promises unlikely to be kept, display disloyalty, exaggerate, misrepresent, cover-up, monopolise, discourage, discriminate, intimi- date, badmouth, slander, lie, deny and deceive among a whole host of other types of cheating, bullying, unfair, over-competitive, disrespectful, deceitful, intimidatory, self-centred and unco-operative behaviour and misconduct, often simply justified as ‘that’s business’. Whether intentionally or not, such traits can become ingrained in 152 J.M. Clarke the corporate culture – the very fabric of an organisation – but only if it’s leaders permit this, whether by act or omission. The temptation to ‘cross the line’ between acceptable and unacceptable behaviour is more likely when the culture is more competitive and adversarial than necessary. Once business practices start deteriorating it can take a considerable effort to haul them back ‘into line’ and the organisation risks losing some of its better people; the very people with the talent and level of conscientiousness which may be required most during times of ethical challenges. Leaders, Managers, Board Members and indeed all Executives really need to consider what an ‘over-competitive’ business environment actually achieves. By breeding excessive levels of competition not only between rival firms but particularly between an organisation’s own employees, such a culture may foster an environment where little genuine co-operation between colleagues results. This surely is contrary to the whole concept of forming a corporation to achieve common goals! While colleagues can be inspired by values-driven leaders, what “tone at the top” or “leading by example” message regarding acceptable levels of integrity throughout the organisation (its culture) will be conveyed to them by those whose “rapid rise to senior management level was achieved by deliberately withholding information from colleagues, taking credit for others’ work, denying colleagues the opportunity to contribute, over or understating facts and figures, spreading rumours about colleagues, rarely praising or encouraging staff, ignoring staff development or putting down the performance of others?”.20 Could it be that some leaders may be incapable of the empathy required to put themselves ‘in the shoes’ of their stakeholders and as a result trust is often a casu- alty, especially when customers divert their business to other organisations, or their better employees decide to take their abilities to firms where their talents are more likely to be appreciated and their personal integrity not consistently challenged?

10.7 Are the ‘Difficult & Ruthless’ Capable of Moral Reasoning?

The environment of ‘business’ offers the opportunity for people to bring their individual personalities and value-sets to bear as they engage with others in the variety of situations and circumstances that bring out the best in some and worst in others. For some reason one of the few walks in life where being ‘tough’ and particularly being regarded as ‘ruthless’ can be applauded and admired by some is that of business. Are they the words that such leaders would like carved on their grave- stones as being the characteristics which their peers believed best epitomised their ‘leadership’? Indeed some such leaders have reacted with shock when the author has posed them such a challenge.

20 Clarke, Julian, 1998, ‘Ethical Hypotheticals’, Accountancy Ireland, April 1998. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 153

Of course leaders need to command authority, which includes being decisive and giving instructions when appropriate. However consistent behaviour which could be construed by some as intimidating may have the desired immediate effect, yet can ultimately prove to be counterproductive. Do people really better respond to threat, fear and coercion? Colleagues may follow such leaders, but do they really respect and trust them? The terms most often used to describe ‘difficult’ colleagues include proud, selfish, cunning, challenging, controlling, power hungry, irrational, distrustful, irresponsible, dominant, deceitful, impulsive, aggressive, arrogant, moody, intense, argumentative, dramatic and ruthless. They are also often described as being ‘users’ who take advantage of others, attention seekers who hate others receiving attention, are excessively money & profit oriented, lack remorse and empathy who are incapable of realising they may have wronged others let alone apologising nor putting themselves in other people’s shoes and appreciating the feelings of others. Pat Werhane as adroitly as ever succinctly writes that “business decisions, by their nature, involve ethical considerations because (1) most economic decisions are choices where the decision-maker could have done otherwise, (2) every decision or action affects people, and (3) every decision or set of decisions is embedded in a belief system that presupposes some basic values or their abrogation.”21 Abrogation itself presupposes that all decision-makers possesses ‘basic values’ and the author too has operated on this basis in industry for over a quarter century. That is why when both working with firms in industry and attending ethics conferences the question which has intrigued the author since facing his first ethical dilemma in 1990 has been: “how can someone set out to damage another in business ‘without scruples’”? Many unethical acts are performed in business by those who would fundamentally perceive themselves as being ethical. Whatever the reason – situational or cultural or any of a myriad of other alternatives so capably addressed by experienced business ethicists – at least they are capable of recognising that they may have ‘done wrong’, whether or not they may have taken any steps to rectify the situation or apologise to anyone who they may have ‘wronged’. The people this paper ultimately seeks to discuss are not such people, rather those who may not realise that they have wronged others, because they lack basic empathy, the ability to display remorse and the capability of experiencing emotions including ‘scruples’. Yet these people also display many of the qualities which result in their rapid promotion to the upper echelons of business. Having risen to senior management level they are more than capable of leading their organisations in a manner that may risk not only the entity's reputation but ultimately its very survival. Yet somehow the risk of such an adverse outcome does not seem to concern or deter them as much as may be expected. No alarm bells appear to ring in their minds. Why might this be?

21 Werhane, Patricia H., 2008 A Note on Five Traditional Theories of Moral Reasoning. Darden Case No. UVA-E-0092. Available at SSRN: http://ssrn.com/abstract=1277027 154 J.M. Clarke

At its most basic, much of the business ethics debate discusses why fundamentally good people do something wrong, usually under some form of pressure. This paper proposes that unethical acts may also be performed by people who may themselves be fundamentally bad, doing what comes most naturally to them, causing harm to others, but who have developed a well-practiced expertise at portraying themselves as being good people. Most of the time. Then someone crosses their path when their true nature and covert characteristics may be exposed. Their thinly veiled lack of concern for others, camouflaged emotional poverty, insatiable requirement to ‘get their own way’, hidden hatreds, cloaked or even absent conscience and other previously concealed attributes and clandestine traits are no longer obscured by their charming veneer and disguised by their mask of sanity. Twenty five years in industry after first posing himself the question, the author is of the belief that he has finally found a plausible answer; that it is character traits such as these which may contribute to an explanation for the behaviour resulting in the query “how can someone set out to damage another in business without scruples”? Hence the reason for this paper is to share at an outline level his research findings concerning the dispositional attribution of corporate executives with the wider business ethics community.

10.8 Critical Questions for All Business Ethicists

Consideration of the psychology of the most ‘difficult’ people raises important questions for all business ethicists. Could it be that ethical discussion of business operates under the assumption that all business people actually possess a conscience, whether they avail of it in challenging situations or not? If we consider the most difficult people we have worked with, whether in industry or academia or other walks of life, should we be considering the scenario that some people may actually be incapable of moral reasoning? What if some people don’t have a conscience? What if some of these people are business leaders? What if some of these people have ‘personality disorders’? What if some are adept at hiding their disorder from others? Colleagues, clients, friends, spouses, children and teammates? For many years? What if some such people appear charming? Gregarious? Fearless? Inspirational? Natural leaders who achieve rapid promotion and are seen by many of their peers as being ‘successful’. What if in fact they are not charming? Indeed quite the opposite. What if they are extremely adept at hiding their lack of emotions? Inability to empathise? Lack of compassion? Total interest in themselves? Total lack of interest in others? Lack of remorse? Lack of conscience? Why do some people appear to be fearless? What if some senior executives by their very nature cannot experience fear? What if some senior executives cannot rationalise risk? What if some such people are leading financial institutions? 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 155

What if some senior executives by their very nature cannot empathise with anyone? Cannot see anyone else’s perspective? Must win at all costs. Irrespective of the size or nature of the organisation or group? What if some specific organisations, industry sectors and indeed some national cultures attract such people?Admire them? Reward them? Promote them? How did they rise to senior management? Fairly and entirely by merit? Or by way of manipulation? Deceit? Pathological lies? Who did they cross en route? How many victims may have experienced their ruthlessness? To whom could such victims report their callousness? Who would believe their victims assertions about them given their ability to ingratiate themselves with the most influential members of management? What if such senior executives lead large organisations? With significant financial and market influence? What if such senior executives may be responsible for ethical failings? Yet their personality disorders prohibit them from feeling remorse? Accepting responsibility for their actions and consequences? Who are these people? Those capable of being diagnosed by psychiatrists or psychologists as ‘Cluster B’s’: Narcissists. Borderlines. Histrionics. Sociopaths. Psychopaths. Are some such people not violent criminals? Yes. Cold blooded killers? Yes. Imprisoned? Yes. Are some such people also business people? Yes. Cold blooded colleagues & adversaries ? Yes. Imprisoned? Less likely. Can they be identified as such? With great difficulty. Because they have developed great expertise at charm, deceit & hiding their true selves even from psychologists, psychiatrists and other mental health professionals. Many non-psychologists ‘just’ see them as being difficult, proud, selfish, cunning, challenging, controlling, power hungry, irrational, money & profit oriented, distrustful, most particularly ruthless and perhaps ‘impossible’ to deal with. Few have the skills to identify their true psyche. Surely they are a tiny minority of society? How many operate in business? Psychologist Martha Stout asserts that “1 in 25 ordinary Americans secretly has no conscience and can do anything at all without feeling guilty. Who is the devil you know?”22 Emeritus Professor of Psychology Robert D Hare writes that “it is not difficult to see why psychopaths are so attracted to and so successful at white-collar crime” where they can”operate unobtrusively” and “have what it takes to defraud & bilk others… They are fast-talking, charming, self-assured, at ease in social situations, cool under pressure, unfazed by the possibility of being found out, and totally ruthless.”23

22 Stout, Martha, 2005: The Sociopath Next Door, Broadway Books/Random House. 23 Hare, Robert D, 1993, Without Conscience: The Disturbing World of the Psychopaths Among Us, Simon & Schuster. 156 J.M. Clarke

10.9 Personality Disorders

Personality disorders are ‘psychiatric conditions that begin in adolescence or early adulthood, continue over many years, and cause a great deal of distress. Personality disorders also often interfere with a person’s ability to enjoy life or achieve fulfillment in relationships, school or work’.24 The latest version of the ‘DSM’ – the American Psychiatric Association’s ‘Diagnostic and Statistical Manual of Mental Disorders’ – describes ten personality disorders grouped in three ‘clusters’ because of related and overlapping traits: Cluster A “Odd/Eccentric”: Paranoid, Schizoid & Schizotypal. Cluster B “Dramatic/Emotional/Erratic”: Narcissistic, Anti-social, Borderline & Histrionic. Cluster C “Anxious/Fearful”: Avoidant, Dependent & Obsessive-Compulsive. These categorisations are not mutually exclusive with Skodol observing in 2005 that there is a “tendency for personality disorders within the same cluster to co- occur”.25 For instance, those who display elements of ‘narcissistic’ personality disorder may also show characteristics of ‘anti-social' personality disorder, also referred to as ‘sociopaths’ or the more technically correct term, ‘psychopaths’. While it is of course plausible that some business people may show paranoid tendencies or suffer from a variety of forms of depression which clearly will impact on the way they conduct business and make interpersonal relationships challenging, this paper will concentrate on Cluster B, described as “dramatic, emotional or erratic” behaviour which psychologist Kristalyn Salters-Pedneault describes as the most common of the DSM disorders: Narcissistic Personality Disorder is characterised by an inflated sense of self- importance. People with narcissistic personality disorder often believe that they are “special”, require excessive attention, take advantage of others, lack empathy (the ability to “put yourself in someone else’s shoes” to understand their feelings) and are described by others as arrogant. Antisocial Personality Disorder is a “pervasive pattern of disregard for, and violation of, the rights of others” ‘that begins in early childhood or early adolescence and continues into adulthood.” Antisocial personality disorder is also associated with impulsive behaviour, aggression, disregard for their own or other’s safety, irresponsible behaviour and breaking the law. People with antisocial personality disorder are often deceitful and may be lacking in empathy and remorse, the ability to experience guilt.

24 Salters-Pedneault, Kristalyn, PhD, ‘What are personality disorders?’ http://bpd.about.com/od/ relatedconditions/a/Personality-Disorders.htm (Accessed 27th September 2015). 25 Andrew E. Skodol et al., 2005, The Collaborative Longitudinal Personality Disorders Study (clps): Overview and Implications, Journal of Personality Disorders, 2005 October; 19(5): 487–504. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 157

Borderline Personality Disorder is associated with specific problems in interpersonal relationships, self-image, emotions, behaviours and thinking. People with BPD tend to have intense relationships characterised by a lot of conflict, arguments and break-ups. Histrionic Personality Disorder involves intense expressions of emotion and excessive attention-seeking behaviour. People with histrionic personality disorder often seek out attention and are uncomfortable when others are receiving attention.26 Psychologists caution against ‘amateur’ diagnosis of people who may occasion- ally display some of these traits. It is when these traits are pervasive and frequently or persistently occur that a diagnosis of personality disorder may be appropriate.

10.10 Psychopathy27

While Narcissistic Personality Disorder and the other Cluster B disorders clearly impact on the ability of business executives to morally reason, this paper will avail of Psychopathy (described by some as Sociopathy, both of which are related to Anti- social personality disorder) to illustrate the impact which executives with personality disorders could play in unethical decision making and actions, particularly as a result of the level of deceit, manipulation and egocentric behaviour as well as lack of responsibility, empathy and remorse associated with the disorder. Emeritus Professor Robert D Hare started researching psychopaths in the 1960s from the psychology department of the University of British Columbia in Vancouver, Canada. Availing of his experience working with psychopaths in prison, he and his team developed ‘a highly reliable diagnostic tool that any clinician or researcher could use to distinguish with reasonable certainty “true psychopaths” from those who merely break the rules’. Their Psychopathy Checklist is now in worldwide use.

26 Salters-Pedneault, Kristalyn, PhD, The Cluster B Personality Disorders; http://bpd.about.com/ od/relatedconditions/a/clusterB.htm (Accessed 27th September 2015). 27 Psychopathy is not only frequently and perhaps understandably misunderstood, but is also often confused with ‘Sociopathy’ and ‘Anti-social personality disorder’. Sociopath is the term preferred by those who believe the syndrome is “forged entirely by social forces and early experiences”. Psychopath is preferred by clinicians and researchers who believe that “psychological, biological and genetic factors ALSO contribute to development of the syndrome”. Antisocial personality disorder is a broader term based more on socially deviant behaviour which clinicians can more easily assess. The narrower concept of Psychopathy is defined by a cluster of BOTH socially deviant behaviours AND personality traits which are harder to assess such as empathy, egocentricity and guilt. Consequently not everyone diagnosed with Antisocial personality disorder would be considered Psychopaths, especially if they appear to be capable of experiencing remorse, guilt, empathy and strong emotions. 158 J.M. Clarke

This section outlines Hare’s own general summary of the key traits and behaviours of a psychopath. Hare cautions that actual diagnosis requires explicit training as people who are not psychopaths may display some of the symptoms described. ‘Many people are impulsive, or glib, or cold and unfeeling, but this does not mean that they are psychopaths. Psychopathy is a syndrome—a cluster of related symptoms.’ The Psychopathy Checklist – Revised (PCL-R) now involves twenty traits separated into four groups. For our purposes an earlier version featuring fewer traits separated into two groups perhaps serves as a more appropriate illustration. (a) Emotional/Interpersonal: Glib and superficial, Egocentric and grandiose, Lack of remorse or guilt, Lack of empathy, Deceitful and manipulative & Shallow emotions. (b) Social Deviance: Impulsive, Poor behaviour controls, Need for excitement, Lack of responsibility, Early behaviour problems & Adult antisocial behaviour. Hare outlined these behaviours and traits in an article ‘This Charming Psychopath: How to spot social predators before they attack’ based on his book ‘Without Conscience: The Disturbing World of the Psychopaths Among Us’28:

10.10.1 Emotional/Interpersonal

10.10.1.1 Glib and Superficial

“Psychopaths are often voluble and verbally facile. They can be amusing and enter- taining conversationalists, ready with a clever comeback, and are able to tell unlikely but convincing stories that cast themselves in a good light. They can be very effective in presenting themselves well and are often very likable and charming.

10.10.1.2 Egocentric and Grandiose

Psychopaths have a narcissistic and grossly inflated view of their own self-worth and importance, a truly astounding egocentricity and sense of entitlement. They see themselves as the centre of the universe, justified in living according to their own rules.

28 Hare, Robert D, 1994: ‘This Charming Psychopath: How to spot social predators before they attack’ excerpted from ‘Without Conscience: The Disturbing World of the Psychopaths Among Us’, Simon & Schuster,1993. https://www.psychologytoday.com/articles/199401/charming-psychopath (Accessed 11th August 2015). 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 159

10.10.1.3 Lack of Remorse or Guilt

Psychopaths show a stunning lack of concern for the effects their actions have on others, no matter how devastating these might be. Their lack of remorse or guilt is associated with a remarkable ability to rationalise their behaviour, to shrug off personal responsibility for actions that cause others to reel with shock and disappointment. They usually have excuses for their behaviour, and in some cases deny that it happened at all.

10.10.1.4 Lack of Empathy

Many of the characteristics displayed by psychopaths are closely associated with a profound lack of empathy and inability to construct a mental and emotional ‘fac- simile’ of another person. They seem completely unable to ‘get into the skin’ of others, except in a purely intellectual sense. They are completely indifferent to the rights and suffering of family and strangers alike. If they do maintain ties, it is only because they see family members as possessions.

10.10.1.5 Deceitful and Manipulative

With their powers of imagination in gear and beamed on themselves, psychopaths appear amazingly unfazed by the possibility – or even by the certainty – of being found out. When caught in a lie or challenged with the truth, they seldom appear perplexed or embarrassed – they simply change their stories or attempt to rework the facts so they appear to be consistent with the lie. The result is a series of contradictory statements and a thoroughly confused listener. And psychopaths seem proud of their ability to lie.

10.10.1.6 Shallow Emotions

Psychopaths seem to suffer a kind of emotional poverty that limits the range and depth of their feelings. At times they appear to be cold and unemotional while nevertheless being prone to dramatic, shallow, and short-lived displays of feeling. Careful observers are left with the impression they are playacting and little is going on below the surface.

10.10.2 Social Deviance

10.10.2.1 Impulsive

Psychopaths are unlikely to spend much time weighing the pros and cons of a course of action or considering the possible consequences. ‘I did it because I felt like it’ is a common response. These impulsive acts often result from an aim that plays a 160 J.M. Clarke central role in most of the psychopath’s behaviour: to achieve immediate satisfaction, pleasure or relief. So family members, relatives, employers and coworkers typically find themselves standing around asking themselves what happened—people hurt often for what appears as little more than a whim.

10.10.2.2 Poor Behaviour Controls

Besides being impulsive, psychopaths are highly reactive to perceived insults or slights. Most of us have powerful inhibitory controls over our behaviour; even if we would like to respond aggressively we are usually able to ‘keep the lid on.’ In psychopaths, these inhibitory controls are weak, and the slightest provocation is sufficient to overcome them. But their outbursts, extreme as they may be, are often short-lived, and they quickly act as if nothing out of the ordinary has happened. Although psychopaths have a ‘hair trigger,’ their aggressive displays are ‘cold’; they lack the intense arousal experienced when other individuals lose their temper.

10.10.2.3 A Need for Excitement

Psychopaths have an ongoing and excessive need for excitement—they long to live in the fast lane or ‘on the edge,’ where the action is. In many cases the action involves the breaking of rules. Many psychopaths describe ‘doing crime’ for excitement or thrills.

10.10.2.4 Lack of Responsibility

Obligations and commitments mean nothing to psychopaths. Their good intentions—‘I’ll never cheat again’—are promises written on the wind. Their performance on the job is erratic, with misuse of company resources, violations of company policy and general untrustworthiness. They do not honour formal or implied commitments to people, organisations or principles. Psychopaths are not deterred by the possibility that their actions mean hardship or risk for others.

10.10.2.5 Early Behaviour Problems

Most psychopaths begin to exhibit serious behavioural problems at an early age including persistent lying and cheating, more extensive and serious than most raised in similar settings. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 161

10.10.2.6 Adult Antisocial Behaviour

Psychopaths see the rules and expectations of society as inconvenient and unreasonable impediments to their own behavioural expression. They make their own rules, both as children and as adults. Many of the antisocial acts of psychopaths lead to criminal charges and convictions. Even within the criminal population, psychopaths stand out, largely because the antisocial and illegal activities of psychopaths are more varied and frequent than are those of other criminals. Psychopaths tend to have no particular affinity, or ‘spe- cialty,’ for one particular type of crime but tend to try everything. But not all psychopaths end up in jail. Many of the things they do escape detection or prosecution, or are on ‘the shady side of the law.’ For them, antisocial behaviour may consist of phony stock promotions, questionable business practices, spouse or child abuse, and so forth. Many others do things that, though not necessarily illegal, are nevertheless unethical, immoral, or harmful to others.”

10.11 Further Research

The Psychopathy Checklist – Revised (PCL-R) now separates ‘Deceitful and Manipulative’ into two traits: ‘Pathological Lying’ and ‘Cunning & Manipulative’ which perhaps better cautions those engaged in business and business research about the perils associated with appointing such people to leadership positions. If some business leaders do indeed possess what Hare refers to as “a profound inability to experience empathy and the complete range of emotions, including fear” and a reduced “capacity for developing internal controls and conscience and for making emotional ‘connections’ with others”, this author proposes that business ethicists could be factoring in such considerations in their own research. Chapter Seven of Hare’s ‘Without Conscience’ on White Collar Psychopaths describes one case where a businessman prior to his imprisonment “was able to use his charm, social skills and family connections to gain the trust of others. He was aided by the common expectation that certain classes of people presumably are trustworthy because of their social or professional credentials”. “In many cases the rules of the game for greed and fraud carried out on a grand scale are not the same as they are for ordinary crime. Often, the players in the former form a loosely structured network to protect their mutual interests: They come from the same social strata and the same schools, belong to the same clubs, and may even be instrumental in setting up the rules in the first place.” “For example, lawyers, physicians, teachers, politicians, counsellors, and so forth, generally do not have to work to earn our trust; they have it by virtue of their positions… In most cases our trust is not misplaced, but the very fact that we are so willing to give it makes us easy prey for every opportunistic shark we encounter. Most dangerous of all – the ‘jaws’ of the trust-mongers – are psychopaths. Having obtained our trust, they betray it with stunning callousness”. 162 J.M. Clarke

“They are fast-talking, charming, self-assured, at ease in social situations, cool under pressure, unfazed by the possibility of being found out, and totally ruthless. Even when exposed, they can carry on as if nothing happened, often leaving their accusers bewildered and uncertain about their own positions.”29 Ironically it was during the planning of an EBEN Ireland conference entitled “Corporate Conscience” in late 2013 that a behavioural psychologist introduced the author to the concept of ‘personality disorders’. However it wasn’t until mid 2015 that subsequent research led him to believe that he may have worked or consulted with fourteen people capable of being diagnosed by mental health professionals as psychopaths. He was initially astounded to realise that some psychiatrists and psychologists believe that they have little conscience and others believe they possess no conscience at all. The reasons for this are perhaps beyond the scope of this paper, primarily aimed at introducing business ethicists and others to the concept of personality disorders. Stout suggests “being devoid of conscience is impossible for most human beings to fantasise about… Not to care at all about the effects of our actions on society, on friends, on family, on our children? What on earth would that be like?... Conscienceless people are nearly always invisible to us… Being natural actors, conscienceless people can make full use of social and professional roles… We believe promises from such people because we assign to the individual the integrity of the role itself.”30 While they may be a minority in society and their precise numbers may indeed appear to vary from society to society, because the very essence of their ‘being’ can be dominated by a perhaps exclusive pursuit of their self-interest to the detriment of all other factors, allied to the likelihood that they seek the most senior positions in the most lucrative industries, their influence could transpire to be disproportionate and their role in ethically challenging situations significant. The fact that those lacking in the emotions which most people possess have been shown to so readily and perhaps unwittingly engage in high levels of pathological lying and deceit, cunning manipulation and egocentric, callous and impulsive behaviour, characterised by a lack of responsibility, empathy and remorse, are also well versed in using their charm, confidence and arrogance to hide their true traits even from experienced psychologists poses many implications for the direction of business ethics research. As does what Stout describes as ‘their preference for risky situations and choices, and their ability to convince others to take risks along with them’.31 With the character of an organisation’s leaders being so vital, confirmed by Warren Bennis who believed that “successful leadership is not about being tough or soft, assertive or sensitive, it’s about having a particular set of attributes which all

29 Hare, Robert D, 1993, Without Conscience: The Disturbing World of the Psychopaths Among Us, Simon & Schuster, Chapter 7, p107. 30 Stout, Martha, 2005: The Sociopath Next Door, Broadway Books/Random House pp 11 & 92. 31 Stout, Martha, 2005: The Sociopath Next Door, Broadway Books/Random House p88. 10 Dispositional Attribution of Corporate Executives: Is Self-Interest… 163 leaders, male and female, seem to share, and chief among these attributes is character”32 the resurgence in interest in Virtue Ethics and character is timely. Its focus on the application of values and virtues in business is augmented by research in the field of positive psychology. This paper is consequently supportive of research conducted by Marcel Meyer and others in the field of Positive Organisational Ethics,33 defined as “the study of people, practices and contexts that cultivate and sustain individual and collective ethical strength to achieve successful and durable moral performance in organisations”.34 This paper in advocating a greater focus on the ‘dispositional attribution’ of corporate executives who “cultivate and sustain collective and individual ethical strength” also argues the corollary, that ‘moral reasoning’ research should also take into further consideration what physician JC Prichard in 1835 termed ‘moral insan- ity’ to refer to a group of people characterised by “morbid perversion of the natural feelings, affections, inclinations, temper, habits, moral dispositions and natural impulses”.35 Initial research suggestions include the primary proposal that further research be conducted into the psychology of those ‘moral exemplars’ most responsible for admirable corporate cultures and those ‘difficult people’ whose very persona contributes to adverse cultures and ethical transgressions. While many issues arise from the scenario portrayed in this paper, which wide industry experience across all continents would suggest is highly relevant to explaining actual business ethics as it occurs, many potential research questions arise, a sample of which include: Could business ethics failures be due to leaders displaying what psychologists term ‘consistent irresponsibility’? Capable of routinely acting against the common good and doing so with ‘emotional impunity’? Should business ethicists be further considering the ‘dispositional attribution’ or psychology of leaders incapable of acknowledging responsibility for either their decisions or outcomes?

32 Bennis, Warren, 2004, in Josephson, Michael & Hanson, Wes, The Power Of Character: Prominent Americans Talk About Life, Family, Work, Values, And More, Josephson Institute Center for Business Ethics, p144 ISBN-13: 978-1588321060. http://business.josephsoninstitute. org/resources/poc-bennis-character-leadership/ (Accessed 11 August 2015). 33 Meyer, Marcel, 2015: From Positive Psychology to Positive Organisational Ethics: Changes and Challenges regarding positive organisational virtuousness, Unpublished Paper, European Business Ethics Network Research Conference, Special Track Business Ethics & Psychology, October 2015. 34 Sekerka, L. E., Comer, D. R. & Godwin, L. N., 2014, Positive Organizational Ethics: Cultivating and Sustaining Moral Performance. Journal of Business Ethics, 119: 435–444; researched by Marcel Meyer. 35 Burton, Neel, M.D; Hide and Seek: The 10 Personality Disorders. A short, sharp look into the 10 personality disorders. Posted May 29, 2012. Updated on 21 August 2015. https://www.psychologytoday.com/blog/hide-and-seek/201205/the-10-personality-disorders (Accessed 28th September 2015). 164 J.M. Clarke

Are the cohort of business leaders outlined in this paper likely to engage in ‘moral reasoning’ when research suggests they only ‘pretend’ to change their behaviour when either court-mandated or are faced with no alternative but to appear to do so, and then revert to type when not under pressure to ‘convey a good impression’? What is the role of emotional deficits including inability to experience either empathy or remorse in contributing to unethical behaviour? What are the implications for managerial practices should organisational colleagues be recognised as displaying traits associated with personality disorders? What are the ethical consequences of some business people lacking the capacity to reason morally? Should more business ethicists be considering further psychological related research perhaps in collaboration with colleagues in their Psychology Faculties along the lines suggested by this paper? Should we be considering an EBEN Special Interest Group on Business Ethics & Psychology? Chapter 11 Honour as the (New) Foundational Virtue for Responsible Leadership in the Banking Sector: A Theoretico-Conceptual Analysis

Johan Bouwer

Abstract This article deals with the question whether the widely accepted integrity can still be seen as the foundational virtue for responsible leadership within the banking sector. This question emerged in the face of the recent public and political outrage concerning an increase in the salaries of the members of the executive board of the ABN AMRO bank in the Netherlands, while apparently there was no breach of integrity. A theoretical/conceptual analysis of the core concepts in this article: responsible leadership (the key factor in sound and virtuous banking), integrity (the current foundational virtue banks act upon) and honour (a virtue related to integrity, but which encompasses it) has been made in order to find an explanation for the public outrage. It is concluded that the virtue of honour – as a foundational virtue – offers a more solid base than integrity in the banking sector, because honour is fundamentally closer related to the public’s ideals, concerns and values, and ascribed virtues to responsible leadership than integrity. It is therefore argued that honour should replace integrity as foundational virtue for responsible leadership in the banking sector.

Keywords Responsible leadership • Integrity • Honour • Banking sector

11.1 Introduction

Leadership is subjected to intensive study for quite some years now. It has been studied in various contexts and from different theoretical perspectives, such as psychology, sociology, cultural studies, anthropology and, to a lesser extent, also philosophy. The so-called new leadership theory has been introduced in the 1980s and

J. Bouwer (*) NHTV Breda International University of Applied Sciences, P.O. Box 3917, 4800 DX Breda, Netherlands e-mail: [email protected]

© Springer International Publishing AG 2017 165 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_11 166 J. Bouwer especially focuses on the phenomena of transactional, transformational and, in its slipstream, charismatic leadership (Jackson and Parry 2008). Yet other styles of leadership have been identified and propagated as well. The list seems to be endless and also confusing: ethical leadership, effective leadership, spiritual leadership, authentic leadership, authoritarian leadership, participative leadership, laissez-fair leadership, democratic leadership, virtuous leadership, servant leadership and many, many more. What is the common ground between all these styles of leadership? Or rather, what is the essence of leadership then, given all these styles? The new leadership styles mentioned above (or mainline theories) find the answer to this question in the ‘exchange between leader and follower wherein the leader offers rewards in return for compliance and performance’ (transactional leadership); the ‘transformation in the attitudes and motivations’, and consequently, behaviours of followers (transformational leadership) and the impact of personality in the process of change in communities and politics (charismatic leadership) (Jackson and Parry 2008: 29, 33–34). Transformational leadership has a great appealing value and is hailed by some theorists for complementing transactional leadership theory with vision, but it is also sharply criticized by others because of neglecting, amongst others, situational constraints (Jackson and Parry 2008: 32).1 The study of the dominant transformational model of leadership was accompanied by another line of research on the effectiveness of leadership, which investigated the link between leadership and personality (charismatic leadership). From a psychological perspective character traits like ‘conscientiousness, agreeableness, extraversion and emotional stability’ have been identified, but attention was also drawn to the necessity of doing research into the ‘dark side’ of leaders’ personality (e.g. narcissism, passive-aggressiveness and paranoia) (Jackson and Parry 2008: 35).2 The corporate scandals that dominated the headlines in the first part of the twenty-first century, urged scholars to shift the limelight from ‘the larger-than-life visionary charismatic business leaders of the 1980s and 1990s to the more humble, ethical and understated business leaders of the 2000s’ (Jackson and Parry 2008:40) and reflect on the nature of (bad) leadership, the reasons for the scandals and the (im)morality involved (Pless 2007: 437). This shift gave lead to studying the phenomena of ethical, authentic and spiritual leadership. These phenomena are perceived to complement the gaps and weaknesses in mainline leadership theories. Ethical leadership refers to taking the moral character and values of the leader into account (Bass and Steidlmeier 1999: 182), authentic leadership refers to focusing on harmony, charity and good work (a positive attitude with a moral and virtuous foundation) and spiritual leadership to characteristics like self-actualisation, the management of meaning, intrinsic motivation, wisdom, transcendence and interconnectedness (Jackson and Parry 2008: 98–101). As scandals became more frequent in different business sectors on the one hand, and (global) consciousness about the importance and necessity of a sustainable

1 See the work of Bass (1997); Maccoby (2000); Kets de Vries and Miller (1985) and Yukl (1999) on the weaknesses of transformational leadership. 2 See the work of Cable and Judge (2003) and Smith and Canger (2004) in this regard. 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 167 future for the earth and all of her inhabitants increased and became manifest on all levels of (international) society on the other, the intensity with which researchers especially look into the phenomenon of ethical leadership increased as well. Not only are leaders expected to set an example for sound moral and ethical behaviour in business, but also should they be instrumental in contributing, through business, to the betterment of the world. Since leadership is fundamentally relational in nature, and is all about influencing people, it is therefore also based on morality and should keep the value of responsibility in high regard. The notion of ‘responsible leadership’ was born out of the idea of ethical leadership and increasingly stands for an ideal that current and future leaders should embrace. Against the background of the many challenges the world faces, and therefore also business, responsible leaders are regarded to be ‘morally conscious, open towards the diversity of stakeholders inside and outside the corporation and be aware of and understand the responsibilities of business in society’ (Pless 2007: 438). Scholars start to, apart from focusing on the person and behaviour of the leader, also consider the impact of leaders’ behaviour on people (Jackson and Parry 2008: 106–111) by examining the ‘leadership dynamics in the context of stakeholder society including the ethical perspective’ (Pless 2007: 438). Responsible leadership has become a terminus technicus in the study of values- based leadership, since it revolves around values and trust, which in turn, is built on integrity and honesty. A former president of the United States, Dwight Eisenhower, stated quite some time ago: ‘the supreme quality for leadership is unquestionably integrity. Without it, no real success is possible (…)’ (Michel 2015). Today, integrity is still regarded the foundational virtue for leadership in business. Ferrell, Fraedrich and Ferrell hold that ‘ethical leadership is a foundational requirement’ which generally adopts either a ‘compliance –based approach or an integrity-based approach’(2015: 316); Collins points out that ‘personal integrity has long been recognized as an essential component of successful leadership’(2012: 271); Hartman, DesJardins and MacDonald convey that business leaders have a ‘responsibility for the business environment they create’ which implies that their ethical decision-making always effects their ‘integrity, virtue and character’ and (2014: 12, 56); DesJardins stressed that international ethics always concerns ‘the virtue of integrity’ which implies that the abandonment of ‘one’s personal values’ would ‘undermine one’s integrity’ (2014: 266); Bowie argues that ‘especially top executives should show leadership with respect to organizational ethics’, which in turn, is deeply embedded in an ‘organization with integrity’ (2013: 205, 204) and Karssing, although acknowledging that integrity is a rather fuzzy concept, poses integrity to be equal to professional responsibility which, in turn, revolves around the issues of integrity in management and the management of integrity (2009: 52, 55). Integrity has, apart from business, always been taken as foundational for leadership in the financial world as well. The world was in shock after the American Lehman Brothers Bank went bankrupt on 15th September 2008 and induced a worldwide economic crisis. Ruthless bankers brought the world to the abyss and global trust in the banking sector has been minimised. Several analysts blamed the crash on 168 J. Bouwer the impenetrability and dangerousness of the banking system itself (Luyendijk 2015), while others deem leadership to be the biggest challenge for the banking sector in the sense that they should try to change the system by moving away from ‘the false constraints of legacy’ and ‘take regulation to create innovation’ (Skinner 2015). Yet others go beyond this instrumental approach in solving the economic crisis and call for innovation in the field of leadership itself. David Fagleman, e.g., posed in The Guardian (28th July, 2014) that ‘bankers should take an Hippocratic Oath to restore virtue to the financial sector’. Integrity has apparently been put to the test. The aim of this article is to – against the background of the banking, or rather leadership, crisis – assess the value and function integrity currently has as a foundational virtue in this sector. First, a case study will briefly be introduced in order to demonstrate the subtlety and complexity of the interrelationships between responsible leadership and integrity. Secondly, a theoretical and conceptual analysis of these two key concepts will be made in order to uncover their conceptual constituents. Apart from a theoretical and definitional approach to responsible leadership, a ‘light version’ of the conceptual analysis developed by Walker and Avant (2011) and Näsi (1980)3 will be used to uncover the attributes, antecedents and empirical referents of ‘integrity’. It will be followed, thirdly, by a brief investigation of Aristotelian and modern views on virtues that resemble or revolve around the virtue of integrity. The virtue of megalopsychia, which is seen as the ‘crown of the virtues’ (Ross 2009) turns out to relate to and even embrace integrity through its connotation of honour. Fourthly, a theoretical and conceptual analysis will be made of honour in order to assess its conceptual constituents as well, followed, fifthly, by a comparison and discussion of the two analyses with the purpose of drawing conclusions regarding their fitness for serving as the foundational virtue for responsible leadership.

11.2 The Case: ABN AMRO

Public awareness regarding ethical behaviour of managers has increased since the start of the financial crisis in 2008 and the recession in Europe. Trust in the banking industry has sunk to an all time low. This became painfully clear when the Netherlands was – during March/April 2015 – in the grip of a widespread public and political outrage due to a salary increase of the executive board members of the ABN AMRO bank. ABN AMRO is a state-owned Dutch bank which was nation- alised in 2008 in order to save it from collapsing. It has cost the taxpayer an amount

3 Walker and Avant’s model for conceptual analysis has the following steps: (i) determine the aims and purpose of the analysis (ii) identify all uses of the concept (iii) determine the defining attributes (iv) identify a model case or related case or contrary case in order to assess the antecedents and consequences (v) define the empirical referents. Näsi uses a model which analyses a concept on basis of (i) the creation of a knowledge foundation (ii) conducting an external analysis (versus other related concepts) (iii) conducting an internal analysis (breaking the concept into parts and (iv) drawing conclusions. 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 169 of €21,7 billion. Six of the seven board members took a pay increase of €100 000,00 each (the CEO – a former minister of finance in the Dutch government – renounced), at a time that the bank was cutting up to 1000 jobs in its retail bank. It has led to a fierce and testy debate in Dutch parliament, which resulted in delaying a planned IPO (Initial Public Listing) of the bank. The parliament organised a special hearing with the president of the bank’s supervisory board. He defended the salary increase because it was based on a democratic and legally binding decision, accorded by the stockholders, much lower than international standards, known to the minister of finance and reported to the Dutch Parliament. In addition, the executive board members initially did not claim their salary increase, which were awarded under a previous government in 2012, for 2 years. So, the president of the supervisory board maintained, the bank acted in honesty and with full transparency and therefore with integrity. Yet members of parliament spoke about moral reprehensibility and an alien universe bankers live in; the labour union about a culture of greed and the media about shameful acts and the loss of public trust. What happened here? Apparently the bank stood in its right since it acted within the boundaries of the law, was honest and transparent, and the board members were seemingly even magnanimous by renouncing their right to a salary increase for two consecutive years. If honesty, openness and transparency were to be regarded attributes of integrity (Stückelberger 2014: 50), then what was the reason for the political and public outrage? If one assumes that the leadership of the bank acted with full integrity, it seems logical that the explanation for the dismay either lies with the public conception of leadership and integrity or with other causes such mob rule and jealousy on part of society – as one journalist suggested. Mob rule and jealousy seem a bit farfetched, since salary increases in other (business) sectors did not give rise to public outrage – at least not with the same intensity. The answer seems to be lying with bank – related issues. Therefore the notions of responsible leadership and integrity in this case will be subjected to closer analysis in the next section.

11.3 Conceptual Analysis I: Responsible Leadership and Integrity

The conceptual analysis of these two concepts will be done as follows: First, the constituents of ‘responsible leadership’ will be assessed by looking into scholarly definitions and theory. Secondly, the constituents of ‘integrity’ will be identified by using (a part of) the model of Walker and Avant. The search will be directed towards assessing the defining attributes (as reflected in both online dictionaries and theory put forward by scholars), antecedents and empirical referents of ‘integrity’. 170 J. Bouwer

11.3.1 Responsible Leadership

Responsible leadership has been described – to some extent – in the introduction of this article. But more specifically, Maak and Pless holds that responsible leadership is a ‘relational and ethical phenomenon, which occurs in social processes of interaction with those who affect or are affected by leadership and have a stake in the purpose and vision of the leadership relationship’(2006:103). It entails moral sensitivity regarding the impact business decisions and behaviours have on different stakeholders like the state, customers, employees, shareholders and nature (Stückelberger and Mugambi 2007: 346). The virtues that steer responsible leadership behaviour are hold to be integrity (honesty, openness, transparency), modesty (free from greed), servitude (serve common good and cause), forgiveness (accept own mistakes and forgive others), empathy (care for others), faithfulness (to values and promises), carefulness (prudence in management and resources) and ethical courage (in defending and implementing ethical values) (Stückelberger 2014: 50). It involves a sense of justice, recognition, care and accountability (Pless 2007: 451). In sum, responsible leaders have moral sensitivity towards the impacts of their actions on all affected by them and act with integrity, modesty, servitude, courage and care.

11.3.2 Integrity I: Defining Attributes (Dictionaries)

First, four online dictionaries have been consulted to get a view of the defining attributes of integrity (Oxford Dictionaries; Merriam-Webster; Dictionary.com; Vocabulary.com). The result was the following: Integrity regards: • Incorruptibility; soundness of moral principle that no power or influence can impair; firm adherence to a code of moral or ethical values • Completeness; unity; state of being • Honest; up righteousness; sincerity • Personal quality of fairness

11.3.3 Integrity II: Defining Attributes (Theory)

Secondly, an assessment of scholarly work on the definition, meaning and theory of integrity gives the following result: Integrity regards: • A combination of coherent virtues such as reliability, care, sincerity and dignity (Van Es 2001: 190) 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 171

• Steadfastness and non-susceptibility to temptations of self-enrichment, taking responsibility, actions can stand a moral test, moral self-respect and pride (Karssing 2009: 53–54) • A strength of character which includes honesty and truthfulness, authenticity and sincerity, internal sense of moral coherence and unity (Peterson and Seligman 2004: 205) • A personal characteristic associated with being true and consistent with one’s personal standards, thereby indicating a wholeness of character (Archer 2000: 249) • A model of trustworthiness, dependability, virtue; to be one’s true (good) self; one’s life fits together as a coherent, virtuous whole (Solomon 1999: 96–97) The analysis could be refined further by identifying the antecedents and empirical referents of the concepts.

11.3.3.1 Integrity: Antecedents

Given the ABN AMRO case, the antecedents of integrity relate to bankers who act responsibly and are incorruptible, trustworthy, honest, caring and true to their internal sense of moral coherence.

11.3.3.2 Integrity: Empirical Referents

The empirical referents of integrity in the ABN AMRO case study relate to living up to the moral and ethical code of conduct in the banking sector. The bank states: ‘ABN AMRO promotes a corporate culture that encourages its employees to act with integrity. Key elements in this regard are our core values, our business principles, the Dutch Banking Code, the Dutch Corporate Governance Code and the UN Global Compact Principles’ (ABN AMRO Sustainability Report, 2014: 12). The Dutch Banking Code, in turn, expressed that an executive has a ‘duty of care towards the client, integrity, risk management, financial reporting and audits’ which boils down to considering the interests of all involved (clients, shareholders and employees), and taking into account all ‘applicable laws, codes of conduct and regulations’ (Code Banken 2010: 8–9). The bank should be open and hold confidentiality in high regard. In conclusion, integrity seems to be central in steering the activities of bankers. ABN AMRO conceived integrity as the adherence to the law, existing codes, rules and regulations and the bankers did live up to these demands. It also seems that integrity is determinative for the nature of the antecedent ‘internal sense of moral coherence’ of the bankers since moral self-respect aligns with the conceptualisation of integrity. Yet, as concluded from this case, the bankers did not live up to the expectations of both politics and society. Integrity apparently did not offer a basis that was solid enough for receiving the public’s trust and respect. In considering 172 J. Bouwer alternative foundational virtues, it seems essential to identify a virtue that that covers the same ground as integrity, but at the same time lives up to public values and opinion. This will be at stake in the next section.

11.4 Aristotle and the Virtues

Reflection on virtues and more specifically, virtues ethics, looks back on quite a long history. It started with the classical Greek philosophers and – apart from an intermezzo between the end of the nineteenth century until the sixties of the twentieth century – still occupies philosophical minds like, for example, MacIntyre, Slote, Hurtshouse, Annas and Koehn today. The ancient Greeks held that all entities have a specific nature, which, in the case of humans, could be fully realised in being excellent, the result of which would be happiness (Baggini and Fosl 2007: 95). Excellence, arete, denotes a ‘good quality of character, more specifically a disposition to respond to, or acknowledge, items within its fields or fields in an excellent or good enough way’(Swanton 2003: 19); a ‘trait of character, manifested in habitual action, that is good for a person to have’ (Rachels 1999: 178); similarity ‘to personality traits, but with ethical significance’ (Hartman 2013: 31). Virtues are also associated with personal emotions, personality or personal values – analogical to a specific disciplinary position (Hackett and Wang 2012: 869). Many lists of virtues have been constructed over time. Yet there are differences to be found in the listing of virtues. MacIntyre (2007) attributes this to different practices that give rise to different conceptions of virtue, but holds integrity or constancy to be an end (telos) that goes beyond all separate practices that constitute the good. Most virtue ethicists take their inspiration from Aristotle who posited that a virtuous person has ideal character traits. A virtue, Aristotle holds, functions as a ‘mean between extremes’ (Hackett and Wang 2012: 870). He distinguished between intellectual virtues (understanding, science, philosophy, skill and prudence) and moral (or character) virtues that include courage, temperance, justice, generosity, magnificence, magnanimity, mildness, truthfulness, wit, friendliness, prone to shame, proper indignation, prudence, wisdom and ‘small honour’. Four of these character virtues are regarded cardinal virtues, around which the good life revolves. They are courage, justice, temperance and prudence. Integrity does not appear on the list of virtues, but has developed into a foundational virtue over time – at least in business contexts (MacIntyre 2007). Cox, La Caze & Levine hold integrity as a master virtue since it ‘coordinates all those character traits that are constitutive of what it is to succeed in taking one’s life fully seriously’ and should be used as a ‘mean to various excesses’(2014: 208). Audi & Murphy have noticed that integrity is usually used in two ways: an integrational way in which the term denotes a ‘kind of unity in character’ and an aretaic way in which it is used either as a specific moral virtue or moral virtue in general. They add that integrity fulfils an important function in its wide, integrational sense since it reinforces clearer and more familiar virtues by substituting them. Integrity is important 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 173 in ‘maintaining good character and moral conduct’, but it needs clarification, or even complementation when used to indicate specific leadership qualities in business contexts (2006: 16). However, Aristotle conveyed a forgotten virtue that is seen as the crown of the virtues, but has not received much scholarly attention. It is the virtue of megalopsuchia, a word that is difficult to translate well. Literally it meansgreatness of soul or magnanimity or moral grandeur. It has also been translated as dignity and pride (Devettere 2002: 75). A close reading of Aristotle’s position leads Devettere to hold pride as the preferred translation. Pride, in turn, has different meanings such as ‘an ordered whole, ornament, honour and credit’ (2002: 75). According to Russel, pride is a moral virtue since it consists in ‘knowing that the only things worth your doing are good and honourable things’ (2005: 111). Honour is seen as the domain in which pride operates (Devettere 2002: 76). Crisp zooms in on the notion of honour. He interprets megalopsuchia to be a (character/moral) virtue depicting doing good to others (generosity) within the sphere of ‘great honour’ (2006: 161). Aristotle’s view that honour comes ‘closest to his moral ideal of the completely good and virtuous person’ gives it its centrality and great significance (Crisp 2006: 163). It is a kind of respect, of (self) worth, of nobility of spirit that has influence on all the other virtues: it makes them even greater. Today, honour (especially in the Western world) is often regarded an old fashioned concept that belongs to times long gone. It has dropped out of business ethics together with concepts like loyalty and shame. Ross blames that on radical individualism, the loss of a sense of Aristotelian virtue and the current emphasis on policies and principles (2009). In pre-modern times, honour had an extrinsic conception, depicting the restoration of cosmic orders and status hierarchies; in modern times it has become an intrinsic tool that helps to construct a unique, private and inner identity based on the good, while postmodern renderings focus on the multiplicity of a self that is saturated with various practices of discourse (Barret and Sarbin 2008). The bottom-line is that honour is still present in modern society and functions under different denominators and in different contexts. Given the centrality of honour in Aristotelian thinking on virtue, and the centrality of integrity in current leadership thinking and the difficulties it has in being maintained as a foundational virtue for responsible leadership in the ABN AMRO case, a further investigation will be done of the notion of honour in order to assess its suitability as a possible replacement of integrity as a foundational virtue.

11.5 Conceptual Analysis II: Honour

The assessment of the defining attributes, antecedents and empirical referents of honour will follow the same procedure as in the case of ‘integrity’. 174 J. Bouwer

11.5.1 Honour I: Defining Attributes (Dictionaries)

The same four online dictionaries mentioned above have been consulted in assessing the defining attributes ofhonour . The result was the following: Honour regards: • Respect given to someone who is admired because of merit, worth, rank, status; accomplishments; recognition; esteem • Good reputation, as judged by others; public fame or glory; good name • Personal integrity: high moral standards of behaviour; knowing and doing what is right, avoiding fraud, dishonesty or deceit • Pride

11.5.2 Honour II: Defining Attributes (Theory)

Scholarly approaches to the meaning and nature of honour show that honour regards the following: • There are different kinds of honour: appraisal respect to people who have achieved something great and recognition respect to people due to certain capabilities (Appiah 2010: 13–14) • It inscribes both external value (prestige, shame, face, esteem, affiliated honour, glory) and internal value (honourableness and dignity) to persons and groups (Oprisko 2012: 5–7) • Underlying dimensions are self-respect, moral behaviour and social status/ respect (Cross et al. 2014: 232) • It is related to family honour (respect for family name), social honour (integrity and social interdependence), masculine (virility and defending the family’s name) and feminine honour (chastity and modesty on behalf of the family’s name) (Guerra et al. 2013:1274) • It is related to the virtues of competiveness (enhancing status and fairness) and magnificence (magnanimity, nobility and generosity) (Demetriou 2013: 26–30)

11.5.2.1 Honour: Antecedents

The antecedents of honour in the banking sector relate to bankers who receive public/societal respect and recognition based on moral integrity, good reputation, enhancement of the status of the bank, fairness, and having a spirit of nobility and generosity. 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 175

Table 11.1 Antecedents and empirical referents of integrity and honour Virtue Antecedents Empirical referents Integrity Bankers who act responsibly Bankers who live up to the moral and ethical code and are incorruptible, of conduct in the banking sector, having a ‘duty of trustworthy, honest, caring care towards the client, integrity, risk management, and true to their internal financial reporting and audits’. It boils down to sense of moral coherence considering the interests of all involved (clients, shareholders and employees), and taking into account all ‘applicable laws, codes of conduct and regulations’. Openness and confidentiality should be held in high regard Honour Bankers who receive public/ Bankers who live up to (a) the moral and ethical societal respect and code of conduct in the banking sector (see above) recognition based on moral and (b) personify and reproduce public/societal integrity, good reputation, ideals and values as a reflection of magnanimity/ enhancement of the status of pride, accountability and (mutual) respect the bank and fairness, and have a spirit of nobility and generosity

11.5.2.2 Honour: Empirical Referents

The empirical referents of honour in the context of banking leadership are related to two issues: it demands leaders who live up to (a) the moral and ethical code of conduct in the banking sector (the same as with integrity) and (b) personify and reproduce public/societal ideals and values as a reflection of magnanimity/pride, accountability and (mutual) respect.

