Philosophy of Business Ethics: Why is ESG controversial?

Some people dive deep into ESG, but some people don't buy it.

We are in a world that would later transform by ESG advocators' call to action to?end poverty and inequality, protect the planet, and ensure that all people enjoy health, justice and prosperity...etc. Namely the 17 Sustainable Development Goals (SDGs)?established by United Nations.

ESG is something we are doing good, or simply sounds good? What's good? Good to whom? We may think differently in philosophic views.

Ethics essentially deals with what?is?"right"?or?"wrong",?"good"?or?"bad", and how people?should act when faced?with a certain circumstance, in particular,?controversy in an ethical affair (Beck et.al. 2016).

Business?Ethics, also?known as?Corporate Ethics,?is the individuals, and?the organisations?who act as a corporate moral agency?to perform business activities?upon?certain values,?principles,?responsibilities, moral standards, and?so forth?(Standford?Encyclopedia of?Philosophy <SEP>, 2021). Business Ethics sits under the umbrella of ESG's "G" concept- Governance.

When it comes to?evaluating?the morality of business activities, there are four ethical theories?under the umbrella of normative theories?to be highlighted:?egoism and utilitarianism?under consequentialism, duty-based Kantianism as well as virtue ethics.

1. Egoism (Teleological)

Egoism?is?an?ethical?theory?that?treats?self-interest?as?the?foundation?of?morality?(SEP, 2021).?

A famous philosophical paradox?"Everyone pursuing his own self-interest is the best way to promote the general good"?was proposed by?an?Anglo-Dutch?philosopher,?political?economist?and?satirist,?Bernard Mandeville?(1670-1733) in his poem?"The Fable of Bees"?(SEP, 2021). He argued that the intention of writing this poem was to insinuate the nature of human beings' act?and the principle of how society governed, and it aimed to warn the "People of Quality" (pointing?the aristocracy as governer of the government at the time) to be aware of the rule and to manage the societies?norm effectively (Mandeville, 1714).?

Adam Smith?(1723-1790), the?Scottish political economist and philosopher, worships the egoism ideology and made it wide-accepted in his?pioneering work on economics,?"The Wealth of Nations"?(Westacott, 2019).

In a famous passage, Smith wrote that?when individuals single-mindedly pursue“the gratification of their own vain and insatiable desires”?they unintentionally, as if “led by an invisible hand,” benefit society as a whole.

This happy result comes about because people generally are the best judges of what is in their own interest, and they are much more motivated to work hard to benefit themselves than to achieve any other goal?(Westacott, 2019).

Ethical egoism?promotes an ethical egoist?ought to take actions if and only if, and because, performing?maximum net positive benefits in their own self-interest?(Beck?et.al., 2016).?

Restricted egoism?sanctions corporate self-interest and?encourages competition to the extent that leads to maximum resource utilisation in which the interests of society as a whole?(Beck?et.al., 2016).?

Business ethics?comprehend the laws and regulations that structure markets and firms (SEP, 2021).?Ethical?egoists support?this view?as although pursuing financial incentives and retaining corporate goodwill?consist of self-interest, they should not contravene the law and fair play as an appropriate general rule by any means?(Beck et.al.,?2016).?

In practice, corporates only disclose information or promote brand image when it is in the company's self-interest for the information to be released would be an example of egoism.

Stepping into the corporate's shoes, 100% ethical for them not to participate in ESG as extra costs must be invested which immediately results in profit cutting, at least for the first few years...

Critics have challenged the notion of egoism drastically：

• It is a thin line between self-interest and selfishness. Egoists claimed they morally perform any action by not sacrificing themselves. In reality, people tend to make excuses for?a selfish?act, and alter it to the pursuit of self-interest by?highlighting the gain and pleasure and shadowing the sacrifices had to pay?(Buchholtz & Carroll, 2014)
• Wealth was not gold and silver in Smith's contrarian view. Karl Marx criticised those business activities conducted by liberals creating dreadful and unmeasurable harm to the environment. Which will be paid back by catastrophic natural disasters?(DesJardins, 2014).
• Egoism itself remained?a prolonged arguably controversial subject.?Ethical theory, including virtue theory and deontology, is useful for thinking about how individuals should relate to each other. Whereas egoism put others' benefits and well-being aside?(Beck?et.al., 2016).?

2. Utilitarianism (Teleological)

Utilitarianism contends on generating maximum benefits to the largest number of people, which derives?from?the phrase?"greatest happiness of greatest number"?written?by?Jeremy Bentham?(1748-1832), English philosopher, economist,?jurist,?and legal reformer as well as?the founder of utilitarianism (SEP, 2021).

