I recently overheard on the radio someone claim, discussing business ethics : “But of course, acting morally will cost you.” It gave me a pause, despite that being a common view. Why is it a common view? What is the thinking behind it and behind the opposite argument that it pays to be moral?
Whether you believe that acting morally costs or pays depends on your view of morality. If you subscribe to the prevailing altruist view of morality as sacrificing your interests for the sake of others, then acting morally means a loss of values. (To find out why altruism is the prevailing view, read Peter Schwartz’s excellent analysis in his book “In defense of selfishness: Why the code of self-sacrifice is unjust and destructive”).
As per altruism, others’ needs should be always put ahead of your own. From the business perspective, this means that customers’ need for inexpensive products and services should be put ahead of the need of the business to earn a return for its owners’ investment. Customers should be charged lower than market prices, or in the case of particularly needy customers, given the products for free. Similarly, employees’ need for higher pay should take priority over profits, and they should be paid, not based on their productivity but their need. And suppliers also need more money for their goods than what they are worth to the client, so the client firm should compromise its profitability and pay more.
According to the moral code of altruism, acting morally is a self-sacrificial duty that will cost you your values. You would lose loyal customers who are willing to pay for your products for what they are worth (recognizing that paying the market price will ensure the continuing value that comes from your investment in improving products and service). Acting altruistically, you would lose productive employees (who will leave when people are paid based on need, not on productivity) and reliable suppliers (who will recognize that there is no need to compete for your business, as you will pay based on ‘need’ versus the value they provide).
The opposite view—that acting morally pays—is based on egoism, the moral code opposite of altruism. Egoism rejects all forms of sacrifice, by you to others and by others to you. The role of that moral code, as explained by Ayn Rand, is to guide us to achieve values, not to lose them. As fallible beings without automatic knowledge of what values to pursue and how, we—including business decision makers—need the guidance of egoism that shows how to achieve values without sacrifice.
Instead of sacrifice as the basis of relationships with others, egoism upholds the principle of trade. It means trading value for value, by mutual consent for mutual benefit. Companies should not sacrifice their profits for the sake of their customers but create products and services that are valuable to their customers who are willing to pay for them. Companies should not sacrifice for the sake of their employees but pay them for their productive input at the level that the employees find acceptable. Companies should not sacrifice for the sake of their suppliers but pay them based on the value of what they provide. All these trading relationships are win-win situations where both parties gain values: customers gain material values to benefit their lives, employees gain compensation for their productive input (and in the best cases, meaningful work), suppliers make money, and the companies achieve long-term profitability.
Acting morally only costs you only if you accept sacrificing for others (or sacrificing others for you) as the moral standard. Acting morally, as per egoism, pays—the reward is the achievement of values: happy life for individuals and long-term profitability for business firms.
First published at How to be Profitable and Moral: A Rational Egoist Approach to Business and posted here with the kind permission of the author.
Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.