11.6 Comparative Analysis of the Conceptual Constituents of Integrity and Honour

In this section a comparison will be made of the conceptual constituents of integrity and honour in order to assess their commonalities and differences. The focus will be on their antecedents and empirical referents, since they include the context of the banking sector as well. The antecedents and empirical referents of integrity and honour based on the identification of their defining attributes (see Table11.1 ) point out that integrity in the banking sector emphatically misses an explicitly formulated social dimension (it is principally concerned with compliance to the law, regulations and codes) while honour embraces, incorporates and complements integrity with a dimension called second-personal authority. Second-personal authority, is a perspective one takes when one addresses claims, demands or requests of other people, based on mutual answerability, mutual respect and projective empathy (Darwall 2013: 2, 5). Honour is therefore more sensitive towards societal ideals, concerns and values, and its 176 J. Bouwer ascribed virtues to responsible leadership than integrity. Moral responsibility – the essential feature of responsible leadership – is a second-personal issue, because it also entails responsibility to a moral community and exercises authority on people to do what is right or what is expected. Moral responsibility brings parties together and holds them to account. The moral sensitivity and responsibility ascribed to responsible leadership arguably matches the notion/character trait of honour with its second-personal authority better than integrity. It is theoretically and philosophically supported by the Aristotelian adage that nobility and greatness of character, namely honour, is to be held as the crown of all other virtues (Ross 2009: 69). This implies that, in the ABN AMRO case, the executives should have complemented their view on responsible leadership, that apparently rested on acting on integrity as ‘staying-within-the-boundaries’ of legislation, rules and regulations, with a sensitivity towards the economic and cultural context they were living in and towards the expectations and values of the general public. Although integrity incorporates a component of trust in the personal sense of moral coherence, it is not self- evident that the personal (subjective) sense of moral coherence includes alterity as well. Honour does. One cannot give oneself honour. The pride that forms the basis of honour includes, according to Aristotle, generosity towards others and presupposes the internalisation of public respect and approval. The public wrestles with the growing economic inequality in society and in the banking sector, has solidarity with those people who have lost their jobs, experiences financial hardship and has distrust in the banking sector due to the economic crisis. And politics and society expect from leaders in the banking sector to display nobility and greatness of character that is reflected in the recognition of these concerns. Therefore, honesty and transparency are just not good enough any longer. Integrity 2.0 is needed. Honour seemingly offers a better foundation to work with.

11.7 Conclusion

The aim of this article was to assess the foundational value of integrity as a directive virtue for responsible leadership behaviour in the banking sector. The investigation was induced by public and political outrage concerning an increase in the salaries of the members of the executive board of the ABN AMRO bank in the Netherlands, while apparently there was no breach of integrity. The bank acted in honesty, with full transparency, and within the boundaries of legislation, rules and regulation. A theoretical and conceptual analysis was made of the key concepts featuring in the ABN AMRO case study: first, of the concepts ‘responsible leadership’ and integrity and, secondly, also of honour, based on the central place it receives in Aristotelian thinking as the most foundational of all virtues. The conclusion is drawn that integrity (conceived and implemented as legislative obedience, honesty and transparency) is no longer ‘strong enough’ to function as foundational virtue for responsible leadership. Society and politics expected from leaders in this sector to complement integrity with nobility and greatness of character, that are reflected in 11 Honour as the (New) Foundational Virtue for Responsible Leadership… 177 the recognition of, respect for and acting upon public ideals, concerns and values. These concerns and values were related to public dissatisfaction with the growing economic inequality in society and in the banking sector, solidarity with those people who have lost their jobs, financial hardship and distrust in the banking sector due to the economic crisis. The notion of honour caters for these feelings and broadens the scope of integrity by referring to mutual answerability, mutual respect and projective empathy. Honour encompasses and complements integrity. Therefore, responsible leadership in this sector – based on honour – harbours a greater moral sensitivity towards the impact of business decisions and behaviours on all stakeholders than integrity does. It seemingly offers a better foundation for virtuous behaviour than integrity. Yet, due to the fuzziness and relatedness of the concepts of integrity and honour, further theoretical (and empirical) research is needed on their distinctive features. In addition, more reflection is needed on the nature of the virtuousness of these two concepts. To what extent are integrity and honour – conceived as virtues – related to characteristics of a person (and therefore leadership), or in what sense could they be called social virtues (and therefore related to context)? Arguably no virtue can ever be seen as a character trait sec: virtue is always defined and recognized by a moral community. A virtue seems to be double-layered: it always functions as a character trait and a social valuation at the same time. There are no leaders without followers, which implies that (responsible) leadership theory could be enriched by reflection on the interferences and interrelationships between honour, context and moral behaviour – and more specifically, the moral implications of or moral justification for the inclusion of public values and expectations in ethical decision-making in business sectors. To close on a practical note: it is recommended that the moral and ethical paragraph of the Banking Code drawn up by the Dutch Banking Association (especially the concepts of integrity and care as the leading principles) will be subjected to discussion and accurate analysis, and amended to include respect for social values as well (i.e. dimensions of honour). Fagleman’s proposal that ‘bankers should take an Hippocratic Oath’ in order bring back faith and virtue to the financial sector, certainly deserves consideration as well.

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Magnus Frostenson, Nina Hasche, Sven Helin, and Frans Prenkert

Abstract Although ethical issues in e-commerce have received increased interest in recent years, the relational context between e-vendor and e-customer has remained relatively unproblematized. Rather than assuming an anonymous interface between e-vendor and e-customer, with specific ethical issues related to it, we examine a case of a hybrid organizational context where physical stores within the fast moving consumer goods (FMCG) sector use an intermediary to sell goods via e-commerce. The co-existence of physical stores and Internet solutions creates multiple relationships to customers and, as we argue, ethical problems of partly different kind compared to the ones identified in the literature. In the article, both the nature of the relationships between e-vendor and e-customer is analysed and ethical issues related to these relationships identified. From a theoretical point of view, the article widens the discussion on e-commerce ethics from a relational perspective inspired by Martin Buber’s philosophy.

Keywords Buber • E-commerce • Ethics • Internet • Relation

12.1 Introduction

The enormous diffusion and use of Internet has significantly changed the nature of commerce. Retail is no longer strictly restricted to a physical space, which means that ethical analyses of trade can no longer stick to traditional business models to be complete. Actually, the rise of e-commerce “opens up new business environments, cultures, processes, and behaviours for ethical examination” (Kracher and Corritore 2004:72). E-commerce may refer to the general activity of doing business electronically (Kracher and Corritore 2004), or to the use of telecommunications and

M. Frostenson (*) • N. Hasche • S. Helin • F. Prenkert Örebro University School of Business, Örebro University, Örebro, Sweden e-mail: [email protected]; [email protected]; [email protected]; [email protected]

© Springer International Publishing AG 2017 181 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_12 182 M. Frostenson et al. computers to facilitate the trade of goods and services (Nardal and Sahin 2011), which implies the sale of goods over the Internet as well as the entire set of marketing activities involved in Internet selling, such as product design, price setting and promotion (Sison and Fontrodona 2005). Close to e-commerce, the concept of e-business widens the perspective, since it refers to particular ways of organizing companies, for example with regard to physical infrastructure, customer interface, and employment relations (Chaffey 2002). Within research, a rising interest in ethical issues related to e-commerce can be noted. Among ethical issues discussed in the literature, one finds security, privacy, identity, the non-refutability of transactions, unsolicited e-mails, and transaction security (Sison and Fontrodona 2005; Román 2007). As for privacy and e-commerce, ethical issues relate to collection of information (the quantity), unauthorized primary and secondary use (by unauthorized persons or unauthorized selling of personal data without permission), erroneous information gathered about the Internet user, or invasion of privacy through unwanted communication such as spamming (Brown and Muchira 2004). Questions referring to Internet access, intellectual property, privacy and informed consent, protection of children, security of information, and trust have been discussed (Kracher and Corritore 2004), as well as legal matters relating to financial reporting and intellectual property, for example copyright issues (Maury and Kleiner 2002). E-consumers’ trust in the e-vendor is frequently referred to (Sharma and Lijuan 2014), as well as consumer trust in the web itself (institutional trust) and trust in others generally (dispositional trust, see McKnight and Chervany 2002; cf. Mukherjee and Nath 2007). The potentiality of e-commerce to bring about new patterns of consumption, for example facilitating ethical consumerism, has also been discussed (Coles and Harris 2006). However, although the literature on ethics and e-commerce is growing, the literature departs from an a priori narrow assumption about the character of the relationship between the e-vendor and the e-customer. Ethical issues, usually understood as threats to values like privacy or integrity, or violation of customer rights, are frequently formulated on the basis of the e-vendors’ responsibility towards the e-customer in a ‘pure’ online relationship. This relationship is manifested in online transactions, and it is marked by (more or less) anonymous relations between e-vendor and e-customer. The possibility that the e-customer may have multifaceted relationships to the e-vendor, for example both visiting the physical store and shopping from the Internet store of the vendor is hardly problematized, although a few studies (Harris et al. 2003) make a point of discussing ethical challenges in e-commerce at different levels. In this paper, we set off from a case study of a hybrid arrangement where customers can interact with the store both in a traditional way and online. The paper takes stock of the multifaceted relational context of this e-commerce solution and asks and answers the double-edged research question: “How can e-vendor and e-customer relationships be understood in a hybrid organizational context and which ethical issues arise in such a specific context?” This question reflects the general purpose of the paper, to identify ethical issues relating to overlapping and interrelating vendor- customer relationships in e-commerce. 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 183

As the case shows, it is possible to challenge the image of the dualistic ‘simple’ vendor – customer relationship in e-commerce as well as the ‘technically’ understood interface between customer and store. We identify a highly active and multifaceted relationship between vendor and customer resulting in partly different ethical problems and choices that have to be made by the vendor compared to both the physical store and the ‘pure’ online business. As we argue in the terms of Martin Buber (1923/1995, in particular), the multifaceted character of relations in hybrid arrangements implies an active choice of how to look upon the relationships to customers, either as I-Thou or I-It. From a structural point of view, the article first problematizes the nature of relationships and ethics in e-commerce, introducing Martin Buber’s philosophy as a possible instrument for analysis. The method used for the case study is described and the case, an e-commerce intermediary, acting as agent for fast moving consumer goods (FMCG) and foodstuff stores, is introduced. A findings section is followed by an analysis. Finally, conclusions and a discussion close the article.

12.2 Understanding Relations in E-Commerce – Buber and the Internet

Even though the discussion on e-commerce has developed in recent years, one significant aspect present in the growing body of research concerning e-commerce and ethics is its particular focus on the relationship between the firm (the e-vendor) and the e-customer. In particular, various ethical aspects relating to the interface between e-vendor and e-customer have been problematized, theoretically often with regard to responsibilities of the e-vendor towards the e-customer, empirically often referring to the intercept between e-vendor and e-customer. Examples include studies on how trust or customer satisfaction can be generated (Román 2007; Nardal and Sahin 2011). What Harris et al. (2003) capture in their analysis, however, is the fact that different levels of e-commerce exists, and that various issues may come up and become relevant from an ethical point of view depending on the specific nature (or level) of e-commerce. Harris et al. (2003) suggest an understanding stretching from a narrow concept of online transactions to broader conceptions, encompassing also wider organizational interrelationships and linkages, and, at the widest level, social and cultural contexts in which online transactions can be understood. Ethical issues do not just pertain to the immediate relationship between vendor and customer, the transaction level, but also to inter-organizational and macro levels. Whereas privacy, security, authenticity, consumer rights and data protection are relevant ethical issues at the transaction level, other issues like employee surveillance/empowerment, pat- ents and copyright, employee access to customer data, and codes of conduct are relevant in an inter-organizational context, whereas issues pertaining to public versus private space, self-regulation versus legislation, digital divide, commercialism versus altruism, and social responsibility may be macro level points of concern. 184 M. Frostenson et al.

In line with Harris et al.’s (2003) analysis, the nature of e-commerce is relevant to reflect on. As Kracher and Corritore (2004) note, e-commerce involves (compared to the physical store) a structural change with repercussions for interconnectedness, simplicity, speed, virtuality, and cost. However, even though e-commerce is certainly marked by such features, various forms of e-commerce may exhibit such features to a different degree or in combination with traditional features of the physical store, at least in cases where hybrid solutions to e-commerce exist. What is evident in many cases is that different organizational solutions (hybrid solutions) create an addition or even conflation of structures, relationships and roles vis-à-vis the customer. Large firms, for example in the clothing or furniture industry, combine a well-developed network of local stores with Internet solutions that facilitate e-commerce. To wit, a significant share of all e-businesses is of hybrid character. Vendors may sell goods both through the physical store and through the Internet, sometimes to the very same customer. Sometimes they do this by themselves or they use some kind of intermediary firm for sales and distribution. Whereas the store is a physical arena, the Internet is a virtual arena where customers interact not only with the company but also with others, for example on consumer websites or on Facebook where they discuss their purchases or experiences of customer service. In other words, e-commerce structures co-exist with traditional business models or organizations. What is true when it comes to ethical issues and problems in ‘pure’ online retailing may not be true in a hybrid organizational context, or, for that matter, in a traditional physical store. One may wonder whether extant literature on e-commerce and ethics has taken this into account. One way of understanding the existence of hybrid context in e-commerce is in terms of relationships. E-commerce customers may, for example, enact different roles simultaneously, for example as customers in the physical store and as e-commerce customers. At the same time, the e-vendor must communicate with these customers in social media like Facebook to address their questions, complaints, and needs. In doing so, they must face a virtual network with which they may have no customer relationships. The multiplicity of roles and relationships that emerge from e-commerce organized in this way involves, one can assume, a conflation of ethical issues and the emergence of ‘new’ ethical issues as a corollary of the interrelatedness and mutual influence of different roles and relationships on each other. An example of this is when the e-commerce intermediary also provides home delivery. What happens in the relationship between vendor and customer is that the public arena that the physical store constitutes turns into a distinct private arena where the store (and/or intermediary used by the store) gets immediate access to the customer. Digital encounters become physical and ‘abstract’ customers become concrete ones. With e-commerce, the knowledge of the customer’s consumption patterns increases, involving knowledge about the use and sometimes abuse of some goods. Ethically conscious responses to customer consumption are required from the vendor. E-commerce, thus, implies particular ethical challenges with regard to privacy, integrity and, possibly, paternalistic responsibility. Among other ethical challenges that needs to be addressed by the vendor, one finds the question of how to deal with customers that suffer from social phobia. 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 185

One way of treating the multiple relational context is to abandon the traditional dualistic and one-dimensional e-commerce relationship portrayed in extant literature and to find both empirical and theoretical inputs to characterise the nature of relationships and the ethical issues associated with them. Notably, a substantial share of the literature on ethics and e-commerce is of theoretical and conceptual nature. Compared to studies of retail ethics in general (for example, Memery et al. 2005; Frostenson et al. 2011; and many others), empirical studies are fewer, even though they exist. Román (2007), for example, finds that four factors – security, privacy, non-deception, and fulfilment/reliability – are strong predictors of online consumer’s trust and satisfaction. In the same vein, Nardal and Sahin (2011) study consumer perceptions and find security, privacy, reliability and non-deception on Internet to be core issues that limit the growth of online retailing. These studies are representative of empirical studies in the sense that they highlight perceptions of online consumers and relate these to ethics (see also Brown and Muchira 2004; Sharma and Lijuan 2014). In line with the argument mentioned previously, however, also empirical studies have a relatively narrow view of the relationship between e-vendor and e-customer, focusing on specific consequences of the online relationship described above. From a theoretical point of view, a mere identification of ethical issues of the multifaceted customer relationship context in hybrid e-commerce is hardly enough. One important analytical tool needed would be a framework for analysing the relationships. A promising one could be the relational philosophy of Martin Buber (see, primarily, Buber 1923/1995). Buber’s framework has mostly influenced researchers interested in interpersonal encounters (see, for example, Cipolla and Manzini 2009; Ungvári-Zríny 2003). Buber (1923/1995) argues that life itself is encounter. For Buber, the relational character of human beings are based on two fundamental characteristics of relations, the I-Thou and the I-It relation, two relational types that cover every possible kind of encounter. I-Thou and I-It are the two Grundworte, the fundamental words describing the nature of relations. For Buber, true human relations of I-Thou character encompass the ethical nature and obligations of man. Ungvári-Zríny (2003) argues that a human being enters into the I-Thou relation with his or her innermost and whole being. The relation is immediate and each one is for the other, a pure presence. It is the ability to truly relate to the other. In Buber’s words, an I is not possible without a Thou, the two are in dia- logical symmetry, the one presupposing the other. I-It relations, on the other hand, are of de-personalising character, reflecting distance rather than relationships between human beings. Cipolla and Manzini (2009) contend that when interacting with It, you confront something you know and are familiar with based on experience. Thus, the distinction between I-Thou and I-It relations as made by Buber, resides in the difference between a relation and an experience, where the basic word I-Thou establishes the world of relation and the world of experience belong to the basic word of I-It. Thus, it may be argued that and I-Thou relation is of more intimate character than an I-It relation. The encounter between interacting parties within an I-Thou relation is naked, unprotected and direct in nature, while the encounter within an I-It-relation is more reserved, where past experience guide the 186 M. Frostenson et al. behaviour of the interacting parties, for example in their roles as vendor and customer. The de-personalised relationship is essentially the annihilation or reduction of a Thou into an It. All fundamental relationships involve an encounter and recognition of a Thou. This is not to say, of course, that all relationships may without hesitation be characterised as an I-Thou or I-It relation. Relations are not ex ante defined between human beings, but constructed or enacted according to the intentions and recognition of the individuals involved. Relating this to the topic of this paper, the typology of I-Thou and I-It will be used analytically to characterise the constructed (moral) nature of the various relationships following hybrid e-commerce.

12.3 Methodology

The article examines the customer relations and ethical issues in a hybrid setting through a case study of stores in the FMCG sector that use an e-commerce solution of intermediary kind, Handla 24 (H24). Fundamentally, a case study has been conducted, targeting both the founders of H24 – still active in the company – and representatives of local stores using the service of H24. These local store representatives are either store managers or employees with particular responsibility for the e-commerce concept of the store. All in all, seven local store and/or H24 representatives have been interviewed. These include five local representatives and, in addition, one store owner who is also one of the founders of H24. The business partner of this store owner, the current managing director of H24, has also been interviewed. The interviews are listed in Table 12.1 below.

Table 12.1 Interviews No. of Denotation Characteristics Other interviews Interviewee 1 (BF) Founder of H24 and owner of Male, 2 stores using H24 mid-Sweden Interviewee 2 Founder and managing director of Male, 2 (MÅ) H24 mid-Sweden Interviewee 3 Responsible for online sales in Male, southern 1 (MH) store using H24 Sweden Interviewee 4 (CK) Responsible for online sales in Male, 1 store using H24 mid-Sweden Interviewee 5 Responsible for online sales in Male, 1 (WM) store using H24 mid-Sweden Interviewee 6 Owner of store using H24 Male, 1 (JAS) mid-Sweden Interviewee 7 Responsible for online sales in Female, 1 (JAH) store using H24 mid-Sweden 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 187

The interviews have focused on the use of the e-commerce solution in general and the aspects of the customer relationship in particular. Each interview took around 1–2 h. The interviews were recorded and were stored electronically to facilitate access and to make them accessible to all participating researchers. Each interview was transcribed. The parts of the interviews with particular relevance to the article were coded and related to the various points of analysis (see structure below) and ethical issues teased out and identified. Of particular interest was to identify how the customer relationship is characterised by the respondents, how it develops compared to the traditional physical store vendor-customer relationship and specific issues of concern that the respondents mention.

12.4 Developing Hybrid Solutions for E-Commerce: The Case of H24

The e-commerce structure H24 studied in this article was established in 2007. At the time of writing, 14 stores within the Swedish ICA FMCG network use the H24 solution for e-commerce. All stores are located in the mid and southern part of Sweden. Notably, the ICA structure is commonly referred to as a network with free merchants in partnership with stores owned by local merchants but with central cooperation when it comes to, for example, purchasing and marketing. The business model of the structure builds on the free merchants as profit centres, undermining central ambitions of coordinated e-commerce. Already in the 1990s, e-commerce was discussed as something that “everyone should work with” (BF, MÅ). However, a central initiative from ICA within e-commerce established in the early 2000s failed after a few years. The customers were not, it was argued, mature enough for buying food on the Internet (BF, MÅ). H24 was a local initiative founded by merchants within the ICA structure. From an organizational point of view, H24 is a separate stock company that is not mandated to act directly towards the customer, but sells, in practice, a trademark and a system for e-commerce, that is, a technical solution to various stores within the ICA structure. The local stores can be seen as H24’s customers, buying a form of sub- scription to its services, including, for example, the Internet platform and Internet support. Through this solution, the local stores remain profit centres. The customers buy goods on the Internet. Then, the goods are packed in the local stores and transported to the customers. Although uncommon, the customers also have the possibility to pick up ready-packed goods in the stores. H24 has been highly selective in the choice of stores, in particular from a geographical perspective, accepting only one store per area to avoid internal competition. Notably, even though the stores may be part of the ICA network, they may be strong competitors, sometimes more so than stores of other chains are seen as competitors. Other stores within the same geographical area may, of course, choose other e-commerce solutions, but not H24. 188 M. Frostenson et al.

The local merchants that adopted H24’s concept were frontrunners in the sense that they jumped on the bandwagon on their own initiative, not due to central commands from the ICA structure. These local merchants have in common that they have wanted to expand and develop their businesses through e-commerce, while keeping the local physical store. E-commerce through H24 has been a way to expand business through the Internet while, at the same time, retaining the business model intact and harvesting the profits from e-commerce. Different solutions as to employment of staff have been present over the years. In some cases, local staff responsible for packing and delivering have been employed by H24, in other cases by the local store or hired from other external companies to work specifically with e-commerce customers.

12.5 Findings

The stores of the study joined the H24 platform around 2010–2011, implying that they have been into e-commerce for around 5 years. The respondents claim that the solution that H24 has provided was well-developed and suited them fine. E-commerce is the outreach to new customers and the possibility to expand business. First mover advantages are also mentioned as a reason for why e-commerce was adopted. The risk that present store customers choose other e-commerce solutions was anticipated and handled through joining H24. A sense of uniqueness also prevails. Not all physical stores are ready for or have the competence to run e-business. Among the advantages mentioned one does not necessarily find financial gain. 5–15 % of total store turnover emanates from e-commerce, according to the respondents. Building up e-commerce takes time, and financial success does not come immediately (JAS, JAH). But among positive consequences one finds, for example, increased turnover of goods, and that the assortment of goods is possible to expand since Internet customers contribute through buying goods that would otherwise have had a limited local market. Customer behaviours are different depending on whether the customer e-trades or comes into the store physically. E-customer orders range, on the average, between 1,000 and 1,400 Swedish crowns (SEK), according to the interviewees. Physical customers, on the other hand, average 100–200 SEK for each purchase in the store. In other words, e-customers plan their purchases and buy more basic goods and food of higher quality. Relatively few customers are described as both physical customers and e-customers. Even though, of course, some living nearby may turn up and do complementary shopping in the physical store, the outreach of the e-store is much larger and attracts other customers than the ones that have done their purchasing in the physical store. This is also the aim of the merchants. Cannibalizing on existing physical customers is a risk, in particular since e-commerce in the H24 solution implies that the store takes on the tasks of packing and distribution, two important tasks that the physical customer in a traditional store takes care of him- or herself. 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 189

Packing the goods takes time. In the H24 solution, this is done in the stores since the business model implies that the stores are the profit centres. Investments in storage capacity of goods, a possibility for more convenient packing, is far too costly for each individual store. Distribution of the goods is done in cars owned by the stores, one to three cars depending on the volume of sales. Overall, the staff dedicated to e-commerce is employed by the stores, even though different solutions have existed over the years. In the store, one person may expedite an order of, around, 1,500–2,000 SEK in half an hour, implying that one employee may expedite two orders per hour. Home delivery is charged, ranging from 75 to 150 SEK per order depending on the store, but full cost coverage is not necessarily possible to charge since a high fee will not be accepted by the customer. In other words, e-commerce involves that two costly elements must be handled by the store, packing and delivery. It is uncommon that customers facilitate delivery by picking up the shopping bags in the store. About 2–5 % of the customers use that service. To some extent cannibalization is unavoid- able, but, after all, it is not seen as a big problem. The total value of customers’ purchases on the Internet and physically in the store is likely to increase through the provision of the e-solution. The staff intensive nature of the e-commerce solution is the main disadvantage mentioned by the interviewees. The work is physically demanding for packers and drivers. Packing requires big carts being pushed around the physical store, which is problematic since it tends to reduce accessibility for physical customers. In some cases confusion may arise in the stores when physical customers address the packing staff with questions. Different solutions, for example particular t-shirts, have been used to differentiate between packing staff and employees working in the physical store. In some cases, the stores have chosen to combine the roles, implying that the packing staff is also regular store staff, with the task of assisting physical customers. Only to a limited extent the respondents claim to have rebuilt their stores to fit e-commerce logistics, with some exception that made substantial investments (WM). The physical store precedes e-commerce, not the other way round. As for customers, the respondents identify, with some variations, four kinds of e-customers, three of them different types of private customers, and one institutional category, including companies. Other respondents confirm, in principle, this picture. First, ‘comfortability customers’ can be identified, that is, customers that want to spend their time on other things than going to a store. Often, these customers are families with children, frequently with good incomes, or, as the respondents say, with two BMWs parked in front of the house. These customers do the bulk of their shopping on the Internet, but may come into the physical store for complementary purchases. Second, there are elderly people, or handicapped, with limited capability to come to the physical store. A common image outlined by the respondents is grown-up children buying food for their old parents on the Internet. The children may live far away, but have the opportunity to care for their parents, so to speak, at a distance. Thereby, the e-commerce solution makes it possible to live, for example in the countryside (JAS). As for countryside stores, summer guests are reached through the Internet. In such cases, it is not unusual that customers order on the 190 M. Frostenson et al.

Internet and pick up the goods at the store on the way to their summer houses (JAH). Third, a relatively small but still existing category is customers with some kind of disability in the form of social phobia, drug or alcohol abuse or mental illness (MÅ). Fourth, a large category (10–65 % of the cases are depending on whom you ask) is constituted by institutional customers, that is, companies, kindergartens, schools, or other institutions. The orders placed by these institutions are larger, and usually relatively stable, for example fruit baskets or lunches for school children. The physical encounter when the driver delivers to the e-customers is one channel for contact. Other channels include e-mailing through the webpage. All H24 stores have webpages within the frames of H24, making it possible to reach the stores individually also through e-mail. Even though orders are placed on the Internet, telephone contacts with customers are relatively frequent, for example when reclamations are made. Telephone is also used as a means to get in touch with the client on a short notice, for example when an ordered good is missing or when delivery cannot be made within set times. Social media, like Facebook, are also used, but this is up the local stores. As one respondent claims, Facebook is for marketing, not for dialogue (WM). Some stores use social media more than others. For the stores, e-customer contact is time consuming. Customers frequently expect quick responses, which is something that the stores are well aware of and try to meet expectations to avoid discontent. One respondent claims: “I decided to make the customers 150 % happy” (JAH). It is argued that it is easy to make the customers buy once, but not twice. Customer satisfaction is of high importance. As for reclamations, customers living nearby may come into the store with the goods they have purchased on the Internet. Others use the Internet or the telephone. However, when everything works smoothly, there is no particular contact with the customer apart from delivery. What the use of H24 seems to create is two channels of knowledge about the customers. First, e-commerce implies increased information about the e-customer. Even though the physical encounter is often limited to the drivers and, in some cases, telephone or e-mailing, the consumption patterns of the e-customer becomes well-known by the store. “You get to know them on paper”, one respondent says (MH). Another respondent claims she will know from the consumption patterns when customers are pregnant, have children, when they are menstruating, have bought a cat, or are into the habit of eating tacos on Fridays (JAH). You get to know their consumption over the years. Yet another respondent says that the staff packing the goods knows the name of virtually every customer since they are recurrent (CK). You get to know the preferences of the customer, which goods that the customer prefers and so on. It is not necessarily a conscious form of information gathering, but concrete experiences of what the customer buys and wants. There is definitely a difference between e-customers and physical customers in this respect, the former you learn much about, the latter only meet staff at the registers. Second, the physical encounter with the e-customer takes place at the customer’s home (if the customer is not a company or some other kind of institution). An important role is given to the drivers. One respondent says that he never sees the customers but talks to 25 or 30 customers on the phone every week (MH). But 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 191

drivers do see the home environment of the customer. In some, although relatively rare cases, bad social conditions can be observed. “Looking into apartments and houses may imply that you realise that everything is not okay”, one respondent says (CK). Some customers order eight six-packs of beer and cigarettes, and the next day they order the same thing again. Customers that buy 50 l of lemonade at each purchase also exist (MH). The question of what to do with this information gets different answers. If it is possible to do something when you see social misery or questionable consumption patterns may be answered by “No, you have to take it for what it is” (CK) or “Well, it is not our business to have a lot of values about how people have it at home; it is, once again, something that we have to deal with professionally” (WM). A certain amount of cynicism may prevail in conversations between employees. One respondent states that drivers sometimes tell stories “Fog of smoke, pulled blinds. Sounds awful but it makes the day of the drivers. You gather and talk about it, saying, gosh, have you been there? The dog bites, there is a smell of smoke. It does not feel good, but it is the way it is.” (MH) Another way of looking at the problems is, however, possible. One respondent (JAH) mentions a customer with a large consumption of lemonade, sweets, and the like. The customer shopped for about 4,000 SEK every week although she was single. The drivers saw that the person was not okay. “We started to wonder, where to call?” (JAH). But then a letter arrived from the social authorities wanting the store to block the customer’s account. In this case, the store was allowed to deliver after permission, with the prerequisite that if the pattern repeated itself, the store should report. But, as the respondent argues, since then there has been no strange behavior of the customer, she just buys food for 1,000 SEK a week. We would react again, the respondents says. “You have to turn on your heart. Besides, we do not want to contribute to it or be associated with it.” (JAH). On the other hand, the encounter with the driver delivering the goods is described as something very positive for the customer. The drivers are important, they are the face of the store. On some occasions, in particular elderly people, the social function of the driver should not be underestimated. “The driver carries the goods, carries out the garbage bag. Such customers we would never have reached otherwise.” (JAH) When it comes to some customers, it is quite necessary to stay for a cup of coffee when delivering the goods.

12.6 Analysis

Drawing on the case, one may tease out how e-vendor and e-customer relationships can be understood in a hybrid organizational context. It is also possible to identify certain ethical issues that arise in such a specific context. Only to a limited extent, relations to existing customers change. One problematic issue mentioned is when there is a confusion between which staff that is dedicated to e-commerce and which staff that is there for the customer in the physical store. This seems, however, to be a minor issue. The relationship to the e-customer is 192 M. Frostenson et al. constructed as a new one, encompassing new customers that used to be out of the range of the physical store. Certain types of customers are identified, apart from institutional customers also ‘comfortability customers’, elderly or physically handicapped people, and people with some social or mental handicap. In particular the private customers are possible to identify through their consumption patterns rather than the direct physical encounter, even if such an encounter exists for the drivers. Regardless of the different solutions (i.e. physical, online or hybrid), the vendor collects in different ways a huge amount of information about the customers’ consumption patterns and, as a consequence, life in general. However, within a hybrid solution, when drivers meet customers in their homes, a direct face-to-face meeting develops and the information collected regarding the single customer transforms into a human being consisting of flesh and blood. In this situation, the encounter between the vendor (or in reality the driver) and the customer takes place in a space that is traditionally considered to be private, even “intimate”, i.e. one’s own home. Making one’s private sphere available means making oneself vulnerable. The drivers meet the customers, usually without any disturbances. But in some cases, the social state or health of the customer matters and the driver gets a more social role than in a traditional vendor-customer encounter taking place in a public arena, i.e. physical store or online. As we argue, the nature of the encounter implies a moral choice, conditioning how the relation to the customer should unfold. In Martin Buber’s terms, one could argue that the relational character of the meeting is defined by the choice of what to do with the information and realization of the state of the customer. Of course, one cannot say that it automatically implies an I-Thou or I-It relation, but the knowledge and visible insights into the personal life of the customer prompt an attitude of relational character. From the vendor’s perspective (with the driver as an intermediary), you have a choice, to develop the relation and act according to it (for example react to unsound consumption patterns) or to ignore it and see it at a distance, claiming that it is just professional. Furthermore, the existence of e-commerce facilitates phenomena of socially relevant character, for example the possibility to live in the countryside. Children may buy food for their ageing parents. These indirect effects are part of the social aspects of e-commerce. In line with Harris et al. (2003) we identify ethical issues at different levels, both the transactional level (direct ethical issues) and the social level (indirect ethical issues). But as we argue, the nature of the customer relation is multifaceted and involves a relational choice (understood in I-It and I-Thou terms) as the main ethical issue for hybrid organizations. In other words, how you look on responsibility is a matter of choice rather than random. But whatever the case, the relational character of e-commerce develops differently compared to the physical store and ‘pure’ e-commerce where the store does not exist physically or, at least, never meets the customer. In Table 12.2, the discussion is summed up. From Table 12.2 one can infer that e-commerce in hybrid organizations encompass issues of physical stores and ‘pure’ e-commerce. But on the other hand, the relational character of e-commerce in hybrid organizations also creates ‘new’ issues, like the ones already mentioned. 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 193

Table 12.2 Characteristics, ethical issues, and relational state of different variants of commerce Direct ethical Indirect ethical Characteristics issues issues Relational state Pure physical Physical Privacy, Accessibility I-It or I-Thou encounter, integrity, customer packs consumer rights and pays in store Pure online Digital Privacy, Solution to I-It encounter, store integrity, countryside or central unit consumer rights locations, packs, reaching intermediary elderlies, delivers teaching people under stress, problem of facilitating not to visit elderlies Hybrid Physical Privacy, Solution to I-It or I-Thou encounter, store integrity, countryside packs, customer consumer rights, locations, pays and pick up Increased Reaching goods (physical information of elderlies, encounter at customer Reaching people store) or store (information under stress, packs and embodied), Problem of delivers Seeing misery, facilitating not (physical Food abuse, to visit elderlies encounter at Threats (judging customer’s customer) home)

The analytical argument put forward, however, relates to the relationships that vary between the different forms of encounters. It would be absurd to claim that the character of a relationship is defined (in I-Thou or I-It terms) strictly based on the organizational (logistical form) of the encounter. What one could contend, however, is that the nature of encounters exact dispositional attitudes and choices conditioned by the features (organizational, technical, et cetera) of the encounter. Even though loyal customers may visit the physical store, and have a long relationship, even friendship, with the staff, the possibility to be anonymous still exists in the physical store. The customer is one of many, often (with some exceptions) not recognised. As we argue, the relational character of physical stores tends to be either of I-Thou (loyal, well-known customer) or I-It character (unrecognised, anonymous customer). In pure online stores, the relational element is, without doubt, reasonably enough characterised as an I-It relationship, mainly because knowledge of the customer does not imply a face-to-face encounter. The knowledge of the customer 194 M. Frostenson et al.

(shopping habits, et cetera) is one-sided, not living up to the relational requirements of an I-Thou relationship. In the hybrid case, however, we argue that an I-Thou or an I-It relation may exist. The direct encounter, face-to-face with the customer, in the customer’s home environment creates a form of visibility that requires a response from the retailer. Knowledge about the customer’s lebenswelt cannot be ano- nymised. There is a face-to-face meeting. As we argue the choice between the I-Thou and I-It relationship becomes an active choice of the retailer. As a deliverer, you can pay attention to or disregard what you see and what you know about the customer. The difference between a physical store and a hybrid situation is that in the physical store the choice is not necessarily a morally pressing issue, since you do not in the same way see so much of the customer (home environment, et cetera) that you are forced to make a morally informed decision. The relationship I-It or I-Thou may follow a passive path. In the hybrid solution, the choice is active. Disregard (or joke about) what you see, and make it an I-It relationship, or take it as a moral choice that requires you to take action (the I-Thou perspective). The moral choice is pressing. How you respond to it forms the relationship to the customer.

12.7 Concluding Discussion

This article extends the current analysis of ethical issues in e-commerce. An idea that we develop is that e-commerce elicits different kinds of moral choices depending on the nature of the encounter between retailer and the customer. This encounter can be analysed in terms of Buber’s relational philosophy. The article widens substantially the view of the interface between company and customer by pointing to different customer relationships that the e-commerce firm has to deal with simultaneously. In doing so, it takes into account the more general predicament of e-business, involving also organizational and logistical issues related to the physical (often co-existing) store. An overall conclusion following from our analysis is that e-commerce ethics is highly dependent on the nature of e-commerce. In practice, the nature of ethical issues is much dependent on the structural conditioning of the business model of companies engaging in e-commerce. As we see, the combination of highly personal information about the customer and the access to the customer’s private arena (the home and neighbourhood environment of the customer) when delivering goods creates a much more direct ethical challenge to hybrid organizations than is often assumed in the literature on ethics and e-commerce. An implication of this is that companies engaging in hybrid variants of e-commerce, in our case firms within the FMCG and foodstuff industry, face ethical challenges due to the lack of anonymity of the e-customer. Unlike what is sometimes assumed, the e-customer is not anonymous. When the name, home address and entire consumption pattern of the customer is combined with a physical encounter at the customer’s home, a relationally oriented choice of how to encounter the customer is demanded. This relational 12 Ethical Issues in E-Commerce: A Renewed Analysis Based on the Multiplicity… 195 choice is of fundamentally moral character and should be considered as highly relevant in any ethical evaluation of e-commerce, at least in the hybrid situation that we describe.

References

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Bitra Suyatno, Anona Armstrong, and Keith Thomas

Abstract This chapter discusses whistleblowing of bribery practices in the Indonesian Directorate General of Taxation. Earlier studies reveal that written regulations and policies providing whistleblowers protection programs, and threatening punishment for those who retaliate against whistleblowers, are not effective. This chapter investigates social and cultural variables such as attitude toward whistleblowing, group pressure and perceived behavioral controls that may encourage individuals to report bribery. Unless bribery is understood within an organizational context, the relevant regulations, policies and systems may not be used at all or they may not be used properly to combat bribery. A framework investigating main issues is proposed: to what extent do variables such as attitude, subjective norm, and perceived behavioural control influence individuals to report bribery; to what extent do the variables influence individuals in selecting reporting channels; and what are the main variables that influence the intention of individuals to report bribery in the DGT? Answers to these questions will be useful when designing whistleblowing regulations and policies to combat bribery (and support whistleblowers) in the high context culture of Indonesia.

Keywords Whistleblowing • Planned-behavior theory • Bribery • High-context culture • Reporting • Indonesia

B. Suyatno (*) • A. Armstrong Law and Justice College, Victoria University, Melbourne, Australia e-mail: [email protected]; [email protected] K. Thomas School of Business, Victoria University, Melbourne, Australia e-mail: [email protected]

© Springer International Publishing AG 2017 197 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_13 198 B. Suyatno et al.

13.1 Introduction

The purpose of this chapter is to describe the results of a study of bribery and whistleblowing in the Indonesian Directorate General of Taxation (DGT). Bribery is constituted in this chapter as giving or promising a favour or reward to tax department employee as an individual or a group in order to influence them to act for benefits of the giver, such as by reducing tax obligations and/or accelerating services (Azam et al. 2009; Rizal 2011). Whistleblowing is defined as “the disclosure by organisation members of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organisations that may be able to effect action” (Brown 2006, p. iv). This study in Indonesia is in contrast to the majority of whistleblowing studies that are conducted in a Western cultural context. This chapter utilizes Planned Behavior Theory (PBT) adapting from Park and Blenkinsopp (2009) study in order “to investigate the relationship between attention, subjective norms and perceived behavioral control, and the intention to whistleblow, as well as the preferred reporting channels in a high context culture such as Indonesia” (Suyatno et al. 2015, p. 21). In regard to perceived behavioural control, this study develops Park and Blenkinsopp (2009) model by utilizing Schein’s six mechanisms of leadership style (Fallon and Cooper 2015; Schein 2010) that investigate an organization’s shared “underlying assumptions and the process by which they come into being” (Dellaportas et al. 2007, p. 1445). This study expands on previous research to include the perceived of ease/difficulty to get other occupation(s) and of having strong and sufficient evidence to justify the disclosure (MSPB 2011) as variables that can stimulate an individual’s propensity to report misconduct (Miceli and Near 1985; Near and Miceli 1986). The conceptual model (see Fig. 13.1) shows how whistleblowing intentions can be predicted by PBT. The model also includes analysis of the preferred channel of reporting, as well as the intention to ‘not’ report. Although several prominent researchers in whistleblowing study, such as Miceli et al. (2013) argue that whistleblowing studies lack fundamental theories, this study applies the “Universal Dignity Theory of Whistleblowing” (UDTW) proposed by Hoffman and McNulty (2011) as basic theory. As the scholars (Hoffman and McNulty 2011, p. 51) argue, the fundamental principle of UDTW is that “whistleblowing is both permissible and a duty to the extent that doing so constitutes the most effective means of supporting the dignity of all relevant stakeholders”. The principle of UDTW leads to the following conditions for ethical whistleblowing as follows: first, providing strong evidence-based of serious illegal or unethical behaviours by an organization or its staff that are deliberated to infringe the dignity of its stakeholder(s); and second, organization’s participation in or wilful ignorance to misconduct, or failure by the organization to take corrective actions (Hoffman and McNulty 2011). However, it would also be unreasonable to expect an individual to disclose wrongdoing if one has reliable grounds for believing that by reporting 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 199 24)

, p. 2015 al. (

) and developed by Suyatno et 2009 Conceptual framework adapted from Park and Blenkinsopp (

Fig. 13.1 Fig. 200 B. Suyatno et al. wrongdoing whistleblower or his or her loved ones would be at risk of reprisal (Hoffman and McNulty 2011). There are key principles in this basic theory that satisfy this investigation since this study emphases on investigating the feeling of having evidence, particular type of unlawful action (bribery), perceptions of the leadership culture and organization’s seriousness to investigate the report, and consideration of retaliation as fundamental antecedents to intention to whistle blow (Suyatno et al. 2015). This study also attempts to utilize principled whistleblowing theory developed by Hoffman and McNulty (2011) for Indonesia context although the theory is grounded in the United States. Following the authors (2011) arguments that it is intended to be applicable to other countries and cultures. Moreover, literature also suggests that individuals often have intrinsic or extrinsic motives and not merely self-sacrifice, when they do a good deed for the broader community (Dozier and Miceli 1985). For instance, in the context of whistleblowing, individuals may be motivated to disclose wrongdoing given the opportunity to obtain financial and other personal benefits (Bowden 2014). This concept, earlier called prosocial behavior, has been developed as pro-organizational behavior (POB) in an organizational context (Brief and Motowidlo 1986). POB is defined as behavior that is “(a) performed by a member of an organization; (b) directed toward an individual, group, or organization with whom he or she interacts while carrying out his or her organizational role; and (c) performed with the intention of promoting the welfare of the individual, group or organization toward which it is directed” (Brief and Motowidlo 1986, p. 711). The main difference between prosocial behavior and altruism is that the latter requires purely unselfish motives by actors’ when performing a particular behavior (Dozier and Miceli 1985). Borrowing this idea, in the context of whistleblowing theory, many prominent scholars have considered whistleblowing as POB (Brown 2008; Miceli and Near 2013). Thus, we believe that if an organization is keen to encourage their employees to report misconduct, they need to facilitate employees working in an ethical environment, supportive culture and values, as well as devise appropriate regulations, policies, procedures and other intrinsic and extrinsic ingredients. The reasons are very clear. Since whistleblowing has an embedded risk of reprisal, requesting an individual to be a martyr, without providing adequate protection from adverse consequences and providing rewards that could encourage disclosure, is unreasonable (Suyatno et al. 2015). Equally, enforcing others to sacrifice themselves is no sacrifice at all when the leader giving direction is free from any adverse costs (Bouville 2008). In fact, as Bouville (2008) noted, offering and giving rewards to potential or existing whistleblowers does not breach morality. The basic assumptions of morality do not requisite individuals to be sinless who act with altruism and neglect rewards for their deeds (Bouville 2008). Moreover, from a cost and benefit calculation, the potential to report misconduct and stop wrongdoing seems to be prevalent if financial rewards also included (Suyatno et al. 2015). Consistent with this line, some scholars (Bowden 2014; Brink et al. 2013; Dworkin and Near 1997; Miceli and Near 1985) recommend that adequate monetary incentives should be included as factors to encourage employees to report any illegal or unethical action (such as bribery). 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 201

13.2 Study Context

13.2.1 Background Story

This study selected bribery as the type of wrongdoing to be investigated. There are several reasons for choosing bribery instead of another particular type of misconduct or all possible types of wrongdoings. First, bribery in the DGT has attracted great public interest in Indonesia, highlighted by attention on what is commonly referred to as the ‘Gayus’ case. This most notorious bribery case at the DGT attracted great public interest and provides the background story to this study. A DGT official, Gayus Halomoan Tambunan, a relatively low-ranking member of employees who assisted companies to illegally evade or reduce their tax liabilities, received what is described as a small fortune of Rp74 billion (US$8.5 million) (Newman 2011/2012). Although Gayus was punished to 10 years in prison, he described himself as a ‘small fish’ compared to other much larger wrongdoers in the DGT (Newman 2011/2012). Corroborating his assertion, related analysis indicated that a significant “tax mafia” operates within the organisation (Newman2011 /2012). Moreover, as a survey by a non-government organisation, the Welfare Initiative for Better Societies (cited in Pramudatama (2012) indicated, Indonesia stood to lose approximately 50 % or around Rp521 trillion (US$55.9 billion) of its tax revenues as a result of wrongdoers in the department (DGT) exploiting irregularities in tax regulations, in collaboration with taxpayers and unofficial tax officials. Officially, the DGT argues that the internal whistleblowing system (WISE) has helped the organization detect and reveal cases of bribery within the Department (Rizal 2013). However, noting Gayus’ suggestion of a “tax mafia” (Newman 2011/2012) and the reported existence of a culture of corruption as noted by Rizal (2011), the cases identified so far might be perceived as being just the top of the iceberg, and that bribery continues to exist and remains largely unaffected (or unde- terred). A further reason for focusing on bribery is to fill a gap in whistleblowing literature. In terms of the type of wrongdoing, studies that focused on a particular type of wrongdoing, most were based on sexual harassment (i.e. Alagappar and Marican 2014; Bowes-Sperry and O’Leary-Kelly 2005; Miceli et al. 2013; Sinha 2013). One other study focused on students’ intention to disclose humiliations, deg- radation, and abusive rituals for new members to join a Greek group at several col- leges in the United States (Richardson et al. 2012). Therefore, it is important to investigate this particular type of fraudulent action (bribery) not only because whistleblowing studies that select this particular wrongdoing are still very few (Miceli et al. 2013), but also because this specific wrongdoing matches the organisation’s characteristics and interests (Suyatno et al. 2015). An organisation’s features may lead to different treatments for different wrongdoings (Suyatno et al. 2015). For example, strongly profit-oriented companies may compromise to tax evasion, but not to embezzlement since the latter is seen as reducing profit (Victor and Cullen 1988, Wimbush and Shepard 1994 cited in Near and Miceli 1995). 202 B. Suyatno et al.

13.2.2 Definition of Bribery and Scope

Bribery is commonly determined and widely accepted as one form of corruption (OECD 2008). Although the words – bribery and corruption – clearly refer to trans- fers of resources that are in some sense “bad”, many organisations still find it difficult to identify and describe “bribery” and “corruption”, especially in order to bring those terms from general characteristics to a more operational description (Gordon and Miyake 2001). Moreover, this same study noted, identified tolerance for different practices in different cultures as an excuse for bribery and other corrupt practices can present some implementation difficulties. For example, many organisations in different countries have utilized gift giving and entertainment in return for favours as culturally specific forms of economic transaction (Au2014 ). Yet, there is little evidence is known about how to differentiate between practices that are acceptable or unacceptable (Gordon and Miyake 2001). In a Chinese business and cultural context, for example, the failure to reciprocate (take and give) can cause a loss in prestige, face, and mutual trust (K.-k. Hwang 1987). Even the Organisation for Economic Co-operation and Development (OECD), the Council of Europe, and the United Nation Conventions do not explicitly describe “corruption”. However, the OECD did establish a list of corrupt behaviours, which includes bribery of foreign public officials (OECD 2008). As well, while definitions of corruption may differ slightly, the OECD (2008) identifies more similarities in international definitions of corruption for policy purpose. The common definition is the ‘abuse of public or private office for personal gain’. This definition can be used as a reference for policy development, awareness-raising, and elaborating anti- corruption strategies (OECD 2008, p. 22). Nonetheless, despite definitional differences, many business have made public commitments to define codes of conduct ‘as a bribery code if it mentions money transactions, political contributions, gift giving or entertainment’ (Gordon and Miyake 2001, p. 5). Other scholars describe bribery as any action that includes an explicit request for reciprocity or “a favour for a favour” (Lambsdorff and Frank 2010). Similarly, Donaldson (2001) identifies a bribe is the result of a bargain-based relationship between two parties that violates accepted legal and moral standards in most countries, while Langseth (2006) views the bribery definition, which appears in the domestic laws in most countries and in academic publications, as the confer- ring of a benefit in order to unjustifiably influence an action or decision. However, to be more precise, since this study focuses on “bribery” practices in public service organizations in Indonesia, the definition of bribery is based on Act Number 31 Year 1999, concerned with ‘The Eradication of Corruption Criminal Action’ as cited by Winarto (2014). Although this law addresses corruption, and does not clearly define bribery, the content of the statements satisfy the definition of bribery as identified in earlier reported studies such as Gordon and Miyake (2001), Lambsdorff and Frank (2010), Donaldson (2001), and Langseth (2006). Thus, bribery is constituted as “giving or promising something to civil servant or state caretaker in order to make this civil servant or state caretaker to do something or not to 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 203 do something within their rank but may be assessed as being in violation of their duty” (Winarto 2014, p. iii). Moreover, since this study refers to the tax department, bribery in this context is limited to giving or promising something to a tax employee in order to make him or her reduce tax obligations and/or accelerate services (Azam et al. 2009; Rizal 2011). Although grand bribery, like that associated with huge money, receives most media and public attention (anw/anw 2011; Rizal 2011, 2013), this chapter also includes consideration of low level briberies, such as free food, free ticket, and tip- ping which can invite greater deviance if left unmitigated. The issue is significant, particularly in high context cultures – countries that Hall (1976) described as collectivist, valuing interpersonal relationships and communicating implicitly (that is, relying heavily on context) – such as Indonesia. It can result in companies, especially small ones, being forced by public servants ‘to pay to make things happen or even to keep bad things from happening’, including enabling the company to remain in business (Tanzi 1998, p. 584). These payments are reported as increasing the costs of doing business for small businesses by as much as 20 % of total operating costs (Sjaifudian 1997 cited in Tanzi 1998). More serious types of bribery has also been investigated. For instance, the benefit of political backing and promotion for collusive (unethical) behavior can be seen by many employees as indicative of an organization culture of corruption (Fallon and Cooper 2015; Schein 2006). This, in turn, can discourage employees from reporting wrongdoings (i.e. Cassematis and Wortley 2013; Deborah Lynn Seifert 2006; Sinha 2013; Stansbury and Victor 2009). Moreover, employees who are ‘suitable’ to the culture will remain to work in the organisation or will be newly recruited, while those who clash with the prevailing cultural norms may resign or have their employment terminated (Fallon and Cooper 2015). As a case in point, in the case of the Australian Wheat Board, the whistleblower who questioned the payment of kickbacks was ultimately pushed out of the organization due to his ‘questioning’ (Fallon and Cooper 2015).