In?Bentham's book <An Introduction to?the Principles of Morals and Legislation>,?he defines?the principle of?utility?as?'that?property?in any object whereby it tends to produce pleasure, good or happiness of mischief, pain, evil?or unhappiness to the party?whose interest is considered.'?(Bentham,?1789)

Utilitarian?framework of?making an ethical decision depends on the calculation of?the possible consequences of various options and the determination of?how much happiness or harm would result in all stakeholders who will be directly or indirectly affected by the action, then compare the future effects of action whether positives outweigh the negatives.?This was developed by?John Stuart?Mill?(1806-1873),?English philosopher, economist and?expounder of utilitarianism?whose father?James Mill?was also?a close friend?and ally of?Jeremy?Bentham (SEP, 2021).

Unlike?egoism concentrates on individuals'?self-interest as an intent for an act, the?utilitarian?holds a view that maximises aggregate?overall good?is beneficial?to the well-being of the whole community,?which is more?concerned about collectivism and broad social?perspective.

For business decision-making, utilitarianism is consistent with goals such as productivity, efficiency and profit generation, and promoting the greatest good is essential to its shareholders, investors?as well as the global economy?(DesJargins, 2014).

Criticism about utilitarianism generally?falls into?three?assertions as below:

• Various versions of the good and happiness, also different criteria?of rightness,??which one?is the?truth??how do we define benefits and?harm??and who decides??(Law,?1999)
• Lack of forms of measurement and comparison that in a defensible way – For example, it is easy to determine the value of money, however, the value of life/time/effort/human dignity is hard to measure by quantitative methods or compared by using any other indicators. – e.g. Hooker’s ‘Reflective Equilibrium Plus’ method is unsuccessful?(Law,?1999).
• ‘the ends justify the means’ violates the fundamental principle of ethical practices, happiness and pleasure can be used for bad reasons. It is vulnerable to determine the act is good or bad by its outcome?(Buchholtz & Carroll, 2014).

3. Kantianism (Deontological)

According to German philosopher?Immanuel?Kant (1724-1804),?persons of goodwill are motivated by a sense of duty to do the right thing;?there are certain duties to comply with in respect of doing the right thing, which comprises two concepts: rights and justice?(Beck?et.al., 2016).?

Kant deems?all people have?autonomy?which utilitarianism does not concern about, and it is the most important indicator that distinct human beings and animals.?Autonomy is the fundamental idea to Kant's?moral philosophy,?and he defines the moral law of duty-based?as the "categorical imperative"?(SEP, 2021).

"Autonomy"?means giving the law to?oneself.?

"Rights"?covers?legal rights,?contractual rights and human rights.?

"Justice"?concerns issues?of fairness and equality.?

From Kantian’s perspective,?a moral decision of an act regardless of circumstances is made by complying with three formulations:

(1)?People should act only according to maxims that could be universally accepted and acted on.?

(2)?Ethics requires people to treat all people as ends and never only as means.?

(3)?Every?rational?being?must?so?act?as?if?he?were?through?his?maxim?always?a?lawmaking?member?in?the?universal?kingdom?of?ends?(O'Hagan, 2009).?

Kantianism denies?‘the end justifies the means’ principle of utilitarianism and claims?‘the ends do not justify the means’?(DesJargins, 2014).?Utilitarians?contend?for the greatest good for greatest people, which ignored the free will of choices of the minority.?Oppositely, Kantian?believe we all as a part of society should not breach certain duties and?pledges in order to obtain the greatest happiness, or to increase the net overall happiness.?

Above principles indicate?that?a good or correct?decision?is one that respects?the rights of?others meanwhile?made by the fairest process and?produces?the fairest?distribution of benefits and?burdens?(Beck?et.al., 2016).?Deontologists stand?in contrast to teleological theories, deontology advocates the motive behind the action itself rather than its consequences,?for example,?"it's always wrong to lie, so as white lies".?

In regards to?business ethics,?Kantian?ethics?is?treasured?as?the thesis?protects individuals' rights, respects autonomy and human dignity, upholds?justice, fairness and?equality.?This?contributes heavily to maintaining stakeholders' satisfaction including employees, customers, legal or other authorities, also strengthens?corporate culture?on achieving?gender/race?equality, human rights preservation,?fair pay, due diligence,?whistleblowing protection... etc.

The counterviews of?Kantian’s ethical theories centred on the?logical?loopholes of calculating happiness:

• Ignorance of?consequences, which requires people to act ethically with maxims but without concerning the results and happiness of an act (Law, 1999).
• Kantian does not?provide such mechanism for resolving absolute value conflicts
• ?If there were two duties that guide opposite actions, what action you would take??e.g. Mother steals food to feed her baby. Duty of care suggests a mother should protect her baby dying from starving, but in opposite steal is not right. Either way this mother has violates one duty or another.
• Human rights?that Kantian preserved, even though they are universal rights, it is challenged to enforce and practice in different social conditions.
• People are not?only motivated by reasons but also by pleasure, happiness, emotions, rewards as well as religion. Acting for sake of duty, people are more likely to tend?to object (Law, 1999).