13.2.3 The Weaknesses of Existing Laws

Another issue that reinforces concern over bribery and related wrongdoings by DGT officials is the weaknesses in existing Indonesian whistleblowing laws, both in the adequacy of principles and provisions, and in their implementation (Suyatno et al. 2015). Compared to accepted international principles, Indonesian whistleblowing laws show major limitations in that external reporting channels to third parties, anonymity, confidentiality, internal disclosure procedures, remedies and transparency are absent (Wolfe et al. 2014). Moreover, the Witness and Victim Protection Agency (WVPA) is reported to be underfunded, ineffective, limited in geographic coverage, lacking in supporting technology and human resources skills, and its appointees are not independent from political involvement (Hendradi 2011). Additionally, as this chapter noted, the different perspectives by law enforcement officials regarding witness and victim protection results in a lack of coordination 204 B. Suyatno et al. and can lead to conflict among related parties (Hendradi2011 ). Finally, Hoffman and McNulty (2011) argue that it is unreasonable to expect one to disclose wrongdoing if by doing so it would put the individual or their loved ones in harm’s way and without sufficient legal protection. Those issues suggest that while regulations are essential, alone they may not be sufficient, and it is necessary to understand (and adjust governance practices to enable) predictors that may influence one’ intention to report bribery (Suyatno et al. 2015). To conclude, good governance is a key factor for long-term stability, and it cannot be enforced from outside, but it is best developed organically, supported by strong roots within society (Suyatno et al. 2015).

13.3 Conceptual Framework

The identified conceptual framework (see Fig. 13.1) is based on the three core constructs of what is known as planned behaviour theory (PBT): attitude, subjective norms and perceived behaviour control (Ajzen 2005). The utility of PBT has been demonstrated is several studies across countries such as Malaysia (Ab Ghani 2013), South Korea (Park and Blenkinsopp 2009), South Africa (Fatoki 2013), and Indonesia (Bagustianto 2015; Banda and Mahfud Sholihin 2012; Kreshastuti and Prastiwi 2014; Sulistomo and Prastiwi 2011). Thus, the theory is widely tested and has general validity as a general theory on whistleblowing. As well, difficulties arise, however, when an attempt is made to investigate actual whistleblowing behaviour, even impossible, to directly access an actual whistleblowing event because it is such a sensitive issue (Chiu 2003; Patel 2003) and a hidden activity (Patel 2003). In addition, the confidentiality arrangements required by organizations restricts access to whistleblowers (Sims and Keenan 1998), which applies also for DGT context. The net effect of such norms is to make the topic difficult to research (Patel 2003). Consequently, the focus is on the ‘intention’ of DGT employees to engage in whistleblowing, rather than their actual behavior. Given these gaps in whistleblowing literature, this chapter attempts to extend the theory to explicitly account for attitude, subjective norm, and perceived behavioral control (organizational culture, availability of other work and evidence held) in relation to bribery practices in the DGT organization. Arguably, the biggest limitation in existing whistleblowing literature is that it has focused mainly on Western culture. As various scholars note, there is a need to extend the studies to other regions and cultures (Lowry et al. 2012; Miceli et al. 2013). PBT is based on the assumption that individuals’ intention to perform a specific behavior depends on their beliefs and on available information (Ajzen 2005). The theory has provided good predictions of both intentions and behaviors for intention to use cannabis, which is a sensitive issue (Conner and McMillan 1999). Thus, the concept is arguably also useful in predicting with some accuracy to other high risk behaviors, such as whistleblowing (i.e. Ab Ghani 2013; Fatoki 2013; Park and Blenkinsopp 2009). As well, if an individual believes that he or she possesses the 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 205 appropriate opportunities or resources (e.g. money, time, skills, cooperation and support from others) to deal with particular behaviors, they are more likely to perform the behavior in question (Ajzen and Madden 1986).

13.3.1 Attitude

The first determinant of intention is attitude, which refers to an individual’s respond favourably or unfavourably to particular object, person, entity, event, or behaviour (Ajzen 2005). It is derived from salient beliefs about the consequences of the behavior and the subjective evaluation of those consequences (Park and Blenkinsopp 2009). This study utilizes the positive consequences of whistleblowing based on the aims of the whistle-blower protection laws (Callahan and Dworkin 2000 cited in Park and Blenkinsopp 2009), including deterrence of harm to an organisation, corruption control, public interest enhancement, an employee’s beliefs of his or her role responsibility as well as moral satisfaction (Park and Blenkinsopp 2009). These researchers concluded that the respondents have positive attitude toward whistleblowing, which means the employees’ agree that whistleblowing has positive effects and it is important to act against misconduct (Park and Blenkinsopp 2009). However, it is intriguing that positive attitude towards whistleblowing (individuals think it is morally right and necessary) does not necessarily means all will disclose wrongdoing when the time comes to do so. In fact, only a few actually take action (Park and Blenkinsopp 2009).

13.3.2 Subjective Norms

The second determinant of intention, subjective norms, refers to “the perceived social pressure to perform or not to perform the behaviour” (Ajzen 1991, p. 188). This is a reflection of an individual’s normative beliefs about approval or disapproval by important referent individuals or group in relation to a given behavior (Ajzen 1991). Subjective norms are measured by normative beliefs about what others think an individual should multiplied of each belief with the individual’s motivation to obey (Ab Ghani 2013). Ghani suggests that the subjective norm as a product of (expectation) x (value) (Ab Ghani 2013). A significant number of researchers also argue that the presence of super-ordinates or co-workers support has a positive relationship with reporting (i.e. Brown 2008; Dozier and Miceli 1985; Ellis and Arieli 1999; Lavena 2014; Mesmer-Magnus and Viswesvaran 2005; Miceli and Near 1988, 1989, 2009; Miceli et al. 2012; Near and Miceli 1995; Park and Blenkinsopp 2009; Proost et al. 2013; Trongmateerut and Sweeney 2013). Furthermore, as Sheppard et al. (1988) argue, the combination between attitude and subjective norm is the main foundation of the model to explain various antecedents and whistle-blowing intention. Inconsistency in results related to this latter variable 206 B. Suyatno et al. can however be found in a single study at Indonesian DGT, which revealed that supervisor support appeared not to influence employees’ intention to report wrongdoing (Budiriyanto and Gugup Kismono 2013).

13.3.3 Perceived Behavioral Control

The third determinant of intention is perceived behavioral control. This is defined as the perceived ease or difficulty of performing the behaviour, which depends on an individual’s self-efficacy and perceived wider environmental factors that promote or hamper performance (Foy et al. 2007). This third determinant emerged due to the limitations noted in attitude and subjective norms as predictors of individual intention. Based on expectancy theory, the impetus to individuals blowing the whistle on misconduct in institutions is viewed as a function of potential successful expectation (Ab Ghani 2013) of particular desirable results (e.g., stopping of wrongdoing or organisation attention to their complaints) (Demetriadou 2003 cited in Ab Ghani 2013). The findings are consistent with Brown’s 2008( ) empirical study and Bowden’s (2014) literature review, which both reveal that two predominant reasons individuals would report on misconduct are: (1) assurance that the reporters will be protected from any reprisal; and (2) assurance that the disclosures will be investigated seriously. Thus, to predict intention more accurately we can say that is not only based on attitudes and subjective norms, but also behaviour that one’s perceived as under his or her control or likely successful expectation (Ajzen and Madden 1986). It should be highlighted that the emphasis is on “perceived” rather than “actual” control, since the latter is difficult or perhaps impossible to predict due to the many unantici- pated factors in nature that can hamper one to execute a particular intention (Ajzen and Madden 1986). The third element of perceived behavioural control has been added and utilized in the planned behaviour model through several laboratory tests that show greater accuracy in the prediction of intentions and goal attainment than those based only on attitude and subjective norms (Ajzen and Fishbein 1980). Additional evidence is presented by McConnon et al. (2012, p. 316) in relation to an intention to diet, that suggests that ‘Perceived behavioural control was the most consistent predictor of expectation, with the strength of association increasing over time’. However, the findings should be treated carefully and cannot be taken for granted, especially since activities related to diet are mainly based on inner motivation and do not invite the risk of retaliation that can follow whistle-blowing actions (Bowden 2014; Brown 2008; Hwang et al. 2014; Keenan 2007; Lee and Fargher 2013; Miceli and Near 1984, 1985; Miceli et al. 1988, 1999, 2009, 2013; Seifert et al. 2010; Sims and Keenan 1999; Tavakoli et al. 2003; Tsahuridu and Vandekerckhove 2008). Importantly, as shown in a study conducted by Mesmer-Magnus and Viswesvaran (2005), the intention to blow the whistle is often not followed by actual actions. Several variables related to this tension between intent and action have been identi- 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 207 fied, such as personal considerations related to cost of acting/retaliation consequences (Brown 2008; Hwang et al. 2014; Keenan 2002, 2007; Lee and Fargher 2013; Miceli et al. 2013; Richardson et al. 2012), cash incentives or other benefits (Bowden 2014; Miceli et al. 2013), and training (Ab Ghani 2013). It is also argued that the perceived difficulty may overlap substantially with affective attitude (Kraft et al. 2005). However, this finding mainly refers to Park and Blenkinsopp (2009) and Fallon and Cooper (2015) studies in fitting the variables with PBT. The first sub-determinant of perceived behavioural control in this chapter is organizational culture. Although culture is an abstraction, the forces to create a culture in social and organizational situations are powerful (Schein 2006). It is also commonly understood that culture and leadership are two sides of the same coin (Schein 2006). On the one side, cultural norms will define leadership, while on the other side the ultimate act of leadership is to internalize useful culture or to mitigate culture when it is considered as dysfunctional (Schein 2006). More generally, however, whistleblowing must also be viewed in terms of the national (Indonesian) culture, earlier characterized as high context, but using more contemporary descriptors can be described as being high power distance, more collectivist than individualistic, moderate feminism and moderate in uncertainty of avoidance (Hofstede and Hofstede 2005). The effect of national culture on the workplace is evident in the following noticeable characteristics (1) inequality is acceptable; (2) more powerful individuals have more privileges, even, sometimes over the clear written rules and regulations; (3) whoever holds power is often seen as the source of rightness and goodness; (4) individuals tend to avoid conflict, preserve others’ ‘face’, maintain harmony, and seek compromise; and (5) the bias towards relationship that prevail over task considerations (Hofstede and Hofstede 2005). All studies seem to accept leaders as key players in shaping the organisational culture (Fallon and Cooper 2015; Hofstede and Hofstede 2005; Schein 2006). The attributes of leadership styles based on Schein are attention, reaction to crisis, resource to allocation, role modelling (how leaders behave), allocation of reward, and criteria for selection and dismissal (Fallon and Cooper 2015; Schein 2006, 2010). The impact of these elements become evident in a cultural context, as illustrated below. (a) Attention Attention is a leaders’ devotion to focus, evaluate, and manage of issues that can be perceived by employees as important or not important value within an organisation (Fallon and Cooper 2015; Sims and Brinkmann 2003). Thus, if leaders show conflicting messages, then subordinates may feel confused about the true view or opinion of their leaders (Fallon and Cooper 2015). For instance, in case of whistleblowing, regardless of how frequently the super-ordinates encourage the subordinates to disclose wrongdoing, if senior leaders are seen not to follow up reports seriously, it is likely to discourage employees’ intention to report wrongdoing (i.e. Bowden 2014; Brown 2008; Cassematis and Wortley 2013). Worse, the lack of leader’s attention can help create a corrupt culture within the organisation (Fallon and Cooper 2015). 208 B. Suyatno et al.

(b) Reaction to Crisis A leaders’ reaction to a crisis is often seen by employees as leaders’ values (Dellaportas et al. 2007). How executives’ reacts to a bribery case, whether they shift the blame and point fingers to others for the fraud occurring or they admit to a weaknesses in the system and apologise for the problems, can determine the leaders’ ethical values (Fallon and Cooper 2015) as Australian Wheat Board (Fallon and Cooper 2015) and Enron (Sims and Brinkmann 2003) illustrates. If the leaders is seen to blame others or react in a defensive manner to unethical behaviours within the organisation, employees are likely to report misconduct through external reporting channels or by going public rather than internal channels (Driscoll 1999; Tavakolian 1994). (c) Resource Allocation The third leadership mechanism indicates that employees’ behaviour, attitudes and their personal goals are influenced by leaders’ decisions on budget allocation and its expenditure (Dellaportas et al. 2007). Simply, a leaders’ priorities are clearly illustrated by budget allocation (Schein 2010). For example, if the organisation spends much of the budget on entertainment and services to business partners, rather on than the quality and/or ethical value of products offered, the perception by employees can be of a climate that “justify all means”, which in turn can lead to a corrupt work environment (Fallon and Cooper 2015). Another factor is evident in a review in the United States on the activities of the Office of the Special Counsel (OSC) created by the whistleblowers provisions of the Civil Service Reform Act of 1978. Study findings reveal that the low percentage of noted complaints in the organization is because the office was understaffed and resources were inadequate (Vaughn 2013 cited in Bowden 2014). Other studies in different organizations also support the findings (i.e.Dellaportas et al. 2007; Fallon and Cooper 2015). (d) Role Modelling Schein’s fourth mechanism, role modelling, is regarded as one of the most important responsibilities of leaders in organisations (Fallon and Cooper 2015). Positive role models strengthen the ethical way to conduct business; however, negative behaviour examples by the high rank officials are likely to erode ethical standards (Fallon and Cooper 2015). Also, how leaders behave can be performed in two ways (positive or negative role) (Fallon and Cooper 2015). Positive role modelling will promote ethical behaviour to conduct business, while negative role modelling will erode ethical standards (Fallon and Cooper 2015). Surprisingly, in many cases, ones may grouse about the toxic leaders but only few attempt to stop them (Lipman- Blumen 2006). Individuals’ tolerance to the toxic leaders behaviour cause those leaders stay in power for long time (Lipman-Blumen 2006). (e) Allocation of Rewards Merit based performance rewards by leaders shows the prevailing organisational culture (Fallon and Cooper 2015). However, if unethical individuals within the 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 209 organisation are still rewarded, these informal messages send even stronger messages about the real corporate culture, which is perceived as promoting unethical business practices (Fallon and Cooper 2015). In the case of the oil-for-wheat kick- back scandals involving the Australian Wheat Board (AWB) in 2005, for example, empirical studies show that AWB executives received higher salaries and bonuses even while they showed unethical behaviour in the conduct of business (Cole 2006 and Overington 2007 cited in Fallon and Cooper 2015). Where corporate culture is ethical, disreputable behaviour would be not accepted and would even punished. However, in the AWB case the norm appeared to be that the ends (goal to maximum profit) justified the means (actual practices) that included clearly unethical business kickbacks to the Iraqi regime as these were in contravention of UN sanctions and Australian Law (Fallon and Cooper 2015). The message was quite clear that that being unethical was ‘good’ and being ethical was not, if it potentially jeopardised future sales’ (Fallon and Cooper 2015, p. 80). (f) Criteria for Selection and Dismissal Criteria for selection and dismissal – the internal selection process for employees joining and/or leaving the organisation – can ensure the corporate culture remains intact and to the benefits of the leaders (Fallon and Cooper 2015). Employees who are deemed ‘suitable’ to the culture will remain in work or will be newly recruited, while those who oppose the culture may resign or be terminated (Fallon and Cooper 2015). In the case of the AWB, the whistleblower who challenged the payment of kickbacks was ultimately pushed out of the organization due to his ‘questioning’ (Fallon and Cooper 2015). It is clear that selection and dismissal criteria, can discourage employees from reporting wrongdoing, especially if finding alternate work is not a ready option. The effect of perceived retaliation is consistent in several countries. For instance, Brown (2008), Cassematis and Wortley (2013), and Bowden (2014) reveal that one of the predominant reasons for not reporting wrongdoing in organisations is because of a fear of retaliation. This finding is also consistent with several cross-cultural studies (i.e. Fatoki 2013; Hwang et al. 2014; Keenan 2000, 2002, 2007; Lowry et al. 2012; MacNab et al. 2007; Park and Blenkinsopp 2009; Park et al. 2008; Sims and Keenan 1999; Tavakoli et al. 2003). However, particularly in Indonesia, contrary to the common beliefs, somehow, a different result is reported that personal cost does not significantly influence individuals to report on misconduct (Bagustianto 2015; Septiyanti et al. 2013). Unfortunately, the Indonesian researchers do not investigate much deeper on the reasons why this anomaly occurred, instead Bagustianto (2015) encourages other scholars to explore it in depth for their research. The second proposed sub-determinant of perceived behavioural control is the perceived ease or difficulty for the DGT employees to obtain other positions (alternate employment). Based on power dependent relationships, an employee’s decision to perform a particular action is highly influenced by his or her degree of dependence on the organisation and the availability of other resources (Emerson 1962 cited in Ab Ghani 2013). If an employee believe that he or she can get other 210 B. Suyatno et al. work (employment) easily, one may not be fearful of retaliation and so may tend towards disclosing misconduct (Miceli and Near 1985; Near and Miceli 1986). In addition, this study investigated a third sub-determinant namely the effect of a perception of having evidence of the misconduct. As indicated by a previous study by the U.S. Merit Systems Protection Board, a high rate of reporting, particularly for serious types of wrongdoing, is highly related to the quality of evidence held by whistleblowers (MSPB 2011). These studies indicate that whistleblowers need accuracy about facts surrounding the misconduct before making a decision to report or not report (Near and Miceli 1996). Since this chapter determines bribery as the main type of wrongdoing, which may be considered as serious type of misconduct, it seems that a perception of having evidence must inevitably be included. In conclusion, the more encouraging the attitudes and the subjective norms, and the greater the perceived control, the more likely the individual’s intention to conduct the questioned behaviour (Ab Ghani 2013).

13.3.4 Preferences of Reporting Channels

Many researchers have paid attention to the role of the reporting paths on whistleblowing either anonymously or non-anonymously (Kaplan et al. 2012; Near and Miceli 1995) and either addressed to internal or external reporting channels (i.e. Callahan and Dworkin 1994; T. Dworkin and Baucus 1998; Park and Blenkinsopp 2009). A single study shows that the existence of an anonymous channel will decrease the likelihood of reporting to non-anonymous channels (Kaplan and Whitecotton 2001). The preference for reporting channels is also related to perceived retaliation. A negative result from the perspective of a previous non- anonymous whistleblower reduced participants’ non-anonymous reporting intentions, while these negative outcomes did not lower participants’ anonymous reporting intentions (Kaplan et al. 2012). Park and Blenkinsopp (2009) argue that preference to use internal reporting channels is significantly influenced by respondents’ attitude, subjective norm, and perceived behavioral control, ‘with the exception of the relations between external whistleblowing and perceived behavioral control which was in the predicted direction’ but not significant (Park and Blenkinsopp 2009, p. 10). This study refers mainly to findings in Park and Blenkinsopp (2009). However, unlike the original study, which only offered two type of reporting channels either internally or externally, this study expands the preferences to the eight combinations of types of reporting channels as well as accommodates the possibility of respondents choosing not report. This approach also attempts to follow Olsen’s (2014) suggestion to investigate multiple reporting pathways in relation to understand those effectiveness in encouraging employees to report. Moreover, if respondents do not want to report, the next question is an open- ended one attempting to investigate their reasons. As suggested by Bjorkelo and Bye (2014), identifying bystanders and their reasons to keep silent are very important to measure actual whistleblowing. The findings may distinguish between 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 211 identified variables that may encourage or discourage individuals to report wrongdoing as currently present in the framework and possible new variables. In these questions, this study also attempts to intertwine between intention and actual whistleblowing, an approach that only few research has attempted so far (Bjorkelo and Bye 2014). For practical reasons, the findings would be very useful to understand why internal members of DGT prefer internal or external channels and either anonymous or non-anonymous, and these findings may lead to future research to examine (1) the importance role of recipients effectively resolved the whistleblowers’ reports, (2) the importance of training managers and hotline staff to handle reports; and (3) the need to know how effective DGT has incorporated the reporting channels compared to that of managed by other authorities (Moberly 2014).

13.4 Contribution to Knowledge

Though, the conceptual framework of this chapter is based on Park and Blenkinsopp (2009) study, it is designed a more comprehensive model by adding other important variables, including cultural factors, as identified in literature. Arguably, the combination of selected determinants in our conceptual framework would be the first to address the most important influences on an individuals’ intention to report bribery (Suyatno et al. 2015). This chapter will thus fill some gaps in, as well as extend literature. For instance, perceived organizational culture based on Schein’s six mechanisms of leadership styles has not, to date, been fully examined in the whistleblowing literature in Indonesia. So too other variables, such as the perceived ease or difficulty to find other work, as well as the perception of having sufficient evidence in relation to serious misconduct such as bribery. In addition, the framework will support an investigation of employee preferences when reporting, using either internal or external channels, by anonymous or non-anonymous means, or by not reporting a case of misconduct. A combination of preferences on reporting channels, and anonymity, as well as intention not to report have all not been investigated in the Indonesian (and DGT) context. Last but not least, this is the first study that sets out to examine selected variables and intention to report bribery at a government institution (DGT) in Indonesia. Most previous studies identified in the literature search appear focused on sexual harassment scenarios (i.e. Alagappar and Marican 2014; Bowes-Sperry and O’Leary- Kelly 2005; Miceli et al. 2013; Sinha 2013). It is important to investigate a particular type of wrongdoing, not only because whistleblowing studies that focus on particular misconduct are still very scarce, and the issue requires more study (Miceli et al. 2013), but also because researchers need to investigate a particular type of misconduct that matches with an organisation’s characteristics and interests (Suyatno et al. 2015). In addition, what may be considered as a serious or minor type of misconduct may different from country to country depending on cultural and institutional characteristics differences (Skivenes and Trygstad 2014). This study becomes more 212 B. Suyatno et al. important because the characteristic of bribery-related tax evasion benefits both givers and takers. Then, three main questions are addressed as follows: 1. To what extent do selected predictors influence the intention of the DGT employees to report bribery? 2. What are the main factors that influence the intention of DGT employees to report bribery? 3. To what extent do selected variables influence the DGT employees to report or not report bribery? What are the preferred reporting channels – e.g. internal or external? Anonymous or non-anonymous?

13.5 Methodology

We tested our conceptual framework using mixed methods, but mainly relied on quantitative method by utilizing paper-based and online surveys (close-ended questions). To obtain more insights, respondents were asked with open-ended questions (qualitative approach). Based on their answer, the findings were analyzed to test the link between attitude, subjective norm, and perceived behavioral control, and the DGT employee intention to disclose bribery either through internal or external reporting channel by anonymous or non-anonymous, or not to report. • To investigate attitude, this chapter utilized and adapted the positive consequences of whistleblowing based on the aims of the whistle-blower protection laws (Callahan and Dworkin 2000 cited in Park and Blenkinsopp 2009). • To investigate subjective norms, this chapter referred to and adapted from Park’s and Blenkinsopp’s (2009) study, which investigated the importance of individuals or group for a whistle-blower in relation to report bribery. • To investigate perceived behavioral control, this chapter adapted organizational culture based on Schein’s six mechanisms. These are as referred to the Fallon and Cooper (2015) studies. In addition, perceived of easiness/difficulties to get other occupation(s), and perception of having evidence were investigated also. In these sections, most variables are new compared to those in the Park and Blenkinsopp (2009) framework. To investigate employee preference to choose options to report through either internal or external channel, anonymous or non-anonymous, or not to report, this chapter expanded on work by Park and Blenkinsopp (2009). While the original study focused only on two options of reporting channels (internal or external), this study developed to eight reporting channel preferences, as well as the possibility to not report. The data for this chapter were collected from the Indonesian DGT employees between January and April 2016. A combination of hard-copy and web-based survey (Qualtrics) was used to gather the main information. To design the survey, this 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 213 study refers to guidance with modifications from Ajzen (2006), Francis’ et al. (2004), Park and Blenkinsopp (2009), and Fallon and Cooper (2015) studies. In this method, respondents are asked to determine their agreement or disagreement with a particular statement, using a five-point Likert scale of responses (Veal2005 ). Questionnaires were translated into the Indonesian language in a back-to-back translation process. First the English version questionnaire was sent to a bilingual individual who was fluent both in Indonesian and English languages. Then, after translation, the result was re-translated into English by another language expert to know the deviants between the original questionnaire and the re-translation result. The data will be analysed using Analysis of Moment Structures (AMOS) statistical program for the qualitative questions because it is able to take confirmatory (i.e. hypothesis-testing) on multiple variables or multivariate relationships or estimating points and/or interval indirect effects (Byrne 2013). NVivo software is used for the analysis of qualitative responses. The software may help researcher to interpret data more robust because Nvivo provides consistent coding schemes and tools to query and audit the coding processes (Bergin 2011).

13.6 Preliminary Findings

As the quantitative analysis has not yet been finalized, this study presents preliminary findings drawn from the qualitative responses to open-questions obtained from hard copy questionnaire, which mainly focused on investigating respondents reasons not to report bribery. Of 696 completed surveys, 545 (78 %) said they would report to the authorities if they saw bribery occur in the workplace, but 118 (17 %) did not want to report it. Meanwhile, the rest of 33 (5 %) left the questions unan- swered. Of 118 respondents who claimed that they would not report bribery, 70 (59 %) provided comments relating to the reasons not to report. As suggested by Bjorkelo and Bye (2014), identifying bystanders reasons to keep silent are very important to determine actual whistleblowing. The findings would clarify the differences between variables that may encourage or discourage individuals to report wrongdoing. Key words were identified from each respondent’s responses and then interpreted. The next step was analysis of the key words using Nvivo to identify their word frequency. However, it should be borne in mind that though NVivo’s function is to sort information, it does not substitute for researchers interpretation of the data (Auld et al. 2007). Since most of respondents provided short, clear, and concise sentences, as well as responding in simple language, there were few difficulties in interpreting their responses. From the Nvivo analysis, as can be seen from Fig. 13.2 below, the three most repeated key words were “takut” (afraid), “bukti” (evidence), and “melaporkan” (reporting). “Reporting” here is used in the context of reporting preference to the direct supervisor and this is very consistent with a high context risk-averse culture. Other words that have similar meaning with “takut”, such as “resiko” and “beresiko” meaning risk, also appeared quite often. Knowing which 214 B. Suyatno et al.

Fig. 13.2 Word frequency query result using Nvivo

words are most repeated can assist researchers to identify themes and concepts (Bergin 2011). From 70 respondents who did want to report to the authorities, they can be classified into four main groups. First group, 30 respondents (43 %) as the majority did not want to report because they were afraid of consequence or retaliation and/or they did not believe in the existing system. For example, low trust in the institution as they believed that there was no protection for anonymity. The following quotes drawn from responses to open-ended questions illustrate the general lack of protection for whistleblowers and consequent low trust and confidence in the system: Reporting it is very risky for my position. I would argue that committing bribery is the risk taken by each individual (“Melaporkan hal tsb sangat riskan bagi posisi saya. saya ber- pendapat bahwa itu adalah risiko yg hrs ditanggung oleh ybs”) afraid because tops/senior co-works who committed bribery, if I report, it means I look for trouble for myself. See, the very high rank official like the Minister “Sudirman Said” has faced complicated situations when he reported!! (“Takut, karena yg melakukan atasan/ senior, jadi cari masalah sekelas menteri aja “Sudirman Said” repotnya minta ampun!!”) (1) I am afraid of the threats that could befall me; (2) I do not believe in the institution/ authorities (“(1) Saya takut terhadap ancaman yang bisa menimpa saya; (2) saya tidak percaya kepada lembaga yang berwenang”) wasting time and yet no clear follow-up [in terms of] standard operating procedure (SOP) (“wasting time dan belum jelas SOP tindak lanjutnya”) current system cannot protect whistleblowers. Accused person may fight back by suing me for defamation. The existing system requires obvious identity of the reporters and provide evidence. Moreover, whistleblowers may be seen as persons who damage institution’s reputation. (“sistem yg ada belum dapat melindungi pelapor, bisa ada gugatan sebaliknya 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 215

mengenai pencemaran nama baik, anonimitas kurang (pelapor harus jelas), diminta pem- buktian, dan bisa dianggap tidak melindungi institusi”) These responses confirm findings from a previous study by Brown that revealed the two main antecedents not to report wrongdoing are being afraid of retaliation and the belief that the report would not follow up seriously (Brown 2008). A second group of some 18 respondents (26 %) claimed that they actually preferred to report to their direct supervisor or via internal reporting channels. Several illustrative responses that support these perspectives include: Not report to the authorities for the first attempt, but report it to the direct supervisor or warn suspected person(s) who are involved bribery (“melaporkan tidak langsung ke pihak berwenang, tapi ke atasan langsung atau memperingatkan terlebih dahulu yang terlibat penyuapan”) First, investigate and coordinate with internal compliance people and the head office to determine next steps (“menyelidiki, berkoordinasi dulu kepihak yg berwenang KI + kakap u menentukan langkah selanjutnya”) I just reported to the internal, and avoid ER (External Reporting Channel). Because ER may lead a risk to reverse prosecution. It is still OK to report bribery through ER but anonymously (“saya melaporkan cuma ke IR saja, kalo sampe ER risikonya repot atau dituntut balik tapi kalo ER anonim tidak apa2”) the authorities (police) should be avoided, I would make my report to Internal Compliance Unit (KITSDA) (“pihak berwenang (polisi) dihindari, ke KITSDA saya melapor”) I would report bribery to the internal channel (“saya akan melaporkan ke saluran internal”) The responses indicate that respondents trusted internal reporting channels more than external ones. They also demonstrate that the structured authority relationship is still acceptable for Indonesians who are considered as the high power distance societies (Hofstede and Hofstede 2005). Moreover, this finding in line with general views of the respondents (402) who claimed that direct supervisor was an important or very important variable to encourage or discourage their intention to report. However, 16 respondents (22 %) said that they would report bribery but they need more salient evidence before doing so. There is a significant direct relationship between intention to report and salient evidence identified in this chapter. This finding is further explained by considering the following statements from respondents: because if only see but not supported by salient evidence, our report will not be acted upon (useless) (“karena kalau hanya melihat namun tidak disertai bukti2 yg cukup kuat bisa jadi laporan kita tidak akan ditindaklanjuti (percuma)”) Owned evidence was very weak. We cannot report only with the estimates or assumptions. must be with strong evidence (”Bukti yang dimiliki sangat lemah. Kita tidak dapat melaporkan hanya dengan perkiraan atau asumsi harus dengan bukti yang kuat”) “…. it is very rare for real bribery in Office. If there are any, we actually don’t know if it is a bribery, what evidence we have and do we have any other witnesses. When accused somebody, plaintiff must have 2 witnesses and 2 evidence (if not mistaken based on criminal law”) (“tidak tahu. Karena sangat jarang terjadi secara nyata penyuapan di kantor. Bila terjadi pun, kita jg tidak tahu apakah benar itu penyuapan, barang buktinya apa, dan saksinya siapa aja. Bila menuduh seseorang harus ada 2 saksi dan 2 bukti (klo g salah menurut KUHP”) 216 B. Suyatno et al.

to report bribery must be accompanied by a clear physical evidence, because I think that a bribery is a serious crime so that it could affect the fate of a person (”Untuk melaporkan penyuapan harus disertai bukti fisik yang jelas, karena menurut saya penyuapan meru- pakan kejahatan berat sehingga bisa mempengaruhi nasib seseorang”) it is not easy to report bribery. Strong evidence is required and if we don’t have it and reckless to report, a reversed consequence may fall upon us. we may get back reportedly on charges of defamation (conditionally) (“tidak semudah itu melaporkan suatu perbuatan penyuapan. Diperlukan bukti yang kuat dan apabila kita tidak memilikinya dan nekat untuk melapor bisa-bisa kita yang balik dilaporkan atas tuduhan pencemaran nama baik (kondisional)”) These responses are generally supported by the majority (585) of respondents who claimed that they would report bribery if they had salient evidence. Examples of sufficient evidence are written or recorded documents (i.e. documents (written order, letter, and memo) that are against the regulations, rules, and policies and emails or other electronic evidence, such as recorded meeting, instructions. From a practical perspective, this finding is most useful in designing policy in the DGT if all important orders that may influence tax decision making process and calculation must be supported by log-book, written orders, or working sheets. This reinforces the point in relation to bribery as a serious type of wrongdoing, adequate and convincing of evidence is needed (Brown 2008; Mesmer-Magnus and Viswesvaran 2005; Miceli and Near 1985, 2002; Miceli et al. 2012; Near and Miceli 1985). A minority of some respondents (0.8 %) reported that they did not want to report bribery because they did not have a heart to report or other reasons. The following are some quotes consistent with this preliminary finding: My principle in work is worship. Thus, I prefer not to report because everybody has his or her own affairs, so let them/the persons take responsibility of his own deeds. I still perform my work as good as possible (”Prinsip saya dalam bekerja adalah ibadah. U/itu saya tdk melaporkan karena urusan tersebut masing2 biarkan mereka/orang itu yang menanggung sendiri. Saya tetap kerja sebaik mungkin”) I don’t have a heart to report. It would be very sad if one has to deal with the “Corruption Eradication Commission (”Kasian kepada tersangka apabila akan berurusan dengan pihak yang berwajib “KPK”) It is “not my business (“bukan urusan saya”) Future investigation would be directed towards a quantitative analysis of the data. It would investigate all determinants (attitude, subjective norm, and perceived behavioral control) since now relationship between investigated variables and the DGT employee intention to report bribery have not been concluded. As well, employees’ preference to utilize either external or internal reporting channel anonymously or non-anonymously with related conditions could not been presented in this chapter. The most influential determinant for the DGT employees to report or not report bribery within the organization is also still under investigation. A limitation of this chapter is in regard to predicting accurately a cause-effect between intention and actual behavior using Planned Behavior Theory. Several prominent researchers cannot be convinced about cause-effect relationships between antecedents and intention to report misconduct and actual whistle-blowing (Miceli 1992; Miceli et al. 2013). Miceli (1992, p. 114) reveal that ‘while values and beliefs 13 Designing Whistleblowing Policy and Regulations for High-Context Cultures:… 217 predict whistle-blowing, their effects, in general, are weaker than are those of situational variables concerned with the particular incident of wrongdoing’. Ajzen and Madden (1986) explain that to predict accurately between intention and actual behaviors, several conditions should be fulfilled in terms of a certain target, action, setting and time lag. For instance, the longer the gap between intention and actual action, the lower the relationship between those two behaviors due to unexpected intervening situations (Ajzen and Madden 1986).

13.7 Conclusion

Consistent with Hofstede and Hofstede (2005), this study found that Indonesians tend toward high power distance and collectivist culture and the majority employees expect superordinates and colleagues to take care of them in return for esteem, obedience and support. Thus, in term of whistleblowing, Directorate General of Taxation (DGT) leaders should promote ethical behaviour norm by acting as role models. These norms would include encouraging and supporting employees to report any type of bribery if these occur. Moreover, leaders should internalize social norm for not engaging in bribery and make bribery a common enemy for the whole community because individuals from a high context individuals culture may feel discouraged when others appear to not want to support their whistleblowing intention. In addition, since the majority of respondents’ value evidence as one of the most important factors to report bribery, more transparency in work increased accountability and written documents are needed. If a social norm of transparency is able to be implemented, individuals can be much more objective and effective in supervis- ing each other. Lack of genuine transparency may exacerbate corruption-related problems (Kolstad and Wiig 2009). Not restricted to internal parties, DGT should broaden the right to apply for government information disclosure since access to open information is a requirement of administrating legally and effectively (Zhiyuan 2016). Moreover, Brink et al. (2013) conclude that the majority prefer to utilize internal reporting channels before reporting to the external, but it depends on the strength of evidence supporting the claim. To sum up, transparency may prevent abuse of power and help supporting the credibility of the department (Zhiyuan 2016).

Acknowledgements The funding support for this study stream from Victoria University and Department of Foreign Affairs and Trade, Australian Government grant OASIS ID #: ST0008X97, as well as support from the Indonesian Ministry of Finance. Since this paper is a part of a doctoral student dissertation and still ongoing process, some parts of this paper have been previously used, for instance published in Victoria University Journal of Law and Governance Vol. 10 No 3 2015 (Suyatno et al. 2015). An earlier version was also submit- ted and presented at the European Business Conference Networks (EBEN) Research Conference 2015 on October 1–3, 2015 in Copenhagen, Denmark, and the 29th Australian & New Zealand 218 B. Suyatno et al.

Academy of Management (ANZAM) 2015 Conference on December 2–4 in Queenstown, New Zealand. However, authors are confirming that this manuscript is not currently under consideration by any other journal.

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Aurora Voiculescu

Abstract In the past decades, principles of corporate conduct, reflecting human rights responsibilities and obligations have been put forward through a multitude of business ethics and compliance programmes as well as through key international guiding instruments and, lately, domestic legislation. Civil society agencies, domestic and international organisations, scholars, business actors, have all contributed to shaping the discourse of corporate social responsibility (CSR), aiming to inform the ‘business and human rights’ (BHR) platform. The resulting BHR normative discourse appears, however, to be built on loose premises and foggy concepts. An account of the theoretical underpinnings of the encounter between the human rights normative discourse and the business full of conceptual pitfalls. This paper advances a number of essential reflections related to the weak or under-acknowledged theoretical and sociological foundations upon which the BHR discourse can be said to ultimately rely. It looks, from a variety of conceptual perspectives, into the rationale of organizational responsibility and into the way in which this may connect to the human rights normative discourse. Building upon the deconstruction and analysis of the foundation of social agenthood, this analysis focuses on the way different theories – methodological individualism, the structural restraint and structural pragmatism perspectives, structural functionalism – have acknowledged collective social agency, and assesses the impact each of these theories could have on the proposed nexus between business and human rights. The aim of the analysis is to identify key theoretical underpinnings stemming from which the connection between organisational agency and organisational responsibility can provide the BHR discourse with coherence and consistency.

A. Voiculescu (*) University of Westminster, London, UK e-mail: [email protected]

© Springer International Publishing AG 2017 227 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_14 228 A. Voiculescu

14.1 Introduction

In the past decades, the ambit of corporate activities and, more generally, of the corporate sphere of influence has increased tremendously: economically and financially powerful, politically influential, foot-loose, too big to fail, structurally complex, corporations have a huge potential for doing good as well as harm. At the same time, corporate activities take place in an ever-increasing web of liabilities. Whether faced with hard or soft formalized principles, corporations have been lately assigned human rights responsibilities that remain in need of theoretical explanation and conceptual foundation. In the past decade in particular, the international community has put forward principles of corporate conduct that require analysis not only from the point of view of their political desirability and justification (this is already done largely through the debate on business and human rights [BHR] as well as through the debate on corporate social responsibility [CSR]), but also, in particular, from a conceptual point of view. The BHR and CSR normative discourses advance principles and standards that build on loose premises and foggy concepts. This paper advances a number of essential reflections related to the weak theoretical and sociological foundations upon which the BHR and the CSR have ultimately been built. The contention of this paper is that the reflection on the theoretical basis of BHR as a normative encounter becomes imperative if we are to bring some light to a realm that is full of conceptual pitfalls. This is so because the BHR platform is born at the intersection of two complex and competing normative discourses: the human rights and the business one. The paper looks, from a variety of conceptual perspectives, into the rationale of organizational responsibility and into the way in which this may connect to the human rights normative discourse. For the purpose of this analysis, human rights is understood as a hybrid − law and ethics – normative concept, to which law brings only false hopes for clarity. Building upon the deconstruction and analysis of the foundation of social agenthood, the paper looks into the way different theories have acknowledged collective social agency and into the impact each of the analysed theories could have on the BHR concept and on the debate on corporate responsibility for human rights violations. Agency, together with intentionality and action, constitute the sociological trip- tych that derives from the metaphysical dimensions of autonomy and rationality (Copp 2007; Ludwig 2007). In the search for an ideal formula for the distribution of the responsibility for human rights violations, one would have to answer the basic, but essential questions related to these three concepts. Such a formula should ultimately inform the legal debate. The discrete individual, seen as an autonomous and rational agent, is associated with the normative assumptions of agency, intentionality and action both within the moral normative discourse and within the legal normative one. But what about other entities? What about organisations? Can we work with similar or at least homologous assumptions in defining their social parameters of action and reasons for action? Could a corporate organisation, from a BHR perspective, be considered as a collective agent? What would count as acts performed 14 Business Responsibility for Human Rights Violations from a Theoretical… 229 by such a collective agent, and what should be considered as its reasons for action or as its ‘intention’? The answer to such questions has never been straightforward and the aim of this analysis is to identify key theoretical perspectives from which the connection between organisational agency and organisational responsibility can acquire some consistency and solidity that can then be lent to the BHR discourse.

14.2 The Methodological Individualist Perspective: Towards A Constitutive Understanding?

While methodological individualism, as a theoretical grounding for approaching social phenomena, has been debated widely in social sciences (Udehn 2014), the assessment of its implications for and relevance to the development of the new responsibilities of corporations, such as the ones reflected within the BHR discourse, has been marginal. This has led to the shadow of methodological individualism being cast over this discourse without, however, due critical consideration being given to theoretical tenets. Coined by Joseph Schumpeter in 1908 and articulated by Max Weber in Economy and Society in 1922, developed by Friedrich von Hayek and Karl Popper in the 1940s, methodological individualism reflects an attempt to identify the foundational components required for studying social phenomena, which would offer the ultimate, ‘rock bottom’ approach and thus sound explanations of those phenomena. While it has taken multiple nuances as it has unfolded, methodological individualism fundamentally promotes the explanation of social phenomena through the more or less exclusive lens of individual action and the individual reason for action. Reflecting on sociology and social action, Weber writes in the beginning of Economy and Society that ‘[action] in the sense of subjectively understandable orientation of behavior exists only as the behavior of one or more individual human beings’ (Weber 2013, p. 13). If individual action and individual reason for action are the elements at the foundation of social phenomena and if the individual is seen as ‘the ultimate unit of social analysis’ (List and Spiekermann 2013, p. 630), the notion of agency – and further down the line, the notion of responsibility – appear ineluc- tably linked to the same individual-anchored elements. Collective entities such as ‘society’, ‘state’, ‘government’ or ‘corporation’ are seen in this perspective as ‘pseudo-entities’ and ‘popular abstractions’, which the social scientist ‘must not mistake for facts’ (Hayek 1942, p. 286). Whether abstractions or not, methodological individualism supports the idea that collective concepts are reducible to individual concepts. We may need collective concepts – writes Lars Udehn – to refer to large-scale social phenomena, such as nations, states, churches, corporations, ‘but this does not force us to explain social phenomena in terms of these entities’ (Udehn 2002, p. 502). The theory of methodological individualism therefore underplays the quality of (moral) agency assigned to collective organisations, a quality that is, however, 230 A. Voiculescu implicit in the BHR and in the CSR discourses (Werhane 2016; Arnold 2006; Lampert 2016). According to this theory, finding a collective organisation of any kind that is morally or legally responsible for acts or omissions committed by its members would mean embarking on an impossible ontological mission. This would be so because of the impossibility of accounting for the qualitative metaphysical differences between humans and organisations, the latter being ‘merely properties of individuals’ (May 2007, p. 195). Whether proposed as ‘pseudo-entities’ or ‘properties of individuals’, from a methodological individualist perspective organisations are always reducible to their component individuals. The actions and reasons for action of an organisation will always be the one of their individual members. This makes it difficult to attain the normative grounding of a plural entity of any kind. The challenge arises because organisations – according to methodological individualism – do not possess a similar type of autonomy to that of the individual person. Organisations are not ‘rational’ in the same way humans are. Because it fails to display identical forms of autonomy and rationality to those that characterize a human individual, a collective body cannot be seen as a unitary agent, with an existence of its own and which is distinct from the existence of its individual members. This lack of unity entails that only individual members’ actions can be understood and explained as social facts and the notion of (moral or legal) liability and responsibility, as social phenomena, can only be attached to such facts and can only be based on the members’ direct and intended actions (Keeley 1981). According to this perspective, the individual members’ liabilities can be ‘aggregated’, but this would not change the individual nature of the ascribed responsibility (May 2007). Supporters of methodological individualism such as Velasquez find that ascrib- ing responsibility to the group as a whole and not to particular individuals is based on a fiction and creates a confusing and dangerous way of proceeding (Velasquez 1992, p. 129; Velasquez 2003). Devoting the concept of responsibility strictly to the notion of causality, this position defines moral responsibility as being attached only to those actors in which the action originates (Velasquez 2003, p. 535; and also Velasquez 1992, p. 120). According to this perspective, a homology of nature between the discrete individual and the collective organisation is not sufficient. In order for a collective entity to be considered a moral agent, an identity of nature between the discrete individuals and the collective organisation would be required. This coincidence of the two entities is, of course, difficult to argue for. Thus, in the context of methodological individualism, the notion of origination conveys the idea of an actor in which the ‘mental’ element would achieve unity with the ‘bodily’ element. This unity, generating ‘group mental states’, is seen, however, as a fiction and the ‘group intentions’ as metaphorical (Velasquez 2003, p. 546). Formal organisations would lack the necessary capacity to act and to intend (i.e. mens rea and actus reus, in criminal legal parlance), and these elements are considered the core of the philosophical, moral and legal notion of responsibility. For instance, the rationality exercised by the board of directors of a corporation could not be identified, it is argued, with the rational functions performed by the human brain. As to the action – or actus reus – of the organisation, both from the perspective of the organisation as 14 Business Responsibility for Human Rights Violations from a Theoretical… 231 a fictitious legal entity and from the one of the organisation as a sociological entity (as a real organisation, comprising several members), the performance would belong to the individuals and not to the collective entity. The latter would not act, except vicariously, through its members. According to methodological individualism, one should not presume that such a vicarious, non-ontological link tells us anything about the real nature of the corporate organisation (Laufer 2006, p. 71; Velasquez 2003, p. 533). The collective organisation, as a fictitious legal person, is related to its members “as a legal ‘principle’ is related to those ‘agents’ who are empowered to act on its behalf and whose acts are conventionally attributed to the legal ‘principle’” (Velasquez 1992, p. 118). Methodological individualism conveys, therefore, the conclusion that it could not be the corporation (the ‘principle’) that is acting, but its agents, i.e. the individuals empowered to act on its behalf. Methodological individualism could be seen as an appropriate theoretical and methodological approach to understanding social reality, including the shape and place of corporate responsibility and liability within the BHR discourse. The formal organisations can be seen as socio-legal constructions tailored to match, to a certain degree, the sociological reality of business organisations or other types of collective bodies, themselves incapable of intending and acting as individuals do. However, in the legal normative discourse, the individual person can be seen in the same way: as just another type of legal construction, another type of fiction (Dyschkant2015 ). To some extent, this appears to also be the case of the individual person’s autonomy, as seen by law. In this sense, in one of his earlier works, May speaks about ‘pseudo- unities’ proposed as facts, which might be seen as a postmodern challenge to political philosophy. As May argues, these pseudo-unities ‘…set up oppositions that arbitrarily separate those who are included and those who are excluded from a shared conceptualisation or practice’ [added emphasis] (May 1996, p. 171). If the formal organisation, as well as the discrete individual, are both fictitious (legal) entities, then one has to consider that social entities that are constructed in this way exhibit a complex of structural and operational features which would themselves be deemed to be ‘fictitious’ constructions. What this actually means is that the information produced by the system, its needs, its risks as well as its responsibilities, are all social constructions, dependent upon the system in which they emerge. From this perspective, there would be no reason to expect the concept of responsibility to take the same form when applied to the collective agent as when it is applied to the individual agent, and the collective agent to obey the same rules as (just) any other fictitious legal construction, such as the individual person. One might agree that, in order to be responsible, an entity should prove a certain degree of autonomy and rationality. However, some could justifiably argue that there is no stringent logical necessity for imposing as a unique mechanism for the attribution of moral or legal responsibility the one that is designed for the individual person. Methodological individualism appears, therefore, to put forward a set of premises that invite reflection. Firstly, the theory promotes the idea that one can understand social facts only by understanding or accessing the subjective meaning associated with those facts. Second, it advances the premise that facts are generated at the intersection between autonomy and rationality, between autonomous action 232 A. Voiculescu and reasons for action, and it is only the individual human being that can be onto- logically placed at this intersection. However, while it may be true that the only way of understanding social phenomena is to focus on ‘facts’, which result only at the intersection of action with the reasons for action, it may not be automatically true that only individual human beings can meet the conditions of autonomy and rationality. Depending on how we define the two concepts, other entities – non-individual or non-human – may be able to acquire agency in a similar way. The members of a formal organisation do not resemble each other perfectly, and may not act exactly as the limbs of the human body. Nevertheless, relying only on the individual autonomy, in an environment designed to subdue this autonomy and suppress any values other than the systemic ones, may not be the most appropriate response to the sociological reality of organisations and may not be the most effective way of approaching and understanding complex social phenomena such as the ones related to organisational decision making (Selznick 2011, p. 5; Etzioni 1975; Selznick 1948). The fiction of collective agency (a fiction largely reflected in the legal discourse) represents, to a certain extent, the sociological reality of the collective organisation, the organisational ‘facts’, and to that extent, it transcends mere fiction. In this sense, some scholars argue that the main source of the organisational claim for autonomy and rationality lies in the organisation’s power to organise (Donaldson 1982, p. 27; Soares 2003; McCann 2012). It would thus be important to acknowledge this sociological reality and to look beyond the metaphysics of the discrete individual members in order to search for appropriate deontological, procedural principles of collective action. By failing to take these elements into account, methodological individualism may otherwise overestimate the individual autonomy and may underestimate the organisational (autonomy-generating) complexity and capacity for action. The perspective offered by methodological individualism on the concept of organisational autonomy and rationality, and ultimately on the normative anchoring of responsibility affords, therefore, a clear methodological potential, but also manifests clear shortcomings in providing a solid theoretical platform to the BHR discourse, such as it is currently fashioned.

14.3 The Structural Restraint Perspective: Embedded in Fiction?

Built on ontological rather than methodological assumptions, linked to social contract theory and flavoured with rational choice institutionalism, the ‘structural restraint’ perspective on organisations was put forward in an attempt to address those aspects that methodological individualism could not quite answer, in particular the anthropocentric limitations and the rigid conceptualization of the sociological reality of formal organisations. The structural restraint perspective advances the idea that a formal organisation such as a corporation does not have to be defined 14 Business Responsibility for Human Rights Violations from a Theoretical… 233 solely through the inevitably disqualifying comparison with the parameters of the individual (legal) person (Donaldson and Werhane 2007, p. 13). At the same time, this perspective denies the capacity of formal organisations to be ‘morally’ responsible. This denial, however, derives not so much from an analysis of the traditional concepts of action and intention as from an ontological proposition concerning the organisational structure (Donaldson 1982, p. 2; Ladd 1970, p. 498). Corporations would thus be ‘controlled’ by their very structure, with institutionalised rules that make up internalised cognitive constraints (Weber and Glynn 2006, p. 1640; Barley and Tolbert 1997). Such rules specify the mechanisms for aggregating individual behaviours into a finalprescribed result (Shepsle 2008). Moreover, the normative (moral) life of the organisation (the one stemming from organisational autonomy and rationality) is ‘strongly bound’ by a variety of parameters, including the organisational structure (Donaldson and Dunfee 1999, pp. 28–33, 1994, p. 257). Because of this dominion created by rules and structure, formal organisations, unlike individuals, would be unable to exercise moral freedom: ‘… since organizations are not persons, they are, as such, beyond the pale of morality. We cannot and should not shift our moral responsibility on abstract entities like corporations’ (Ladd 1982, p. 37). By their very nature, formal organisations would thus be incapable of accom- modating moral concerns. The perspective allows for the perception of formal organisations as rational agencies, but with only a limited autonomy, an autonomy dependent upon the organisation’s ‘specified’ or ‘empirical’ set of goals (Donaldson 1982, p. 23; Donaldson and Werhane 2007). The difference between the two rationalities – the organisational and the individual one – would refer to the fact that organisations act rationally, but only as a player in a game: the rules are set previously, and cannot be changed, at least not without essentially altering the game, i.e. the social agreement by which the organisation has been set (Blizek 1971). Accordingly, formal organisations would not possess those qualities that would enable them to change their own goals; they are conceived as goal-pursuing machines that are not designed to morally evaluate their environment. In other words, they are restrained by their structure. And, it is argued, the structure of a formal organisation cannot be made responsible for reproducing itself according to the originally set parameters. The coincidence or non-coincidence between the player and the ruler appears as paramount for the understanding of the process of attribution of responsibility to social agents. While one generally views judgements of causal responsibility as purely factual, causal responsibility is, however, more than a mere relationship between cause and effect. It is a relationship between an agent and an external state of affairs as prescribed by an adjudicator (Potter 1972; Carroll 2010). An organisation can indeed be restrained by its structure, however, this is so only to the extent to which the structure reflects the desired social norms and the organisation does not exercise undue influence over the ruler. For instance, a business organisation that is empowered by its structure to lobby the legislative power may be seen as an example of partially undue coincidence of the two roles in the same agent (Fuchs et al. 2009; Koenig-Archibugi 2004). 234 A. Voiculescu

This overlapping of roles appears as the consequence of the structural restraint view. This would be the case because the normative structures binding the organisation define only the immediate, self-centred, specified role of the organisation, without reference to the mediate role, that is to the social role that a specific organisation is meant to play in society (Brummer 1991, p. 165; Steimann 2012; Coleman 2012, p. 77, 1994, p. 553). Corporate bureaucracies function according to well-defined mechanisms, not unlike the political ones (Thompson 1985, p. 201). They are invested with power for the production of intended social goals for which the immediate goals of the organisation are only instrumental. While they agree with the theoretical aspects that render the immediate goals of an organisation as ‘structural’, critics argue that the organisation should itself be accountable, in its structure, for the way in which it pursues its immediate goals, using powers conferred primarily for the mediate social needs (Cullen et al. 1984, p. 103). Such accountability has a chance to be truly achieved not by exempting the organisational structure from evaluating its environment and from pursuing its own immediate goals, thus dis- embedding it from society (Voiculescu 2013; Polanyi 2002), but by inducing in that structure new evaluative mechanisms (Stone 1975, p. 123f). These mechanisms would then incorporate the mediate, socially imposed goals, converting and inter- nalising them (Stone 1975, p. 145ff; Selznick 1994, p. 396f). In spite of failing to acknowledge organisational collective agency and responsibility, the theory of structural restraint represents an important step forward from the atomising perspective of methodological individualism in that it has moved the analysis of the corporation as a moral agency from an emphasis on intentionality and anthropomorphic autonomy to the domain of the ontology of the organisational system. Rawls sought to address this very aspect when including formal organisations, along with individual persons, on the list of parties qualified for occupying the ‘original position’ (Rawls 1999, p. 146). According to Rawls, from this position, a social agent would be able to opt in the best interest of society, not blinded by immediate selfish goals. In other writings, however, reflecting the traditional ambiguity regarding the nature of formal organisations, Rawls backtracked on this position and asserted a certain ‘logical priority’ of human individuals (Rawls 1999, p. 244f; Norman 2015; Mitchell et al. 1997). The same ambiguity of attitude towards organisations appears in Thomas Donaldson’s work (Donaldson 1982, p. 25). Donaldson argues that a complex organisation such as General Motors, which is characterised by a very complex structure, could fit under the structural restraint theory, while others with a very basic structure and leadership could not. This would be so, Donaldson argues, because it would be quite easy to trace the corporate responsibility down to the individual one. Looking closer at the conceptual novelty brought forward by theories such as the one on structural restraint, Donaldson’s critical approach appears to unwittingly shift the structural restraint theory back to anthropocentric representations. In complex organisations, the map of the decision-making structure renders it impossible to concentrate any significant amount of responsibility on any single individual person involved in a specific decision-making process, due to the ‘many 14 Business Responsibility for Human Rights Violations from a Theoretical… 235 hands’ involved in its complex operations (Wells 2001, p. 84; Poel 2015, p. 50; Hochstedler 1984, p. 10; Coffee 1981). Moreover, at the organisational level, the attribution of responsibility to the organisation would be equally difficult if one were to deal with complex structures. The ‘physiology’ of the complex organisation would again rescue it from being made accountable, since the organisation, in its high complexity, would be liable only when acting against its specified empirical set of goals. Such goals are often formulated at too high a level of generality to be able to offer any real and immediate restraint. However, despite these failings, one has to acknowledge the useful dimension that the structural restraint theory brings to the identity of a collective agent. From the structural restraint point of view, the complexity or simplicity of the organisational structure should not prevail in the construction of its identity and agency, since this is largely a function of the quality of the system and not a quantitative variable. The organisational structure could be seen as at the basis of a special kind of organisational autonomy and rationality, and ultimately, social agency. However, the structural restraint perspective limits the possible purview of organisational agenthood that would have been based on anthropomorphic ontological presumptions. According to the structural restraint perspective, the formal organisation, whatever its complexity, would be unable to incorporate moral views and values. This would be so not because mechanisms could not be put in place in order to make the collective organisation reason and act as discrete individuals do, but because the organisation is not designed or supposed to reason and act as individuals do. The dimension of ‘not being supposed to’ would now belong organically to its structure, restraining the ambit of the organisational agency. This being said, it should be noted that it is not the size and complexity of the organisation that is seen to have a direct and immediate relevance upon the question whether the organisation is, or is not a moral agency and thus, morally responsible. As long as the corporation is supposed only to speak the specialised language of its immediate goals, searching for the moral responsibility of a one-person-run corporation should be just as superfluous as searching for the moral responsibility of a highly bureaucratised corporation. If the business corporation, for instance, was created for evaluating the environment from the point of view of generating economic profit, one could not expect it to evaluate the environment from a moral perspective, even if the leadership of that corporation is represented by one single person. Therefore, the formal business organisation – structurally complex or simple – will accommodate moral questions only to the extent to which they are likely to affect directly and substantially, in one way or another, the attainment of the immediate corporate goals embedded in its structure and pursued through its operations. As long as those moral questions remain external to the organisation – such as the human rights social expectations have often been presented in the business discourse – that is as long as they are not recognised as belonging to the structurally internalised organisational moral domain which should define the organisation’s identity, these questions would be addressed as external obstacles, similar to the way that geographic or financial obstacles might be deemed to be. 236 A. Voiculescu

In spite of its static vision, the structural restraint theory has the advantage of casting formal organisations such as corporations as socially constructed entities that cannot be altered directly, simply by imposing upon the organisation some different immediate goals other than its structurally-embedded own. Pushing structural restraint beyond its comfort zone, one could envisage the possibility that an ‘empirical’, non-structural set of goals, such as the ones derived from the business and human rights discourse, stimulates and accommodates the creation of new internal structures. These new structures could be aimed at recognising and at ‘reading’ the organisation’s normative environment, tuning its mediate goals according to the normative social signals. The organisation can be expected to evaluate morally the environment only after developing its own such mechanism, combining its immediate, internal criteria of action (such as profit, efficiency, market positioning) with the external, mediate, social ones. In this way, external norms such as the ones promoted by the BHR discourse can be internalised and assimilated, becoming a part of the internal parameters of the organisational agenda (Stone 1975, p. 228f). Once the variety of shapes taken by social concepts such as person, agency, autonomy and responsibility has been recognised as system dependent (Copp 2007; Soares 2003), one should thus be able to go further and deliberate upon the mechanisms through which the responsibility for human rights of a specific social agent can be spelled out most appropriately and can be embedded in the organisational structure.

14.4 The Structural Pragmatism Approach: An Agency of a More Responsible Sort?

So far, we have looked into theories of organisational responsibility that either view organisations as reducible to the component individuals or propose a rather restrictive notion of social agency. As indicated above, in a limited way, one can still draw from these theories some constructive points in the search for the acknowledgement of a more complex corporate agency, that is capable to evolve socially and to inter- nalise new normative parameters. We shall now look into theories that support, in different ways, the idea of organisational collective responsibility as fundamentally different from the responsibility of the individuals who come together in an organisation. There are good reasons to doubt that the individual/organisational dichotomy can and should always prevail in homologating the attribute of social agency. The need is for a theory that would grapple not only with the anthropomorphic account of organisations, but also with the sociological and systemic ones as well, thus offering a fair chance both to the ‘is’ and the ‘ought’ of the corporate responsibility. The combination of the different parameters of the agency and identity of organisations seems attainable only by overcoming a narrow structural approach. A step forward is proposed by grafting the structuralist approach with a good dose of pragmatism, by encouraging a disposition towards basing action – in our case normative 14 Business Responsibility for Human Rights Violations from a Theoretical… 237 regulatory action – ‘on facts and consequences rather than on conceptualism, gen- eralities, pieties, and slogans’ (Posner 2003, p 3.). The pragmatic approach resists absolute claims (Stewart 2013, p. 264; Morgan 2014; Dewey 2008) – think of the methodological individualist search for rock bottom explanations or of the ontological assumptions of structural restraint – and proposes a malleable formula that can account for the innumerable contingencies that a theory of corporate responsibility has to respond to (Stewart 2013, p. 264f). The structural pragmatist approach allows one to take into account not only the eventual homogeneity and unity of a collective actor, but also the operative decision structures and procedures in place at a certain moment in time. These can reproduce patterns of autonomy and rationality in different ways from one organisation to the other and can ‘incorporate’ the apparently segregated decisions of the discrete members. The structure and the charter of a formal organisation, along with its policy and organisational culture are seen by some theorists as generating something completely different from what otherwise would be a random collective (Wolf 1985; Smiley 1992), while others take these elements even further, arguing for the agency of informal collective bodies (Held 1992). According to Wolf, for instance, who formulates a vision of structural pragmatism that would underlie collective responsibility, formal organisations do have all the necessary apparatus for being able to choose their actions and therefore, the actions of their members (Wolf 1985, p. 274f). The fact that an organisation could have chosen, on moral grounds, to act differently than it actually did, thus causing harm, means that the organisation ought to have so chosen. The distinction between the causal (individual) actor and an agent ‘of a more responsible sort’ is attenuated by Wolf with the claim that they both have in common the intellectual or cognitive capacity to be sensitive and responsive to complex reasons for and against various actions. This capacity would be a necessary condition for being either morally, or practically a responsible agent (Wolf 1985, p. 277). The structuralist pragmatist perspective takes on various nuances, with some scholars speaking about ‘the quality of life management theory’ (Hay and Gray 1974), while others speak about ‘the social responsiveness model’ (Carroll 1999; Sethi 1975) or about ‘the social demandingness theory’ (Brummer 1991, p. 165ff). Nevertheless, the formal organisation described in these accounts cannot be understood as a moral agent, at least not in the common ontological sense of the word ‘moral’ (Ladd 1970, p. 489). Although not irreducible moral agents, organisations however appear as ‘agents of another sort’, as social constructions displaying sufficient practical distinctive features to make them ‘appropriate bearers’ of important kinds of normative responsibility, including legal responsibility (Wolf 1985, p. 279; Wells 2001, p. 39f). Wolf argues, for instance, for a different meaning of responsibility. Besides the causal and the moral sense, a practical sense appears as equally important (Wolf 1985, p. 276; Wells 2001; Ladd 1970, p. 511). This meaning, which is not completely unknown in the discourse of liability, especially outside criminal law, is used ‘when our claim that an agent is responsible for an action is intended to announce that the agent assumes the risks associated with that action,… [that] the agent is considered the appropriate bearer of damages, should 238 A. Voiculescu they result from the action, as well as the appropriate reaper of the action’s possible benefits’ (Wolf1985 , p. 276; See also Wells 2001, p. 2f). Constructed in this way, the notion of practical responsibility shows great sensitivity to context (Stewart 2013, p. 264) and has implications beyond the limits of law or morality, enabling a step forward in the quest for defining organisational responsibility. The important aspect here is not that the institutional organisation can, or cannot be brought under a normative purview, be it moral or legal, but that it is brought under this purview as a collective agent, and not as a mere causal factor. Although organisations would still lack emotional capacities, the presence of cognitive capacities makes an organisation susceptible to an (initially) externally induced moral force. Consequently, the organisations would assume responsibilities that derive from their normative environment, which they have the cognitive capacity to access. The task of identifying concretely the foundational principles on which these responsibilities would be based belongs to the philosophical and political debate. On the other hand, according to Wolf, re-evaluations of the normative environment can be built into the very structure of an organisation (Wolf 1985, p. 281) or, the organisations can be prompted to do it themselves (Stone 1975, p. 122). The structural pragmatism perspective on organisational collective responsibility acknowledges the constraints imposed on corporations through organisational and bureaucratic practices and procedures, as well as the fact that these constraints cir- cumscribe the organisation’s range of choice. Moreover, it acknowledges that formal organisations at least, such as corporations, can make use of appropriate tools for learning about their environment and if they can do so, they should. The theory, however, falls short of proposing a model that would acknowledge formal organisations as ‘moral’ agents that are brought about in order to fulfil a social role.

14.5 The Structural Functionalism Opening: Planning Ahead?

A number of scholars have claimed that what could count as an expression of autonomy and rationality should necessarily refer back to the ontology of organisations, to the organisational social role, with immediate goals, but also internalised mediate social ones. Applied to organisations, as well as to discrete individuals, such a model, focusing on the internal structure and function of the organisation, was used to explain the relationship between our particular ends, social expectations and normative consequences (Smiley 1992, p. 13). It is from this premise that Peter French sought to qualify the morality-impervious responsibility put forward by the pragmatists, by proposing a metaphysical perspective on the corporation as a collective social agent, grounded in what he sees as the ontology of the corporation. French argues for a theory that promotes the idea of an organisational responsibility that is functionally distinct from that of the discrete corporate managers or associates (French 1984, p. 3ff, 1979, 1996). 14 Business Responsibility for Human Rights Violations from a Theoretical… 239

French’s perspective draws an essential distinction among different collective entities, separating them as aggregate and conglomerate collectivities. According to French, an aggregate collectivity is merely a ‘collection of people’ (French 1984, p. 5). A change in the membership of such a collectivity always entails a change in the identity of the collection. The aggregate collectivity is thus not compatible with a varying or frequently changing membership. Given this dependency upon its membership, the aggregate is largely under the paradigm of normative responsibility offered by methodological individualism as explained earlier. Unlike some of the structural pragmatist positions (Held 1992), French considers, therefore, that moral responsibility predicates cannot be legitimately ascribed to the collective aggregate as such. The conglomerate collective entity and the conglomerate collective’s potential for responsibility are, however, conceived by French rather differently. In his conception, a conglomerate collectivity is an organisation of individuals such that its identity is not exhausted by the conjunction of the identities of the persons in the organisation (French 1984, p. 13). The existence of a conglomerate is therefore compatible in his view with a varying membership. The membership in a conglomerate is not determined by whether or not associated individuals materially contributed to particular untoward events for which the conglomerate might be blamed, but is determined according to whether a person has or not the ‘credentials of membership’ (French 1984, p. 17). While French develops his theory around the concept of organisational structure, he also underlines its organic qualities. Similar to the structural restraint view, French compares the organisation with the embodiment of the rules of a game. Nevertheless, the similarity between the two approaches stops here, as French reaches rather different conclusions. The game, he argues, is a language game, or language system endowed with internal creativity. The organisational charter of a corporation would represent the grammar of a corporate decision-making, while the logic of this is given by the internal recognition rules (French 1984, p. 146f). The corporation, argues French, is defined by its internal decision structure (CID Structure), composed of elements such as hierarchical lines of organisational responsibility, rules of procedure, policies (French 1979, p. 211f). This is a key element in the theory, fulfilling not merely a descriptive function, but also a normative, ‘prescriptive’ one (Arnold 2006, p. 289). The CID Structure ‘tells the agents of the corporation how they ought to act’ (French 1994, p. 31). A further step aside from the sterilised approach of structural restraint is made by distinguishing, among the internal recognition rules, between the procedural and the substantive rules of recognition represented by the ‘basic belief’, or the policy of the organisation (French 1984, p. 147). The two-folded structure, comprising ‘an organisational or responsibility flow chart that delineates stations and levels within the corporate structure’ as well as the ‘corporate decision recognition rules’, would have a decisive impact upon the qualification of the organisation not only as endowed with agency, but also as capable of moral agency. Analysing this construction, French considers the element of self- determination or internal redefinition of an organisation, stressing its active (autonomous and rational) role. In his view, 240 A. Voiculescu the minimal requirement for this to be true is to have determined that it makes sense to re-describe some of the organisational behaviour in a way that would make true sentences that state that the collective agent acted intentionally (French 1984, p. 101, 1996). From here, French proposes a different ‘triangle of responsibility’. The responsibility constructed upon the idea of action and intention originating in the same individual person – as the ‘classic’ formula of responsibility – is homolo- gated or paralleled by French with the concepts of action and reason for action originating in the corporate structure. It is important to note here some of the changes in the foundation of French’s theory, echoing the debate on collective agency in the field (Gilbert1994 ; Pettit 2002; Bratman 2006). To begin with, the position was grounded in what French termed the ‘desire/belief complex’ placed at the basis of intentionality. In his earlier work, French argued that when the corporate act is consistent with ‘an instantiation or an implementation of established corporate policy’, it is also appropriate to describe that act as ‘having been caused by a corporate desire coupled with a corporate belief’ [emphasis added], resulting in this way in a ‘corporate intentional’ act (French 1979, p. 213). In later work however, influenced by over a decade of critical encounters (Tollefsen 2006), French fine-tunes his theory, addressing what he calls the flawed point of intention, the grounding in desire and belief. To intend to do something, states French, ‘is to plan to do it… […] My intention seems to have little to do with my current desires and beliefs. In fact, desires and beliefs are, at most, only tangentially involved. My plans and my commitments to those plans are at the heart of my intentions’ (French 1996, p. 148). Despite this shift in the actual ontological make-up of one of the core concepts, the intention, the new focus on planning, as ‘future directed intention’ (Bratman 1999, p. 5), makes the theory even more amenable to a notion of corporate agency (French 1996, p. 149) that can support the human rights and business discourse of corporate responsibility. Moreover, as another significant nuance afforded by the theory, in later work French moves away from the concept of ‘person’ towards one of ‘actor’ and ‘agency’ (Arnold 2006, p. 280). The re-description of the concept of corporate agency through a reformulation of the concepts of action and intention becomes indispensable in the attempt to surpass those theories of responsibility rooted in anthropocentric approaches (Moore 2009, p. 5f). French avoids the anthropocentric bias potentially present in the concept of intention, by describing the intentionality of a collective agent as something done for a reason (French 1984, p. 39f). Some scholars take this reasoning even further in the process of making collective entities responsible, arguing that not only fault, but also blame can be attributed directly to groups, when action and intention have been attributed to them (May 2001, p. 72). The proposed theory does not change radically the concepts of intention and action. Rather, it redefines them. The approach avoids the pitfalls of human intentionality by building upon the domain of organisational structure. This structure, characterised by homogeneity or not, comprises specific reasons or, as the structural restraint view would have it, ‘specific goals’. In order to prove these specific reasons – French argues – the organisational internal recognition rules should be sufficient (French1984 , p. 93f). 14 Business Responsibility for Human Rights Violations from a Theoretical… 241

Grounded in the CID Structure as key concept, the theory makes an important step towards re-establishing an equilibrium between different forms of accountability. This equilibrium is achieved by breaking away from the anthropomorphic parameters in the process of defining collective agency, and by moving from the causal attribution of liability, with its requirement of coincidence of intention and action in the same body, to a collective attribution which requires a coincidence of action and reasons for action in the same structure. Corporate plans, re-states French, ‘might differ from those that motivate the human persons who occupy corporate positions and whose bodily movements are necessary for the corporation to act. Using its CID Structure, we can, however, describe the concerted behavior of those humans as corporate actions done with a corporate intention, to execute a corporate plan or as part of such a plan’ (French 1996, p. 152). French therefore argues for the capacity for collective ‘intelligence’ and for ‘actualization of the potentiality of purposiveness’ of organisations (Weinrib 1987, p. 82; Rendtorff 2009, p. 318) as a sufficient reason for the participation of corporations in the process of the distribution of normative social responsibility. This shift in the attribution of responsibility opens the possibility to integrate in a process of justice both the liability of discrete individuals who have directly perpetrated crimes and have violated human rights in the exercise of their duties, and the liability of the collective corporate actor who might have authorised, supported or condoned, formally or informally, these acts. This process of differentiation of responsibility brings one major change to a process of justice for human rights violations by businesses. If, due to some imperative procedural impediments, the individual liability cannot be pursued or established, this should not exclude the responsibility and liability for those human rights violations being assigned to the relevant collective agent. In this sense, French states that the attribution of responsibility to an individual member of a conglomerate organisation cannot be based simply on the justified ascription of responsibility to the conglomerate itself, and vice versa, even if that person was a corporate president. From this perspective, the two types of responsibility are conceptually different matters, and each has to be argued on its own distinct merits (French 1984, p. 17). This clear distinction between the conglomerate responsibility and the responsibility of individual members of the conglomerate relies on the fact that a particular person holding a particular position in the conglomerate organisation is a contingent property of the organisation as an autonomous entity (French 1984, p. 28). Differentiated forms of autonomous and rational social agencies should allow therefore for the existence of differentiated forms of enforcing accountability.

14.6 Conclusions – Towards a Moral Division of Labour?

From the above elements of analysis, one could take forward a number of useful elements for the evaluation of the normative weight and regulatory potential of the BHR discourse. Firstly, one may retain the potential of the concepts of agency, 242 A. Voiculescu intentionality and action to be differently shaped, albeit starting from the same metaphysics of autonomy and rationality upon which the concept of responsibility – both individual and collective – could be based. In this sense, the topic-neutral principles of corporate action – principles that remain to be spelled out mostly through the political and legislative debate – would serve to define the collective agency as well as the appropriate mechanisms for accountability. Secondly, a certain nucleus has been formed around an idea that we may wish to take forward, namely that for certain categories of organisations one can identify homologies of autonomy and rationality. This makes it possible for the process of BHR justice to identify a collective actor, while at the same time not losing sight of the individual actors. This collective actor could participate in the distribution of responsibilities for the violations of human rights occurring in business contexts. At the same time, from the theories opposing the concept of collective responsibility, one should retain the equally important responsibility of the discrete individual. Nevertheless, the coincidence of the act and intention in the same person should not undermine the importance of the cognitive capacity and of the practical responsibility belonging to the organisation to which the person might have belonged (see the notion of ‘sphere of influence’). The potential for the three key concepts associated with individual responsibility – action, intention and the coincidence of the latter two in the person – to be homologous with the concepts of action and planning backed by reason for action and structure respectively, should also be acknowledged and preserved in order for the business and human rights discourse to progress on a more solid conceptual basis. With the moral and metaphysical parameters insulated from contamination with the topic- neutral morality and the metaphysics of the individual responsibility, the corporate responsibility for human rights violations could give a new dimension to both business ethics and human rights law discourses. On the one hand, the legal discourse is enhanced beyond the limitations of an anthropomorphic approach, offering a creative reading of the relationship between topic-neutral principles of accountability and the metaphysics of autonomy and rationality on which these principles are based. On the other hand, the corporate responsibility for unlawful or unethical acts, if embodied in an appropriate mechanism, can induce in the business discourse the creation of an internal morality. This morality is ‘internal’ because, in order to be meaningful, it must be assimilated into the social structure of the organisation, it must be internalised and interwoven in its identity. As to the word ‘morality’, it suggests the homology with, and not the identity with, individual standards. It represents the genus proximus which remains to be specified according to differentiated elements, corresponding to differentiated social systems. In this sense, ‘morality’ accounts for the ethos of a specific system and is expressed through a set of rules and principles. These rules and principles fulfil the function of enabling the system to reproduce itself, to survive, in its initial social setting. Conceived in this way, the morality of a differentiated system has to be internal in order to be operational. Function and structure taken together create the basis for such an assimila- tion of mediate social values, by taking into account all the dimensions of an 14 Business Responsibility for Human Rights Violations from a Theoretical… 243 organisation’s identity: the structural element, the relationship with other systems, as well as the role of the organisation as conceived in its initial social setting. In order to foster the ‘internal morality’ that is specific to the business discourse and that would enable a solid BHR discourse to be internalised, it is necessary not only to integrate it under the rule of law, but also to implement its complementarity with other normative spheres, such as the one defining the individual person’s agency and responsibility. These normative spheres relate to differentiated discourses that address specific aspects of the social relations, complementing each other for the realisation of social justice in a complex global context. It is in this way that the legal acknowledgement of the social role and responsibility of corporate organisations, besides the one of the discrete individual, achieve a moral division of labour. The distinction between the two types of agencies – the individual and the collective one – could then be reflected in the possibility of using simultaneously various mechanisms for assigning responsibility and allocating liability, according to the specificity of each register of agenthood.

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Ana-Maria Pascal

Abstract This chapter is about a concept that everyone takes for granted, both in socio-etic and legal contexts, but which, at closer scrutiny, is very problematic both in theory and in practice – the concept of human rights. In theory, this is problematic because of the relativists’ challenge; in practice – because of laws that are either non-existent, or unenforceable. The two sides of the argument, therefore, are – a philosophical analysis of the concept of human rights, and an investigation of their impractical nature, using a legal case – the Khulumani litigation. The third section of the paper is dedicated to finding a middle ground between the two, which can also provide a solution to the dilemma of having to choose between human rights’ universality and their practical feasibility – namely, the area of non-legal remedies and ‘sentimental’ (i.e. relativistic) rather than ‘rational’ (i.e. universal) grounds for human rights. As long as general opinion on whether we care about whose cars and computers an abusive regime uses, while engaging in human rights abuses, is that we do, it is important to try and find such grounds to bridge theory and practice. (This paper was prepared for and presented at the EBEN Research Conference on Philosophical Foundations of Business Ethics, in Copenhagen, October 2015, and it benefited a lot from the discussions we had there. I would like to thank the conference organisers, the members of my workshop team, and in particular Kristian Hoyer-Toft and Jane Ellis, for their valuable comments.)

Keywords Human rights • Justice • Universal principles • Khulumani litigation • Kiobel v. Shell • Alien Tort Statute (ATS)/Alien Tort Claims Act (ATCA) • UN global compact • Non legal remedies • Sentimental education • Social connection model

A.-M. Pascal (*) Faculty of Business and Management, Regent’s University London, London, UK e-mail: [email protected]

© Springer International Publishing AG 2017 247 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_15 248 A.-M. Pascal

15.1 Introduction

A philosophical analysis of human rights amounts to discussing their nature (whether moral or merely normative), the challenge of reconciling their ‘universality’ with the ‘relativism’ of multiculturalism, and what this all means for the current conundrum of finding a practical way to protect human rights internationally – where both law and morality fail to act as enforcing agencies – the former, on jurisdiction grounds, the latter – because of culture related considerations. We analyse the consequences of adopting a principle-based or a pragmatist approach on such current challenges of not only recognizing the universality of human rights, but also attaching a meaningful degree of coherence and applicability to this acknowledgement, in a way that ensures their protection and defies legal and cultural difficulties. The normative aspects of this analysis (and the implications of each of the theories considered) are discussed in relation to a recent case, which was tried under the Alien Tort Claims Act (ATCA) in the US, and after a dozen years, it failed on technical grounds concerning jurisdiction problems – the Khulumani litigation. Whilst this will not amount to a detailed legal analysis, the case will be summarised and potential implications of the various philosophical views taken into consideration will be discussed. Similarly, whilst we do not go into the details of legal theory that make international human rights offenders difficult to even bring to trial, let alone convict and punish (due to the challenge of finding ways to bridge the gap between national laws and international treaties), we highlight the fact that such challenges exist and seem even more insurmountable today, after further restrictions have been imposed to the application of ATCA to crimes that occurred outside US jurisdiction. Consequently, the question has been raised whether non-legal remedies might be more effective in addressing such issues. We believe, of course, that non legal remedies might also be more appropriate from a philosophical and moral point of view, although their voluntary aspect makes them a totally hypothetical possibility. To this the core of the paper is dedicated – namely, to finding a way to bridge the gap between philosophical theory and social practice, to make sense of the inconsistency between absolute principles and their variable enforcement, so as to try and find a way out of the human rights conundrum – both in theory and practice. Finding non-legal remedies to the problem amounts to proposing a meaningful view of human rights, which both idealist philosophers and liberal pragmatists can adhere to, and – more importantly – one that CEOs, practitioners, lawyers, and human rights campaigners can agree on implementing. The key dilemma we have is a simple, but fundamental one: how can we, at the same time, believe in absolute human rights, while drafting laws and norms that are country- or culture – specific, therefore relative to a place and time? Moreover, how can we have international treaties that are meant to uphold ‘absolute’ human rights, but are not legally binding, or international laws that only apply within certain jurisdictions and on very specific terms? There seems to be a deep disconnection at the 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 249 core of our mindset on human rights – namely, between theory and practice, or belief and norms; and it is one that affects practices where a lot is at stake, such as those of multinational companies and their occasional complicity with nation states. A lot is at stake because, where the latter are undemocratic regimes, such deals can lead to human rights abuses. In what follows we shall talk about the gap between theory and practice – or that between universal principles and their implementation. In a way, it is the type of analysis that a virtue ethics would entail, because we look at the consistency (or lack thereof) between values and action. The difference, of course, is that the subject under scrutiny is a collective, rather than individual character. The principles at stake here are universal human rights – and the key challenges to their implementation (which may lead to ethical inconsistency) are – legal issues, on the one hand, and philosophical challenges, based on cultural affiliation, on the other. Hence – a legal conundrum and a philosophical one. To introduce the former, we use a real story, which is famous in legal circles. It is a case that started in the South Africa of the Apartheid-era, initially involved over 20 companies accused of complicity with the government in committing human rights offences, and eventually collapsed after many years of battle in US courts. The reason why the prosecution failed, in the end, was a change in the technical detail of the law that was being used, the US’ ATCA, also known as Alien Tort Statute (ATS), which was the only legal instrument that allowed prosecutions for abuses taking place outside a country’s jurisdiction – in particular, in places with weak or non-existent criminal laws. This is the legal conundrum. But let us start by telling the actual story of the Khulumani case.

15.2 An Open Wound from the Apartheid Era – The Khulumani Case

In 2002, twenty companies that did business in South Africa during the apartheid era – from car and computer manufacturers to banks – were sued in US federal courts for allegedly having supplied terrain vehicles, specialised computer programmes and financial services that assisted the apartheid government to commit human rights violations against blacks. The plaintiffs – victims of extrajudicial killings, torture and rape, were represented by Khulumani Support Group. They insisted that the participation of the companies in key industries in South Africa had contributed to the abuses committed against black Africans. The trial was brought under the ATCA/ATS, a US federal law adopted in 1789 that allows federal courts to hear claims by non-US citizens alleging violations of “the law of nations or a treaty of the United States”.1 Under this law, foreign claimants can seek legal remedy from

1 The ATS asserted that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S. Code 1350 (Alien Tort Claims Act) 250 A.-M. Pascal companies headquartered in the US, so they must show that the companies’ activities “touch and concern” the territory of the US (Business & Human Rights Resource Centre 2015). In 2009, the case was allowed to continue against five companies – Daimler, Ford, General Motors, IBM, and Rheinmetall Group. Three years later, General Motors settled the case, and in 2013 the court dismissed the claims against Daimler and Rheinmetall Group. This was because of the recent Supreme Court’s limitation on extraterritorial application of the ATS in another case tried under the same act (Kiobel v. Shell). In 2014 the lower court judge dismissed the case, as claimants had not shown a strong enough connection with the US. As a result of the recent narrowing of the application of the ATS, Judge Shira Scheindlin said that the claims did not touch and concern the territory of the United States “with sufficient force to displace the presumption against extraterritorial application”, and therefore did not justify the law’s use (Khulumani Statement, September 2014). In other words, the 2013 raising of the bar concerning ATCA jurisdiction effectively made its application to foreign subsidiaries of multinational corporations impossible.

15.3 The Legal Conundrum

The above has had clear implications on the already difficult issue of corporate accountability for human rights abuses by foreign subsidiaries. The general picture is as follows. On the one hand, the home state of the parent company tends to disclaim criminal jurisdiction on grounds that the subsidiary is an independent entity, the crime occurred on foreign territory, and there are too many practical problems relating to extra-territorial investigation, acquisition of evidence and securing witness testimonies. On the other hand, the host state (where the alleged crime took place) may be unwilling to prosecute because they do not wish to alienate the parent company and risk losing employment opportunities, tax revenue, and potential fees or other advantages offered by the parent company. International fora are equally impotent. The International Criminal Court dis- claims jurisdiction over collective defendants, such as organisations. This leaves the United States’ ATCA the only legal tool that allows (civil) action by foreign claimants, for torts committed abroad by corporations with a connection to the US. Now, that the bar has been raised concerning jurisdiction (following the 2013 court’s decision in Kiobel v. Shell2), it seems that not even this last resort is available anymore.

2 The Kiobel case against Shell consists of accusations of complicity in torture, killings and other abuses of Ogoni people in the Niger Delta. In 2002, Shell was sued in US federal court by Esther Kiobel, the wife of Dr Kiobel – an Ogoni activist, member of the Movement for the Survival of the Ogoni People (MOSOP) and eleven other Nigerians. At the time, MOSOP was campaigning 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 251

The key issue that remains with respect to the question of justice for extraterritorial offences involving multinationals and their alleged complicity with undemocratic regimes (almost irrespective of the chances of achieving that justice in practice) is one of principle. Namely, the question is – when a host state government which commits human rights violations against its citizens receives direct financial support from a parent company, taxes and other revenues from its subsidiary, or other types of advantages (whether products or advice) from either of the two, and that particular support, product or advice enables or facilitates human rights abuses by the host state government, is the company (or its subsidiary) liable as an aider and abettor to these violations, and with what consequences? Do we even care whose cars, loans, and computers an abusive regime uses against its own people? The general consensus is that yes, we do. It simply is not right, from a universal justice point of view, for anyone – be that a company or an individual – to provide any sort of assistance to an abusive regime. Just as it is not right to infringe anyone’s fundamental freedoms (of life, speech, religion etc.) and dignity, since they are universal human rights. So how do we hold the former accountable, when they assist abusive regimes, in order to protect the latter?

15.4 ‘Universal Rights’ – Key Reference Points

There is a space between international business, politics and law, which can hold the key to at least some of these problems. It is the space provided by international treaties, which although not legally binding, can help put pressure on big players like states and companies, reminding them of their responsibility towards human rights. Here is a summary of what we can find in that space. The 1948 Universal Declaration of Human Rights (UDHR) sets out, for the first time, fundamental human rights for all people, no matter who they are or where they live. These include civil rights (e.g. the right to life, liberty, free speech and privacy) and economic, social and cultural rights (e.g. the right to social security, health and education). The UDHR, however, is not a treaty, so it does not create legal obligations for countries; rather, it formulates the fundamental values, which are shared by against the environmental damage caused by oil extraction in the Ogoni region of Nigeria and for increased autonomy for the Ogoni ethnic group. Several members of MOSOP, including Dr Kiobel, were illegally detained in 1994, held in military custody, and then tried by a special court established by the military government. Eventually, they were convicted of murder and executed. The accusation was that Shell, through its Nigerian subsidiary, provided transport to Nigerian troops, allowed company property to be used as staging areas for attacks against the Ogoni, provided food to soldiers, and paid them to undertake criminal acts. In 2013, the US Supreme Court dismissed the case, thereby restricting the application of the Alien Tort Statute in cases involving allegations of abuse outside the US. This triggered a series of dismissals in other human rights related cases, such as the 2000 Rio Tinto case. For a detailed analysis of the consequences of the US Supreme decision in the Kiobel case on transnational litigation of corporate human rights abuses since 2013, see Marullo and Zamora Cabot (2016). 252 A.-M. Pascal all members of the international community. Although not legally binding in itself, the UDHR has had a profound influence on the development of international human rights law, e.g. international covenants on civil and political rights, on economic, social and cultural rights, on elimination of racial discrimination and discrimination against women, on the rights of the child, and on the rights of people with disabilities. The ILO Declaration on Fundamental Principles and Rights at Work 1998 is a commitment by governments and organizations to uphold basic human rights, especially at work – e.g. freedom of association and the right to collective bargaining, elimination of forced labour, abolition of child labour, and elimination of discrimination with respect to employment. Again, these rights are considered to be universal, and they apply in all states, irrespective of local culture, norms, and economic situation. Since 2000, the UN Framework for Human Rights sets the stage for a “Global Compact” for companies to commit to implement universal sustainability principles (UN Global Compact) and an accompanying set of “Guiding Principles on Business and Human Rights” introduced in 2011. The former includes ten universal principles on human rights, labour, environment and anti-corruption, derived from the UDHR, the ILO Declaration and the UN Convention against Corruption 2003 (2000). Although voluntary, the Global Compact is the world’s largest initiative to support corporate sustainability – with over 12,000 signatories in 170 countries. The first two principles specifically address the issue of human rights – • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and • Principle 2: make sure that they are not complicit in human rights abuses. The Guiding Principles issued by the UN Secretary-General’s Special Representative (SRSG) Professor John Ruggie’s team, and endorsed by the UN Human Rights Council in 2011 aim to clarify specific standards of corporate responsibility and accountability for businesses and human rights. This includes guidance on implementing effective policies and procedures and communicating annually with stakeholders on progress, for example the risk of “complicity” and “sphere of influence”, and implementation issues like the process of due diligence in business and human rights, and undertaking human rights impact assessments of the activities of transnational corporations. This relates directly to the issue we raised in the previous section – the gap between national laws and international corporate activities that may lead to human rights abuses. The Guiding Principles require, for instance, that companies have a policy commitment to respect human rights, and proactively take steps to prevent, mitigate and, where appropriate, remediate, their adverse human rights impacts. They explicitly say that respecting human rights means more than simply not causing human rights abuses directly; it also means avoiding complicity in human rights abuses. The process of due diligence must include an assessment of how existing and proposed activities may cause or contribute to human rights impacts. 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 253

The guiding principles provide for remediation options (that is, non legal solutions) a company has, to address adverse human rights impacts that it has caused or contributed to (e.g. grievance mechanisms that are accessible, equitable and rights- compatible). They also speak of supporting human rights as well as respecting them. Supporting or promoting human rights is an expectation that is additional to, and not a substitute for, the requirement to respect human rights. Examples of how businesses can support human rights include strategic social investments, philanthropy, and public policy engagement. As for the requirement to avoid complicity in human rights impacts, which is stipulated in Principle 2 of the Compact, “complicity” is understood to mean being implicated in a human rights abuse caused by another company, government, individual, group etc. This can be by way of an act or omission, and it may be direct or silent (Guiding Principles 2011). Responses to the UN Framework have varied, from some multinational companies like Coca-Cola and General Electric explicitly stating their support for the Guiding Principles, to sceptics who question whether the principles go far enough, and if the framework should become legally enforceable. In September 2013, Ecuador, backed by other governments and civil society organisations, proposed a binding legal instrument for multinational corporations’ operations in order to provide appropriate protection, justice and remedy to the victims of human rights abuses related to activities of multinational corporations. This was backed by a majority of the UN Human Rights Council and, as a result, a decision was made in Geneva on 26 June 2014 “to establish an open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, whose mandate shall be to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.” (Intergovernmental Working Group, www.ohchr.org). This group continues the work of the UN-based team on business and human rights set up in 2011, with the initial aim to promote dissemination and implementation of the UN Guiding Principles, the “Protect, Respect and Remedy” Framework (Working Group on Human Rights and Transnational Corporations and Other Business, www.ohchr.org). So far, the more focused mandate of the intergovernmental group – to set up a legally binding international instrument on TNCs and human rights – has only materialised in issuing guidance on the elements to be included in national action plans on business and human rights. However, the UN group only strongly encourages all states to enact such action plans, which remain a voluntary initiative. Indeed, only ten states have so far produced a national action plan. (See National Action Plans, www.ohchr.org). Whether the answer to universal human rights’ relativity and the gap between states or corporations’ power and their responsibility with regards to promoting and respecting human rights lies in a legally binding treaty, or in non-legal options, is an open debate in international circles. 254 A.-M. Pascal

15.5 The Philosophical Dilemma

One of the first to raise the question as to whether non-legal options might be more effective than legal ones in addressing such issues (as a consequence of the newly imposed restrictions to the application of ATCA to crimes that occur outside US jurisdiction) was Professor John Ruggie from Harvard University, who had also led the work on the UN Guiding Principles, as Special Representative of the UN Secretary General. We should add, of course, that non legal remedies might also be more appropriate from a philosophical and moral point of view. So, let us focus on the philosophical analysis of human rights – both in theory and in practice. First, we should mention the historical problem of the double character of the concept – human rights understood as constitutional norms v. human rights as individual absolute rights. The former are inevitably relative (to a country, culture, and period of time), while the latter are considered to be absolute, inalienable rights. This issue, initially raised by Jürgen Habermas (2001), leads to an ambiguity regarding their juridical or moral status (or both). This amounts to a discussion of modern philosophies like those of John Locke and Jean-Jacques Rousseau. It also, and more importantly for our purposes here (because of its relevance for both historical and current debates of UN-led and other agencies’ attempts to help implement human rights globally) leads to a discussion of whether human rights are, essentially, absolute moral rights, or just juridical norms. Habermas mentions the Immanuel Kant – Carl Schmitt controversy, which is worth rehearsing as it explicitly raises the issue of the UN Charter's ‘universality’ (Habermas 2001). This, in turn, can inform a debate on the meaning and purpose of the more recent UN initiatives – in particular, the Guiding Principles on Business and Human Rights. Indeed, Kant’s moral universalism and the idea of perpetual peace, the “cosmopolitan pacification of the state of nature between states, has on the one hand inspired efforts to reform the UN and, more generally, expand supra- national agencies in the different regions of the world” (Habermas 2001, 186). One of the key opponents of this ‘rhetoric of universalism’ is Carl Schmitt, who criti- cises the attempt to build pacifist cosmopolitanism on the basis of universal humanism as hypocritical and dangerous, because the goal can be easily perverted and used to further various local interests. Habermas denounces the inherent ambiguity of the concept of human rights, seen as either natural rights or positive rights – in other words, as absolute moral laws v. juridical ones. For him, “the concept of human rights does not have its origins in morality, but rather bears the imprint of the modern concept of individual liberties, hence of a specifically juridical concept” (Ibid., 190). This secures their universalism, because unlike other norms, which require pragmatic considerations to gain justification, basic rights “can be justified exclusively from the moral point of view”, as being “in the interest of all persons qua persons” (Ibid., 191). Far from turning them into mere moral norms, this moral basis provides human rights with universal validity; however, they remain juridical in nature, in the sense that they preserve their structural character (by contrast with moral norms, which 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 255 are content-bound). Unlike moral norms, basic rights do not set limits to freedom, and as such have an infinitely greater chance of universal applicability. Habermas thinks that it is precisely because of the confusion between the two that “human rights have thus far managed to achieve an unambiguous positive form only within the national legal orders of democratic states” and that they “still await institutionalisation within the framework of a cosmopolitan order that is only now beginning to take shape” (Ibid., 192). It would be interesting to know what he might have made of present-day efforts at such institutionalisation by the UN Council. We retain his suggestion that, in order to ensure both universality and applicability of human rights, we must acknowledge their structural character – namely, their foundation in basic universal liberties, which no one can deny because they are good for everyone. The second lead in our philosophical analysis – related to, but not necessarily part of the first one – is a discussion of contemporary views like those of Richard Rorty, Isaiah Berlin, Amartya Sen, and Iris Marion Young. Rorty directly opposes Kantianism and suggests replacing it with a conception of human rights based on sentimentality, rather than an allegedly universal moral status of human rights. Rorty’s concept of sentimentality, just as that of ‘solidarity’, is based on his belief in our increased ability to recognise similarities between ourselves and others, which outweigh differences and thereby provide a good basis for empathy. This kind of “sentimental education”, for Rorty, has a better chance of achieving what he calls moral progress than some vague metaphysical hope for a non-contingent moral authority, be that the Platonic “idea” of goodness, or Kant’s “tribunal of pure practical reason” (Rorty, in Ishay 1997, 267). One might easily recognise the potential of such a pragmatist view for the current debate on business and human rights in a multicultural world. Sympathy is seen as a key ingredient in this type of sentimentality, as something that helps create bridges between very different people (and peoples) and provide a good basis for toleration. “By ‘sympathy’, Rorty says, I mean the sort of reaction that the Athenians had more of after seeing Aeschylus’ The Persians than before, the sort that white Americans had more of after reading Uncle Tom’s Cabin than before, the sort that we have more of after watching TV programs about the genocide in Bosnia” (Ibid., 266). This kind of practices, argues Rorty (following David Hume) constitute a “sentimental education” that is a much better basis for moral behaviour than any universal, ‘law-discerning reason’ of Kantian inspiration. In other words, if we encounter intolerant people, rather than labelling them as irrational, we should understand the practical reasons why they are less sympathetic to others, such as a lack of exposure to other cultures (and arguably put this understanding to practical use, by acting in such a way as to effectively address these causes). It is this kind of openness, empathy, trust and toleration that should become the basis for a global human rights culture – in other words, “a progress of sentiments” – rather than some purely rational and ‘objective’ moral laws. People would much easier relate to the former than to the latter, because it is easier to feel that people of a different race or gender are more like us (for example, when we see them suffering of the same kind of pain that we do), than it is to do so in virtue of some abstract concept. It would be easier for 256 A.-M. Pascal people to become more tolerant, Rorty believes, out of nicety than because of the commands of universal reason. For Rorty, this amounts to advocating “a bottom-up way of achieving utopia”, one that comes “from the depths of the human soul” rather than some cerebral “unconditional moral obligation” (Ibid., 267). Whilst very attractive in its humility and humaneness, this view may be difficult to apply systematically, at institutional level. It also does not offer any guarantees that people in positions of power (in large organisations and in governments) would be as open to the kind of sentimental education that Rorty advocates as people at the bottom are, or as susceptible to turn that to good use in their own practice and decision-making. Whilst Richard Rorty assumes the relativism of all values, without discussing it in relation to human rights, another group of theorists, including Isaiah Berlin and Amartya Sen, addresses the issue of the rapport between the notion of universal rights and that of cultural relativism head on. Confronted with the question concerning the contrast between the principle of universality and that of cultural relativism, Isaiah Berlin answers clearly that there is none. He considers the existence of universal values a fact, which has been proven empirically, and the idea of human rights – a derivative of this, which rests on the realisation (common to all peoples) that certain goods (like freedom, justice, pursuit of happiness, love) are in the interest of all human beings, and that it is right to protect people against those who deny them these. A full philosophy of human rights, he argues, would have to include a view of justice, freedom, and why anyone should obey anyone else; but the realisation that the universality of human rights has been recognised by every culture is a sine qua non (Berlin and Jahanbegloo 2000, 37–40). Whilst this may be a fair general point, it does not, however, take us very far with situations which illustrate exceptions from the rule – as it is the case with the issue of business and human rights, our main concern here. Separately, Berlin also distinguishes between two different views of human rights, considered from a socio-political perspective – a socialist and a liberal view of the private sphere, seen as a bad separateness, and a good (because natural) need for independence, respectively (Berlin 2002, 113–114). This might lead to a whole new series of suggestions for how the challenge of upholding human rights across cultures could be addressed in practice – one that deserves a separate discussion. It does not, however, go very far to address the issue of transnational business and human rights, which is largely a question of how to effectively implement universal principles in the public sphere. Amartya Sen, on the other hand, is somewhat sceptical about the whole “oratory of human rights”. More specifically, he questions, firstly, the legitimacy of the demands of human rights, seen as would-be pre-legislation rights; secondly, the coherence of their applicability; and lastly, their alleged universality (Sen 2001, chapter 10). Unlike Berlin, Sen considers differences between cultures to be serious enough to make such universality implausible. Let us briefly analyse his objections, and evaluate the potential consequences of his view for the current debate about the UN-led efforts to recognise the universal, indisputable duty that both nation states 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 257 and corporations have to support human rights across borders, and implement this support in social and business practices. Sen’s first critique is related to his assumption that any rights or entitlements are judiciary in nature – that is, given by the state, rather than owned in some ‘natural’ way. There are no “pre-legislation rights” any more than there can be any “pre- tailoring clothes”, for instance (Ibid., 228); these must be provided within a socio- professional practice (the law, in one case, the garment manufacturing industry, in the other). In other words, human rights can only be meaningfully invoked in a legal context – or else, remain purely ethical claims, which would not provide a solid enough basis for political demands according to Sen. ‘Politics’ here is taken in its wider sense, which includes the kind of preoccupations we discuss in this chapter. So the only kind of understanding of human rights that suits our purposes here is primarily that of judicial rights, which brings us back to our legal conundrum about the gap between national laws and international business activity. Amartya Sen’s second critique refers to the form that the ethics or politics of human rights takes – in the sense of whether or not they are associated with specific duties of particular responsible agents that make them not only meaningful, but also achievable (for example, if there are any assigned individuals or institutions whose specific duty is to guarantee the fulfilment of the right to food or medicine). In the absence of any specifications about such concrete agents and duties, any ‘rights’ are but an empty signifier; both the concept itself and the “demand for human rights are, then, seen just as loose talk” (Ibid., 230). The problem with universal human rights, of course, is that they are too general to be the job of anyone in particular. “While it is not the specific duty of any given individual to make sure that the person has her rights fulfilled, the claims can be generally addressed to all those who are in a position to help” (Ibid., 230). But what guarantees do we have that people able to help (e.g. those with power and authority, both in business and politics) are actually willing to do so, especially when doing so would not help fulfil their own interests? Therefore, as Sen points out, “rights, thus formulated, sometimes end up unful- filled” Ibid.( , 230), which will be even more the case with the rights of the poor and the unrepresented. The key imperative, then, is the one about the need to assign specific duties to specific agents, in order to ensure the protection of human rights. We’ll just have to find a way to do this at local, individual level, without sacrificing the universality of those rights, which is exactly the challenge the UN framework is facing. Sen’s second critique is a strong, valuable reminder of the importance of specific responsibilities for the implementation of generic rights. Sen’s third critique is linked with a wider context of socio-cultural ethics, where the main issue with human rights becomes that of the relativity of ethical values, from culture to culture. “What if some cultures – asks Sen – do not regard rights as particularly valuable, compared to other prepossessing virtues or qualities?” (Ibid., 228). His main example is that of Asian cultures, where the idea of human rights has much less appeal than in Western cultures. However, it seems that some values – such as the idea of personal freedom, or (to a certain extent) that of tolerance – defy cultural relativism (Ibid., 231–246), giving Amartya Sen reasons to insist on what he calls the ‘universalist presumptions’ of his theory. Consequently, he argues in 258 A.-M. Pascal favour of basic freedoms and their associations in terms of rights based on “1) their intrinsic importance; 2) their consequential role in providing political incentives for economic security; 3) their constructive role in the genesis of values and priorities” (Ibid., 246). Suffice it to say that, just like Rorty’ sentimentality, Sen’s scepticism with regards to anything universal and his suggestion to replace this claim with others, more locally bound, is consistent with the UN representative’s recent call for non-legal remedies – of a sort that would take into account the local needs and culture of those affected by whatever situation needs to be ‘remedied’. Iris Marion Young discusses global justice in the context of a ‘social connection model of responsibility’. Unlike the standard model (based on liability), or the Rawlsian view of justice as something shared by members of a relatively closed community, the ‘social connection’ model relies on structural social processes, in the sense, for example, of structures of production and distribution, which are more often than not transnational, rather than state- or culture-bound (Young 2005). This is particularly relevant for our discussion here, because universal human rights can be seen as one of the pillars of global justice. However, Young’s view is also distinct from the cosmopolitan-utilitarian one, which stipulates that “nation state membership or any other sort of particular relationship among persons is irrelevant to assessing the nature, depth or scope of obligations they have to one another” and that “moral agents have obligations that are identical for all human beings” (Young 2005, 710). For Iris Young, obligations of justice “arise from social connection”, that is from within the context of our social practices and institutions (Ibid., 711). In the context of a business and human rights discourse, this translates as an obligation to respect and promote situational human rights – that is rights arising from local needs, then/there, and to try and implement these in a way that suits each community. Particular human rights may not be immediately acknowledged as such in certain communities, either because of cultural influences, or because of practical challenges, which place them lower on the list of priorities than where we would like them to be, from a universal standpoint. If that is the case, it means that more work will have to be done to push them up the agenda, as it were, and make them a priority for everyone – in particular, for those in a position of power and influence. In order to answer the question, “how should moral agents, whether individual or organisational, think about their responsibilities in relations to structural injustice that spans relationships across national boundaries?” (Ibid., 712), Young uses the example of the anti-sweatshop movement, which bears some similarity with the type of situation we have been discussing in relation to business and human rights – namely, that of complicity between the state and multinational corporations. In Young’s example, the movement raised claims on governments and institutions that purchase clothing in bulk to assume responsibility for the poor conditions in the factories where these are produced; moreover, they call not only upon retailers, but also consumers to take responsibility. A similar situation to our Khulumani case about multinationals that should care about their products (whether cars or computers) being used by corrupt and oppressive regimes. 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 259

Young describes the injustice suffered by the factory workers at the bottom of the production and distribution chain as a structural one, because of the complexities of the layers above them. These layers often involve several subcontractors, many of whom have no legal responsibilities for the firms below and therefore, towards the workers at the bottom, while they all add to the cost of the items the latter produce; in other words, each layer acts for its own interests and to the detriment of the poor worker at the bottom of the chain. This leads to a system of structural injustice – a “kind of moral wrong distinct from the wrongful action of an individual”, which “occurs as a consequence of many individuals and institutions acting in pursuit of their particular goals and interests, within given institutional rules and accepted norms” (Ibid., 715). Therefore, everyone who participates in the system is responsible for the resulting injustice – not in the sense of directly causing it, but for will- ingly taking part in the process that causes it. Young calls this type of responsibility the social connection model, as distinct from the traditional one, based on blame or direct liability. The social connection model, she rightly points out, is a much better fit for the transnational and structural type of injustice that she describes (in relation to complex manufacturing and distribution chains) and which resembles the one that we do, too – without the added complication of an international political layer, in our case. Incidentally, this model of responsibility can also help resolve the classical dilemma of corporate criminal liability, discussed by Wells (1993) and Wolf (1985), about the difficulty of attributing blame to organisations, which lack a moral conscience – because we no longer require the rigid concept of blame (or indeed a direct cause of injustice), since we acknowledge that responsibility lies at every stage of the multi-layered process that generated the injustice. The model also helps with the technical legal difficulty, which is inherent in any attempt to apply the identification doctrine (the most frequently used test of liability) to multinational corporations – namely the challenge of identifying one or a few directors who were directly responsible for the wrongful act (obviously an almost impossible task in complex organisations). The social connection model of responsibility requires us to acknowledge multiple, interconnected sources of liability not only as a possibility, but as the status-quo. It should, in other words, be a matter of course that every agent, at every stage of the production, distribution, sale, and consumption process is partly responsible for what goes on either at the beginning, or at the end of the chain – e.g., in what conditions factory workers have to work, and whether the products or services delivered in every market are used or misused by corrupt regimes to oppress people. To our question ‘who cares’ about this, Young answers everyone should. How can we use this theoretical new model of responsibility, in the context of our debate about international business and human rights? The answer lies in Iris Young’s own words: “Because the particular causal relationship of the actions of particular individuals or organizations to structural outcomes is often not possible to trace, there is no point in seeking to exact compensation or redress from only and all those who have contributed to the outcome, and in proportion to their contribution (…). The point is not to blame, punish, or seek redress for those who did it, but 260 A.-M. Pascal rather to enjoin those who participate by their actions in the process of collective action to change it” (Ibid., 722). Increasing awareness – at every stage in the production and distribution process, as well as at consumption point – about the injustices that certain business activities (with or without collaboration with other institutions) might have, with a view to effect change in the way things are done at each and every level in that chain, is more important than trying to seek justice or retribution for this kind of institutional, structural injustices, for which it may be impossible and potentially inappropriate to apportion individual blame. In the example used by Young, indeed, the anti-sweatshop activists rarely ask for particular factories to be shut down, or individual perpetrators to be punished – because that would not be effective in stopping the injustice that workers at the bottom of the production chain suffer; instead, they ask for those at different levels to share responsibility, and work together to change the way the system operates, in order to lead to more just outcomes for everyone. It is a practical and humane solution to our conundrum, which happens to coincide with the rationale behind most projects and activities in the voluntary sector. Indeed, whether lobbying for changes in public policy, better working conditions, protection of privacy rights, or wider access to information, NGOs adopt a social connection type of engine for driving change, rather than purely legal mechanisms, or an appeal to universal principles alone.

15.6 Conclusion

“Responsibility from social connection, then, is ultimately political responsibility” (Ibid., 723), says Young – and this is certainly true of the kind of situation that we are referring to, in this chapter. What she means by politics is “public communicative engagement with others for the sake of organizing our relationships and coordi- nating our actions most justly” (Ibid., 723–724). It is a form of social activism aimed at institutional reform within the structures of transnational business activity. And the basis for this reform is located at communication level – where an increased awareness about the outcomes of our extended activity must be generated. Here is where the media, and the ethical and sentimental education that Rorty talks about play a significant role – because without them, middle-level agents in the West might not even know about, let alone empathise with, the situation of poor factory workers in Asia and South America, or that of the victims of totalitarian regimes in Africa, where our cars and computers are used in oppressive activities. To sum up, Young’s model, which is a combination of the Habermasian concepts of communicative action and global institutionalisation with a Rortian belief in the potential of human empathy and capacity to reform things, proves to be the most coherent and effective proposal for how to deal with the challenge of global injustice arising from transnational activities of multinational companies (possibly in collaboration with corrupt regimes), in a complex operational system of multi- layered responsibility. Where Habermas’ project of global institutionalisation aimed 15 Who Cares Whose Cars? A Philosophical Analysis of Business and Human Rights 261 at achieving a general acknowledgement of the universality of human rights came up short – namely, in providing enough detail about the practical ways in which we could either overcome the challenge of jurisdiction, or envisage something of a non- legal nature that could achieve a level of global acceptance for this set of universal rights – Young suggests that we should simply abandon the liability-based model of responsibility and focus, instead, on the alternative, which is a model of shared responsibility, based on roles rather than direct fault. Rorty’s emphasis on human emotions and empathy is instrumental in such a non-legal type of foundation for human rights, and universal values in general. Arguably, this view could be helpful in the context of current attempts by the UN Human Rights Council to set up a universally binding treaty on human rights and business power and responsibility. Given a) the absence of relevant international laws, and b) jurisdictional challenges in applying even the limited number of laws that are there, clearly the solution must be found in non-legal instruments. And the only non-legal instrument that is universal and powerful enough to effect change is the human conscience itself. With the right level of information and motivation, it can act to build bridges of responsible action, in a forward-planning and therefore more sustainable way than any legal solutions would, which can only act retrospectively, once injustice has already been committed. But of course, human conscience alone cannot effect institutional change, without the help of structural mechanisms both from within and outside the organisation or the industry we would like to change. Legal, financial, infrastructure, and even military services are needed for capacity building and to ensure transparency in transnational operations. Thomas Pogge (2008) wrote extensively about the need to recognize the role of financial institutions in facilitating and perpetuating corruption and abuse at national level, by providing borrowing privileges to illegitimate political leaders in corrupt regimes (2008). For this reason, a UN-established treaty may have better chances of success than either a grass roots (civil society) movement, or a purely professional initiative (whether academic or legal practice based) might have, to bridge the human, cultural, and institutional aspects of any such proposal. However, these need not be mutually exclusive options; indeed, the key to success might lie in an ability to fuse them – in the sense, for instance, of adopting a social connection type of strategy to set up a non legal UN treaty, which would come with sufficient accompanying mechanisms to stimulate nation states to subscribe to it.

References

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Anita Aufrecht

Abstract Adverse business impacts on societies and environments have been increasingly addressed by the international community. To define a transnational umbrella model for business responsibilities, the United Nations introduced the framework named Protect, Respect and Remedy in 2008, which was complemented by the Guiding Principles on Business and Human Rights in 2011. I assessed the significance of these transnational guidelines by means of a practical case in Nicaragua, where economic activities have been related to a chronic disease epidemic among agricultural labourers. Then I attributed the conclusions drawn to the framework to discuss its applicability and to give advancing recommendations on how to accomplish corporate social responsibility for human rights. While the case study approach may limit interpretations to other cases or the chosen framework, this paper points out the necessity to establish international instruments that directly sanction corporations for non-compliance with fundamental rights – regardless of their national origin.

Keywords Corporate social responsibility • United Nation’s framework • Guiding principles on business and human rights • Fundamental rights • Nicaragua

16.1 Introduction

Around the globe, communities adversely affected by business activities claim for the protection of their fundamental rights. (Amao 2011; Emeseh and Songi 2014; Salcito et al. 2015) The Business & Human Rights Resource Centre (BHRC) published a large range of cases on poor living and working conditions, environmental contamination of indigenous peoples’ land, and damage to people’s health. Such

A. Aufrecht (*) German Graduate School of Management and Law (GGS), 74076 Heilbronn, Germany e-mail: [email protected]

© Springer International Publishing AG 2017 263 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_16 264 A. Aufrecht cases raise the question as how to define and accomplish corporate social responsibility (CSR). Some legal case histories demonstrate how plaintiffs claim for remedies and which obstacles they face during legal processes. (BHRC) Particularly, failed lawsuits challenge the effectiveness of established instruments and related grievance mechanisms. The international community has barely recognised the necessity to develop adequate approaches towards CSR with regard to the compliance with fundamental human rights at work. (Wettstein 2012) Further, the current discussion on CSR mostly focuses on transnational corporations (TNCs) from developed countries. (Matten and Moon 2008) In the course of globalisation, the number of TNCs with origin in developing countries has been increasing in the last two decades as well. (Cuervo-Cazurra 2012) But there seems to be a lack of attention to these businesses being held responsible to respect fundamental rights at work. (Gugler and Shi 2009) I want to bring to the fore this particular concern in the global debate on CSR. The first section provides an introduction into the topic of business and fundamental rights at work, leading to the problem formulation and research question. The second chapter describes the applied methodology for secondary and primary data. I frame the practical study by providing research background in the third section. In accordance with the selected research variables, I outline the findings in the fourth chapter. The discussion of the research question in the fifths section combines the theoretical framework and the practical study findings. The most significant conclusions of the study as well as policy recommendations and suggestions for future research finish the last chapter.

16.2 Theoretical Framework

The labour rights (LR) standard-setting process was institutionalised in 1919 with the foundation of the International Labour Organisation (ILO), later integrated into the United Nations (UN). Since 1948, human rights (HR) have become universally protected through the adoption of the Universal Declaration of Human Rights (UDHR) and a series of continuative UN Conventions. With regard to labour, Article 23 and Article 24 of the UDHR address the right to work, non-discrimination, favourable working conditions, equal and fair remuneration, limited working hours, trade unions defending workers’ interests, and social protection. (UN 2014) While governments all over the world have incurred the liability to respect fundamental rights under international law, the agenda about the responsibility to respect these liberties has shifted towards another international stakeholder, namely corporations. The ILO Declaration on Fundamental Principles and Rights at Work (FPRW) from 1998 and the in 2000 introduced UN Global Compact were counted as the first universal achievements to define CSR with regard to labour-related HR. (Ruggie 2008, 3,27; Roseberry et al. 2010) In 2005, the UN awarded a 6-year mandate to 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 265 further develop the initial voluntary and legally non-binding approach towards a normative HR model for businesses. In 2008, Prof. John Ruggie launched the framework named Protect, Respect and Remedy, which was complemented in 2011 by the Guiding Principles on Business and HR (Ruggie 2008; OHCHR 2011). The UN framework consists of three pillars tailored to three interrelated stakeholders, namely: governments, TNCs as well as other corporations, and individuals or groups whose HR are adversely affected. The new guidelines are built on existing international laws and clarify the rights and duties of all stakeholders involved in any business activities. The UN framework seeks to create a socially sustainable business environment by bridging the gaps of governance systems that have been increasing through emerging globalisation. This latest contribution counts as the most common global business and HR framework, for which reason I chose it as the paper’s framework.

16.2.1 The State Duty to Protect

The first pillar of the policy framework embraces the state’s duty to guard against HR violations by a third party, through the implementation of appropriate legislative processes. The legal mechanisms of the UN treaty bodies directly require signatory states to enforce international HR laws through national jurisdiction. Accordingly, it is the state’s legal obligation to guarantee compliance with adopted international laws and regulations by all kinds of corporations, to hold them accountable under domestic law in case of RV, and to compensate the aggrieved party. (J. Ruggie 2008, 7; OHCHR 2011, 3)

16.2.2 The Corporate Responsibility to Respect

The second central principle of the UN approach imposes the responsibility on corporations to respect HR, beyond the obligation to comply with national laws. Accordingly, businesses need to adhere to all LR or non-LR that both are universally recognised by UN and ILO Core Conventions. Corporations are advised to implement impact assessment mechanisms and respective policies in order to avoid causing harm – regardless of being directly involved or complicit. (Ruggie 2008; OHCHR 2011) In this regard, Ruggie clarifies that corporations can be held legally accountable directly under domestic law. A country-specific analysis of relevant applicable international regulations would be necessary to define a valuable CSR frame. The UN framework clarifies that compliance with international HR laws is not a voluntary business practice but an obligation, even if there might be a lack of enforcement on the part of the national state. Adjacent to courts, alleged abuse of HR can also be judged by public attention. (Ruggie 2007, 2008) 266 A. Aufrecht

16.2.3 Access to Remedies

The third pillar focuses on the accessibility of remedial procedures to those whose HR are adversely affected through a third party. The complaint process for alleged breach of regulations provides a construct of several legal and non-legal instruments. While the first step towards legal action is the country where the alleged RV occurred, the UN framework is also concerned with obstacles plaintiffs face in incapable national systems of justice. In such a case, an appeal under international jurisdiction might be claimable. But the barriers to access remedy through so-called international hard-laws are considered to be even higher because the nation’s duty to protect needs to be compelled first. For this reason, soft-law grievance mechanisms, whose standards are defined by state or non-state institutions, are assigned an important role in regulating business responsibilities. (Ruggie 2008; OHCHR 2011) Ruggie’s approach has been criticised for being insufficient by arguing that while the state is imposed a duty, corporations are only assigned a responsibility. (Roseberry et al. 2010) Accordingly, the most difficult task is to narrow and eventually close the gaps between the widespread obligations and the persisting non- compliance with international HR standards. (Ruggie 2007, 2008) To that end, the paper aims to answer the research question: Can the UN Framework promote the accomplishment of corporate social responsibility in developing countries? For the assessment of the research question, the four Fundamental Labour Standards (FLS) imposed by the UN’s labour organisation ILO were chosen as study variables, which are the most deeply-rooted and universally recognised principles at work. These standards are reflected by international HR and LR laws and serve as ruling guidelines for all forms of businesses: 1. Freedom of association and the effective recognition of the right to collective bargaining 2. Elimination of all forms of forced or compulsory labour 3. Effective abolition of child labour 4. Elimination of discrimination in respect of employment and occupation The goal of this paper is to test the applicability of the UN framework in a developing country context and to attribute the lessons learnt to its three pillars. The model’s strength and weaknesses will be deliberated, and suggestions for improvement will be given to close identified gaps. 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 267

16.3 Research Methodology

16.3.1 Timeline of Research Processes

Research activities on the ground began on 11 February 2013. I completed the preparation for the questioning, including secondary data research and contempora- neous field site investigation on 28 June. Then I designed the questionnaire and a community leader selected a confidential study population. I conducted the questioning between 15 and 22 July. The collected primary data was processed until 8 August and analysed in the subsequent months. To best interpret collected data, I undertook continuous informant consultation and field site observation between 15 January and 31 March 2014.

16.3.2 Theoretical Methods

For the design of the theoretical framework, I reviewed the historical development of the standard setting procedure with regard to business and HR. I selected the most recent and recognised contribution on the international level, the UN framework, as a guideline. Relevant official SRSG documents that were presented to the HR Council were used to present the framework. The foundation of the study is a rights-based approach (RBA). On the one hand, the RBA is based on a context-specific set of international and regional legal obligations that the national government has agreed on, as well as national laws. On the other hand, the RBA entails non-legal measures such as global standards, which are defined by international institutions on the basis of laws. The RBA is a valuable tool because it demands the application of grievance mechanisms that come along with the legitimacy of relevant laws and regulations. (Hunt and MacNaughton 2006)

16.3.3 Exploratory Study

In advance of the study among the field site, I analysed secondary data such as laws and regulations. Comparative cases, in which the worker’s physical or mental health was affected, were of particular interest to me. Further, I collected relevant survey reports, scholarly, and journalistic materials. The insight into other cases was a useful practice to analyse the applicable legal basis, proceedings, and findings. 268 A. Aufrecht

16.3.4 Practical Methods

For the realisation of the field study, I chose a mixed-method approach. Triangulation is specifically necessary to fairly understand collected data and draw conclusions. For this, I reviewed medical and legal research papers relevant to the case. Further, I read company reports, government publications, and journalistic material to evaluate the current position towards the study population and to identify dilemmas. I supple- mented secondary data with gained field site observation and informant knowledge. Additionally I interviewed medical, political, juridical, economic, and civil society informants on a loosely formatted basis to gain context-specific knowledge. To discuss the study elements and proceedings, a focus group was organised in a community other than the selected field site to maintain secrecy. (based on Saunders et al. 2009) I selected the ILO Core Principles as the primary study variables due to their universal character and relevance to the case. Other pertinent variables were used as secondary variables. Based on these, I defined codes of conduct for the local private and public sector and used the codes as the basis for the development of a set of questions. I divided the questionnaire into four main parts: (1) demographic data, (2) working conditions, including the sub-categories: contracts, remuneration, working hours, provision of services, and health and security at the workplace, (3) three FLS: freedom of association, abolition of child and forced labour, (4) Individual, social and political rights, in which amongst others the fourth FLS, non- discrimination, was a part of. As study instruments, I selected a small confidential group of 30 current and former agricultural labourers working for the same employer in the same fields. Due to associated risk factors of the chronic disease epidemic, male workers younger than 50 years of age were of particular interest to me.

16.3.5 Delimitations

The study only focuses on a single corporation and its impact on the worker’s rights. The main assessment variables are defined through global standards to which the studied corporation is not directly liable. While the application to a single case may restrict the transferability to other cases, the research strategy follows the recommendations of the UN framework.

16.3.6 Ethical Considerations

During all stages of the research processes, I considered ethical issues, in which the guarantee of confidentiality and anonymity was of highest importance. Due the context in which the research was conducted, my primary ethical concern was the 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 269 security and well-being of the study population. Respondents should not suffer any form of harm as a consequence of their participation. Principles seeking to ensure the security of study participants were defined to regulate interview processes and minimise associated risks. Names of the study respondents are unknown and names of informants are confidential.

16.4 Contextual Background

16.4.1 Chronic Kidney Disease in Nicaragua’s Sugarcane Industry

With an agricultural output of around five million metric tons on average, sugarcane is by far the most important cultivation in Nicaragua. (Bolaños 2014; FAOSTAT 2014) The monocultural production and commercialisation for external and internal markets is controlled by four main Nicaraguan sugarcane refineries. The country’s largest sugar business Ingenio San Antonio, which belongs to the corporation Grupo Pellas, is the principal employer in the town of Chichigalpa and its surrounding communities. A workforce of approximately 3000 temporary workers do field work every year during the sugarcane harvest period from November through May. (PASE and ILRF 2005) Harvesters in these fields have been suffering from an epidemic of Chronic Kidney Disease of non-traditional causes (CKDnT). CKDnT occurs along the pacific coast of Central America, where around 20,000 people have already fallen victim to the disease over the last two decades. (Chavkin 2014) The prevalence number of CKDnT affection in rural agricultural areas has been increasing during the last years. (Almaguer et al. 2014) With more than 3.000 estimated death cases between 2005 and 2009, Nicaragua records one of the highest CKDnT mortality rates in Central America. (PAHO/WHO 2013) In Chichigalpa, CKDnT is the major cause of death among the male population, where 46 % of male deaths between 2002 and 2012 were due to CKDnT and 70–75 % of men were between 35 and 55 years old. (Meléndez 2012; Glaser and Weiss 2014)

16.4.2 The Impact of Economic Activities on Worker’s Health

Recent studies indicate that the high rates of CKDnT are linked to poor working conditions of agricultural labourers. Study findings suggest multiple factors as a likely cause for CKDnT. These factors are: long working hours and lack of rest, heat stress, toxic poisoning through the exposure to pesticides, chronic dehydration, and excessive consumption of sugar. (Torres et al. 2010; Johnson et al. 2014; Raines et al. 2014; Brooks and McClean 2012) 270 A. Aufrecht

Further studies allege that corporate non-compliance with work regulations, in conjunction with a lack of enforcement through the national state, has had adverse impacts on the conditions of work, posing additional risk to the health of sugarcane workers and surrounding communities. (PASE and ILRF 2005; STR 2009)

16.4.3 The Legal Framework of the Study Context

Nicaragua is signatory to the nine UN HR Core Treaties and the eight ILO Core Labour Conventions. The Nicaraguan Constitution protects and recognises international HR to all people within national borders through Article 46, and upholds universal rights at work to everyone by Article 80. LR protection rules are further provided in several law codes of Chapter IV in the Nicaraguan Constitution, the general Labour Code, the general Law on Health and the additional Law on Occupational Risks and Diseases, as well as the Social Security Law. National labour laws account for directly employed workers, but Nicaraguan laws also impose employer responsibilities for subcontracted labourers by Article 119 of the Labour Code. Since 2004, CKDnT is defined as an occupational disease under Nicaraguan Health Law No. 185 and 456. The ministries of labour (MITRAB), health (MINSA), and social security (INSS) are authorised with the implementation and enforcement of respective laws. In conformity with the Paris Principles, Nicaragua has established a national HR institution to promote and protect international HR norms. (CAFTA LR Report 2005)

16.5 Study Findings

In July 2013, 29 structured and anonymous interviews were completed. The participation rate was 96.67 %. Due to the small sample size, the studied variables mostly rely on qualitative data.

16.5.1 Demographic Data

In the interviews, 28 men and 1 woman from the age range between 19 and 56 took part. Participants had a median age of 26 and an average age of 28. The literacy rate was very high with 96 % of respondents reporting that they could read, and 93 % who could write. Participants were residing in the city of Chichigalpa or nearby communities. The study population comprised 75 % that were working during the time of study while the remaining 25 % had been working in the past for the local sugarcane industry. Of the respondents, 31 % were directly employed while 48 % were subcontracted. 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 271

Although 86 % of the study population attended high school, out of which 32 % finished the maximum of 5 years, the job opportunities are rare: “[…] even if they (the residents) go to school, the only future is there (at the sugarcane company)” – Male, 26. Respondents verified that the largest employer in town offers the only accessible income resource for the majority of population: “(the work is) for the poor, there are no other jobs” – Male, 21. Of the study participants, 17 % have ever shown high levels of the CKDnT indi- cator creatinine and 14 % have been diagnosed with CKDnT. In total, 31 % of those surveyed were somehow affected by kidney damage. Primarily they were working on the fields where they were highly exposed to CKDnT risk factors. Three respondents acknowledged working for a subcontractor under a false identification card because they were dismissed due to a high risk of being affected by CKDnT. Reported jobs on the sugarcane fields included seeding, planting, irrigation, applying pesticides and herbicides, weeding, bundling and collecting cane with machinery. In the sugarcane processing plant, respondents fulfilled tasks regarding packing sugar, storage, welding, masonry, and repairing machinery. Cutting cane was executed at some point during the work cycle by 41 % of the study population.

16.5.2 Labour Conditions Related to Fundamental Principles

The selected study variables are the ILO four Fundamental Labour Standards, which violation is rigorously forbidden through UN and ILO Conventions.

16.5.2.1 Freedom of Association – Right to Organise and Collectively Bargain

According to the UDHR (1948) Article 22, and the ILO Declaration on FPRW (1998) Article 2, the HR freedom of association comprises two FLS, namely the right of workers to organise and to collectively bargain. The right to organise is the prerequisite for solid joint bargaining and social dialogue. The absolute recognition of freedom of association enables the workers to use to full capacity their negotiation power to advocate for increased protection of other LR and better working conditions. The right to strike provides labourers with the opportunity to stop work in case the employer does not respect their rights, or was not willing to engage in negotiations. The response rate with regard to unionising was compared to the other sections quite low, due to the fact, that none of the respondents was affiliated with a union and not well informed about the role of unions at their workplace. With an outstand- ing consensus of the respondents, the study findings conclude that the worker’s right to organise independently is infringed to a large extent, which prevents workers from collectively bargaining. 272 A. Aufrecht

Especially the fear to getting dismissed was mentioned as a reason to not being involved in the formation of a labour union: “they’ll fire you for participation in unions, so everyone is scared of participating or believing in unions” – Male, 26. It was verified that the employer has a high influence on unions, which were described as compromised and would exclude workers from negotiations. To that end, unions are probably more comparable with a company union. While respondents believe that everybody the same rights, 34 % of the study population believe that subcontracted labourers do not have the same right to unio- nise. Respondents specified that there was no organisation defending the rights and interests of subcontracted labourers.

16.5.2.2 Elimination of All Forms of Forced Labour

Under the ILO Convention No. 29 (1930) Article 2(1), forced labour is defined as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. Two key factors, namely the threat of punishment and involuntary work, are covered by this determination. The Nicaraguan Constitution prohibits all forms of slavery or likewise treatment by Article 40, which is a more amplified definition. Some business practices were identified as putting pressure on employees to continue working. A high consent of 93 % of respondents confirmed that workers were not allowed to leaving the workplace whenever they want to during work. Workers are anxious to get fired in case of taking unauthorised rests: “they wish we were forced labour and threaten us with firing us” – Male, 25. The denial of the worker’s desire to take breaks or leave the workplace, in conjunction with the threat of penalty to be excluded from further employment, can be evaluated as a practice of coercive labour. Out of 29 respondents, three specified that they are required to meet a set quota before being allowed to finish work, which is a method of using labour for achieving the corporation’s economic demands: “I have the right to leave once I finished otherwise they would punish me” – Male, 21. A respondent expressed that workers feel treated like “[…] slaves” – Male, 43, and forced to work unceasingly until they are sent home. Hence, workers are exposed to a high mental and physical stress at the workplace.

16.5.2.3 The Effective Abolition of Child Labour

According to the International Covenant on Economic, Social, and Cultural Rights (1976) Article 10 (3) and to the Convention of the Rights of the Child (1990) Article 32, child labour covers all work practices that deprive amongst others: “the right of the child to be protected from economic exploitation and from performing any work that is likely to be hazardous or to interfere with the child’s education, or to be 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 273 harmful to the child’s health or physical, mental, spiritual, moral or social development”. The understanding of the worst form of child labour encompasses all forms of hazardous work that, according to the ILO Convention No. 138 (1973) Article 3 (1), and literally to No. 182 (1999) Article 3(d): “[…] by its nature or the circumstances in which it is carried out, is likely to harm the health, safety or morals of children”. Both conventions determine in this regard that all human beings below the age of 18 count as children. Nicaraguan legislation supports the goals of the ILO and explicitly prohibits children under the age of 18 to work in environments that jeop- ardise their health. Further, work that negatively affects the children’s education or development is forbidden by Article 132, 133 and 136 of the Labour Code. The practice of child labour on the sugarcane plantations was verified by the sampled study population. Of the respondents, 34 % answered to the best of their knowledge that children below the age of 14 work on the sugarcane fields. Further, 83 % stated that they know adolescents between the ages of 14 to 17 who work on the plantations. Accordingly, the physical and mental health, and the social development of child labourers, is highly jeopardised. If the identified employment practices are actually carried out, then these methods are universally condemned as the worst form of child labour. In the study, 86 % of the respondents confirmed the practice of child labour exclusively among the subcontracted workforce. According to Nicaraguan law, corporations are responsible for negative health impacts on subcontracted labourers – hence including the identified child labour practice. In case of field visits by the ministry MITRAB, respondents acknowledged that supervisors get notified in advance so that underaged workers can run away. The sugarcane corporation Ingenio San Antonio belonging to Grupo Pellas has combated direct employment of children and should further pursue its CR to efficiently contribute to the abolition of child labour and its worst forms within their sphere of influence.

16.5.2.4 Elimination of Discrimination in Respect of Employment and Occupation

Through its Convention No. 111 (1958) Article 1 (a), the ILO denounces the discrimination at the workplace by “[…] race, colour, sex, religion, political opinion, national extraction or social origin […]”. This article further regulates that all workers enjoy equality of conditions of work. The ILO Convention No. 100 (1951) Article 1 and 2 (1) determines the non-discrimination with regard to gender and payment by the rule “[…] equal remuneration for men and women workers for work of equal value”. No concrete evidence for discrimination was identified during the field site observation, for which reason it was not addressed in the questioning. Inequalities have already been presented above, which occurred in particular between directly and indirectly employed workers. 274 A. Aufrecht

With regard to discrimination, the questioning focused on workers who suffer from kidney damage, and in what way they are refused attention due to their dis- ablement. Of the respondents, 80 % believed that CKDu-affected workers are dis- criminated by the employer. As a reason, respondents stated the non-employment after being diagnosed with kidney disease: “they no longer exist” – Male, 20.

16.6 Discussion

The UN framework promotes the accomplishment of CSR, but can it succeed in a developing country context? The three pillars will be regarded first separately. Then, I present the assessment of the framework’s guidelines with the help of the studied variables. Current gaps are reassigned to the UN framework to give suggestions for its advancement. Second, I discuss how the three pillars harmonise with each other, and what current opportunities and challenges are in accomplishing CSR for FLS.

16.6.1 Loopholes in the Law

The duty to protect places a liability on public sector bodies to guard human beings from corporate HR harm by a series of acts, namely: “to prevent, investigate, punish and redress such abuse through effective policies, legislation, regulations and adjudication” (OHCHR 2011). The UN framework provides room for states to define the limit between voluntary and obligatory CSR, except for FLS, where an unambiguous duty to protect is imposed. I consider two study variables more closely for deeper assessment. Governments made important decisions towards the achievement of combating the employment of children by imposing distinguished shelter for working environments that endanger children’s health and physical integrity. With stricter regulation, businesses presumably outsource their workforce to intermediaries to avoid direct responsibility. To accomplish its duty to protect, a government could formalise the private sector. But even for governments it may be difficult to facilitate such processes. State capacity and the size of the production facilities challenge the control of child labour in agriculture. The solution to combat employment further needs to go beyond the single prohibition, as minors work due to economic necessity. Governments should be encouraged to impose policies that directly address the complexity of child labour, for example by creating alternative jobs that prevent children from illegal work in hazardous environments. Following the guidelines of the UN framework, it can be deduced that states should promote the building of independent unions and strengthen their organisational culture. However, the political agenda could not have an interest in this task because, in turn, strong labour unions may also put pressure on the state. Governmental support in this regard can be considered as unlikely as seen in the 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 275 studied case where the right to freedom of association was not guaranteed to a very large extent. While states are obliged to regulate and guide corporations that infringe people’s rights, the UN framework hardly addresses the reluctance of states. The study identified the informal workforce as highly vulnerable to occupational risks. The labour flexibilisation policy is one of the major barriers, which could be counteracted through respective policy amendments. To better fulfil the duty to protect its civil society, states could focus on the increase of its capacity towards effective remedial processes. To implement the UN guiding principles, institutional capacity building is crucial, taken into consideration that a large range of national labour laws, which regulate working conditions and are decisive to protect the worker’s health, were identified as being violated in the studied case. Conclusively, the effectiveness of the UN framework depends on the government itself and how the indefinite concepts are interpreted. The UN framework does not provide a final resolution for non-responding governments. This is probably one of the central weaknesses with regard to the state’s duty to protect human beings from adverse business impacts. As a result, the barriers of legal mechanism are currently highly challenging and difficult to overcome. Non-legal instruments may be valued as being more effective in the given context.

16.6.2 The Default of Corporate Social Responsibility

The UN framework’s principles state that corporations are responsible for compliance with universal UN or ILO Conventions, as well as treaties ratified by the state. This type of law is called soft-law, which can be legally enforced through the national state. While domestic laws define direct corporate liability, international regulations only present the responsibility to comply with set standards. The field study findings provide some practical evidence on the adaptability, which will be examined more close by two exemplary variables. Freedom of Association has to be respected by businesses according to the law; however, with monopolistic industries, which offer almost the only income resource, I identified independent union building as highly difficult. In contrast, a remarkable change has been made on the direct employment of minors through the studied company. In the last years, child labour was addressed to a large extent by the international community, which could be a reason for increasing CSR in this regard. While international legal efforts were focusing on the state’s duty, non-legal measures were also effective in changing corporate cultures. The subcontracting practice creates large disparities between the labour conditions for organised and unorganised workers. Sufficient evidence on the close relationship between contractors and the corporation was collected. Due to this, it can be argued that HR responsibilities are assignable to the studied company for both the formal and informal workforce. In consideration of corporate interests, the voluntary abandonment of the subcontracting practice may be implausible. Due to the current indirect and non-binding nature of the UN framework, it is ultimately the 276 A. Aufrecht corporation’s decision to follow the rules. This is particularly true for business environments in weak national justice systems, which are not capable to adequately regulate corporate behaviour. Despite the intention, the UN framework could not close this existing governance gap. The UN framework seeks to ensure a good corporate governance, but it only addresses the corporation’s obligation to not harm. Sustainable economic activities should go beyond this rule towards actually doing well and improving its surrounding environment. Businesses could be incentivised that positive contribution is key of doing business, instead of only avoiding negative impact. Benefits of CSR for the society or environment are overlooked in the UN guide. An advancing framework could therefore find an adequate balance between threats and rewards.

16.6.3 The Lack of Access to Remedies

The UN framework refers to mechanisms that have been implemented to address corporate HR abuse by the accomplishment of CSR. The studied case provides evidence on the lack of success of these instruments. The national justice system in the studied context had been ineffective in attending filed complaints. Petitioners faced high barriers such as bribery, entailing the bail out of judges and lawyers. The power inequalities between social stakeholders and the closely connected public and private sector, seem difficult to penetrate, I found. Further, I identified in the study that a lawsuit arises costs, which poor communities are not able to cover. Poverty can be considered as one of the major constraints with regard to equal protection and justice. Further, petitioners may file a complaint to legal instruments, which expectations of success are low. A proposed solution could be the combination of complaint mechanisms that facilitate claimants to defend their rights by forwarding individual cases to the most promising mechanism. If universal rights are infringed as a result of corporate activity and the aggrieved party does not get necessary assistance through national mechanisms, international legal instruments could intervene. The utilisation is only applicable if the national justice system fails to address claims conforming to the international law, because the state’s sovereignty cannot be bypassed. In the past, the Inter-American court of HR enforced the duty of the national state to enforce such law obligations. But in the studied case, the population faces two impediments: First, the studied business is local. Although the framework was developed for all types of corporations, some mechanisms only apply to foreign-owned TNCs and its home state and customers. Exerting external pressure on local companies having little or no visibility in foreign countries where consumer pressure is most likely to develop, may be difficult. Second, poor conditions and health outcomes of the studied case are attributable to the violation of national laws. While international standard-setters impose pres- 16 How to Accomplish Corporate Social Responsibility for Human Rights – A Case… 277 sure to enforce international regulations within the country’s territory, the warrant of national laws remains apparently unaffected. This barrier could be reduced for example by establishing a respective court in the LA region. The Northern American Mechanism (ACTA), which is unique worldwide in suing US- owned corporations for HR abuse, could serve as a blueprint. To circumvent legal barriers, non-legal channels could be approached. Market-led instruments are able to directly affect business behaviour through economic sanctioning, for which reason they may be more effective. To conclude, whether the UN framework can be a driver to prevent businesses from HR abuse, the enforcement instruments that are tied on imposed corporate guidelines, are crucial. The UN has laid this cornerstone through its business guidelines, but especially enforcement mechanisms need to be strengthened, re-thought or re-developed in my point of view.

16.6.4 How the UN Framework Pillars Harmonise

The UN framework’s pillars are inter-related and need to harmonise to create sustainable business environments at best. In the studied case, one party was mainly excluded from diverse ongoing processes, constraining the creation of a joint forum. A collaborative responsible takeover, which considers legal and non-legal instruments, would be a mutual benefit – especially for the aggrieved party. Universal human and labour rights were implemented decades ago, but they are still widely abused and only little has been done to improve enforcement mechanisms, which make the norms ultimately valuable and actually abolish violations. Taken into consideration the UN role as a global pacifier, more room could be provided for reverse information sharing on how to improve or establish enforcement mechanisms that accomplish good governance. The opportunities for civil societies to participate in the interpretation of the framework and actively shape implementation policies are currently rather little and should be expanded.

16.7 Concluding Remarks

A case study approach was selected to apply the UN framework in practice, with the objective to analyse its capability to promote the enforcement of CSR. While this may limit the transferability to other cases, it is exactly what the implementation phase of the UN framework required to assess the practical relevance of global guiding principles. The conclusions shall contribute to narrowing loopholes that still allow corporations to evade their responsibilities. The UN framework emphasises a large range of norms and rules that apply to all types of businesses. Above all, the main focus lies on Northern TNCs though, which operate in developing countries. Through the study in Nicaragua, I found that espe- 278 A. Aufrecht cially workers of locally-owned companies face insurmountable challenges to defend their rights due to limited access to legal instruments. Major challenges are mono- or oligopolistic industries as well as informal structures, which are difficult to penetrate. For these business environments, the framework does hardly provide a best practice policy yet and should be focused in future. The UN framework should be improved by developing enforcement mechanisms, which prosecute law breakers more strictly and directly. UN bodies have the unique global influence to foster novel governance instruments such as transnational supervision committees, which directly demand corporate accountability for universal rights breach – regardless of the corporation’s national origin. Research on the needs and requirements for better enforcement is recommended to be pursued more closely in future. To shape an advancing UN framework, the participation of the actual beneficiaries, namely adversely affected workers and communities around the globe, should be the spotlight in the remake.

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Hunt, P., and G. MacNaughton. 2006. Impact assessments, poverty and human rights: A case study using the right to the highest attainable standard of health. World Health Organisation. Health and Human Rights Working Paper Series No 6. http://www.who.int/hhr/Series_6_Impact%20 Assessments_Hunt_MacNaughton1.pdf. Accessed 6 July 2016. Johnson, Richard J., J. Glaser, and Laura G. Sánchez-Lozada. 2014. Chronic kidney disease of unknown etiology: A disease related to global warming? MEDICC review 16(2):79–80. http:// www.medicc.org/mediccreview/index.php?issue=28&id=361&a=vahtml. Accessed 30 July 2015. Matten, D., and J. Moon. 2008. “Implicit” and “Explicit” CSR: A conceptual framework for a comparative understanding of corporate social responsibility. Academy of Management Review 33(2): 404–424. Meléndez, J. 2012. Males renales, pesadilla en CA. El Universal. December 16. http://business- humanrights.org/es/males-renales-pesadilla-en-ca-nicaragua. Accessed 6 July 2016. OHCHR. 2011. “Guiding principles on business and human rights. Implementing the United Nations “Protect, Respect and Remedy” Framework”. http://www.ohchr.org/Documents/ Publications/GuidingPrinciplesBusinessHR_EN.pdf (accessed 15 November 2016). PAHO/WHO. 2013. Kidney disease of unknown causes in agricultural communities in Central America is declared a serious public health problem: Health authorities from throughout the Americas express concern and pledge support for research and mitigation e orts. http://www. paho.org/hq/index.php?option=com_content&view=article&id=9062%3Akidney-disease-of- unknown-causes-in-agricultural-communitie (accessed 15 November 2016). PASE and ILRF. 2005. Labor conditions in the Nicaraguan sugar industry. http://digitalcommons. ilr.cornell.edu/cgi/viewcontent.cgi?article=2018&context=globaldocs. Accessed 6 July 2016. Raines, N., M. Gónzales, et al. 2014. Risk factors for reduced glomerular filtration rate in a Nicaraguan community affected by Mesoamerican nephropathy. MEDICC review 16(2):16– 22. http://www.ncbi.nlm.nih.gov/pubmed/24878645. Accessed 6 July 2016. Roseberry, L., K. Buhmann, and M. Morsing (eds.). 2010. Corporate social and human rights responsibilities: Global, legal and management perspectives. Basingstoke: Palgrave Macmillan. Ruggie, J.G. 2007. Business and human rights: The evolving international agenda. Corporate Social Responsibility Initiative. Cambridge, MA: John F. Kennedy School of Government, Harvard University. http://www.ksg.harvard.edu/m-rcbg/CSRI/publications/workingpa- per_38_ruggie.pdf. Accessed 6 July 2016. Ruggie, J.G. 2008. Protect, respect and remedy: A framework for business and human rights. Report of the special representative of the secretary-general on the issue of human rights and transnational corporations and other business enterprises, John Ruggie. https://business- humanrights.org/sites/default/files/reports-and-materials/Ruggie-report-7-Apr-2008.pdf. Accessed 6 July 2016. Salcito, Kendyl, Chris Wielga, and Burton H. Singer. 2015. Corporate human rights commitments and the psychology of business acceptance of human rights duties: A multi-industry analysis. The International Journal of Human Rights 19(6): 673–696. Saunders, M., P. Lewis, and A. Thornhill. 2009. Research methods for business students, 5th ed. New York: Prentice Hall. STR. 2009. Nicaraguan sugar. A macro view of today’s industry. http://assets.coca-colacompany. com/10/58/7b94d83d4c25a4a3bb5eb919649e/NicaraguaSugarIndustry- AMacroLevelReport012309.pdf. Accessed 5 July 2016. Torres, C., M. Gónzales, A. Aragón, et al. 2010. Decreased kidney function of unknown cause in Nicaragua: A community-based survey. http://www.ncbi.nlm.nih.gov/pubmed/20116154. Accessed 6 July 2016. UN. 2014. The universal declaration of human rights. http://www.un.org/en/documents/udhr/. Accessed 7 July 2016. Wettstein, F. 2012. CSR and the debate on business and human rights: Bridging the great divide. Business Ethics Quarterly 22: 739–770. Chapter 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under the UN Guiding Principles: Communication and Human Rights Due Diligence

Karin Buhmann

Abstract Taking its point of departure in the UN Guiding Principles on Business and Human Rights (UNGP), this chapter discusses the complementarity between Pillars One on the State Duty to Respect and Pillar Two the Corporate Responsibility to Respect Human Rights. It does this through HRDD and communication such as non-financial reporting. HRDD and reporting are discussed as modalities for promoting businesses’ self-regulation. They therefore offer a way for States to push businesses towards greater respect for human rights. States may induce learning and self-regulation on human rights among businesses through ‘smart mix’ hard, soft and incentives measures related to HRDD and reporting. The paper argues that that clever deployment of these measures may bring forth normative guidance and directives for business action respectful of human rights, strengthening Pillar Two through Pillar One activity.

Keywords Corporate responsibility to respect • Guiding principles on business & human rights • Human rights due diligence • Non-financial reporting • State duty to protect

17.1 Introduction

The result of 6 years work by the United Nations (UN) Special Representative of the Secretary-General (‘SRSG’) on the issue of human rights and transnational corporations and other business enterprises, the UN Guiding Principles on Business and

Previous versions of this chapter were presented at the workshop ‘The Power of Human Rights’, CBS 2014, ‘Understanding the Modern Company’, Queen Mary University/London, 2015, and ‘EBEN Special Track on Business and Human Rights’, CBS, 2015.

K. Buhmann (*) Copenhagen Business School (CBS), Copenhagen, Denmark e-mail: [email protected]

© Springer International Publishing AG 2017 281 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_17 282 K. Buhmann

Human Rights (the UNGP)1 were endorsed by the Human Rights Council in June 2011. Elaborating the general elements that were set out in the 2008 ‘Protect, Respect and Remedy’ Framework for Business & Human Rights (‘UN Framework’)2 the UNGP provide operational guidance to States as well as businesses under three Pillars: (1) The State Duty to Protect; (2) The Corporate Responsibility to Respect; and (3) Access to Remedy (comprising state-based judicial and non-judicial remedies as well as operational-level remedies, that is, company level grievance mechanisms). In June 2014, the UN Human Rights Council (HRC) adopted a resolution to set in motion a process towards a binding (hard law) instrument to regulate business and human rights.3 In the line of international law-making, the development of such an instrument may be lengthy. The UNGP may feed into as well as complement a binding instrument for interpretation and for issues not covered by that instrument. Until the possible adoption of a binding instrument, the UNGP constitute the most detailed legal guidance on what responsibilities business organizations have for human rights, and what States must or can do to promote business respect for human rights. The UNGP therefore remain highly relevant to the emergent Business & Human Rights regime. Under Pillar One the UNGP set out the State’s Duty to Protect against human rights abuses by third parties, including business organizations. Pillar One affirms States’ existing obligations under international human rights law, and for practical purposes reminds States of the scope of those obligations as well as the range of State bodies they extend to. States may be in breach of their international human rights law obligations when they fail to take proper steps to prevent or punish abuses by the private sector through regulation, policy-making, investigation and enforcement. Pillar Two sets out what the Business Responsibility to Respect human rights entails in terms of obligations, social expectations and the process of identifying negative human rights impacts. The UNGP emphasize three operational types of steps for firms to discharge the responsibility: a policy commitment to human rights, undertaking human rights due diligence, and ensuring remedy. Because of their focus on two essentially different types of organizations – public and private, Pillars One and Two are often treated as distinct. However, for purposes of implementation of the UNGP, the two pillars have several closely connected elements. These relate particularly to the ways in which governments may promote

1 Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy Framework, Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises’, John Ruggie, A/HRC/17/31, 21 March 2011, endorsed in Res. 17/4 adopted by the Human Rights Council, A/HRC/RES/17/4, (2011) [hereinafter ‘UNGP’]. 2 Protect, respect and remedy: A framework for business and human rights. Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie. UN Doc. A/HRC/8/5 (2008), 7 April 2008 [hereinafter ‘UN Framework’] 3 Elaboration of an internationally legally binding instrument on Transnational Corporations and other Business Enterprises with respect to Human Rights, Res. A/HRC/26/L.22/Rev.1, 26 June 2014. 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 283 the Corporate Responsibility to Respect by requiring or recommending specific business activities. The Corporate Responsibility to Respect comprises both the obligation to comply with applicable law and a responsibility to respect social expectations. There is an implicit connection between the two in that the boundary between what is a compliance obligation and what is social expectation may be narrow. Governments may decide to develop statutory law that changes a social expectation to law. Likewise, issues subject to social expectation in some jurisdictions may be subject to statutes and therefore compliance obligations in others. Implicitly, also, the possibility to change a normative issue from a social expectation into a statutory obligation may shift the focus within the general area of Pillar Two. From the perspective of the UNGP, Human Rights Due Diligence (HRDD) and communication based transparency (including human rights reporting) may be subject to statutory obligations on companies, or to social expectations. Even when subject to statutory obligations, HRDD and/or reporting may in practice have to deal with social expectations. In other words, the boundaries are both in a grey zone and complementary. From a legal perspective, the responsibility to observe social expectations may be perceived as weaker than the obligation to comply with applicable law. Yet, social expectations may be met with social or market based sanctions, which may potentially be considerable in financial terms.4 These sanctions may be highly significant to a company, although in practice they are often hidden as general operational costs and therefore not explicit.5 What is perhaps the most significant weakness of the responsibility to respect social expectations is its weakness in terms of what that responsibility really is. Increasing the persuasive power of the Corporate Responsibility to Respect may require strengthening the call or drive for companies to obtain knowledge of the relevant social expectations in a given context, and to make them raise the bar high rather than set it low. Where the Responsibility to Respect connects to statutory compliance, there is often a close connection to the State Duty to Protect (UNGP Pillar One). Such a connection may also be present, however, in relation to social expectations. This may particularly be the case where a home state seeks to govern businesses beyond its own jurisdiction through encouraging or requiring measures that will make companies consider human rights extra- territorially, for example in terms of social expectations.6 HRDD and non-financial reporting have emerged as particularly strong measures on the regulatory agenda of nation states and companies alike in this respect. While these activities are ultimately undertaken by firms, both were emphasized by the

4 Ethan B. Kapstein (2001) The Corporate Ethics Crusade, Foreign Affairs Vol. 80 No. 5 (September/ October) 105–119. 5 Ruggie, John G. (2013) Just Business: Multinational Corporations and Human Rights. New York: W.W. Norton & Company: 136–138. 6 Buhmann, K. (2015) Defying territorial limitations: Regulating business conduct extraterritori- ally through establishing obligations in EU law and national law, in J.L. Cernic and T. Van Ho (eds) Human Rights and Business: Direct Corporate Accountability for Human Rights, The Hague: Wolf Legal Publishers: 179–228. 284 K. Buhmann

SRSG in his recommendations to States to promote business respect for human rights. In general, reporting is reactive in that it recounts and communicates how a company performed in a given period of the past; whereas HRDD is proactive in that this is a process which takes stock of current and future human rights impact and seeks to avoid problems. Both practices may function in reverse as well, as elaborated below. The first element of the Corporate Responsibility to Respect, that is, the compliance part, connects closely with established legal discourse and knowledge on company law and business obligations within various jurisdictions. The second element, that is, the social expectation element, has been treated in less detail in the legal literature. Yet precisely because social expectations are an important driver for firms for economic reasons related to risk management, investment and market positions, the ‘beyond compliance’ element inherent in Pillar Two complements the objective of Pillar One in important ways that go beyond defining obligations of responsible conduct. This article set outs to identify and discuss how governments as regulators in countries where companies have their home states or operate can promote the Corporate Responsibility to Respect by encouraging HRDD and reporting. The paper proceeds as follows: Sect. 17.2 frames the issue by introducing literature and debates on HRDD, firms’ communication and reporting on human rights impact, and the UNGP’s emphasis of policy coherence. HRDD and reporting are introduced as regulatory modalities that may promote businesses’ self-regulation and, therefore, offer a modality for States to push businesses towards greater respect for human rights. Section 17.3 discusses complementarity between HRDD and communication. Section 17.4 develops the argument towards complementarity between Pillars One and Two, discussing how States may induce learning and self- regulation on human rights among businesses through ‘smart mix’ hard, soft and incentives measures related to HRDD and reporting. Section 17.5 concludes.

17.2 Framing the Issue

17.2.1 Human Rights Due Diligence

The Due Diligence concept applied by the UNGP differs from much other corporate related due diligence. It is focused first and foremost on risks caused by the firm to society (as opposed to risks to the firm). It entails a process that continues as long as the activity/activities to which it is related and even beyond those in respect to remedy. The UNGP apply the term ‘impact’ to distinguish between business related human rights abuse, and States’ violations. According to the UNGP, HRDD includes assessing actual and potential human rights impacts, integrate and acting upon the findings, tracking responses, as well as communicating how impacts are addressed. It should cover not only adverse human rights impacts that the firm may cause or contribute to through its own activities but also those which may be directly linked 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 285 to its operations, products or services by its business relationships. While it may vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the nature and context of its operations, the process should be open-ended in recognition of the fact that human rights risks may change over time as the firms operations and operating context evolve.7 The UNGP’s HRDD concept has been adopted by OECD’s Guidelines for Multinational Enterprises not only for its new human rights chapter but to most of the issue areas covered by the Guidelines, including labour/industrial relations, environment and anti-corruption.8 With the possibility of emerging unified jurisprudence among the (currently) 34 OECD and 12 non-OECD State NCPs,9 the potential complementarity between firms’ HRDD and State’s obligations have been noted to be of considerable interest to the promotion and protection of human rights.10 Under Pillar One, States are encouraged to consider whether provisions for HRDD by businesses should be introduced as part of measures to honour their duty to protect.11 This may form part of States’ providing guidance to firms on how to respect human rights throughout their operations, which is also encouraged by the UNGP.12 The UNGP explicitly note that States’ steps to protect against human rights abuses by firms owned or controlled by the State or otherwise closely connected to State agencies through support and services should include requiring HRDD where appropriate.13 Despite its potential, HRDD has received somewhat limited attention in the human rights, business ethics and ‘Business & Human Rights’ literature. On the positive side, linking the new form to well-known business practices deployed as financial risk management has been seen as ingenious ways to generate support among business organizations.14 The due diligence approach more commonly deployed as a business practice and among corporate lawyers is typically exercised in the context of mergers, acquisitions and related corporate activities. It is geared

7 UNGP, Principle 17 [hereinafter specific principles will be referred to by their number following UNGP]. 8 OECD Guidelines for Multinational Enterprises, Organisation of Economic Cooperation and Development, May 2011, Paris, 25 May 2011, General Policies, II.A.10 and Commentary Para. 14. 9 Buhmann, Karin (2014) Business and Human Rights: Understanding the UN Guiding Principles from the perspective of Transnational Business Governance Interactions. Transnational Legal Theory 6(1) 399–434. 10 Humberto Cantu-Rivera (2014) Human Rights Due Diligence: a developing concept for human rights and environmental justice? 3rd UNITAR-Yale Conference on Environmental Governance and Democracy, 5–7 September 2014, New Haven. 11 UNGP 4, Commentary. 12 UNGP 3(c). 13 UNGP 4. 14 Taylor, Mark (2011) The Ruggie Framework: Polycentric regulation and the implications for Corporate Social Responsibility, Nordic Journal of Applied Ethics, 5(1) 9–30; Buhmann, K. (2013) Business and Human Rights: Analysing Discursive Articulation of Stakeholder Interests to Explain the Consensus-based Construction of the ‘Protect, Respect, Remedy UN Framework’. International Law Research, Vol. 1(1) 88–101. 286 K. Buhmann towards identifying possible financial risks or legal liabilities that may flow from such a corporate activity. Accordingly, while the exercise of due diligence is naturally a process, the conventional due diligence is limited in time to the point of being static: its stops at the time when the decision to undertake the pertinent action is made. When it extends beyond this point of time, at the most it sets out certain specific action to be taken in order to identify such financial risks or legal liability from the perspective of the time when the due diligence exercise was closed. HRDD shares key elements with conventional due diligence, but crucially is an open-ended process aiming at reducing adverse impact by the firm on society. Because the latter may also affect the firm adversely through reputation damage and other economic effects, HRDD may also serve as a risk management tool for the firm. Some authors have received the HRDD concept with interest but noting weak points. It has been argued that the concept proposed by the UN Framework and elaborated with the Guiding Principles reveals a flawed inner logic by confusing two meanings of the due diligence terms: a standard of conduct (to discharge an obligation), and a process (to manage risks to businesses).15 As indicated, however, that connection may also be precisely why the concept has appealed to business interests. From the philosophically informed business ethics perspective, it has been argued that there is a tension between the philosophical approach to human rights as a ‘perfect moral duty’ and the UNGP’s relative flexibility inherent in human rights due diligence.16 However, while dilemmas are recognised for practical business application,17 scholars generally welcome the HRDD approach as a modality for firms to identify and limit adverse impact on human rights. Governmental requirements on due diligence have been noted effective in making firms assess and take account of potential adverse impacts in time to prevent or mitigate those.18 Confirming the assumption of the potentially important interconnection between Pillars One and Two, business ethics scholars have found that government regulation plays an important role for firms’ application of HRDD.19 From the legal

15 Bonnitcha, Jonathan & Robert McCorquedale (2013) Is the concept of ‘due diligence’ in the Guiding Principles coherent? Available at SSRN http://papers.ssrn.com/sol3/papers. cfm?abstract_id=2208588 16 Fasterling, B. and Demuinck G. (2013) Human Rights in the Void? Due Diligence in the UN Guiding Principles on Business and Human Rights, Journal of Business Ethics 1–16, DOI 10.1007/ s10551-013-1822-z 17 Lambooy, Tineke (2010) Corporate Due Diligence as a Tool to Respect Human Rights, Neth. Q. Hum. Rts., 28(3): 404–448; Buhmann, Karin (2012) Damned if you do, damned if you don’t? The Lundbeck case of Pentobarbital, the Guiding Principles on business and human rights, and competing human rights responsibilities. Journal of Law, Medicine & Ethics, Summer 2012: 206–219. 18 De Schutter, Olivier, Anita Ramasastry, Mark B. Taylor and Robert C. Thompson (2012) Human Rights Due Diligence: The Role of States, published by The International Corporate Accountability Roundtable (ICAR), the European Coalition for Corporate Justice (ECCJ), and the Canadian Network on Corporate Accountability (CNCA). 19 Hamann, Ralph, Paresha N. Sinha, Farai, Kapfudzaruwa, Christoph, Schild (2009) Business and human rights in South Africa: An analysis of antecedents of human rights due diligence, Journal of Business Ethics 87(2), 453–473 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 287

perspective, analysis of existing and emerging public, public-private and business due diligence initiatives indicate the emergence of a culture of HRDD in the responsible sourcing of ‘conflict-free’ minerals, which may act as a precursor to the hard- ening of the soft or ‘social expectations’ element of UNGP Pillar Two.20

17.2.2 Communication and Reporting

To honour their own Duty to Protect, the UNGP note that States should encourage and where appropriate require firms to communicate how they address their human rights impacts.21 Such communication ranges from informal engagement with affected stakeholders to formal public reporting. The UNGP note that a requirement to communicate as particularly appropriate where the nature of business operations or operating contexts pose a significant risk to human rights.22 While some States, have introduced mandatory reporting to provide transparency on sourcing from conflict areas,23 European practices demonstrate that mandatory CSR reporting may also be deployed to induce business self-regulation based on reflection on their impact on society in a more general sense that need not be linked to conflict areas.24 CSR reporting is an integrated part of some voluntary CSR schemes, and is required of participants in the UN Global Compact in order for them not to be ‘delisted’ (excluded). However, the Global Compact’s practice of counting non-communicating firms among participants counters the argument that de-listing is an effective sanction.25 Like general CSR reporting,26 firms’ human rights reporting may be argued to function along the lines of reflexive law,27 generating insight into stakeholder views and social expectations as well as the firm’s social impact, which companies may apply for self-regulatory purposes. Indeed, this appears to have been the assumption and part of the purpose of the Danish CSR reporting requirement, which was

20 Footer, Mary (2015) Human Rights Due Diligence and the responsible supply of minerals from conflict-affected areas: Towards a normative framework?, in Cernic, Jernej Letnar & Tara Van Ho (eds) Direct Human Rights Obligations of Corporations, The Hague: Wolf Legal Publishers.** 21 UNGP 3(d). 22 UNGP 3, Commentary. 23 US (2010) The United States Wall Street Reform and Consumer Protection Act of 2010, sections 1502 (conflict minerals). 24 Several European States require certain firms to submit annual reports on CSR-related policies or impact. 25 See Global Compact website, https://www.unglobalcompact.org/what-is-gc/participants, accessed 27 June 2016. 26 Orts, Eric W. (1995) A reflexive model of environmental regulation,Business Ethics Quarterly 5(4) 779–794; Hess, D. (1999) Social Reporting: A reflexive law approach to Corporate Social Responsiveness, Journal of Corporation Law 25(1) 41–84. 27 See in particular, Teubner, Gunther (1983) Substantive and reflective elements in modern law. Law and Society Review Vol. 17(2) 239–285 288 K. Buhmann

introduced with effect from 200928 and with effect from financial year 2013 strengthened to explicitly require reporting human rights by companies with policies on that particular issue.29 So far, the Danish approach is among the most comprehensive in terms of what must be reported but also very flexible in terms of how firms choose to report, including the usage of any specific standards. Adopting a similar structure, the EU’s new Non-Financial Directive, requires certain large EU firms to communicate their CSR policies, including policies on human rights and due diligence practices in relation to their supply chain.30 Since reports are not due until beyond 2016 it is not yet possible to determine the effectiveness of the approach. The influence of CSR reporting on firms remains unclear. Studies suggest that mandatory CSR reporting in some states has a positive impact on firms’ internal training of staff and their development of business ethics practices.31 Organizational studies of voluntary reporting in Swiss firms suggests that reporting leads to higher strategic integration of social responsibility in small and medium sized firms compared to large firms (such as Multinational Enterprises (MNEs)), which tend to approach communication as a practice addressing external stakeholders rather than the organization itself.32 Assessments of CSR reporting under the Danish statutory requirement so far do not appear to confirm the actual influence of reporting on company self-regulation.33 Theoretical research has suggested that reporting risks diverting firms’ attention from their actual impact on society and in-depth appreciation of specifically relevant social expectations leading to internal reflection, towards communication to respond to more general requirements and expectations without deep reflection on actual impact and without influence on organization.34 The learning potential inherent in reporting is only fulfilled if the organization engages in

28 Buhmann, K. (2013) Business and Human Rights: Analysing Discursive Articulation of Stakeholder Interests to Explain the Consensus-based Construction of the ‘Protect, Respect, Remedy UN Framework’. International Law Research 1(1) 88–101. 29 Buhmann, Karin (2013) The Danish CSR reporting requirement as reflexive law: Employing CSR as a modality to promote public policy, European Business Law Review 24(2) 187–216. 30 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2015 amend- ing Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups. 31 Ioannou, Ioannis & George Serafeim (2012) The Consequences of Mandatory Corporate Sustainability Reporting, Harvard Business School Working Paper 11–100, October 26, 2012. 32 Baumann-Pauly, Dorothée, Christopher Wickert, Laura J Spence og A.G. Scherer (2013) Organizing Corporate Social Responsibility in small and large firms: Size Matters,Journal of Business Ethics 115:693–705. 33 Global Compact Office (2010)Global Compact Annual Report, New York; Erhvervs- og Vækstministeriet (2013) Samfundsansvar og rapportering i Danmark – effekten af 3. år med rap- porteringskrav i Årsregnskabsloven: 32–33; Rahbek Pedersen et al. (2013) Conformance and Deviance: Company Responses to Institutional Pressures for Corporate Social Responsibility Reporting, Business Strategy and the Environment, doi: 10.1002/bse.1743. Danwatch, The Impact of the Danish Law on CSR Reporting, report prepared for the European Coalition for Corporate Justice (Copenhagen 2011). 34 Holmstrøm, Susanne (2013) Legimiterende praksisformer: Et sociologisk perspektiv på praksis- formers funktion, strategi og begrundelse, in Holmstrøm, Susanne and Susanne Kjærbeck (eds) 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 289 order to learn rather than simply adapt.35 Thus, a tension seems to exist as regards the potential for reporting to generate self-regulation, and in particular with regard to the policy objective for companies to self-regulate on their impact on human rights.

17.3 Complementarity Between Human Rights Due Diligence and Communication

The social risk-based due diligence approach set out in the UNGP aims to enable a firm to meet its responsibility to respect human rights by avoiding causing or contributing to adverse human rights impacts through its own activities; addressing such impacts when they occur; and seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships.36 When developing the UN Guiding Principles in his capacity as SRSG, John Ruggie named HRDD a potential game changer for companies: from “naming and shaming” to “knowing and showing”.37 This statement announces a shift in approaches to corporate social responsibility and accountability in which companies go from being culprits associated with breaking social expectations and escaping the law in areas of weak public governance, towards becoming knowledgeable about their impact on human rights, taking responsibility, and showing that they do so. As such, the statement incorporates both HRDD and communication (including reporting). Indeed, for practical purposes reporting and HRDD go hand in hand. The complementarity between HRDD and communication comes out clearly in the UNGP’s recommendations on how businesses should communicate how they address human rights impact. They should therefore communicate how they deploy HRDD. The UNGP Commentary explains that discharging the responsibility to respect means not only developing policies and deploying processes (like HRDD) for the company to know about and handle human rights impact to respect human rights, but also to show that this is the case. This ‘showing’ entails some sort of communication, which can range from meetings, online dialogue, consultation with affected stakeholders, and formal public reports. Reporting itself may take several forms, such as CSR or sustainability reports, on-line updates or integrated financial and non-financial reports. The higher the risk to society, the more formal should

Legitimitet under forandring: Virksomheden i samfundet, Copenhagen: Samfundslitteratur: 273–312. 35 Gond, J-P and O. Herrbach (2006) Social Reporting as an organisational learning tool? A theoretical framework, Journal o f Business Ethics 65: 359–371. 36 UNGP 13. 37 John Ruggie (2010), speech at ILO conf June 2010, http://www.ilo.org/wcmsp5/groups/public/@ed_emp/@emp_ent/@multi/documents/genericdocument/wcms_142560.pdf 290 K. Buhmann communication be. High risk is assessed not only as flowing from the nature of the business operation itself, but also from the operating context,38 like conflict zones. The UNGP’s elaboration of Pillar Two takes its point of departure in the UN Framework, which describes the Corporate Responsibility to Respect as basically an obligation to do no harm. Constituting “a process whereby companies not only ensure compliance with national laws but also manage the risk of human rights harm with a view to avoiding it”39 the novel HRDD concept was offered by the UN Framework as a key element for a firm to avoid doing harm. The Framework under- scored that “in addition to compliance with national laws, the baseline responsibility of companies is to respect human rights”.40 By including compliance in the core substance of Pillar Two, the UN Framework bought into arguments that had been propounded by opponents to the idea that businesses should have non-binding responsibilities for human rights, or that authorities (including the UN) should engage in developing such guidance. The Draft UN Norms41 as well as the process leading to the UN Framework had seen such arguments being made by business organizations as well as some States in an effort to ward off official guidance on Business & Human Rights.42 The arguments had typically noted business compliance with national law as a core obligation of business to society, emphasizing that authorities turn public policy needs into law if they identify needs that exceed current binding business obligations. By also buying into a well-known definition by organizational scholar Archie Carroll of CSR as comprising economic, ethical, ‘discretionary’ as well as legal obligations,43 the suggested implication was that businesses would observe new binding rules. At the same time, however, the argument for practical purposes played on the disagreement between States as well as the often lengthy international law-making process to retard or stop further rule-making.44 For the social expectations element, the International Bill of Human Rights and the ILO core conventions (on freedom of association and collective negotiation, non-discrimination, and elimination of child labour, forced labour and slavery) were

38 UNGP 21 and Commentary. 39 UN Framework paras. 24–25. 40 UN Framework para. 54. 41 Sub-Commission on the Promotion and Protection of Human Rights (2003) Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights 2003, UN doc. E/CN.4/Sub.2/2003/12/Rev.2. 42 Buhmann, Karin (2013) Navigating from “trainwreck” to being “welcomed”: Negotiation strategies and argumentative patterns in the development of the UN Framework. In Deva, Surya and David Bilchitz (eds) Human Rights Obligations of Business: Beyond the Corporate Responsibility to Respect?, Cambridge: Cambridge University Press: 29–57, at 52–53. 43 Carroll, Archie B. (1979) A three-dimensional conceptual model of corporate performance, The Academy of Management Review Vol. 4, No. 4: 497–505. 44 Buhmann, Karin (2014) Normative discourses and public-private regulatory strategies for construction of CSR normativity: Towards a method for above-national public-private regulation of business social responsibilities, Copenhagen: Multivers publishing, esp. Chapters 4 and 6. 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 291 offered by the UN Framework as the principles against which other social actors judge the human rights impacts of companies.45 Covering five of the nine operational principles under Pillar Two, the elaboration of HRDD is the most detailed. For practical purposes an essential element in a firm’s discharge of its responsibility, it underscores the centrality of HRDD for the Corporate Responsibility to Respect. That responsibility is defined by the UNGP to entail that business enterprises avoid infringing on the human rights of others, and that they address adverse human rights impacts with which they are involved.46 “[O] ver and above compliance with national laws”47 the responsibility to respect is independent of States’ abilities and/or willingness to fulfill their own human rights obligations, but at the same time complementary to compliance. Beyond compliance with the law of home or host states, the scope of the Responsibility to Respect is “defined by social expectations – as part of what is sometimes called a company’s social license to operate”.48 The obligation may be passive as well as entailing positive steps, such as for a firm to undertake specific recruitment and training programmes to give substance to its anti-discrimination policy.49 The UN Framework explained the concept of HRDD as the steps a company must take to become aware of, prevent and address adverse human rights impacts.50 It noted that companies typically already have processes comparable to the steps of HRDD in place as a result of requirements in many countries to apply information and control systems to assess and manage financial and related risks.51 While that phrase partly functioned to put concerns about the requirements of HRDD at ease and to underscore the risk management potential of the process as a reflection of managing the risks the firm might cause to society,52 it also indicated that HRDD may be – or become – a process required by law in countries where companies are hosted or have their home base. Indeed, France is currently (2016) considering the introduction of a due diligence statute (Loi Vigilance). The connection between the generally pro-active HRDD process and the generally re-active communication process supports learning processes within firms, as well as for other organizations who wish to learn from the processes, successes (and failures) of others.53 This important connection between pro-active and re-active measures under Pillar Two offers an opportunity for States in their discharge of their own Duty to Protect, with the combined goal of decreasing business risks to human rights.

45 UN Framework para. 58. 46 UNGP 11. 47 UNGP 11 Commentary. 48 UN Framework para. 54. 49 UN Framework para. 55. 50 UN Framework para 56. 51 UN Framework para. 56. 52 Buhmann, Karin (2014) supra, esp. Chap. 6. 53 Compare on approaches to organizational learning DiMaggio, Paul J. and Walter M. Powell (1983) The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields, American Sociological Review 48(2) 147–160. 292 K. Buhmann

17.4 Complementarity Between Pillar One and Two: Opportunities for States

While the Guiding Principles only in Pillar Three directly address the State Duty to Protect and the Corporate Responsibility to Respect under the same overall topic (Access to Remedy), Pillar One does set out some recommendations for States on how to promote the Corporate Responsibility to Respect. Those recommendations in particular involve HRDD and reporting. The UNGP specifically recommends that States clarify what is expected of firms.54 For practical purposes, this may entail providing HRDD guidance,55 or providing guidance on public policy expectations of firms, which firms may integrate into their HRDD. Likewise, States are explicitly recommended to encourage firms to communicate how they deal with the Responsibility to Respect.56 In other words, States are asked to recommend or require reporting or other communication, both on their HRDD processes and on their actual human rights impact and risks causes. It clearly forms part of the State Duty to Protect for a State to not only enforce laws requiring business to respect human rights, but also to provide effective guidance to business enterprises on how to respect human rights throughout their operations; and encourage and “where appropriate” require business enterprises to communicate how they address human rights impact.57 The Commentary applies the terms ‘smart mix’ in its explanation of how States may consider combining a variety of measures to foster business respect for human rights: such measures may be national and international, mandatory and voluntary. Testifying to the pertinence, the term ‘smart mix’ was adopted by the EU in its 2011 Communication on CSR, which encourages EU Member States to implement the Guiding Principles.58 The Commentary explains that States’ encouragement or requirements of communication are important in fostering respect for human rights by business enterprises.59 Directives on what information should be provided and how it should be communicated may further contribute to clarity for business on what is expected, and help stakeholder gain access to the information. It follows from this that hard, soft or incentives regulatory measures on HRDD and reporting may function as modalities for States to push businesses towards greater respect for human rights. This opens a number of opportunities for States to

54 UNGP 3. 55 UNGP 4. 56 UNGP 3, Commentary. 57 UNGP 3. 58 European Commission (2011) A renewed EU Strategy 2011–2014 for Corporate Social Responsibility, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Brussels, 25.10.2011, EU Doc. COM(2011) 681 final. 59 UNGP 3, Commentary. 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 293 promote business respect from human rights by carefully considering how they may transform public policy needs and social expectations of firms into detailed guidance, whether in form of explicit HRDD guidance or in the form of explanations of why and how business respect for human rights matters to the State and to the general society in which the firm operate. Similarly, States can include HRDD explicitly in reporting recommendation or requirements. The public transparency offered by external reports will offer firms incentives to develop detailed HRDD processes, assess and reflect on their effects and effectiveness and consider revisions reflecting the firm’s learning. The transparency offered by the firm’s sharing of such information in the report offers a form of accountability, whose significance need not be in the courts of law but in what the UN Framework termed ‘the courts of public opinion’.60 This caters for positive or negative sanctions being in the form of economic decisions by investors, consumers and buyers. Translating into effects on the economic rationale and survival of the firm, such sanctions may be as important for the firm’s decisions and practices as those of a court of law. The importance of pro-active regulatory modalities by States to encourage firms to apply HRDD has been heightened by the potential learning effects of the practice or ‘case law’ of National Contact Points established under OECD’s MNE Guidelines. These may provide additional guidance to inform HRDD by clarifying the specific expectations of business organisations beyond what is required by applicable national law. The OECD Guidelines’ integration of the Guiding Principles’ due diligence concept to most issue areas covered by the Guidelines61 means that all cases (‘specific instances’, that is, complaints lodged with the NCPs for mediation or assessment of violation) may contribute to the ongoing elaboration of what is expected of companies with regard to due diligence as a process to detect, mitigate and remedy adverse impact on society. Established in not only in OECD States but also in several non- OECD States which have acceded to the Guidelines, NCPs may develop a shared body of case law by considering the practice of each others. NCPs are state-based remedial institutions but established under an international organization adopt a practice of considering the jurisprudence of similar institutions, especially other NCPs. Cases handled across the NCPs globally may collectively contribute to the ongoing evolution of guidance on what is required by the due diligence process envisaged by the UNGP. OECD due diligence guidance for specific sectors also may feed into an emergent and coherent process-oriented due diligence concept. A shared understanding and application of due diligence across NCPs and the States in which they are established constitutes an important element in transnational policy coherence. Indeed, such coherence is paramount in order to limit ‘forum shopping’ to countries with weaker application.

60 UN Framework para. 54. 61 OECD’s Guidelines’ due diligence recommendations do not apply to the chapters on Science and Technology, Competition and Taxation (OECD 2011, Commentary to General Principles, para. 14). 294 K. Buhmann

On an individual as well as collective basis, States may work towards such coherence by directing the insight developed through NCP practice into guidance which they issue in accordance with the UNGP’s recommendations on the State Duty to Protect in order to assist companies in their Responsibility to Respect. Such insight may be incorporated into due diligence guidance. It can also play an important role in guiding businesses on what information is expected or required of reporting or communication. While this obviously is relevant to States that are members of the OECD or those non-OECD States which adhere to the Guidelines, in principle all States and all business organizations may benefit from that information and insight. Effective transnational policy coherence in this area offers a highly significant element in connecting Pillars One and Two as well as pro-active and re-active public regulatory measures under the State Duty to Protect towards the promotion of the Corporate Responsibility to Respect. The potential implications are further under- scored by the fact that policy coherence may spread between international organizations through their Member States.

17.5 Conclusion

Given their combination of pro-active and re-active capacities, HRDD and reporting may mutually support and reinforce each other in relation to insight into what is required or expected of business organizations with regard to human rights. The UNGP make clear that HRDD is not only an issue for companies: states may encourage the practice and provide effective guidance to business enterprises on how to respect human rights throughout their operations. And as regards communication, the UNGP recommend that States encourage or require firms’ communication on how they address their human rights impact, again connecting to HRDD. The Corporate Responsibility to Respect entails for firms to know about and observe social expectations to respect human rights, and to comply with national law to respect human rights in their countries of operation (home and host states). To promote the Corporate Responsibility to Respect States may promote, encourage or even require activities by business to ensure their respect for human rights. The UNGP specifically recommend that States do this with regard to HRDD and to non- financial reporting. Mainly referring to or relating to activities that organizations have already undertaken, reporting is primarily a re-active measure. HRDD, by contrast, is primarily pro-active in seeking to identify human rights risks and avoid or remedy those. Both also work in reverse, and offer learning opportunities for the specific firm as well as for others. HRDD and reporting may mutually support and reinforce each other in relation to insight into what is required or expected of business organizations with regard to human rights. A firm’s human rights related communications, such as a non-financial report, may share information on the process and effects of HRDD in a past period. The process to develop the report may provide learning feeding into future HRDD. Both may contribute to a strengthening of the firms’ understanding of the social 17 Connecting Corporate Human Rights Responsibilities and State Obligations Under… 295 expectations element in the Corporate Responsibility Respect in accordance with the implications of the UDHR, core ILO conventions and other international human rights law which the ‘man on the street’ expects companies to observe in terms of social expectations. States may enhance those effects by carefully considering how they can combine and deploy ‘smart’ mixtures of recommendations or requirements on HRDD and communication on human rights impact by firms acting within and beyond their territories. The territorial scope of the OECD Guidelines, which are recommendations addressed by governments to MNEs operating in or from adhering countries, means that companies may be subjected to grievances in front of home state NCPs for actions committed even in non-OECD states. The jurisprudence or practice of NCPs may promote insight on due diligence processes to reinforce the clarification to business organisations of what is expected of them. This may feed on both international law and other social expectations, and may in turn feed into reporting, enabling stakeholders to hold businesses to account through the market or the social licence to operate for their human rights impact from the perspective of social expectations. States may support these processes by critically reviewing and revis- ing the status and powers of their NCPs. At the same time, they may strengthen the role of NCPs to develop practice that serves as guidance on what is expected of firms as regards HRDD and ensure coherence with due diligence guidance or requirements issued by other international organizations, including those in the field of economic and trade law. In sum, States’ promotion of HRDD, communication and institutions which apply or assess these (including in particular NCPs) may over time bring forth normative guidance and directives for business action respectful of human rights. The clever deployment by States of the ‘smart mix’ regulatory strategy to promote these pro-active as well as re-active measures may push the corporate responsibility to respect toward higher levels of overall human rights protection. Chapter 18 Philanthropy and Human Rights in Business Ethics

Øjvind Larsen

Abstract Philanthropy has become a concern which is taken seriously in the Western world. Normal people give donations and volunteer on a large scale within the institutions of civil society. This is the case for business corporations as well in the big global CSR movement, which has now been integrated in the UN Global Compact. Philanthropy has many dimensions; these include ethical, juridical, political, economic and cultural dimensions. In the last years, a lot has been written about philanthropy from a political, sociological, anthropological and managerial perspective. However, an essential question remains: what does philanthropy mean? In a Greek context, philanthropy is connected to a friendly act towards one’s owns close connections such as family or fellow citizens, and normally utilized to promote one’s own prestige in the city-state. In Roman context, universal humanism, humanitas, was invented. This universal perspective was also supported by Christianity. It is this universal concept of philanthropy which is the foundation for the different philanthropic traditions in Germany, England, France and USA. In each tradition is developed special features of the concept of philanthropy. The four traditions are summarized in the UN universal human rights, which has become the common normative reference for global philanthropy.

In this way philanthropy has become, in a modern sense, a charitable act with the aim to promote human happiness independent of gender, class, race, etc. This is the genealogy of the modern understanding of philanthropy, which will be developed in this paper.

Ø. Larsen (*) Copenhagen Business School (CBS), Copenhagen, Denmark e-mail: [email protected]

© Springer International Publishing AG 2017 297 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_18 298 Ø. Larsen

18.1 The Revival of Philanthropy in Business Ethics

Philanthropy has been well known in all of the history of western society and has in long periods played an essential role. From the middle ages the church played an essential role by sustaining social security. Later, from the eighteenth century, the rise of capitalism led to increased poverty in the growing big cities. Again, private donors were needed to sustain social life. The classical example is in England with the growth of unsupportable workings conditions and slum habitation for the working class population. The church was still in charge of philanthropic efforts but many other private donors played an essential role as well. With the rise of welfare society in Western Europe after the Second World War, private philanthropy began to lose its essential role. The new welfare society took over many of the tasks that formerly had been managed by private donations. From the perspective of welfare state, philanthropy was regarded as something belonging to the past when well- intentioned bourgeoises wanted to show their charity to the poor. However, the world is no longer what it was before. The power of the welfare state is declining and attitudes are changing in the entire Western world. The personal engagement to do well has become a public value. This is the case for individuals and also institutions. Therefore, in the last couple of decades, philanthropy has become a concern which is taken seriously in the Western world. Normal people give donations and volunteer on a large scale within the institutions of civil society. This is the case for business corporations as well, who now have to act with a form of personal responsibility. Such a responsibility is institutionalized in the big global CSR movement, which has now been integrated in the UN Global Compact. At the same time, the richest people in the world are establishing foundations with the aim of doing philanthropic work, on a national and an international scale. They engage in welfare projects, democratic development and health care all over the world – especially in Africa. Bill Gates, Warren Buffet, Georges Soros and many others have started foundations and organizations with a size and power that can compete with even the biggest national and international welfare programs in the world. This form of philanthropy has earned the name of ‘philanthrocapitalism’ (Bishop and Green 2008). Philanthropy has many dimensions; these include ethical, juridical, political, economic and cultural dimensions. In the last years, a lot has been written about philanthropy from a political, sociological, anthropological and managerial perspective. However, an essential question remains: what does philanthropy mean? In a Greek context, philanthropy is connected to a friendly act towards one’s owns close connections such as family or fellow citizens, and normally utilized to promote one’s own prestige in the city-state. In Roman context, universal humanism, humanitas, was invented. This universal perspective was also supported by Christianity. It is this universal concept of philanthropy which is the foundation for the different philanthropic traditions in Germany, England, France and USA. In each tradition is developed special features of the concept of philanthropy. The four 18 Philanthropy and Human Rights in Business Ethics 299 traditions are summarized in the UN universal human rights, which has become the common normative reference for global philanthropy. In this way philanthropy has become, in a modern sense, a charitable act with the aim to promote human happiness independent of gender, class, race, etc. This is the genealogy of the modern understanding of philanthropy, which will be developed further in the following presentation.

18.2 The Antique Tradition

18.2.1 The Origin of Philanthropy in Greek Tradition

The concept of philanthropy has, as with many other philosophical concepts, its origin in Greek antiquity. Philanthropy comes from the Greek word philanthropia, which is a combination of the word philein, which has to do with friendship, and anthropos, a human being. Philanthropi can literally be translated and understood as showing friendship for a human being. However, the meaning is much more differentiated. This will be made clear in the following sections. Three things can characterize the Greek understanding of philanthropy. First, it is normally reserved for the powerful and wealthy, such as gods, kings and high ranked citizens (Laqueur 1930: 14 ff.; Constantelos 1962: 351 ff.). The second is that it does not include all people, but, on the contrary, only certain social groups such as citizens in one’s town or members of one’s language and cultural community (Ferguson 1958: 107 f.). Third, it is not imagined as something stemming from unselfishness or altruism. The antique philanthropist expects that his human friendship will bring him advantages. In the Greek understanding, philanthropy is connected with the cultivation of the human being. Diogenes Laertius (300 AD) cites Aristippus of Cyrene (435–356 BC), when saying that it is better to be a beggar than an uncultivated person because the first is short of money while the other is short of humanity anthropismos( ) (Laertius 1966: II, 70). According to Laertius, the human friendly action is characterizes in contrast to the barbarians first of all the Greeks. They are characterized by language, formation and culture. However, this should always be seen in the mentioned limited sense. For example, Aristotle (384–322 BC) mentions philanthropy, but it is always meant to be about specific friendship and not a universal equality between all human beings (Aristotle 1982: VIII, 1155 a 1 ff.; Ferguson 1958: 63 ff.). Plutarch (45–125 AD) uses the word philanthropy more than any other classical author, and in many different ways. Plutarch uses the word to signify many different meanings, including politeness, grandiosity and charity. The word philanthropy is connected to the political imagination of democracy. The Athenians are seen as philanthropic by virtue of their citizen friendly democratic constitution (philanthro- pos politeia) (Plutarch 1968b: 8, 1), their human friendly laws (nomoi philanthro- 300 Ø. Larsen poi) (Plutarch 1968a: 1, 4) and their human friendly relation to other citizens. This arraignment is in contradiction to the oligarch and the oligarchic constitution. Democracy constitutes the foundation for a way that many people can live together in a civilized way (Plutarch 1969: 31, 82 D ff.).

18.2.2 Humanitas in Roman Empire

It was Marcus Cicero (106–43 BC) that transferred the Greek word philanthropia to the Latin Roman world with the word humanitas, the human. Cicero mentions the term in his letter to Quintus, who was promagistrate of the Province of Asia 61–59 BC. Cicero writes to Quintus that if he had been sent to govern wild and barbaric tribes in Africa, Spain and Gaul he would, as a civilized man, have been bound to think of their interests (… tamen esset humanitatis tuae consulare …) and devote himself to their needs and welfare. However, Quintus and the Romans are, according to Cicero, governing the nation that itself represents humanism (ei generi homi- num prasimus). In fact, it is the nation from which civilization is believed to have passed to others, and therefore Cicero thinks that the Romans should give benefits above all to those from whom the Romans have received humanism (.. sed etian a quo ad alios pervenisse putetur humanitas..) (Cicero 2002: I, 1, 27). According to Cicero, the Romans owe a special duty to these people, which is above their common obligation to mankind. This helps to demonstrate that the Romans understood Greek humanism and the Greek culture (Cicero 2002: I, 1, 28). It is this form of philanthropy that Cicero brings to a Latin concept as humanism, which becomes the basic for later European humanism (Ferguson 1958: 116 f.). The essential thing in humanism is that humanitas, the human, is not bound to a limited social unity or a determined political community, etc., but is universal. According to Cicero, the Romans should also demonstrate their humanism in relation to the wild and barbarian tribes, although he himself absolutely prefers the cultivated Greeks. In our time, when we attempt to understand what is meant by philanthropy, it is best to use the word humanism, because it is a concept that is inherent in our recent culture and something we can immediately understand.

18.2.3 Universality in Stoicism and Christianity

It is the same concept of humanism we find in the Stoics, who claimed the natural relatedness between all human beings. For Seneca (41 BC–65 AD) human beings are by nature united with each other (hominem homini natura conciliat) (Seneca 1967: 9, 17; Chaumartin 1984: 351 ff.). It is similar thoughts that were formulated anew in Christianity, not least in the East Roman Church in the fifth century, when the theologians regarded philanthropy, philanthropia, and the Christian concept agape to be synonymous (Downey 18 Philanthropy and Human Rights in Business Ethics 301

1955: 199 ff.). Originally, the Greek word agape means to treat other people with respect. Agape is a central concept in the New Testament, where it means Gods love or to take care of the human beings. It is also understood as the challenge to Christians to take care of their neighbor and of all other people as if they were their neighbor (Nygren 1953: 41 ff.). Agape is different from the Greek word philos, which refers to a specific personal relation to the friend, anderos , which refers to an erotic or sexual form of relation. In Vulgata, the Latin translation of the New Testament, agape is translated with charitas (NT 1963: 1 John 4, 12), which in English is translated to ‘charity’ (OED – charity). There is an inner philosophical and theological relation between the determination of all humans equal dignity, right, etc. in humanism, and agape in Christianity, which is universal as well. However, the Christian concept of agape goes beyond the humanistic perspective. Christianity contains a personal challenge that should be realized as a command to take care of one’s enemies.

18.2.4 Agape in the Middle Ages

When the Roman Empire began to break down in the fifth century, it was, in practice, the Christian concept of love, agape, that was to carry on the humanistic concept that all human beings are of equal value, right, etc. Philanthropy incurred the same significance as agape in theology and political practice in the Byzantine Empire – the eastern part of the Roman Empire (Constantelos 1962: 351 ff.). After the break down of the Western part of the Roman Empire, the Catholic Church took over as the central institution that sustained and developed theology and humanism as well. Thomas Aquinas (1225–1275) is the great example. He developed the concept of natural right in Summa Theologica (Aquinas 1988). The Christian notion of agape was continuously developed in a form of unity between theology and philosophy in the Middle Ages, and can be considered as the culmination of Christianity.

18.2.5 Humanism and Civil Duty in Renaissance and Reformation

During the Renaissance period, the unity between philosophy and theology broke apart. Humanism gained new ground (Burckhardt 1989: 201 ff.) during the fifteenth century in the north of Italy and later in the sixteenth century in northern Europe in combination with the protestant reformations. An example can be found in the Italian Renaissance, with the increased interest in Plutarch (Pade 2007, I, 14 ff.). An example of northern European humanism is the discussion about the free will between Erasmus of Rotterdam (Erasmus 1956: 74 ff.) and Martin Luther (Luther 302 Ø. Larsen

1962: 76 ff.) in 1524. However, this example can be used as well to show that there was still in Northern Europe a relatively close relationship between humanism, philosophy and theology – in so far as Erasmus as a leader of a humanist movement at the same time was grounded in theology, Christianity and the Catholic Church. In this period it is not possible to draw a clear distinction between humanism and Christian theology. The result of this historical development is a very broad understanding of philanthropy and the humanism, which is on one hand based in a universal recognition of all human being’s equal value, and on the other hand stems from the Christian challenge to do the good. This broad spectrum is historically created in a pluralism of historical trends. As a method for organizing the different historical trends, I will briefly reconstruct four traditions, in which the notion of philanthropy has been developed in different ways. This is, respectively, the German, the British, the French and the American tradition. It is evident that such a structuring principle is a construction and that historically there is a close relation between these different traditions. On the other hand, this method allows one the possibility to clearly present the central themes and perspectives of the different traditions.

18.3 German Tradition: Humanism, Duty, Reasonable Love

In German context, the close relationship to and at the same time difference between the humanistic oriented philanthropy and the protestant notion of charity, agape, is transferred into German idealism. This is developed from the middle of the eighteenth century as a new form of humanism. On the spontaneous level, there is not a fundamental distinction between the humanistic and the Christian tradition. Human friendly love, philanthropy, is understood as identical to the Christian challenge of love. However, there are two meanings to humanism. The first is the anthropological character as a definition of the human being as such. The other refers to human love as a duty towards the other person. This is the same distinction made during the Reformation in the sixteenth century between humanism with a relative distance to Christianity, and on the other hand, the Christian notion of love as a challenge and a duty. Christian Thomasius (1655–1728) states that the distinction must be made between reasonable and unreasonable forms of love (Thomasius 1968a: 156 ff.). The reasonable form of love consists of showing charity to all people without distinction (Thomasius 1968b: 133). The unreasonable form of love is in contrast a reference to the decline of the reasonable love. It can consist of a form of love to oneself (such as regarding oneself to be better than other human beings); it can be an exhibition of unrestrained carnal desires; or it can consist of setting oneself above the community and to deposit one’s total desire and joy in earning money and to acquire what is connected herewith (Thomasius 1968b: 133). The reasonable love should consider all humans as equal, and therefore one should not force their will on another, but, on the contrary, respect others’ free will (Thomasius 1968a: 161). All virtues are considered as a consequence of reasonable love. In accordance with 18 Philanthropy and Human Rights in Business Ethics 303 the classical Lutheran Protestantism, these include patience, mildness, charity, generosity, etc. (Thomasius 1968b: 139). At the same time there is a difference in comparison to classical Protestantism. This form of what could be labeled as “Protestantism of enlightenment” puts a high importance on reason and the rational argument for an action – something that was not the case for Luther. Human love is determined as a fundamental principle in natural right in Enlightenment Protestantism. Christian Wolf (1679–1754) argues that love contributes to the creation of welfare for all humans in society (Wolff 1976: 545 ff.). Christian Crusius (1715–1775) says explicitly that human love is the highest duty in natural law (Crusius 1969: 444 ff.). Finally, Johan Gottfried von Herder (1744–1803) summarizes the human and the protestant theological perspective on the notion of human love and human friendship (philanthropy). Humanity has its origin in human beings’ own sentiment, disposition and nature, while at the same time it is a fulfillment of the Christian commandment to love thy neighbor (Herder 1968: 402 ff.). The following summarizes the unity of sentiment, reason, natural right, philosophy, theology and religion, which forms the basis for the development of the German idealism and humanism in the end of seventeenth and the beginning of eighteenth century. Kant (1724–1804) and Hegel (1770–1831) take the two most important positions. Kant argues that that human love (philanthropy) should be understood in ethical terms as a moral duty that should be realized in practice in relation to other humans (Kant 1966b: § 25–26). Kant, thinking universally, creates a concept of humanity that encompasses all human beings. By extension, Kant, develops a notion of a universal human right. Kant has only one single human right, which is concerned with the determination of freedom. It is according to Kant the fundamental meaning of human right: Freedom (independence from being constrained by another’s choice), insofar as it can coexist with the freedom of every other in accordance with a universal law, is the only original right belonging to every man by virtue of his humanity (Kant 1966a: 43). In opposition to Kant, Hegel claims that Kant’s understanding of philanthropy is too limited because it is entirely abstract, and therefore empty and not bound to anything concrete (Hegel 1969: 271). Therefore Hegel claims that philanthropy or the moral should be incorporated as a form of Ethical Life (Sittlichkeit) in the institutions of society and the state; it cannot stand alone, as he describes it in a chapter on morality in Philosophy of Right (Hegel 1955: § 129 ff.). Hegel operates with a developed concept of civil society. He had read Adam Smith’s (1723–1790) Wealth of Nations (Smith 1981), when he wrote his Philosophy of Right (Hegel 1955), which came out in 1821. One of Smith’s biggest merits is his creation of a social theory in which civil society formed the center of society in contrast to the state. Although Hegel had integrated Smith’s perspective in his Philosophy of Right – one of the reasons that it is so fascinating – Hegel elevates the family and civil society into the state as the real basis for these. A consequence is that although Hegel regards private philanthropic donations, almsgiving, etc., as a good and necessary 304 Ø. Larsen

“subjective help”, private philanthropy is, according to Hegel, accidental. Therefore, he regards it as necessary that the state sustains general public organizations like public poorhouses and hospitals. (Hegel 1955: § 242). However, general, public organizations would be overloaded if they were required to take care of all things. Therefore, Hegel emphasizes the right and duty of the corporation, under the supervision of the public authority, to take care of its own members and protect them against “particular contingencies:” in that sense to be a “second family” for its members (Hegel 1955: § 252). The family is the first ethical root of state, and the corporation is the second, and it is based in civil society (Hegel 1955: § 255). However, both family and civil society are limited in their scope, and therefore they must both be elevated into the state (Hegel 1955: § 256). Hegel’s praise of the state in Philosophy of Right is a peak in the German tradition, but it should not be forgotten that this tradition goes back to the Reformation when Luther handed the Church over to the state. This is in a radical difference to the British tradition which will be considered in the following section.

18.4 British Tradition: Charity in Civil Society

In the British tradition, philanthropy should be seen in the light of liberalism and utilitarianism. It is difficult to point to a particular founder of British liberalism, but it might be obvious to point to John Locke (1632–1704) and his Two Treatises of Government. In the introduction to the second treatise, he mentions the famous natural right dictum that all men are born free and are equal in rights (Locke 1988: § 4). This is the basis for the constitution of society, which has the aim to preserve life, liberty and property (Locke 1988: § 123). After Locke, it is essential to point at Adam Smith, because he is starting up as a moral philosopher, and later on he begins to work with economy. For Smith, there is a connection between these two subjects. There is a unity in his work. Smith’s first major work isThe Theory of Moral Sentiments from 1759 (Smith 1984), which is concerned with ‘the moral sentiment’ as the authority, through which we relate to other persons. We are able to have sympathy for other people and this sympathy can motivate us to do good deeds for other people. As an expression of ‘philanthropy’, Smith speaks about ‘benevolence’ and ‘beneficence’. In the British tradition, Francis Hutscheson (1684–1746), Joseph Butler (1692–1752) and David Hume (1711–1776) had already developed these concepts that Smith takes up in his moral philosophy (Roberts 1973: 1 ff.). Benevolence means the sentiment that a person has who would like to do good towards another person (OED – benevolence; Smith 1984: 245 f.). Beneficence means to do the good – motivated by the sentiment of benevolence (Smith 1984: 122 ff., 239 ff.; OED – beneficence). In this way, philanthropy can be defined as a beneficent action that is motivated by a benevolent sentiment. We use this in the context of the word ‘sympathy’, which comes of the Greek word sympatein, meaning to feel or suffer with another person. 18 Philanthropy and Human Rights in Business Ethics 305

However, it is Smith’s general moral philosophical opinion that the sentiment of sympathy is insufficient to sustain a society. In the end, human beings are fundamentally selfish. Therefore, according to Smith, we need to have laws that can mediate human selfishness. This is the point of departure for Smith’s formulation of his ground-breaking economic theory in his principal work, Wealth of Nations (Smith 1981), in which he founds modern, liberal economic theory. However, it should be noticed that Wealth of Nations is not only an economic theory but also a theory of society that includes the conditions for action in society. Civil society is in the center of Adam Smith’s societal theory. The state has only a subordinated role, which consists of taking care of the defense of civil society against enemies from outside and inside, securing the rule of law, and creating the necessary infrastructure and primary school system. This should all be kept on a minimal scale and only serve the sustainment of civil society. Smith places self-interest at the center of his societal theory. In civil society, the essential thing is to optimize one’s own possibilities and happiness. Smith has the famous dictum that it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. Therefore, we should never talk to them out of our own ‘necessities’ but only of their ‘advantages’ in their business (Smith 1981, I, 25 f.). According to Smith, no one except the beggar chooses to depend on others’ benevolence (Smith 1981, I, 73). But even the beggar must act rationally and strate- gically in the same way as all others to fulfill his immediate needs. The beggar must, according to Smith, like everybody else, make arrangements with other people, exchange basic requirements of life and do his best to attain the objects of his desires. John Stuart Mill (1806–1873) develops Smith’s general moral theory for utilitarianism. In his main work on utilitarianism, Utilitarianism (1985), Mill determines his philosophy in relation to Kant. Mill criticizes Kant for not formulating a first principle for the substantial content of the principle of moral duty that Kant had formulated in his Metaphysics of Ethics: “So act, that the rule on which thou actest would admit of being adopted as a law by all rational beings” (Mill 1985: 261). Therefore, according to Mill, Kant’s ethics is formal, abstract and empty. It is interesting to remark that there are similarities between Hegel’s and Mill’s critique of Kant. They are both pointing at the same problem, but their solutions are very different. Hegel proposes that the personal morality should be elevated into the Sittlichkeit, into Ethical Life in the institutions. In contrast, Mill maintains the sovereignty of personal morality and formulates the moral principle of “utility or the greatest happiness principle”, which is explained as an action that is correct in proportion as it tends to promote happiness and wrong in proportion that it tends to produce the reverse of happiness. Mill defines happiness as intended pleasure and absence of pain (Mill 1985: 262). It is also this concept that Mill makes the basis for his moral theory about philanthropy or beneficence (Mill 1985: 292). Mill distinguishes between absolute perfect moral duties, which we should always obey, and the imperfect duties, which we should evaluate ourselves. The last ones are the duties where it is up to ourselves to 306 Ø. Larsen judge when we want to fulfill the duty and how we would like to act towards other people. According to Mill, this is the case with charity and beneficence, which are duties we have to exercise, but where we can decide ourselves when and towards whom we would like to act charitable (Mill 1985: 292). Therefore, according to Mill, there is no one who has the right to claim our charity. It is a free moral relation; it is a virtue. This has similarities with Kant, who in his moral theory of virtues determines charity as a virtue. However, by Kant is the claim stronger than by Mill, because it is as mentioned connected with a duty to show charity (Kant 1966b: § 25–26). The conclusion is that that both in the German Kantian tradition and in the British utilitarian tradition there is a demand to exercise philanthropy, human love and charity. The two traditions are different but they should not necessarily be seen as contradictions, which is how they are often interpreted. They can be seen as complementary as well. It is possible to move from the deontology to the utility in the sense that the act of duty should have a utility as well, or it should bring a form of happiness. As mentioned, Hegel was occupied with the same problem when he regarded the Kantian pure duty to be totally abstract and empty as regards content (Hegel 1955: § 135). The duty should according to Hegel be mediated, although in another way as by Stuart Mill. On the other hand, according to the German philosopher Otfried Höffe (b. 1943), it is not possible to move from utility ethics to deontological ethics because it is not possible to move from the relative calculation of happiness to the unconditional ethical duty (Höffe 1992: 49–51). Therefore, according to Höffe, it is only with a departure in the deontological ethics that it should be possible to reconcile the two forms of ethics.

18.5 French Tradition: Human Rights and Altruism

The French tradition is significant in the determination of philanthropy because of the French Revolution, where, for the first time, human rights received a formalized status. The Declaration of the Rights of Man and of the Citizen from 1789 is a preamble to the new constitution for France. In this way, human rights were declared as the fundamental principle for the legal system in the new republic. The French declaration of human rights is inscribed in religious tradition (Scrubla 2004). In the introduction it is written that the rights of men and citizens are declared “in the presence and under the auspices of the Supreme Being” (Morange 1988: 118). However, it is not clarified what is meant by this statement. It is a formulation that was integrated in the editing of the declaration in the last moment. The religious reference should be seen as a guarantee for the natural right argument, which was regarded as the essential basis for the declaration. As mentioned, this argument is based in the British tradition from John Locke (Locke 1988) and in the German tradition from Wolff, Herder and Kant. In the declaration, the natural right argument is presented in the first paragraph: “Men are born free and remain free and equal in rights” (Morange 1988: 118). It is 18 Philanthropy and Human Rights in Business Ethics 307 a pure natural right argument – that all men are born free. According to Kant, freedom is the only natural right (Kant 1966a: 43). Secondly it is said in § 1, that all men are equal in rights. This is in accordance with Kant’s understanding of the mutual recognition of freedom, which means that the one’s freedom can be coordinated with another’s freedom (Kant 1966a: 43). It is in this sentence in § 1, that all the philosophical basis for the French declaration can be found. It is evident that the declaration of human rights poses a new agenda for the understanding of philanthropy as well. With the declaration, the individual is recognized as having a status as a universal human being, who can demand rights. These rights are fundamentally formulated in the declaration from 1789. Later on, they are transferred in a differentiated way to the new French civil law, Code Civile des Français, which was given by Napoleon in 1804 (Code Civile 1804). With the French Revolution, philanthropy is related to the individual as a legal person (Code Civile 1804: § 7–8), and not only to the person as a human being in theological and philosophical context. This legal usage was first introduced in France and afterward spread out into the rest of Europe through the Napoleonic wars in the first decade of the nineteenth century. Later, it is brought out to the rest of the world. This will be further elaborated on in the section on the United Nation’s declaration of human rights.

18.6 American Tradition: Democratic and Capitalist Philanthropy

USA is a country where most of the mentioned traditions are found together in a big melting pot. However, the American tradition also has had a definite significance in the creation of a modern understanding of philanthropy. The first emigrants were protestant dissidents from England, Holland and Germany. They brought Protestantism, especially Calvinism, with them to America in 1600. This had a big significance in the development of modern thought about philanthropy and humanism. The emigrants formed communities where they had their own religion, self- government and their own system of law (Nash and Jeffrey 2001: 55 ff.). Formed with the constitution in 1776, the United States was one of the first modern republics and the first democratic state. The preamble to the Declaration of Independence states that: “we hold it to be self-evident, that all men are created equal, and that they are endowed by their Creator with certain unalienable Rights such as life, liberty and the pursuit of happiness” (Nash and Jeffrey 2001: A-1). This formulation was inspired by John Locke’s formulation in Second Treatise of Government (Locke 1988: § 123). Locke writes that the constitution should preserve life, liberty and property. The difference is that the American declaration emphasizes the pursuit of happiness, where Locke emphasizes property. The American declaration was a determinate inspiration for the formulation of the French declaration, which thereafter had a determinate influence on all later constitutions in Europe and other countries in the world. 308 Ø. Larsen

American democracy is especially important in the development of the philanthropic and humanistic moral theory and practice. The reason is that in the American democracy there has developed a strong and autonomous civil society which is founded in self-organization and where it becomes a democratic virtue to contribute to the sustainment of the institutions in civil society. This has in detail been documented by Tocqueville in Democracy in America (Tocqueville 2003: Part 3, 649 ff.).

18.7 Global Society: UN Declaration of Universal Human Rights in 1948

After the end of the Second World War, there began a global period where it became necessary to formulate a global normative foundation that could find acceptance among the nations of the world. As we have seen, the concept of philanthropy has a history that includes many different traditions, especially of philosophical and theological character. In 1948, all these traditions were integrated in a condensed form in the UN Declaration of Human Rights. There is no single document more than the UN Declaration that unequivocally enforces a basis for a modern philanthropy in a global world. The first article states that: “All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.” It is fundamentally the same formulation in the French declaration from 1789: all human beings are born free and equal in rights. The UN declaration adds “equal in dignity”, but it is not evident why this determination should be included here in the fundamental determination of the first paragraph. The following part of the paragraph concerns a moral duty to act towards one another in the spirit of brotherhood. This paragraph could be a definition of the moral duty to philanthropy, which herewith becomes a prominent place in the UN declaration. The central difference in relation to the French declaration is that the UN declaration is a normative statement of intent for all nations, but it does not confer legal rights. This is only the case when it has been integrated in a country’s legal code. However, in relation to philanthropy, the essential is that there is a universal moral reason that justifies philanthropy. This justification is integrated in the first paragraph of the UN universal declaration.

18.8 Philanthropy and Economy

From the perspective of the history of ideas, there has always been a close connection between philanthropy and economy, but this connection has taken many different forms throughout history. From a sociological perspective, there can, in a Max 18 Philanthropy and Human Rights in Business Ethics 309

Weber sense, be a distinction between four different ideal types; namely, the Maecenas, the foundation or in German ‘die Stiftung’, philanthropic capitalism and democratic philanthropy. The Maecenas is the ideal type, where a king or a rich man donates his fortune for certain purposes. He has the exclusive right to determine the criteria for what or to whom he will donate, mostly with the aim to promote his own social status or interest. The word Maecenas has its origin in the name of Gaius Cilnius Maecenas (68 – 8 f. v. t.) who was a wealthy Roman man that supported poetry and art. Maecenas are known in different variations throughout all history. The foundation, or in German ‘die Stiftung’, is an autonomous institution, which is founded through a gift or a testament, for a specific purpose. The foundation is separated from the giver’s private fortune and the foundation is recognized as an autonomous private subject of law. In this way, the founder has given up the right to dispose of the fortune that he has given away to the foundation. Eventually, he can become chairman of the board of the foundation. In this function he has to act in accordance with the charter of the foundation. The foundation or die Stiftung was invented by the church in the Middle Ages in order to create a subject of law that could be passed from generation to generation. With its many institutions, the Catholic Church can be seen as composed of foundations or Stiftungen. These Stiftungen were normally exempt from taxes or they paid only minor taxes. The foundation is bound to its regulations and cannot sell its property. Most of the activities in the Catholic Church and in other church communities, apart from the strict religious activities, can be characterized as philanthropic. However, because these church societies were so dominant in European history, they are normally not characterized as philanthropic organizations. Later on, Die Stiftung became the model for a broader organization of institutions such as schools, universities, hospitals, social security, etc. in civil society. This emerged in the late Middle Ages, and developed drastically in the sixteenth century with the development of civil society and forms of capitalism. Many of these institutions have also a philanthropic perspective. In the era of capitalism die Stiftung became a model for the foundation as an organization of enterprise that made it possible to contain the capital undivided in contrast to a split between the heirs. However, all the enterprise can also be transmitted to a Stiftung with an instrument of foundation, and with the aim of serving the common good. In this way, the capitalist foundation can have similarities with the medieval foundation. Especially in USA, we see a union of philanthropy and capitalism as a political goal directed at changing society. In the US it was customary from the beginning of the twentieth century to establish big foundations like the Carnegie Foundation (founded in1905, the foundation promotes education), the Rockefeller foundation (founded in 1909 and promotes health care, research and education) (Fosdick 1989: 14 ff.), and finally the Ford Foundation (founded in 1936 and promotes science, education, democratic values and the fight against poverty). Today we talk of ‘philanthrocapitalism’ as a political concept, and something that supports fundamental issues like education, health and democracy (Bishop and 310 Ø. Larsen

Green 2008; Thorup 2012). The Bill and Melinda Gates Foundation, which works with health at a global scale, is the biggest foundation in the world (Bishop and Green 2008: 158). Democratic philanthropy is the fourth form of philanthropy. It started in the US and grew out of the community foundations. These are foundations that have their roots in civil society; where many different stakeholders contribute to a foundation with the aim of meeting specific objectives. For example the creation of a health care clinic, a school, leisure facilities for children, etc. Voluntary work should also be mentioned, as it can be regarded as the most essential and extensive form of philanthropy in a modern democratic society. In this, citizens sustain many different forms of social institutions. Voluntary work is difficult to calculate, as it is not paid work. However, it must be supposed that if voluntary work could be measured in economic terms, it would represent the largest philanthropic effort in most western societies, not least in the US (Bundesen et al. 2001: 356 ff.; Laneth 2011: 38 ff.).

18.9 Philanthropy and Human Rights in Global Society

Philanthropy is a concept that as a long and meandering history is connected to all the cultural and social development in Europe and USA. Philanthropy is connected with the development of the fundamental values in these societies. As it should be clear from this presentation, philanthropy can be seen as a moral value, which is inherent in a broad spectrum of personal, societal and cultural values that are bound to specific forms of societal order. Philanthropy has its origin in the Greek tradition. With the historical dominance of the Roman world, philanthropy was translated to the Latin word humanitas, which is the word mostly used today. At the same time, philanthropy has an origin in Christianity, which would later be developed to a specific North European Protestantism. It is in this tradition that philanthropy is developed to be a personal and social duty. It is in the British and American tradition that the idea of Human Rights is developed, before finally championed in the French tradition. In Kant’s and Hegel’s Northern European societal philosophy, philanthropy comes from a moral philosophical perspective formulated as Ethical Life, Sittlichkeit, in civil society and state. These different perspectives in Philanthropy are further developed in a nineteenth century American context where the democratic perspective and civil society become determinately significant for the understanding of philanthropy. The European and the American traditions do not have the same perspective. However, in the many different traditions there develops an extensive common agreement in the claim that the universal should be realized in the concrete. This means that in the Western tradition the idea is developed that in the end there is only one valid criterion for societal morals and societal life – the criterion of universality. This is precisely what is theoretically formulated by Kant in his political philoso- 18 Philanthropy and Human Rights in Business Ethics 311 phy, and is practically demonstrated in the French declaration of Human Rights. Therefore, it is hardly astonishing that it is this perspective that becomes the fundamental perspective in the formulation of the UN declaration of universal human rights in 1948. It is with a formulation in the American declaration of independence of the self-evidence that all men are created equal and that this should be the normative standard for a universal global system of values and rights. The UN declaration is a triumph of humanism and the universal foundation of philanthropy in a global world. This is the way that the declaration is promoted. The declaration is in a paradoxical way presented as being independent of any Western tradition. One reason is of political character. It would not be acceptable for the rest of the world that the common societal ethics and normativity has its origin in Western tradition. A second argument is of philosophical character. The UN declaration consists fundamentally of some universal principles. It is exactly this universality that characterizes western philosophy and culture in opposition to other religious and cultural traditions in the world. Human rights are not self-evident in the rest of the world as they are in the West. A third argument is of religious- and cultural-sociological character. Human right can be seen as a form of western culture in confrontation with the many different concrete religious and cultural traditions and lifestyles in the rest of the world. The concrete life has a complexity, richness and inertness with a rationality which is totally different compared to abstract principles. Although these arguments seems to be striking, it is interesting to see that these arguments already are inherent in Hegel’s critique of Kant as they are the arguments from many theologians and religions in the world. Human rights can therefore be seen as a form of idealism. The same is the case for philanthropy and therefore, they can both be criticized. However, there are no critics who are able to present a possible alternative. This is in the end the pragmatic argument for the human rights: There is not a better alternative. It is remarkable to observe that this is Kant’s perspective as well. Kant has not only an idealistic perspective, but he has a realistic and pragmatic perspective as well. In his essay On the common saying: this may be true in theory but it does not apply in practice (Kant 1964), Kant emphasises that it is not the traditional community or any other community that forces people to create a common human right. On the contrary, it is, according to Kant, violation, strife and violence between people that forces them to create public laws and national civil constitutions. In the same way, it is the state of war that coerces people to unite, if not in support of a constitution for world citizens, than at least in a form of federation or international law (Kant 1964: 111). The UN declaration of the universal human rights can be seen as a preamble to international law in the same way as the French human rights are a preamble to the Napoleonic Code. According to Kant, it is realism that drives the universal norm formation; it is not only the learned idealism. Kant’s conclusion is in On the common saying: “Here then is a clear proof that everything in moral philosophy that is correct for theory must also hold for practice” (Kant 1964: 113). According to Kant, 312 Ø. Larsen theory and practice can go together, but with an idealistic and a realistic justification. In our age, philanthropy as theory and practice should be seen in the same perspective. Philanthropy is carried by idealism, but it is at the same time carried by the necessity and coercion of realism. This is the case in the local, the national and the global context. There are people in the world that, with an idealistic motive, will do the good; but perhaps the same people consider that it is necessary and useful for them as well. There are two different perspectives but they can be united in praxis. This is the practical moral ground for philanthropy in a modern global world. In conclusion, philanthropy is a social praxis that in our time is carried out by universal norms. Philanthropy is exercised locally, nationally and globally and it can have many practical expressions – from concrete projects in the community to a global economic effort. Philanthropic projects are different, but they can all be understood in relation to the universal normative standard, formulated in human rights, which has become the normative standard of our time.

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Smith, A. 1981. An inquiry into the nature and causes of the wealth of nations, Vol I–II, (photographic reproduction of edition from Oxford University Press 1976), Indianapolis, Liberty Fund. Smith, A. 1984. The theory of moral sentiments, (photographic reproduction of edition from Oxford University Press 1976), Indianapolis, Liberty Fund. Thomasius, C. 1968a [1692]. Einleitung zur Sittenlehre. Hildesheim: Georg Olms Verlagsbuchhandlung. Thomasius, C. 1968b [1692]. Ausübung der Sittenlehre. Hildesheim: Georg Olms Verlagsbuchhandlung. Thorup, M. 2012. ‘Pro Bono? – om filantrokapitalisme’. In Kapitalismens ansigter eds. M. Raffnsøe-Møller, M. Thorup, T.V. Larsen, and E. Hansen. 2012. Århus:Forlaget Philosophia. Tocqueville, A. 2003., Democracy in America: Historical-Critical Edition of De la démocratie en Amérique, ed. Isaac Kramnick, translated from the French by Gerald E. Bevain. London: Penguin Books. von Erasmus, Rotterdam. 1956. Vom freien Willen. Göttingen: Vandenhoeck & Ruprecht. Wolff, C. 1976 [1733]. Vernünfftige Gedancken - Von der Menschen Thun und Lassen, zu Beförderung ihrer Glückseeligkeit, Gesammelte Werke I/4, hg. H. W. Arndt, Hildesheim/New York: Georg Olms Verlag. Chapter 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic Analysis

Jörg Althammer

Abstract This chapter takes up the discussion on individual rights in modern economic theory. Taking Amartya Sen’s well-known impossibility theorem as a starting point, I discuss the various approaches to solve the underlying problem and to reconcile basic liberties with general notions of social welfare and economic efficiency. It is argued that the most promising approach to overcome the liberal paradox is to weight individual positions according to a commonly shared value function. Finally, I want to show that the well-established concept of “natural” basic human rights offers an appropriate way to operationalize this valuation function that is both sufficiently specific and flexible enough for applied ethics.

Natural Rights is simple nonsense, […] rhetorical nonsense, nonsense upon stilts. (Jeremy Bentham 1838/1962)

19.1 Introduction

Economic theory is generally regarded as a social science that is most compatible with liberal values and individual freedom. By and large, economists are said to be liberal thinkers with a strong preference for unregulated markets, free enterprise and unrestricted property rights. To many, academics and public alike, economic theory serves as a synonym for non-interference, a minimal state and a diminutive public sector. From a methodological point of view, most economists dealing with normative issues advocate normative individualism, i.e. they hold the view that collective decisions are to be based on the valuation of social states solely by the members of society themselves. Furthermore, the Pareto-criterion, which lies at the bottom of modern welfare economics, uses the unanimity principle for normative evaluations.

J. Althammer (*) Ingolstadt School of Management, Catholic University Eichstaett-Ingolstadt, Ingolstadt, Germany e-mail: [email protected]

© Springer International Publishing AG 2017 315 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_19 316 J. Althammer

This criterion assigns every member of society a veto-power against any kind of interference by public authorities. For public choice theorists and constitutional economists, taxation and redistribution are legitimate only insofar as the underlying rules can be traced back to the assumption of unanimous approval by all parties involved. This notion of liberty corresponds to the appreciation of freedom as non- inference and the protection of a private sphere: “The wider the area of non- inference, the wider my liberty” (Berlin 1958/2000, 123). Albeit this obvious concurrence between economic analysis on the one hand and liberal values on the other, economic theory has severe problems incorporating individual rights in its evaluation of social states. Any economic analysis of liberal values has to take Amartya Sen’s (1970) ‘Impossibility of a Paretian Liberal’- theorem into account. In his seminal paper, Sen shows that the basic understanding of collective rationality as grasped by the Pareto-criterion is incompatible even with the most innocuous system of individual rights. Although several attempts have been made to solve this paradox, there exists up to now no satisfactory solution to the underlying analytical problem. This blatant incapacity to reconcile individual rights – even in its most incon- spicuous and basic understanding – with fundamental requirements of collective rationality as conceived by the Pareto criterion is by no means a mere coincidence. On the contrary, the intrinsic conflict between modern economic analysis on the one hand and the warranty of fundamental liberal values on the other can be traced back to the philosophical foundations of economic analysis. As it is well known, economic theory is rooted in two philosophical lines of thought. One branch is the liberal natural rights doctrine that goes back to Hugo Grotius (1583–1645) and Samuel von Pufendorf (1632–1694). This line of reasoning was further elaborated in John Locke’s Two Treatises on Government. The conception of public authority as a social contract between free and equal citizens endowed with indispensable personal rights had a huge impact on Continental as well as Scottish enlightenment. Locke’s triad of life, liberty and estate forms the building blocks of modern liberalism and, to some extent, normative economics as well. Adam Smith derived his account of private property and the state in the same manner and view on the human nature as Locke did. Beyond any doubt, a second philosophical pillar of economic analysis is utilitarianism. The principle of utility maximization builds the corner stone of economics, both positive and normative. All economic laws of demand and supply rest ultimately on the hypothesis of utility maximizing agents. In rational choice theory, individual rationality is defined as maximizing a complete and transitive preference ordering, that can be represented by a utility function. Likewise, welfare economics conceptualizes collective rationality as the aggregation of individual valuations of social states. The inner relationship between utilitarianism and normative economic theory is most obvious in classical welfare economics. Traditional welfare economics, being essential benthamite in spirit,1 assumed utility to be interpersonally

1 It is interesting to note, that Lionel Robbins (1932) uses the term ‘Economics’ as a synonym for utilitarianism in his defense of economic analysis against Carlyle’s presumed critique as being a “pig-philosophy”. This becomes clear by the fact that Carlyle applied this epithet to utilitarianism, not economics as such. 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 317

comparable and measurable on a cardinal scale. Although modern welfare economics uses axioms that are more generalizable, both approaches are basically utilitarian. If one takes these two lines of thought as the basis of modern economic analysis into account, the inability of welfare economics to incorporate any notion of individual rights should come as no surprise. Jeremy Bentham was more than skeptical about the idea of moral rights. His utilitarian ethics can best be understood as an imminent reaction to the American Declaration of Independence and the Declaration of Rights by the French national assembly in 1791. In his essay “Anarchical Fallacies”, Bentham not only criticizes the phrasing of liberties and rights in the French declaration as “terrorist language”, but rebuts the very idea of moral rights altogether. Rights in this understanding are legitimate only insofar as they promote the welfare of society. Individual rights have no intrinsic value, but are merely a means of attaining the ultimate utilitarian goal. This chapter takes up the discussion on the inclusion of deontological reasoning in welfare economics. It consists of two sections. The first section illustrates the problems associated with the introduction of individual rights into an essential welfarist moral paradigm by the well-known Liberal Paradox. The generic problem of this paradox will be briefly sketched and various approaches to solve this paradox are being discussed. The second section analyses moral rights from an economic point of view. After a clarification of the economic status of individual rights, it will be shown that the concept of a weighting function regarding rights positions might be a possible solution to the underlying problem. The last section concludes.

19.2 Rights and Economics: The Liberal Paradox

19.2.1 The Paradox in Its Original Representation: Individual Rights as Decisiveness

Every assessment of individual rights in an economic framework has to take account for Sen’s liberal paradox that has gained so much attention by economists. For the sake of clarification and due to the fact that this paradox is not as present in political philosophy as it is in social science, I will briefly recapitulate Sen’s (1970) original formulation of the Liberal Paradox before I discuss the various attempts that have been made to solve the generic problem. In Sen’s seminal paper, two actors, the Prude (P) and the Lascivious (L), decide over the lecture of an objectionable reading.2 Both actors have two possible strategies: to read the book (r) and not to

2 Interestingly enough, the reading in question that Sen uses in his example is D.H. Lawrence’s novel Lady Chatterly’s Lover. Nowadays, parents would be grateful if their offspring spent their time reading twentieth century English fiction. 318 J. Althammer read the book (nr). The different social states under consideration are denoted by a (the prude reads the book), b (the lascivious reads the book) and c (neither the prude nor the lascivious reads the book). The preference structures of P and L are as follows: the Prude would prefer the book to remain unnoticed by either person, so his first preference is allocation c. However, if someone is to read the book, the Prude would prefer to read it for himself, as he considers himself morally stable enough to cope with pulp fiction, whereas the Lascivious would be even more vulgarized by this lecture. Thus, the preference ordering of the Prude is as follows: caPPb . The Lascivious first preference isa (the Prude reads the book), as he is convinced that the lecture would ease the Prude’s repressed feelings. Furthermore, L prefers b to c, i.e. he prefers to read the book by himself before it remains unnoticed. So, the

Lascivious’ preference structure is abLLc respectively. Finally, Sen states three axioms any Social Decision Function (SDF) has to fulfill: –– Unrestricted domain (UD): The domain of the collective choice rule includes every set of individual orderings that is logically possible. –– (Weak) Pareto (WP): For any xy, ∈ X , if every member in society strictly prefers x to y, then xPy (i.e. society prefers x to y as well). –– (Sen) Liberalism (SL): For each individual i there is at least one pair of personal alternatives ()xy, ∈ X such that the individual is decisive in the social process,

i.e. if ()xy, ∈ Dxii,  y implies xPy and yxi implies yPx. The axiom of Unrestricted Domain states that the range of social states under consideration must not be set deliberately. Weak Pareto is the constitutive assumption of any consequentialist evaluation of social states. For what follows, the specific notion of liberalism is crucial. Liberalism, or the existence of individual rights, is defined as the existence of decisiveness over social states, i.e. an individual’s capacity to select a specific outcome of social interactions. Sen’s Liberal Paradox, or “The Impossibility of a Paretian Liberal” states that there is no Social Decision Function (SDF) that satisfies conditions U, WP and SL simultaneously. Using the example above, this can be shown in a twofold manner. Condition SL indicates that the Lascivious (L) is decisive over b and c, as the individual position of P is not affected by these outcomes (in either case, P never reads the book). Thus, ()bc, ∈ DL and bPc, as b L . By the same reasoning, the Prude (P) is decisive over allocations a and c, as in these outcomes the Lascivious stays unaffected (i.e. he never reads the book). Thus, ()ac, ∈ DP and cPa, as P prefers a to c. According to L’s and P’s preferences, allocation c will be ruled out by L and allocation a will be rejected by P. Thus, according to the axiom of liberalism, allocation b will be selected. But this violates the Weak Pareto principle (WP), as allocation a is preferred by both actors to allocation b. To put it in other words: according to Weak Pareto, a is socially preferred to b (aPb), as both agents prefer allocation a to social state b. The principle of Liberalism implies bPc and cPa. Taken together, the collective decision function yields aPbPcPa which violates the axiom of acyclicity of social preference relations. Thus, this rather innocuous example shows collective rationality grasped by the Pareto-criterion is incompatible with basic individual rights. This is a significant result, as both the Pareto criterion and the rights system 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 319

Table 19.1 The liberal paradox as game form Lewd (.,r) (.,nr) Prude (r,.) (r,r) (r,nr) (nr,.) (nr,r) (nr,nr) in this example entail only weak requirements on the preferences and the structure of individual entitlements (in this case: to read or not to read a book).

19.2.2 The Game Form Formulation of Individual Rights

It has been argued that Sen’s conception of decisiveness is inappropriate to capture the very idea of individual rights. Critics argue, that a right of an individual does not consist in the warrant to choose a specific social outcome, thus arestriction on social choice, as Sen’s concept of decisiveness implies. Rather, an individual’s right is a set of permissible strategies over a feasible set of social alternatives.3 Thus, several authors tried to solve the underlying problem by modelling individual rights as game form. A game specifies the actor’s strategy set and an outcome function, but does not indicate the individual’s preference over the outcome (Deb et al. 1997). In a game theoretic framework, society assigns to each individual i a set of permissible actions Ai. A social state ( sS∈ ) is a specific combination of permissible individual actions. In Sen’s example, the two individuals nL= {},P have two permissible strategies Ari = {},nr which lead to a set of social states Sr= {}(),rn,,,()rr, ,,,()rn, rn,,,()rn, r . Note that deviating to Sen’s original formulation, we have to consider the social state (r,r) as well.4 Let this allocation be denoted as d. In line with the reasoning mentioned above, I assume that d is ranked lowest by P and highest by L, thus cabdPPP and daLLbcL . Table 19.1 shows the possible outcomes of the various strategies: As can easily be checked, under the preference structure given above, both actors * * * have a dominant strategy si . For L, srL = {}, and for P, snP = {}r , respectively. Thus, allocation bn= ()rr, is the Nash-equilibrium of this one shot non-cooperative game. However, this outcome is Pareto-dominated by allocation ar= (),nr , as shown above. Thus, the liberal paradox cannot be solved by simply restating the problem as game form. It is generic to all social interactions in societies that adhere to liberal values and collective rationality, whenever collective rationality is grasped in a welfaristic manner. The fact that the liberal paradox addresses a fundamental problem that cannot be solved by a simple restatement of the problem was firstly shown by Seidl (1975).

3 On the formulation of individual rights as game form see Pattaniak (1996) and the literature given therein. 4 On this rather innocuous modification of the pristine example see Buchanan 1996( ). 320 J. Althammer

19.2.3 Escaping the Paradox: Some Possibility Results

The liberal paradox is a major challenge to economists, philosophers and political theorists alike. It states that every society is compelled to make a crucial decision between the values of liberalism and collective rationality. Not surprisingly, this inevitable choice is hard to accept by social scientists who value individual freedom without being willed to waive the idea of collective rationality altogether (and vice versa). Therefore, various attempts have been made to overcome this uncomfortable situation, which will be briefly sketched in the next two paragraphs.

19.2.3.1 Selective Liberalism: Exclusion of Meddlesome Preferences

Maybe the most obvious solution – presumably provoked by Sen’s pristine example – stipulates to restrict the set of admissible preferences to each player. Thus, the problem is solved by narrowing the set of eligible social states, i.e. by a qualification of axiom UD. In Sen’s exemplification, the paradox occurs due to the fact that both actors attach a value to a third person’s action that does not directly influence their individual sphere. To put it differently, the incompatibility between the values of liberalism and collective rationality arises in Sen’s example from a psychological externality. Both actors are adversely affected by “contemplating the action of another person” (Mueller 1996, p. 109). More specifically, the paradox in Sen’s example is caused by the very fact that every actor evaluates all possible allocations by imposing paternalistic preferences on the other player’s action. Thus, P prefers a to b (i.e. the Prude reads the book) due to his prude preferences he levies on L’s action, whereas L values a over c according to his lewd preference structure he entails on P. This, however, is hardly commensurable with the very notion of liberalism and individual freedom. Liberalism in its axiomatic sense states a “recognized personal sphere” which implies that “neither one person, or any number of persons, is warranted in saying to another human creature of ripe years, that he shall not do with his life for his own benefit what he chooses to do with it” (J.S. Mill, Chap.IV, p. 98). Thus, one prominent solution to solve the liberal paradox is to exclude other- regarding (or, in the words of Blau (1975), “meddlesome”) preferences from the set of admissible individual goals. It might be objected that restricting the set of permissible preferences (thus violating axiom UD) contradicts the basic value judgement of welfarism to take preferences ‘as they are, not as they should be’. However, this restriction is in full accordance with the premises of liberal theory. Just as a tolerant and democratic society is not supposed to approve undemocratic and bigoted endeavors amongst its citizens, the pursuit of liberal values relies on the notion that no-one has the right to interfere with an individual’s moral preferences, provided they are sound and well-founded. Restricting the permissible preference structure to egoistic preferences in fact solves the problem outlined above. If both actors only care about their living 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 321

conditions and if meddlesome preferences are sorted out, the Prude is indifferent between allocations (nr,r) and (nr,nr) (note that in either case, the Prude does not read the book). Out of the same reason the Lascivious is indifferent between (nr,nr) and (r,nr). Thus, a welfarist judgement based on egoistic preferences generates the social ordering ()nr,rn(,rnrr)(,)nr which ultimately results in the libertar- ian allocation (nr,r). This social state is both efficient (i.e. socially rational) and compatible with the concept of individual rights as outlined above. This, however, comes at some cost. Eliminating other-regarding preferences from the permissible set of an individual’s basic valuation system not only rules out the imposition of paternalistic preferences on third parties, but any kind of moral reasoning whatsoever. The valuation of social states from an ethical point of view inevitably involves a deliberation of positions of other members of society and their unequal capabilities to pursue their life plans. Contrary to that, solving the liberal paradox as outlined above implies to accept ethical egoism in its strong sense as the normative maxim. Restricting an actor’s preference structure to mere egoism would require him to be ignorant with respect to his entire social environment and thus would withdraw the basis of moral deliberation in a social context (Kern 2004). This is hardly compatible with proper moral reasoning. Thus, the liberal paradox cannot be solved satisfactorily in a welfarist social choice paradigm based on normative individualism. A more promising approach to reconcile egoistic preferences with ethical considerations is undertaken by constitutional economics. Whether this proceeding is capable to solve the liberal paradox in a more attractive manner will be briefly sketched in the next paragraph.

19.2.3.2 Constitutional Liberties

Constitutional economics uses the instruments of normative individualism and moral egoism as theoretical building blocks. However, it deviates from social choice theory insofar as it conceptualizes the social decision making process as a two-stage process. In a first stage, members of society select universal strategies admissible for everyone. In a constitutional economic framework, only those strategies are licit that can be accepted unanimously by all members of society. Thus, Pareto-optimality and individual rights coincide on this first level of rules selection by definition. In the second stage, individuals make their moves according to their preferences and based on the rules selected in stage one. The rule selection game on the first stage thus puts a restriction on the set of feasible allocations in the second stage that might possibly rule out the complexities that ultimately lead to the liberal paradox. As Nozick puts it: If I have the right to choose to live in New York or in Massachusetts, and I choose Massachusetts, then alternatives involving my living in New York are not appropriate objects to be entered in a social ordering (Nozick 1974, p. 166). 322 J. Althammer

Besides the effect of restricting the set of feasible (and thus potentially conflicting) allocations, constitutional economics offer a different and probably more productive approach to the formulation of individual rights. In the constitutional setting, a (basic) individual right is not the decisiveness of a person over specific social situations (as in Sen’s social choice approach). Rather, a system of rights is conceptualized as a set of universal strategies that are selected unanimously on the constitutional level. In Sen’s pristine example, members of society have to decide between agreeing on a social environment that tolerates meddlesome paternalistic inference on others’ preferences and one that does not. However, if meddlesomeness were admitted, the Lewd might have to accept that his preferences are overthrown by the preferences of the Prude, and vice versa. So, on a constitutional level, both actors would agree to rule out meddlesomeness. This restricts the possible outcomes on allocation b ((nr,r)), which is both compatible with individual rights and efficiency on a constitutional level. The most prominent advocate of constitutional economics, James Buchanan (1996) writes: This peculiarity [the Liberal Paradox, explanatory note by the author] disappears immediately, however, once we recognize that the rule of liberalism does not, and indeed, cannot assign rights to choose among complete social states to anyone. Persons are assigned rights to control defined elements which, when combined with the exercise of mutually compatible rights of others, will generate a social state as an outcome of an interaction process, not of a ‘choice’, as such, by either one or many persons. As in social choice, constitutional economics solves the liberal paradox by violating the axiom of unrestricted domain (UD). In this case, however, the exclusion of specific social states is not done arbitrarily, but in a specified manner consistent with welfarist value judgements. The process of rules selection in the first (constitutional) stage ensures Pareto-efficient outcomes and thus the accordance of collective rationality and individual rights. Although promising, the two-tier solution of constitutional economics has its shortcomings as well. Let me clarify this by using another example which has a closer reference to business ethics. Let us assume two actors, a For-Profit- Corporation (P-Corp) and a humanitarian Non-Governmental Organization (NGO), which both operate in a democratic society that provides for basic human rights such as the freedom of speech and property rights. P-Corp considers investing in a rogue state, albeit on perfectly legal terms. The humanitarian organization announces to carry out reputation-damaging Hester-Prynn-sanctions against P-Corp, whenever the corporation decides positively on investing in the contentious country. Let us denote the investment decision with i and the non-investment decision with ni, NGO’s Hester-Prynn-campaign with c and its restraint from it with nc. Again, every actor has two possible strategies and thus there are four possible allocations ((i,nc), (ni,nc),(i,c),(ni,c)). The preferences are as follows: P-Corp ranks allocation (i,nc) highest, followed by (ni,nc). Thus, I assume that the reputation damage generated by NGO’s campaign is sufficiently high to absorb the profits generated by the 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 323

Table 19.2 The actor’s P-Corp. NGO preference structure (i,nc) (ni,nc) (ni,nc) (ni,c) (i,c) (i,c) (ni,c) (i,nc)

Table 19.3 The investment-campaign game NGO (.,c) (.,nc) P-Corp (i,.) (i,c) (i,nc) (ni,.) (ni,c) (ni,nc)

disputed investment. Due to the fact that reputation damages outweigh the profits generated by the investment, the management of P-Corp ranks (ni,nc) higher than (i,c). In any case, however, P-Corp’s management ranks (i,c) over (ni,c) which yields the Corporation’s management preference structure as follows:

( ()in,,cnPC ()inciPC (),cnPC (,ic) ). The NGO’s first preference is (ni,nc). That is, they prefer to detain the corporation from investing without spending resources on the campaign. Furthermore, we assume the NGO’s willingness to pay for the campaign is high enough to generate a reputation damage that is higher in monetary terms than the profits generated by the investment, thus (ni,c) is ranked above (i,nc). Finally, if P-Corp chooses strategy i, NGO will carry out the campaign in any case, thus ( ()ic, NGO (,inc) ). Table 19.2 summarizes the rankings of P-Corp and NGO, with preferences shown in descending order: Table 19.3 shows all possible outcomes in game form. Note that the strategy set of both players comprises only strategies that are compatible with a Pareto-consistent selection of individual rights in the constitutional phase. P-Corp exerts its property rights whereas NGO makes use of the freedom of opinion and speech, both basic individual rights that are consensual on a constitutional level. Inspection of Table 19.3 shows that player NGO has no dominant strategy. If player P-Corp plays i, NGO responds by c. Whenever P-Corp chooses strategy ni,

NGO responds by nc. However, P-Corp’s dominant strategy is i, as ( ()in, cnPC (,inc)

) and ( ()ic, PC (,ni c) ). Thus, P-Corp will choose i in either case and NGO responds by c, i.e. (i,c) is the social outcome. However, both actors prefer (ni.nc) to this allocation. So once again, the social outcome violates the premise of collective rationality. It should be noted, that both players act purely egoistic and draw upon constitutional rights that were unanimously selected in the first, constitutional stage of the game. 324 J. Althammer

19.3 Basic Liberties, the Valuing Function and Natural Rights

19.3.1 The Economic Status of Basic Human Rights

In order to solve the liberal paradox it is thus not sufficient to restate the decision- making process in theoretical terms or to differentiate between a rule-setting stage and a stage of rule-compliance in the social decision making process. We have to impose stronger restrictions on the set of feasible social alternatives in order to reconcile fundamental individual rights with collective rationality as grasped by the Pareto criterion. But before I proceed with the analysis of the interrelationship between individual rights and social efficiency, let me first clarify the very meaning and the economic status of different notions of rights and liberty. When speaking about rights, one usually thinks of an individual’s juridical claims. Legal rights are chartered, codified by law and legislation and sanctioned by political authorities. The legal entity entitled to a specific right is able to enforce his or her claims via court or other public authorities. The status of positive rights is precisely defined by the judicial and political system of a society. However, if we bring up the question of the ethical value of rights and liberties in society, we have to broaden the perspective. In this case, moral, not legal rights, are at stake.5 In contrast to positive rights, the normative status of moral rights is more ambiguous, to say the least. Moral rights are not established by legislation or by specific moral conventions in a society. They are “conceptually prior to and independent of conventional rights of any kind” (Shafer-Landau 2003). Moral rights rely solely on ethical reasoning and exist irrespective of their codification in law or the adherence to moral conventions. Thus, the existence of moral rights cannot be stated on an empirical basis, nor can it be deduced by any method of positive science. This vague status of moral rights does not deprive us of categorizing these claims and analyzing them according to their normative and economic status. In general, moral rights can be differentiated into three distinct categories (Hare 1981, 149; Birnbacher 2013, 130):

1. agent i is permitted to realize action si, i.e. i is not obliged to desist si; 2. agent i is free to realize action si, i.e. all members of society are obliged to respect i’s freedom of action with respect to si and are not allowed to interfere with this right; 3. agent i has a moral entitlement on resource x or – put differently – has a moral claim to be endowed by society with the resources necessary to undertake action

si. As can be seen from this brief description of (moral) rights, the theoretical concepts of rights, duties and liberty are deeply interrelated. This is most obvious for

5 On the concept of moral rights see R.G. Frey (1984) and especially Joel Feinberg (1992). 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 325 the correlation between rights and duties. Warrender (1957) states this interrelatedness between rights and duties as follows: A ‘right’, as the term is generally used in moral and political philosophy […] is […] a comprehensive description of the duties of other people toward oneself in some particular respect […] In a sense, the term “right” has a rhetorical rather than a philosophical value […] The rights formula […] is a loose, summarizing expression that would be useful in an argument where others are denying this right. […] but as a vehicle of philosophical inquiry, it is insignificant. (Warrender 1957) The concepts of liberty and freedom are likewise interrelated with the notion of individual rights and personal duties given above. Thus, in what follows, I will use the terms ‘rights’ and ‘freedom’ interchangeably. From an economic point of view, the distinction between “negative” and “positive” (or “real”) freedom, i.e. the differential between moral rights of kind 1. and 2. on the one hand, and type 3. on the other, is more relevant. From an economic perspective, “negative” rights such as the freedom of thought, conscience and religion (Art. 18 UDHR) can be regarded as typic examples of public goods. This means that these rights can be granted to a group of arbitrary size without incurring marginal costs. Furthermore, suppression or withdrawal of these rights is either impossible (as with the freedom of thought and conscience) or associated with very high – and probably prohibitive – costs (as with the freedom of religion). Other negative liberties such as the freedom of opinion and expression (Art. 19 UDHR) are of the nature of club goods. That means that they can be warranted to all members of society without restricting the exercise of this right to any group member. If you express your opinion, that does not constrain me to articulate mine. However, these rights can be – and in fact are – withdrawn by public authorities and political elites. From an economic point of view, positive rights have fundamentally different implications. Basic human rights of the so called “second generation”, such as the right on a decent standard of living, education and health care, include moral claims on scarce resources and thus belong to category 3. listed above. The resources that are necessary to meet the moral claims of this kind are pure private goods. They are characterized by rivalry on consumption, i.e. the resources used by agent A cannot be used by agent B. The parts of GDP a country used for development aid or other forms of assistance are withdrawn from investments in domestic infrastructure, health care or education. Exclusion from consumption is not only possible, but inevitable. Essentially, the exclusion from exercising these moral claims lies at the bottom of the problem of global justice. The very fact that in some regions people are not supplied adequately with resources to meet their basic needs and are thus deprived of exercising their elementary posivite human rights violates the notion of global justice in a fundamental way. This brings up the complex question of prioritizing different positions and thus valuing individual rights on a universally valid ordinal scale. 326 J. Althammer

19.3.2 The Social Valuation of Individual Rights

If one wants to incorporate the deontological concept of (moral) individual rights into an economic – and thus essentially consequentialist – framework, certain quali- fications on either one of the two normative principles have to be made. Instead of refuting the idea of moral rights altogether – as Bentham did – or to give an appre- ciable lower priority to the Pareto criterion – which would be Sen’s or Rawls’ solution – I follow the more promising approach taken by Weikard (2004). Weikard formalizes individual rights as specific aspects of a social state that an individual is free to determine. These liberties are of unequal importance to the members of society. It is thus assumed that there is an ordering i which ranks the positions for ′ each individual associated with the exercise of a specific liberty. Definea i and ai as aspects of a social state that are relevant to individual i. Furthermore, it is assumed that liberties are of different value to individuals as well as interpersonally compa- ′ rable. Then the importance of liberties can be denoted by the ordering aaii i , if it is at least as important to individual i to determine aspect a as it is for him to be free to determine aspect a’. We may further think of a social weighting function which assigns aspect a a higher social value with respect to aspect a’, whenever individual i values aspect a higher than individual j ranks aspect a’. This allows us prioritizing the worth of liberties on a social scale that ultimately generates a rank order of individual liberties. A system of basic liberties is thus a set of individual rights that is compatible with individual rights of all members of society that are of equal or higher worth. Finally, the most extensive system of equal basic liberties is an arrangement of rights that comprises the right with the least importance to any individual that is compatible with granting liberties to all other members of society that are (at least) of the same importance to them. Various attempts have been undergone in order to generate a more or less comprehensive list of basic human rights that is consistent with – or even explicitly based on – philosophical principles. Besides the Universal Declaration of Human Rights (UDHR), arguably the most important step in this direction for the time being is Martha Nussbaum’s catalogue of entitlements to basic human functionings derived from an (essentially neo-aristotelian) ontological understanding of the human being.6 In the 2006 version of her catalogue, she lists several basic capabilities which have direct implications for a theory of individual moral rights and duties of society. The entitlement to political control over one’s environment implies the right to free speech, freedom of association and political participation. The entitlement of a person to being able to live at the end of a human life of normal length (life) as well as being able to be adequately nourished and to have good health (bodily health) endows every person with the positive right to at least a social

6 On the impact of the capability approach to human rights see Nussbaum (1997, 2006) and Sen (2005). 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 327

subsistence minimum. Finally, the entitlement to material control over one’s environment includes the right to private property and ownership. The capability approach provides us with a reasonable catalogue of individual rights, both negative and positive. It does, however, give no answer to the urging problem of competing rights and socially conflicting entitlements. What, ifi ’s entitlement to private property is in conflict withj ’s right to bodily health and integrity? This arouses the question whether it is possible to rank diverse entitlements with respect to their social value on an ordinal, interpersonally comparable scale. In the paper mentioned above, Weikard (2004) uses the propinquity of a social issue as measure for the importance of this issue to the actor. Thus, the weight function he uses is the “inverse of the distance between the individual and the aspects of the world” (Weikard 2004, 278). Or, to take up Weikard’s example: “It is not important for Anna, who lives in Nigeria, what clothes Mr. Smith is wearing, who lives in London.” At first sight, this understanding corresponds to Mill’s (1848, book 5, Chap. 11, § 2) definition of liberty, that there should be “a circle around every individual human being, which no government […] ought to be permitted to overstep”. But although intuitively appealing, the concept of valuating individual rights by the actor’s local proximity to a social state is far from being satisfactory. In fact, it tries to confine the theory to uncontroversial issues by merely excluding (irrelevant) psychological externalities from the set of admissible allocations. In the modern global village, exercising property rights by someone living in London might definitively influence the personal sphere of someone living in Nigeria. Thus, a ‘most extensive system of basic liberties’ based on the physical distance between an individual and a state of affairs might be extremely small. This qualification notwithstanding, I consider the idea of valuing individual rights on an ordinal, interpersonally comparable weighting scale promising. Moreover, in my understanding, Natural Rights theory provides us with a viable solution to the underlying problem. I want to show this using John Locke’s Two Treatises of Government (TTG), which can be regarded as a corner stone of a modern theory of moral rights. In his Second Treatise on Government, John Locke states this problem in a way that offers an expedient approach for the classification and prioritization of individual moral rights. In the ninth chapter of this essay, Locke legitimizes constraints on individual liberty by public authority merely by means of the “mutual preservation of their lives, liberty and estate, which I call by the general name – property” (TTG II, 9, 123).7 Whenever Locke speaks of ‘property’, what he has in mind is the trinity of life, liberty and estate. It is thus a distorting abbreviation if one takes Locke’s excerpt that the “chief end of government is the preservation of property” as a philosophical justification of plain property rights in a modern understanding. What Locke really has in mind is an extensive system of basic individual liberties that has to be preserved by public authorities.

7 In what follows, I quote Locke’s two Treatises on Government as follows: the number of the treatise is given in roman numbers, followed by the chapter and the paragraph in Arabic numbers. Thus, the 5th paragraph of the fourth chapter in the second treatise is quoted by TTG II, 4,5. 328 J. Althammer

What is more important in this context is the fact that these basic rights are not morally coequal, but located on different hierarchical levels. In Locke’s theory, the right to life and bodily integrity and their protection by political authorities is unconditional. This is due to the fact that any political order owes its bare existence to the common interest of people to escape the State of Nature and its prevailing insecurity. To Locke, this is self-evident by reason: The state of Nature has a law of Nature to govern it, which obliges everyone, and reason, which is that law, teaches all mankind who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty or possessions. […] And […] sharing all in one community of Nature, there cannot be supposed subordination among us that may authorise us to destroy one another, as if we were made for one another’s uses (Locke 1690, Ch. II, 6). Locke confines his right to live on negative liberties, i.e. he states that no-one has the right to do harm to others in a way that deprives them of their basic right to live. However, if we take a more comprehensive understanding of individual rights as e.g. derived from Sen’s concept of basic capabilities, the duties of (global) society with respect to the preservation of a person’s life increase tremendously. If we accept the right to live as “being able to live to the end of a human life of normal length”, this implies an entitlement for every person to a subsistence minimum and thus the duty for the better off in this world to supply those living in extreme poverty with the necessary resources. An almost equally high, only slightly minor priority is assigned to liberty. Locke writes: The liberty of man in society is to be under no other legislative power but that established by consent in the commonwealth, nor under the domain of any will, or restraint of any law, but what that legislative shall enact according to the trust put in it. […] A liberty to follow my own will in all things where that rule prescribes not, not to be the subject to the incon- stant, uncertain, unknown, arbitrary will of another man, as freedom of nature is to be under no other restraint but the law of Nature (Locke 1690, Ch. IV, 21). When it comes to property rights, Locke’s approach is far more restrictive. Whereas – in Locke’s dictum – every person is entitled to the right of life and liberty by Natural law, and these entitlements are self-evident by reason to everybody, the moral basis of property rights is more complex. This is mainly due to the fact that his moral theory is based on the premise of common property of material resources to all mankind. More than once he states that “God … hath given the world to men in common”, and that “the earth and all inferior creatures be common to all men” (V, 25, 26). Thus, the right to private property appropriation is not introduced axi- omatically but needs justification on a distinct moral basis. As is well known, Locke legitimizes the appropriation of private property through the labor devoted by a person. This has been rightly criticized, and different moral justifications for the institute of private property have been given.8 This discourse on the justification of

8 Economists typically refer to the efficiency of property rights, which leaves the problem of the distribution of private wealth unsolved. Nussbaum and Sen derive the right to property appropriation from the basic capability of a person to have control over his or her environment, this on the 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 329 property acquisition is an important economic and social issue, but nevertheless irrelevant in our context. What is more important is the fact that in Locke’s theory, private property, even if appropriated in a legitimate way, is far from being unrestricted. Quite on the contrary, Locke states in his labor-theory of acquisition a serious constraint: For this ‘labour’ being the unquestionable property of the labourer, no man but he can have a right to what is once joined to, at least where there is enough, and as good left in common for others. (Locke 1690, Ch.TTG II, 5, 26) Nor was this appropriation of any parcel of land, by improving it, any prejudice to any other man, since there was still enough and as good left, and more than the yet unprovided could use. So that, in effect, there was never the less left for others because of this enclosure for himself. For he that leaves as much as another can make use of does as good as take nothing at all. Nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst. And the case of land and water, where there is enough of both, is perfectly the same. (Locke 1690, Ch.TTG II, 5, 32) The famous proviso “enough and as good left in common for others”9 puts a serious limitation on the legitimate appropriation and exert of property rights that neither economic analysis nor the capabilities approach to human rights can bring about. Furthermore, the proviso does not only contain a moral constraint on individual actions (i.e. not to appropriate resources in case of scarcity). Properly understood, it constitutes also an obligation to affluent societies to endow people living in dire straits with the necessary resources to lead a meaningful and self-determined life. Put differently, the evaluation of basic individual rights by John Locke brings about the following prioritization: Life  Liberty  Property. This enables society to overrule the exert of property rights, whenever this exercise is in conflict with superior individual endowments such as liberty or the protection of life. In this line of thought, one can also think of a more precise subdivision of individual positions and their ordering.

19.4 Conclusion

The Liberal Paradox, formulated some 40 years ago, still remains an open and yet unsettled issue in social choice theory. Although numerous articles have been published on this subject and several attempts have been made to solve the underlying problem, no satisfactorily solution yet exists. Besides this shortcoming, the paradox has contributed to a deeper understanding of the normative implications of individual liberties and a better appreciation of the ethical issues of economic analysis. Understanding the impact of basic individual rights on economic outcomes allows entitlement of a person to lead a distinct and self-determined life. Scholastic philosophers in contrast refer to the pacification of society the institute of private property brings about. 9 On the Lockean proviso, its limitations and implications to modern philosophy see Nozick (1974) and Varden (2012). 330 J. Althammer us to analyze the normative prerequisites of economic analysis, and particularly welfarism, in more depth. First, it shows that economics is essentially a normative science. Even in positive economic analysis, one cannot take individual preferences simply ‘as they are’. In order to generate unequivocal results, one has to confine the set of admissible preferences to non-conflicting preference structures. The exclusion of specific kinds of ‘meddlesomeness’ is an analytical necessity, irrespective of its ethical content. ‘Robbins principle’,10 although often taken as an axiom in economic analysis, has to be refuted on a positive basis already. Secondly, the Liberal Paradox compels us to clarify not only the moral, but also the economic status of different individual rights. Using the common criteria of rivalry in consumption and the possibility of exclusion, individual rights may be pure public goods, club goods or pure private goods, the latter being mainly reserved to positive rights that constitute the basis for real freedom in society. This has far- reaching implications on behalf of the provision of individual rights from a moral point of view as well. Finally, the concept of valuing competing individual rights by using a social weighting function allows us to avoid a great deal of problems associated with the deontological concepts of liberty and moral endowments. If we are able to rank competing entitlements on an ordinal and interpersonally comparable valuation scale, we are in the position to evaluate different social states and even divergent arrangements of governance on a moral basis. Thereby, the talk on moral entitlements receives a rational foundation in normative theory and might thus be even reconciled with a consequentialist ethical approach, economics being the most prominent representative.

References

Bentham, Jeremy. 1838/1962. Anarchical fallacies; being an examination of the declaration of rights issued during the French Revolution. In The works of Jeremy Bentham, ed. John Bowring, Vol. 2, 489–535. Berlin, Isaac. 1958/2000. Two concepts of liberty. In Liberty, ed. Henry Hardy, 166–217. Oxford. Birnbacher, Dieter. 2013. Analytische Einführung in die Ethik. Berlin/Boston. Blau, Julian H. 1975. Liberal values and independence. Review of Economic Studies 42(3): 395–401. Buchanan, James. 1996. An ambiguity in Sen’s alleged proof of the impossibility of a Pareto lib- ertarian. Analyse & Kritik 18: 118–125. Deb, Rajat, Prasanta Pattanaik, and Laura Razzolini. 1997. Game forms, rights, and the efficiency of social outcomes. Journal of Economic Theory 72: 74–95. Feinberg, Joel. 1992. In defense of moral rights. Oxford Journal of Legal Studies 12(2): 149–169. Frey, Raymond G. 1984. Utility and rights. Minneapolis: University of Minnesota Press.

10 In his famous “Essay on the Nature and Significance of Economic Science”, Lionel Robbins (1932) writes: “The economist is not concerned with ends as such. […] The ends may be noble or they may be base. […] Economics takes all ends for granted.” Herbert Gintis has named this axiom the “Robbins principle”. 19 The Economics of Nonsense Upon Stilts: Basic Human Rights and Economic… 331

Hare, Richard M. 1981. Moral thinking. Its levels, method, and point. Oxford: Clarendon Press. Kern, Lucian. 2004. Ist das Liberale Paradox ein Gefangenen-Dilemma? Archiv für Rechts- und Sozialphilosophie 90(3): 309–339. Locke, John. 1690. Two treatises of Government, Essay Two. In The works of John Locke, ed. Thomas Tegg, et al, Vol. V. Dublin. Mill, John Steward. 1848. Principles of political economy with some of their applications to social philosophy. London Mueller, Denis C. 1996. Constitutional and liberal rights. Analyse & Kritik 18: 96–117. Nozick, Robert. 1974. Anarchy, state, and utopia. New York: Books Basic. Nussbaum, Martha. 1997. Capabilities and human rights. Fordham Law Review 66(2): 273–300. Nussbaum, Martha. 2006. Frontiers of justice. Cambridge, MA: Harvard University Press. Pattanaik, Prasanta. 1996. The liberal paradox. Some interpretations when rights are represented as game forms. Analyse & Kritik 18: 38–53. Robbins, Lionel. 1932. An essay on the nature and significance of economic science. London: Macmillan. Seidl, Christian. 1975. On liberal values. Zeitschrift für Nationalökonomie 35: 257–292. Sen, Amartya. 1970. The impossibility of a paretian liberal. Journal of Political Economy 78: 152–157. Sen, Amartya. 2005. Human rights and capabilities. Journal of Human Development 6(2): 151–166. Shafer-Landau, Russ. 2003, September 5. Review on: Joel Feinberg, problems at the root of law, Oxford 2002. Notre Dame Philosophical Reviews. Varden, Helga. 2012. The lockean ‘Enough-and-as-Good’ proviso: An internal critique. Journal of Moral Philosophy 9: 410–442. Warrender, Howard. 1957. The political philosophy of Hobbes: His theory of obligation. Oxford: Clarendon. Weikard, Hans-Peter. 2004. On the economics of basic liberties. Social Choice and Welfare 22: 267–280. Chapter 20 Enlightened International Corporate Social Responsibility, Corporate Social Irresponsibility, and Human Rights

Aloys Prinz

Abstract The size and power of multinational enterprises (MNEs) raise serious issues concerning their social responsibility. In particular, demands that they employ their economic power to enforce pro-actively human rights in less developed countries (LDCs), is high on the business ethics agenda. This chapter focuses on the conditions under which MNEs can contribute voluntarily to enforcing human rights. First, it is shown that corporate social irresponsibility (CSI) is a legal concern for MNEs in their home countries, because national policy and enterprise policy may be complements for good, but also for bad. Avoiding legal problems in the home country is then a priority for all MNEs. Second, in contrast to CSI, international corporate social responsibility (ICSR), over and above the human rights minimum, requires voluntariness, since national policy and company policy are substitutes in this respect. Moreover, voluntary ICSR policies will be applied according to the willingness of employees, customers and investors to pay the price.

Keywords Corporate social irresponsibility • International corporate social responsibility • Multinational enterprises • Human rights • Voluntariness

JEL-Classification M14 • L21 • K33

20.1 Introduction

At regular intervals, the general public is shocked by news on the scandalous conduct of MNEs, mostly in less developed countries (LCDs), for instance, regarding child labor in India or the collapse of a factory building in Bangladesh. These countries

A. Prinz (*) Institute of Public Economics and Center for Economic Theory, University of Muenster, Muenster, Germany e-mail: [email protected]

© Springer International Publishing AG 2017 333 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_20 334 A. Prinz are far from the companies’ home, and the people concerned are often employees of subcontracted firms abroad. For a long time, the conduct of MNEs was almost totally unknown in the home country of these firms, or their conduct was of minor public interest. However, the media and many other interested parties are now prop- agating any such information (Johansen et al. 2007, p. 436). It seems that, especially since the economic and financial crises of 2008 and the preceding scandals, the general public of developed countries now seems to react far more sensitively to the misconduct of large firms than in earlier decades. Violations of elementary human rights can obviously seldom, if ever, be justified. Catastrophes aside, neither economic nor ethical reasoning can condone such violations. Nevertheless, human rights violations actually do happen, particularly in national states not governed by the rule of law, that is, in societies that are not free.1 In such states, even the United Nations and international laws are powerless. Nonetheless, MNEs operate in those countries too (OECD 2002). Hence, the question is whether these companies are legally and/or ethically responsible for human rights violations in those countries. Put differently, it is necessary to consider whether the economic and the political sphere can be separated2 in such a way that human rights violations in the political sphere do not also contaminate the economic sphere, although the companies themselves behave legally and ethically correctly. In a weaker form, the question is whether human rights violations of MNEs abroad should be legally prosecuted in the home country, if the firms can be regarded as accomplices of such states (Lukas 2007). A more complex issue is whether MNEs could and should use their assumed political power to pro-actively propagate economic, social and environmental goals beyond the minimum standard of human rights in countries that are unable or unwilling to pursue such goals on their own.3 Of course, such enterprise policies abroad require economic as well as political power. But even if MNEs actually do have the necessary power, it remains unclear how they would apply it. MNEs are ultimately businesses whose objectives are different from those of national states. The institutional division of tasks between the economy and politics is marked by the ability to apply certain kinds of power legally. While lawmakers can force enterprises and people to behave in a certain way, enterprises cannot; even truly evil monopolies are constrained by their demand functions to some degree. Therefore, the most dangerous complicity consists of a malicious monopoly and a rogue state, conspiring to exploit both people and the nation’s resources, with force and violence applied by the state. In this chapter, corporate social irresponsibility (CSI) and international corporate social responsibility (ICSR) are investigated. The first issue is how to “avoid doing

1 For the concept of “rule of law” in political and philosophical theory, see Barry (2008). 2 The separation of these spheres is emphasized by, e.g., the philosopher Comte-Sponville (2009) and The Economist (2005a). See also the discussion in Business Horizons between Dunn (1991), Buchholz (1991), Carroll (1991), Mahon and McGowan (1991), as well as Freeman and Liedtka (1991). 3 See Torugsa et al. (2013) for such policies. 20 Enlightened International Corporate Social Responsibility, Corporate Social… 335 bad” for society while “doing well” in business with respect to CSI and particularly human rights. The second question is whether and how MNEs may contribute to human rights enforcement over and above the minimum standard via ICSR. Of particular interest is the extent to which legal action (through international law) is required and when voluntary actions of MNEs are sufficient. The chapter is structured as follows. To determine the role of human rights in the development process of less developed countries (LDCs), Sect. 20.2 gives a brief account of the goals and means. Section 20.3 contains a brief literature review on the responsibility and liability of MNEs for human rights. In Sect. 20.4, regimes of national policy and enterprise policy are identified and we consider whether national and enterprise policies are complements to or substitutes for each other. This paves the way for Sect. 20.5, which contains an evaluation of instruments for “avoiding doing bad” and promoting “doing good”. Section 20.6 concludes.

20.2 Human Rights and Economic Development

Although the notion of ‘human rights’ is neither clearly defined nor cross-culturally consistent, various legal documents determine the range of what are generally considered as human rights (Ermacora 1982).4 Table 20.1 contains the ten most frequently observed abuses of human rights according to Amnesty International. Table 20.2 gives an idea of the distribution of the countries that breach human rights. However, note that in this table, countries are ranked according their offending rates over a period of 20 years and per million residents. Small countries are, therefore, the worst offenders. One of the most disturbing results is that with Cyprus,

Table 20.1 Ten most frequent types of human rights abuses # Rank Type Frequency 1 Prisoner of conscience 391 2 Disappearances 78 3 Detention without charge or trial 71 4 Torture 38 5 Threats 35 6 Extrajudicial killings 23 7 Unfair trial 21 8 Human rights worker targeted 20 9 Ill treatment 17 10 Imposition of death penalty; political killings 12 Source: Selya (2012), Table 7, p. 1061, partially; ranks added by me, A.P. Data from Amnesty International

4 For the discussion of intercultural problems with the determination of human rights see Kettner (1999). 336 A. Prinz

Table 20.2 Worst human rights offending countriesa # Rankb Country 1 Equatorial Guinea 2 Brunei Guinea 3 St. Lucia 4 Bahrain 5 Kuwait 6 Bhutan 7 Cyprus 8 Laos aWorst human rights offending countries by rates per million residents over a 20 year period. bRank 1: worst. – Source: Selya (2012), Table 5, p. 1059, partially; ranks added by me, A.P

Table 20.3 Dimensions of development

Source: Rosling (2011), slightly modified. Level ofsignificance in ascending order: 0, +, ++, +++

even a quite rich European country is on the list. This means that not only less developed countries and non-democratic states offend human rights, but also rich and democratic countries. Nevertheless, there may be a connection between the level of economic development, the political system and the status of human rights. A closer look at this connection seems useful. According to Hans Rosling (2011), LDCs’ development processes are determined by human rights, environment, political governance, economic growth, education, health and culture. However, these determinants have different levels of significance as a means, in contrast to their relevance as goals (see Table 20.3). According to Rosling, the most important means for development is economic growth, since material well-being is a sine-qua-non condition for individual and societal well-being. Moreover, governance (of the state) as well as education are, for Rosling, also a very significantmeans of development, because in a badly governed 20 Enlightened International Corporate Social Responsibility, Corporate Social… 337 state, the infrastructure is poor as is education. Moreover, both items are ingredients for economic growth. Human rights, the environment and culture are as a means for development less fundamental, although not irrelevant. For Rosling, the picture looks quite different from the perspective of development goals. Economic growth is not considered an end in itself and, is therefore insignificant as a development objective. The most crucialgoals of development are human rights and culture. The runner-ups are health and the environment, whereas education and governance are not very important ends. However, economic growth is the consequence of certain conditions on which countries have an influence through their social, financial and economic policies. First of all, economic freedom, measured, for instance, by the Economic Freedom of the Word (EFW) index, has a decisive effect not only on economic growth, but also on other economic and non-economic indicators. Countries that are more free provide higher economic growth rates, more investment, higher investment productivity, less poverty, a more equal income distribution, longer life spans, a better quality of life for children, higher well-being, less corruption and more democracy (Gwartney and Lawson 2004; Chodak and Kowal 2011; for a causality analysis of economic freedom and economic growth, see Aixalá and Fabro 2009; Faria and Montesinos 2009). Moreover, there is empirical evidence to support the so-called Hayek-Friedman hypothesis, which states that levels of economic and political freedom are highly positively correlated with each other (Lawson and Clark 2010). A crucial general question is whether pro-market economic reforms may trigger human rights violations. An empirical analysis of 117 countries from 1981 to 2006 found that such reforms are positively related to governmental respect for human rights, controlling for a large number of confounding factors (De Soysa and Vadlammanati 2013). Hence freer markets not only increase economic growth, they also do not jeopardize to human rights, to say the least (see also Meyer 1996). In addition to these results, high levels of country indebtedness, as well as a high share of government consumption of GDP, are positively correlated to human rights abuse (Eriksen and De Soysa 2009). Nevertheless, neither structural adjustment programs nor debt owed to international financial institutions are drivers of human rights offenses. Moreover, the EFW index is positively correlated to higher levels of human rights (Eriksen and De Soysa 2009). The results of this section can be summarized as follows: (1) Economic growth requires the rule of law and low political risk, all of which are provided by democracy. (2) Economic growth is not an end in itself. Human rights and other cultural values are the most important goals. (3) The single most important task of MNEs is to contribute to economic growth in their host countries. Nonetheless, doing so may require MNE assistance to the host country in creating the conditions for economic growth, by improving human rights as well as the education and health of the labor force. 338 A. Prinz

20.3 MNE Responsibility and Liability for Human Rights: A Brief Literature Review

Much research on business ethics presupposes that MNEs gain economic as well as political power, because of the size they have acquired in a globalized economy (see, e.g., Hertz 2001; Lukas 2007; Johansen et al. 2007). However, one of the main reasons for this perception is the measurement of economic power by sales volume (Anderson and Cavanagh 2000). As pointed out by De Grauwe and Camerman (2002), this is inappropriate for a comparison of MNEs with nation-states, since GDP measures are value-added. For instance, the average share of value-added to sales of the top five MNEs in 2000 accounted for only 24.9 % (De Grauwe and Camerman 2002, p. 4). As a consequence, the world’s largest MNE in 2000, Wal- Mart Stores, produced a value-added of U.S.-$67.4 bn. In comparison with the GDP of countries, Wal-Mart Stores ranked 44th, behind countries like Turkey, Thailand, Iran, Egypt and the Philippines (De Grauwe and Camerman 2002, p. 6, Table 20.2). Even more surprising, the global GDP growth rate for 1980–2000 was higher than the sales growth rate of the top-50 MNEs in the Fortune 500 list. This implies that the relative size of MNEs, by sales to country GDP, declined actually rather than increased (De Grauwe and Camerman 2002, p. 8). However, it is certainly not to deny that large MNEs – even if they are smaller than usually assumed – have economic and at least some political power. The crucial question is, however, whether MNEs are responsible or legally liable for human rights violations in countries in which they operate. According to Muchlinski (2001, pp. 35 f; arguments re-arranged by me, A.P.), the following arguments may be used legitimately to reject responsibility (and liability) of MNEs for human rights: 1. As private actors, MNEs must obey the law; whereas the host nation-state is obliged to apply human rights in their countries. (Judicial arguments). 2. The enforcement of the totality of human rights can only be achieved by states, since only they are allowed to apply power and only they have the ability to do so. Moreover, MNEs are not allowed to interfere in internal political affairs of their host countries. In addition, the activity of Non-Governmental Organizations (NGOs) is selectively oriented to some, but not to all MNEs simultaneously. Furthermore, NGO’s are mainly interested in their own reputation and not exclusively in the welfare of the whole country. (Political arguments). 3. The only social responsibility that MNEs really have is that of making profits for their shareholders (Milton Friedman). In addition, MNE social responsibility for human rights may create a free-rider problem, with disadvantages for MNEs with high social concerns. (Economic arguments). The judicial arguments are not considered here in further detail (see, for instance, Joseph 1999; Ratner 2001; Weissbrodt and Kruger 2003; Weissbrodt 2005; Teubner 2006; Weschka 2006; Knox 2008; Voiculescu 2009; Černič 2009). However, it is important to note that the United Nations Human Rights Council endorsed 2011 the ‘Respect, Protect and Remedy’ framework, which was developed by John Ruggie 20 Enlightened International Corporate Social Responsibility, Corporate Social… 339

(2008) as a United Nations Special Representative on Business and Human Rights for implementation (Aaronson and Higham 2013; see also Backer 2011; Murphy and Vives 2013). Additionally, the OECD Declaration on International Investment and Multinational Enterprises, implemented through its Guidelines for Multinational Enterprises, also contains human rights-related recommendations (Černič 2008; see also OECD 2002, 2006, 2011). However, up to now, no clear-cut legal basis for judicial responsibility and liability of MNEs for human rights violations seems to prevail. To a large extent, the judicial discussion lags behind the practice of MNEs, as well as behind the economics discourse. By far the majority of MNEs enact codes of conduct that obviously concern human rights. In addition, consumers, NGOs and many of other stakeholders maintain a very critical eye on the conduct of MNEs in all countries (Johansen et al. 2007). What then is the real problem discussed in business ethics? By now, it seems generally accepted that there is only a negative formulation of the duties of companies with respect to human rights: do no harm (Macdonald 2011, and the literature quoted therein). This means that MNEs are responsible for direct abuses of human rights (discrimination, dangerous work conditions etc.). However, the ‘spheres of responsibility’ (Macdonald) have been extended very con- siderably. In declaring a ‘governance gap’ (Macdonald 2011) or an ‘accountability gap’ (Lukas 2007), it is assumed that MNEs are also responsible for their subcontractors and business partners in host countries, deep in the vertical structure of their supply chain, because of a lack of respective regulations by host countries’ governments (Macdonald 2011, p. 552). Moreover, complicity with host states (Clapham and Jerby 2001; Kinley et al. 2007) may also result in (direct or indirect) violations of human rights (Wettstein 2010). Therefore, a ‘duty to protect’ human rights actively in host countries is now demanded (Wettstein 2010). The background to this claim is that MNEs have not only economic power, but also a degree of political authority: “Political authority breeds political responsibility” (Wettstein 2010, Abstract, p. 33). At his point, it becomes admirably clear that the responsibility of MNEs definitely surpasses the economic sphere and becomes political. As a result, MNEs may risk becoming silent accomplices (Wettstein) of states that do not fully enforce human rights. Interestingly, the democratic legitimization of MNEs in this process does not seem worth questioning. The actual political power of MNEs is rather presumed or taken for granted than empirically determined (for a review of the literature on Corporate Political Activity, see Lawton et al. 2013). Between the widely accepted ‘doing no harm’ norm and the ‘duty to protect’ demand, Macdonald (2011) constructs an in-between approach in which companies are also responsible for ‘indirect harm’ with respect to human rights. In her approach, ‘institutionally mediated harm’ (p. 556) plays a key role, meaning that social actors harm human rights via uncoordinated actions, although probably inadvertently. To cope with this problem, Macdonald defines ‘spheres of responsibility’, consisting of ‘distributed negative duties’ and ‘derivative positive duties’ (p. 557). ‘Distributive negative duties’ extend MNE responsibility to do no harm to its supply chain. 340 A. Prinz

Far more comprehensive are the derived positive duties. Firstly, they contain fundamental ‘duties of due diligence’ – the company must determine its own potential impact on “… wider social processes resulting in human rights harm, and take reasonable measures to avoid such sources of harm” (p. 558). Secondly, there are ‘duties of coordination’, such as with local NGOs (pp. 558 f.). Thirdly, there are ‘duties to support institutional change’; however, the exact nature and limits of these duties remain difficult to specify (p. 559). Wettstein (2010) and Macdonald (2011) demonstrate how far the demands of business ethics are extended. None of the political and economic arguments presented in Muchlinski (2001) against such far-reaching claims are considered seriously by Wettstein and Macdonald. At least at first glance, their concepts violate the political autonomy of states and seem to deny any state responsibility for the enforcement of human rights via regulations that restrict the activities of all companies, large and small, within a country. Moreover, the presence of NGOs within a country may be ethically, as well as politically, justified because of a lack of democracy. However, it is unclear how MNEs might be legitimized to conduct economic and social policies for an entire country. The economic side of all kinds of MNE responsibility for human rights is analyzed in the following section.

20.4 Human Rights, Nation-States and Enterprise Policy

20.4.1 Policy Regimes

Stopford and Strange (1991), pp. 19 ff., describe ‘triads of relationships’ for governments and companies: In ‘government – government’ relationships, competition for power and influence dominates; ‘company – company’ relationships involve competition for market shares and finally, ‘government – company’ relationships are concerned with competition over wealth and income creation. The latter relationship means that governments of different countries compete for enterprises that create income and wealth (measured as value-added in national GDPs). In order to design clear policy spheres of nations and enterprises, Table 20.4 provides five different combinations of national and enterprise policies, called ‘regimes’. For national policies, a distinction is made between two states of affairs: either a country’s government is able and willing to regulate business activity or it is unable and/or unwilling to do so. Enterprise policies encompass profitability goals in the first place, but they may also aim at ‘doing no harm’, i.e., ‘No Corporate Social Irresponsibility’ (NCSI), as well as ‘doing good’ beyond national borders, i.e., ‘International Corporate Social Responsibility’ (ICSR). In a capitalist or shareholder regime, national policy is generally willing and able to regulate the economic sphere of companies, so as to protect the human rights 20 Enlightened International Corporate Social Responsibility, Corporate Social… 341

Table 20.4 Regimes of national policy and enterprise policy National policy Regimes Able & willing to Capitalist- (shareholder-) regime “Doing regulate best”- regime Unable or unwilling to Complicity-(exploitation-) “Avoiding “Doing regulate regime bad”- regime good”-regime Profitability NCSI ICSR Enterprise policy Source: Own depiction of the population (Table 20.4). Hence, corporate social irresponsibility (CSI)5 in the form of human rights violations is legally excluded. If it occurred nevertheless, the judicial system of the country would start legal proceedings against the responsible company.6 However, in competing for wealth and income, nation-states may employ methods that are detrimental to their own constituency. For instance, to attract companies, a country may avoid enacting regulations that protect the life and well-being of their population and the environment, thus abusing the human rights of their citizens. I.e., a country might be unwilling or unable to regulate the economy in such a way that the human rights of its population are not violated. Companies that accept such conditions obviously behave socially irresponsible and are accomplices to the host country’s human rights abuses. But why would governments behave in this way and why would companies accept such offers? Not all companies, as well as not all governments, are concerned with the well-being of the people they claim to work for or to represent. A combination of unwillingness or inability to regulate on the side of national policy, with a pure interest in (short-term) profitability on the part of companies, is referred to as a complicity or exploitation regime in Table 20.4. Companies may not accept becoming accomplices of the host state by actually violating human rights; they may themselves adopt no corporate social irresponsibility (NCSI) guidelines (Lin-Hi and Müller 2013) in order to respect human rights; this is called the avoiding bad (Lin-Hi and Müller 2013) regime in Table 20.4. On the pro-active side, companies may do even more than the minimum for the welfare of their host countries. In nation-states that already regulate their economy to protect the well-being and human rights of their population, international corporate social responsibility (ICSR; Muchlinski 2001) measures may, for instance,

5 “A socially irresponsible act is a decision to accept an alternative that is thought by the decision maker to be inferior to another alternative when the effects upon all parties are considered. Generally this involves a gain by one party at the expense of the total system” (Armstrong 1977, p. 185; emphasis in the original text). 6 In this paper, CSI, in relation to human rights, is considered as a violation of minimum standards of human rights on the so-called ‘triple bottom line’ (Elkington 1998) of economic, social and environmental areas; see Dahlsrud (2008), p. 9, according to van Marrewijk (2001) and the Commission of the European Communities (2002). Note, however, that the minimum standards do not remain constant over time, but may change with economic development. 342 A. Prinz be applied to enhance the social and environmental welfare of the host country. This is dubbed the doing best regime in Table 20.4. In host countries that are unwilling or unable to regulate the economy to protect their population, enterprises may still also do (much) more than avoiding doing bad, i.e., they may engage in policies that provide economic, social or environmental benefits for the society of the host country that are over and above of the minimum standard defined by NCSI policy. This is termed thedoing good (Lin-Hi and Müller 2013) regime in Table 20.4.

20.4.2 Human Rights as Public Goods: The Societal Level

According to economic theory, regulations applied by states to protect their population are so-called public goods. By definition, nobody can be excluded from using public goods and there is no rivalry in consumption for these goods (see, for instance, Hindriks and Myles 2006, pp. 102 f.; for an overview on enhanced concepts of public goods, e.g., global and impure public goods, see Andersen and Lindsnæs 2007, and the various contributions in Kaul et al. 1999). Human rights are also public goods (Johansen et al. 2007); nobody can be legally excluded and the ‘volume’ of human rights does not decline if more and more people are protected by them. The flipside of public goods, as well as of private goods, is that there is no ‘free lunch’, i.e., someone has to pay for them. This is the reason why even human rights are not ‘free goods’, that is, goods that nobody has to pay for. The costs of human rights include reductions in income and wealth. However, this does not seem right for very low levels of human rights, namely, a guarantee of an absolute minimum of physical security, food, health and shelter provides the indispensable conditions for creating income and wealth. For such low levels of human rights and income, an increase of both human rights and wealth goes hand in hand, i.e., one is the requirement for the other and vice versa. Hence, there are different levels of human rights provision. At the bottom line, human rights entail the abandonment of slavery and forced labor, the prohibition of child labor and several minimum conditions for work safety, health, education and wages. In contrast, there is certainly no upper limit to human rights. As indicated by Rosling (2011) and depicted in Table 20.3 above, human rights are among the most important goals of any development process. However, if human rights are public goods, who is in charge of providing them, hopefully optimally? In the early phase of the public goods concept, governments were considered the only institutions that could provide them, for a very simple reason (Hindriks and Myles 2006). That is, the private provision of goods from which nobody can be excluded from use, simply cannot work, because nobody would voluntarily pay the respective price. The result would be a massive free-rider problem, resulting from a prisoners’ dilemma. For each person, the best strategy is not to contribute because this is also optimal for all other persons. Fortunately, how- 20 Enlightened International Corporate Social Responsibility, Corporate Social… 343 ever, not all public goods are purely public; there are also impure public goods, for which either the exclusion principle or the no-rivalry condition does not hold (Andersen and Lindsnæs 2007). In economics, at later stages of concept development, it was recognized that public goods may also be provided privately, at least to a certain extent (see Besley and Ghatak 2007, with direct reference to CSR). Moreover, there are best-shot and weakest-link public goods (Hirshleifer 1983; see also Barrett 2007). Best-shot public goods can be provided by one or a few (private or public) providers that have a very strong self-interested preference for the goods at stake. By contrast, weakest-link public goods require the contribution of all potential providers to guarantee that the goods are supplied in sufficient quantity. The provision of minimum human rights can be considered a weakest-link public good, at the local (i.e., in a country) as well as the global level. The reason is as follows. Suppose that in a country, this minimum level of human rights is not prescribed, i.e., it is not guaranteed by the laws of the state. MNEs investing in such a country face a human rights problem, as they cannot be sure that their local supply chain companies will respect these human rights. Since those companies are usually small or medium-size enterprises (SMEs), they have to compete within the country with other local suppliers that also do not respect human rights, e.g., by employing child labor. This creates an insurmountable free-rider problem for both the local SMEs, as well as for MNEs. Even if MNEs enforce human rights with their suppliers, other SMEs will not follow suit. As a consequence, minimum human rights cannot be locally guaranteed by MNEs; moreover, the condition outside the MNE supply chain might even deteriorate. At the global level, the situation is quite similar; if there are countries that do not protect human rights, they will compete for MNEs on an uneven playing field, i.e., they may attract MNE accomplices that support the ruling class of the respective countries in exploiting their population. This means that there is a global free-rider problem. In contrast to corporate socially irresponsibility (CSI), as abusing minimum standards of human rights in complicity with host states, international corporate social responsibility (ICSR) over and above the minimum standard of human rights cannot be considered as a weakest-link public good. The reason is that for different countries, as well as for different firms within a country, the levels of supplied humanrights-related social benefits can differ without creating complicity or a free-rider problem. As stated above, there is no upper limit to the level of human rights and social benefits. Hence, firms as well as countries, compete with each other in providing benefit packages of different sizes and with different contents. However, in successfully offering a certain package of ICSR – i.e., ICSR that is paid for by consumers, because they want firms to provide it – other countries and firms may have an incentive to imitate the successful policy of countries and firms (Becchetti 2012). Therefore, this kind of public good is best-shot. Such public goods can be provided privately and/or voluntarily, e.g. by MNEs. The theory of the private provision of public goods states that the private provision of social goods will generally be second-best. The first-best solution, however, in most cases, entails the provision of these goods by the government (Besley and Ghatak 2007). Nevertheless, in coun- 344 A. Prinz

Table 20.5 National policy and enterprise policy: Public goods, complements and substitutes National policy Able & willing to Best-shot public good regulate Complements (for good) Unable or unwilling to Weakest-link public Weakest-link Best-shot public good regulate good public good Complements Substitutes Substitutes (voluntary) (for bad) (forced) Profitability NCSI ICSR Enterprise policy Source: Own depiction tries in which governments are unwilling or unable to regulate, national policy and enterprise policy can be considered as voluntary (partial) substitutes for each other, concerning the provision of best-shot public goods (see Table 20.5). In countries that already regulate sufficiently, ICSR as an enterprise policy is a complement for good. This situation is different for weakest-link public goods. As stated above, such public goods require that all countries (poor and rich), as well as all enterprises (small and large), maintain and protect the minimum standard of these goods, so as to eliminate free-rider behavior by countries and enterprises. If governments are unwilling or unable to regulate, MNE policy is considered a forced substitute for national regulatory policy. Since NCSI policy is a weakest-link public good, all nation-states as well as all enterprises, have to be forced to respect these human rights (see Table 20.5). Additionally, CSI of MNEs, in complicity with unwilling and unable national states, is a complement for bad. To demonstrate the difference between NCSI and ICSR policies more clearly, tools of diagrammatical economic analysis are applied in Figs 20.1 and 20.2 below. Figure 20.1 presents the so-called ‘human rights – income transformation frontier’. This specifies how income can be used to ‘produce’ human rights; it incorporates the opportunity costs of human rights in terms of income (measured as GDP per capita). Additionally, the bottom line for the minimum standard of human rights is depicted, as well as the absolute poverty line for income. MNEs may create a growth effect which renders feasible higher levels of human rights as well as income. In Fig. 20.1, the transformation frontier shifts outwards. CSI, interpreted here as “doing bad (for society) by doing well (as an enterprise)”, implies a higher income, but with a human rights level below the bottom line (see also Windsor 2013, Proposition 3, p. 1939). In Fig. 20.1, the newly realized solution is called the ‘complicity point’. In contrast, Fig. 20.2 shows the ICSR case with the same tool as in Fig. 20.1; ICSR is interpreted as “doing good (for society) by doing well (as an enterprise; see also Windsor 2013, Propositions 4 and 5, p. 1939). The bold arrows in Fig. 20.2 and the curved line connecting the arrowheads determine the feasible allocations of the growth benefit between levels of human rights and income. Hence, MNE-induced 20 Enlightened International Corporate Social Responsibility, Corporate Social… 345

Fig. 20.1 CSI: “Doing bad by doing well” (Source: Own depiction)

Fig. 20.2 ICSR: “Doing good by doing well” (Source: Own depiction) growth means that the feasibility levels of both income and human rights have increased. The combination of levels that will ultimately be chosen depends to a large extent on the preferences of MNEs and their respective host country. In contrast to the CSI situation in Fig. 20.1, in Fig. 20.2, no further prescription of a solution seems possible without violating the preferences of the parties involved. To be more specific, the preferences of MNEs, as well as of countries, include economic and ethical responsibilities which may or may not conflict with each other. Given that countries and MNEs obey international and national laws – as 346 A. Prinz assumed in the case of ICSR – the conflict is between profitability at the base of Carroll’s (1991) CSR pyramid and its third, ethical level. To shed more light on this actual or potential conflict, a closer look to the enterprise decision problem is required.

20.4.3 Human Rights, CSI and ICSR: The Enterprise Level

All enterprises depend on demand from their customers. In a final analysis, it is not shareholders and stakeholders that have the largest impact on firm policies, but customers. The crucial question for enterprise ‘preferences’, or better: goals, is: What makes goods ‘good’? In earlier times, the answer was simple: a product’s price, quality and design were decisive. Recently, in rich countries, a kind of revolution has occurred as consumption ‘turned moral’ (Priddat 1998, 2000). This implies that for goods to be ‘good’, they require, in addition to the right price, quality and design, to be socially as well as environmentally acceptable. Hence, CSI, if detected, causes serious problems for enterprises, with negative profitability consequence, due to reputation loss. In this way, ethical behavior that was located formerly at the third level of Carroll’s CSR pyramid migrated to the first, i.e., the economic level (the ‘business case’ for CSR is extensively surveyed in Carroll and Shabana 2010). Following Stehr (2007), this may be dubbed the moralization of markets. This has a very important economic implication; the moral attitude of enterprises is accorded a price that consumers must be prepared to pay. In this way, a former externality becomes internalized by private firms without government intervention. If this occurs, ‘doing well’ in business requires at least abstaining from ‘behaving badly’ in society, i.e., avoiding CSI as a bottom line (Lin-Hi and Müller 2013). Consumer willingness to punish enterprises for CSI is the strongest consumer reaction concerning CSR (Minor and Morgan 2011; Grappi et al. 2013; Lin-Hi and Müller 2013; Sweetin et al. 2013). Moreover, Kotchen and Moon (2012) provide empirical evidence of a behavioral reaction of enterprises to corporate social irresponsibility, by compensating CSI through acts of CSR. In addition, violations of human rights are compensated by CSR in the same manner, in contrast to corporate governance irresponsibility that is not corrected, but compensated for by a different set of CSR measures (Kotchen and Moon 2012). Figure 20.3 shows the CSI consequences for enterprises in a so-called Peltzman (1976, p. 224) diagram. If undetected, CSI may increase profits; given the opportunity, this potential surplus profit provides the incentive for CSI for enterprises with no desire to behave morally. The risk is that CSI is detected and punished in one way or another, e.g., by reputation loss or legal prosecution. Detected CSI reduces profits below the level attainable through socially responsible behavior. The higher the public scrutiny, the more likely detection of CSI will become and the lower the incentive to be irresponsible. Since detected CSI has reputational costs for companies, this seems to be different for CSR. Although consumers want information on the CSR measures of firms, 20 Enlightened International Corporate Social Responsibility, Corporate Social… 347

Fig. 20.3 Profit and potential profit loss due to CSI (Source: Own depiction based on Peltzman (1976), Figure II, p. 224)

Table 20.6 Company costs and benefits of CSI and ICSR Corporate social irresponsibility International corporate social responsibility Company costs Company benefits Company costs Company benefits Risk of legal Lower Higher manufacturing Better qualified labor prosecution manufacturing costs costs force Risk of fines & Higher short-term Lower short-term profits Higher productivity punishment profits due to less sickness Risk of reputation Larger market share Creating positive Higher long-term loss externalities for profits competitors Source: Own depiction

these activities do not nevertheless play a role in consumers’ purchasing decisions (Öberseder et al. 2011). As pointed out by Lin-Hi and Müller (2013), there is a perception gap between CSI and CSR, based on the psychological fact that “bad is stronger than good” (Baumeister et al. 2001). Therefore, CSI implies a reputation loss in combination with monetary punishment by consumers, whereas (I)CSR does not (yet) payoff, neither in terms of reputation nor monetarily. Table 20.6 presents a summary of the (potential) costs and benefits of CSI and ICSR. The benefits of CSI are lower manufacturing or lower input costs and, hence, higher short-term profits, as well as larger market shares. The CSI costs for the company become reality if CSI is detected. The risks, therefore, are legal prosecution, fines and other punishments, as well as reputation loss. In contrast, ICSR involves the following costs for companies: higher manufacturing or input costs (and hence lower short-term profits), as well as positive externalities for competitors, i.e., the latter will benefit from ICSR without itself incurring costs. The benefit side include a 348 A. Prinz better qualified (and motivated) work force, higher productivity due to less sickness and, hence, higher long-term profits. To a certain extent, ICSR costs are investments. If the benefit side of ICSR is identified correctly, ICSR may payoff even if customers are not prepared to pay more for the goods of companies with ICSR.

20.5 Policy Instruments to Elicit “Avoiding Bad” and “Doing Good” Enterprise Policies

20.5.1 NCSI Policies

From a public goods perspective, however, the question is whether governments or rather MNEs should provide these goods, i.e., which institution has a relative advantage in providing them (Besley and Ghatak 2007). To start with, it is worth noting again that NCSI measures are classified in this paper as weakest-link public goods, whereas ICSR policies are determined as best-shot public goods. Weakest-link public goods – as the minimum standard of human rights (MS- HR) – require that all countries and all enterprises, independent of their size and wealth, provide them. Since countries as nation-states are autonomous, nation-states are responsible for regulating their economies in such a way that MS-HR are legally guaranteed and also enforced (Albin-Lackey 2013, p. 29). If nation-states are unwilling or unable to regulate their economies appropriately, the question is whether MNEs and their local supply chains are obliged to respect MS-HR. In order not to become accomplices of such rogue states, MNEs and their local supply chains are at least morally obliged to respect MS-HR. However, the remaining question is whether reputation losses, corporate watching institutions and codes of conduct (so-called soft laws, Joseph 1999; Buntenbroich 2007, p. 23) are sufficient to ensure that MNEs respect their MS-HR obligations (see also Bretschger 2010; Koeltz 2010, on soft or informal methods for MNEs to protect human rights). It seems this may not always be the case. Therefore, in order to clearly specify the MS-HR duties of MNEs and their supply chain, national laws in the MNE home country, as well as international laws, seem necessary to enforce MS-HR adequately. However, the limit is that MNEs can neither be held responsible for all enterprises in rogue nation-states nor for the governmental policies of these states. In addition, it is clear that international organizations (UN, EU, OECD, IMF, World Bank etc.) also should be held accountable for human rights abuses (see the contributions in Wouters et al. 2010, particularly Part IV. Economic Governance, pp. 401 ff.). 20 Enlightened International Corporate Social Responsibility, Corporate Social… 349

Table 20.7 ICSR, company profitability and social welfare ICSR and company Social welfare profitability Increase Decrease Increase “Good Management” “Pernicious CSR” Decrease “Borrowed Virtue” “Delusional CSR” Source: The Economist (2005b); literal quotations in quotation marks

20.5.2 ICSR Policies

Legal obligations to enforce human rights pro-actively in the form of ICSR over and above MS-HR are evidently inadequate and possibly even counterproductive (Table 20.7; see also Armstrong and Green 2013): Firstly, such obligations may violate the autonomy of nation-states; secondly, they may reduce economic progress in the respective countries by allocating scarce resources inefficiently and thirdly, the administrative burden would be tremendous. Table 20.7 summarizes the feasible combinations of ICSR effects at the company level (i.e., whether profitability increases or decreases) and on the social welfare of the host country. The best case is obviously an increase in company profitability accompanied by an increase in social welfare due to ICSR; this is a “win-win” (“good management”) situation. In contrast, the worst case, a “lose-lose” situation, occurs if ICSR reduces both profitability and welfare (“delusional CSR”). There are also two feasible situations with one loser and one winner; either the company can increase its profitability at the cost of social welfare (“pernicious CSR”) or welfare increases at the cost of company profitability (“borrowed virtue”). Due to the concept of MS-HR, the “lose-lose” outcome is excluded. The most interesting combination is the “win- win” situation. In this case, companies compete with the provision of ICSR measures up to the point where the marginal benefits equal the marginal costs. ICSR policies are then best-shot public goods. The most problematic cases are potential ICSR outcomes with one loser and one winner. First consider the case of ICSR increasing profits, but decreasing social welfare. One reason for such an outcome could be that it is not at all clear which economic, social and environmental human rights are considered to have the highest priority in the various host countries. The preferences within and between countries may differ substantially. Moreover, the preferences of consumers in rich countries may also differ and they may change over time. Consequently, MS-HR must be defined internationally and enforced accordingly. Nonetheless, ICSR policies over and above the minimum standards should be left to nation-states and MNEs. ICSR policies may be employed by companies to restrict or even eliminate competition from other companies (The Economist 2005a). Spending part of monopoly profits on ICSR policies, for instance, may block anti-cartel policies, because incumbent MNEs can credibly threaten with the loss of ICSR benefits. As can be verified, for example, by protests of unions in rich countries against competition from firms of less developed countries, the interests of stakeholders are seldom without conflict. Claiming violations of unspecified human ‘rights’ (e.g. as ‘wage 350 A. Prinz dumping’, ‘social dumping’, ‘environmental dumping’) may clash with the development goals of less developed countries. It would be rather dangerous to specify far-reaching human ‘rights’ so as to enforce the interests of some stakeholders abroad, against the interests of people and firms within the country. International and even national laws are not well suited to ‘resolving’ such conflicts of interest. Now consider the second case of one winner and one loser; this time, the winner of ICSR is social welfare and the loser company profitability. Why should a company choose such ICSR measures in the first place, if it is not forced to do so? Obviously, companies will not implement such a policy voluntarily. Since it can hardly be denied that profitability is still the main economic responsibility of companies, such policies are also ethically unjustifiable. ICSR of this kind may even be considered as a form of CSI. However, the question is whether there is a risk that economic competition among companies may trigger a human rights ‘race to the bottom’. To attract MNEs, states may compete with each other by providing lenient regulations concerning economic, environmental and social human rights (see, for instance, Rowland and Marz 1982; Chan and Ross 2003; Singh and Zammit 2004; Woods 2006; Najam et al. 2007). It seems undeniable that enterprises invest where there are cost advantages concerning wages, as well as regulations. However, it is obviously the duty of nation-states to find their own welfare balance between alevel of human rights above MS-HR and satisfactory economic growth. As indicated by Rosling above, economic growth is a means of realizing higher levels of all kinds of human rights. Hence, competing with wages and regulation cannot be regarded as a ‘race to the bottom’ without some differentiation. Over time, higher levels of all aspects of human rights should emerge as per capita incomes increase. At least with respect to environmental quality, there is no empirical evidence yet for a ‘race to the bottom’ (Frankel 2003; Stern 2004). Moreover, democracy also seems to support better environmental quality (Farzin and Bond 2006), whereas corruption has a negative impact (Damania et al. 2003). While domestic firms react to environmental regulations by curbing their investments, foreign firms’ decisions are not affected in this way (List et al. 2004). In contrast, however, there are indications that with respect to working conditions, deterioration over time among less developed countries actually occurred (Davies and Vadlamannati 2013). However, this ‘race’ cannot be mitigated by company policy, but only by coordinated nation-state policies, because of free-rider issues between countries (see also Singh and Zammit 2004; Davies and Vadlamannati 2013). The better performance of environmental policy, in comparison to labor policy, might be the result of a more effective international coordination between nation-states. Moreover, with respect to working conditions and labor laws, it seems that the main problem is not labor laws, but their enforcement at the level of nation- states (Singh and Zammit 2004; Davies and Vadlamannati 2013). 20 Enlightened International Corporate Social Responsibility, Corporate Social… 351

20.6 Conclusion

This paper analyzes the extent to which MNEs can be obliged to respect and pro- actively assist in ensuring human rights. First of all, however, it was argued that there are different levels of human rights, from minimum standards to very high levels. Following Rosling (2011), economic growth is considered the single most important means of development, whereas human rights and culture are the most crucial objectives. From an economic point of view, there is a trade-off between the level of human rights and economic growth, over and above the minimum standard of human rights. Additionally, empirical evidence demonstrates a positive relationship between economic freedom, trade liberalization and economic growth. For an enlightened discussion of CSR at the transnational level, referred to as ICSR, a differentiation between CSI and ICSR is important. CSI defines the actions of MNEs and their host country supply chain that are ethically unacceptable. In contrast, ICSR are add-on social benefits that MNEs may provide for their host countries. The most pernicious CSI consists of complicity with a rogue government in the host country. Such a policy regime is referred to as ‘exploitation’. Government and MNE policies are complements for bad. With the opposite policy combination, the ‘doing best’ regime, these policies are also complements to each other, but for good. Of particular concern is a situation in which nation-states are unwilling or unable to regulate business activity effectively. Under such circumstances, national and enterprise policies are substitutes. In addition to this classification, the theory of public goods enables a further differentiation. No-CSI policies are so-called weakest-link public goods, since they require each single country, as well as each company, to adopt such policies, whereas ICSR policies are best-shot public goods. Consequently, no-CSI policies should be prescribed by national as well as international laws, and they should be enforced separately accordingly. ICSR policies, however, are voluntary and they may differ from country to country and from firm to firm. The reason is that best-shot ICSR policies are tools of competition among firms – as long as they are not employed to reduce competition through barriers to entry for newcomers. Nevertheless, it is noteworthy that the main economic rationale for the existence of enterprises is to make profits by providing goods and services. However, a valid restriction to their activity is that they are not allowed to reduce social welfare with their actions. This has to be ensured by the respective regulations at both national and international levels. Given these regulations, the distribution of profits is and will remain controversial, within and between countries, as well as for all stakeholder groups whatsoever.

Acknowledgements I’d like to thank Brian Bloch very much for extensive text editing. 352 A. Prinz

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Giuseppe Franco

Abstract This chapter presents the classical objections towards the idea of natural rights and continues by discussing an approach that undermines the persistent meaning of the idea of human rights. It will seek to demonstrate the long-lasting meaning of the concept of human dignity according to a important historical stages in debates about human rights and human dignity, i.e. debates of the late Spanish scholasticism.

21.1 Classical Objections to Natural Rights

Classical objections to natural rights, or better a certain version of its argumentation, the foundation of human rights and their universal validity as well as the definition of human dignity, can be categorized into three variations.1 (a) The first objection refers to the naturalistic fallacy, i.e. the Is-Ought Problem which challenges the deduction of prescriptive statements and the deduction from descriptive facts. (b) The second implies an accusation of petitio principii, i.e. of a circular justification of natural rights, which could be referred to as tautologic. In this logic, human nature is believed to be the origin of normative consequences and legal prerequisites, which, however, have already been accounted for as anthropological assumption and purpose of human nature. This conception reappears in the approaches of teleological natural rights concepts of Christian theology, which require the identification of nature and purpose, thus leading towards circular reasoning. These approaches suggest a way to clearly acknowledge human nature without considering the fact that “human nature” is a vast and

1 Statement being supported by explanation by: Schockenhoff 1996, especially pp. 181–197; Schockenhoff 2008; Koenig 2005. All quotations are my translation. G. Franco (*) Ingolstadt School of Management, Catholic University of Germany, Eichstätt, Germany e-mail: [email protected]

© Springer International Publishing AG 2017 357 J.D. Rendtorff (ed.), Perspectives on Philosophy of Management and Business Ethics, Ethical Economy. Studies in Economic Ethics and Philosophy 51, DOI 10.1007/978-3-319-46973-7_21 358 G. Franco

modifiable expression.2 These first two main objections towards natural rights can be depicted as a so-called Münchhausen-trilemma, introduced by critical rationalist Hans Albert. In this trilemma, the situation of reasoning attempts of a statement is being pictured in the classical sense of the word –despite of its ethical, scientific-theoretical, metaphysical or political nature- in order to prove the true content of this statement. Therefore, there is a choice between alternatives: infinite regress, a logical circle and cancellation of the process by a statement which is thus being declared as a dogma –as absolutely true- and immunized against criticism.3 (c) The third objection is targeted at a conception and an understanding of natural rights, which is based on an assumption of an unchangeable human disposition. After close inspection of these objections, the different conceptions of natural rights and the various value judgements of the natural order of political-social existence that have developed over time, can claim, quoting Schockenhoff by saying that the natural rights approach was a hallow shell which could be filled with ever-changing content and, in cases of utter perplexity about the meaning of justice and the best way to act, disappointed us (Schockenhoff 2008, 239).4

21.2 The Importance of the Idea of Natural Rights Today

In light of the classical objections towards the idea of natural rights human rights and human dignity cannot be substantiated in a concluding manner. However, these expressions become tangible by presenting concrete proof of violations of human dignity. In this sense, one could interprete the excerpt from the preamble of the Universal Declaration of Human Rights from 1948 as follows: “All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood”. (Article 1).

2 See Schockenhoff 2008. 3 See Albert 1985, 18–19: “If one demands a justification for everything, one must also demand a justification for the knowledge to which one has referred back the views initially requiring foundation. This leads to a situation with three alternatives, all of which appear unacceptable: in other words, to a Trilemma which […] I should call the Münchhausen Trilemma. For, obviously, one must choose here between (1) an infinite regress, which seems to arise from the necessary to go further back in search for foundations, and which, since it is in practice impossible, affords no secure basis; (2) a logical circle in the deduction, which arises because, in the process of justification, statements are used which arises because, in the process of justification, statements are used which were characterized before as in need of foundation, so that they can provide no secure basis; and finally, (3) the breaking-off of the process at a particular point, which, admittedly, can always be done in principle, but involves an arbitrary suspension of the principle of sufficient justification”. 4 Naturally, there are other objections, such as descriptive relativism in today’s pluralistic society or metaethical and normative relativism, which is supported mainly by the existence of different cultures and moral conceptions so that there can possibly be universal validity. See Koenig 2005, 120–133. 21 Power and Weaknesses of the Idea of Natural Rights 359

It is the violation of acknowledged human rights that motivated this declaration. This recognition should serve as a foundation for a democratic society. But what constitutes the lasting significance of natural rights and human dignity? The expression “human rights” may be conceived as rather ambiguous: on one hand, in a more literal sense, as an “ability to act freely and as a self-dependent lifestyle” (Schockenhoff 2008, 240–241). On the other hand, in a broader sense it can be conceived as an anthropological understanding which can be associated with a humane design of individual and social life. These aspects describe minimal normative content of natural rights and human dignity. In the midst of today’s scientific discussions are not the grounds on which norms of human rights are formed but the content of such norms and human dignity, i.e. the demand for freedom, private property, equality and tolerance. It is not about justifying these demands in a classical sense. One can, however, argue that satisfaction of such demands is of all humans’ interest (Zimmer and Morgestern 2011, 64). The intersubjective importance of demands for human rights and human dignity can be considered “demand for general recognition”. This general recognition can refer to social orders in which the enforcement of such demands or moral convictions has resulted in an improvement of life and people’s satisfaction (Albert 2013, 52). Similar to this, Schockenhoff claims: “Only if there is a strong, normative bottom line among all the moral, legal and political demands that are being made in the name of natural rights, can there be a bridge from basic ideas of natural rights in European Ethics of Plato and Aristoteles, Thomas Aquinas and Kant to a secular human rights ethos and an autonomous, rational morality of the present” (Schockenhoff 2008, 240). It can be assumed there are normative consequences from the ideal of human rights and human dignity. The challenge is to find suitable criteria and “measures to substantiate the content of human rights” (Koenig 2005, 240). Therefore, speaking of an “indispensable human surplus of natural rights”, which is unaffected by the previously mentioned objections, is legitimate: “At the same time, the strength of natural rights, which gives its demands universal validity is its inner boundary. Only materially modest natural rights that is restricted to an irremissible minimum of personhood leaves sufficient space for individual life experiences and cultural differences” (Schockenhoff 2008, 241). After a careful inspection of the historically developed reflection of human rights it is clear that not only human dignity and human rights have a foundation in natural rights but so does the ban on slavery. From a historical perspective, it can be referred to the conceptions of the Spanish late scholastics –especially of the so-called School of Salamanca- who already formulated the above-mentioned solution approach.5 One of the great achievements of these Spanish theologians is the foundation and pioneering of modern science of law of nations.6 They campaigned for the

5 On the impact of scholastic teaching on the development of basic human rights see Höffner 1947, 1969. 6 There is an analytically proven dependence of Grotius of the late Spanish scholastics. Spanish scholastics were the “most important source” for Grotius and he “derived many of his ideas from them”: Höffner 1969, 411. Also: Höffner 1969, 309–327. 360 G. Franco

importance of human dignity and human rights, long before the existence of democratic nations. They also formed a stimulated, international ethics which revolves around the protection of human rights and human dignity. These principles were not a result of purely intellectual and speculative reflection but a result of the late scholastics’ facing gruesome events of their time: the colo- nialism and the repression of Indians. Using rational arguments that referred to the power and content of natural rights and Christian revelation, these Spanish colonial ethicists dismissed some of the “intolerant” and “inhumane” theories which justified colonial rule, e.g. the theory claiming that some people were born to be slaves. The findings of these Spanish theologians of the golden age, who emphasize equality of all mankind, can be used as an important source of ideas to accomplish our task to design the society of a globalized world, according to the demand for “human solidarity of love” (Höffner 1961, 137). This late scholastic tradition of natural rights is a method for the development of law. The Spanish theologians created a method, which is still relevant today and, at the same time, is not affected by the classical objections to the ideas of natural rights. They introduced a method, which incorporates the plurality of orders, which demand dignity and basic human rights, rational argumentation, which formulate the significance of ius gentium and consider the link between religion and human reality.

21.3 Conclusion

Ultimately, it can be asserted that the demands on the content of natural rights and human dignity on one hand, and their enforcement in regard to the economic order can be put into relation. In fact, there is an analogy between the goal of realizing the demands of natural rights and the economic goal to achieve a constant and secured material foundation which enables individuals and social groups a humane evolve- ment (Höffner 1985, 356). Human dignity shall be understood as a demand for the satisfaction of human needs and, at the same time, as a respective social order which shall make this satisfaction possible. These normative consequences take place on a level of individual virtue ethics, statutory duties and political-institutional framework, which shall ensure the security of peace, freedom and the possibility of human, personal development.

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