4. Virtue Ethics (Characters\Traits)

In the West, virtue ethics’ founding fathers are?Plato?and?Aristotle, and in the East, it can be traced back to?Mencius?and?Confucius?(SEP, 2021).?In this domain, we focus on the "Natural?Virtues" devoted by Ancient Greek Philosopher and?polymath -?Aristotle, and the ethical?methodology?built on Aristotle's?ideology.

Virtue ethicists attend to describe what people?should be, not?should do?(Beck et.al., 2016). DesJardins (2014) sustains the virtue philosophy that?an ethical person should qualify some virtuous characters, and virtue is a mean to act as what virtuous agents would do in the circumstances. In other words, people look up to what a role model would do when they encounter a?controversial ethical situation, and behave towards role models.

Aristotle's 12?virtuous?charismas?are:

(1) Courage

(2) Temperance

(3) Generosity

(4) Magnificence

(5) Magnanimity

(6) Ambition

(7) Patience

(8) Friendliness

(9) Truthfulness

(10) Wit?

(11) Justice

(12) Prudence?(governed all?above)

Acquisition of virtuous characters to practices leads people to do the ethically?"good"?thing, whilst?doing the?"right"?thing is to act as what a virtuous?role model would do in the situation?under?virtue ethics framework. Possessing?virtues can be directly related to ethical behaviours, thus developing?personal?attributes in the matters of degree is the key?to?emphasis on virtue ethics (SEP, 2021).

Pros:?

Comparing?to teleological theories including egoism and utilitarianism, virtue ethics is achieving happiness by acting virtuously and living ethically, the results of ethical action are not pleasure or good consequences, but to reach well-lived life and reflects a person’s inner character.??(Beck et.al.,?2016)

Taking?Kantian’s perspective one step further, the actions of doing the right thing are not enough, being good is also significant to people so that exercising duty of care is more likely to bring?positive results??(Beck et.al.,?2016).?Virtue ethics and Kantian ethics are both acts of aiming at some intrinsic good and living by moral rules, but virtue ethics account place for?developing moral habits of character.

Cons:?

A limitation of?virtue ethics is that?it?does not always provide guidance when?an?ethical dilemma arises, and analogies to draw, such as:

• Virtue ethics looks at entire lifetime of a person, which requires the process of education and training as well as a significant amount of investments in time and effort?(Law, 1999).
• Role models are multiple and vary from time to time, to which example is appropriate to everyone remain questionable.
• Virtue ethics tend to hinge on and yearn for a homogeneous society, which is challenged to reinforce an accordant standard of virtuous traits to guide people in different cultural norms (Hofstede, 2001).

5. Business Ethics

In competitive markets, people may be tempted to deceive, cheat, use, exploit, or manipulate others to gain an edge.?This no doubt brings moral concerns and debates on topics including?insider trading,?sweatshops, bribery, discrimination, environmental damage, social responsibility, fiduciary responsibilities, etc. in modern business management?(Buchholtz & Carroll, 2014).

To take long vs short-term orientation as an example, making long-term decisions requires short-term difficulties. Thus,?organisations?have to foster virtues oriented forward sustainable future rewards such as perseverance, thrift, and strong work ethics. Meanwhile, they especially multinational corporations also need to foster factors related to the past and present, which efforts should produce quick results and best outcomes along with respect for local cultures, traditions, social obligations, and rules. (Hofstede, 2001)

ESG practitioners?advocate for?stakeholders balance?instead of shareholders primacy, long-term sustainable growth over short-sighted gain.?Creating trust among stakeholders, both internally and externally, remains a key challenge for companies around the world.?

ESG could either be a risk factor or an opportunity for corporates. Given the fact that the objectives of ESG concepts are “good for everyone”, balancing short-term vs long-term value, lower earnings vs incremental costs as well as good for ownself vs good for everyone shouldn't be a question anymore.

The End.

Thanks for reading.

References:

[1] Beck et.al. 2016,?'Ethics and?Governance', Version 16a, CPA Australia, Published by Deakin University, Geelong, Victoria 3217.

[2] Bentham J. 1789, 'An Introduction to?the Principles of Morals and?Legislation',?Electronic?copy?provided by?Jonathan Bennett 2017.

[3] Buchholtz, A. K. & Carroll, A.B. 2014, ‘Business & Society: Ethics, Sustainability, and?Stakeholder Management’, 9th Ed, Cengage Learning, Stamford, USA.

[4] DesJardins J. 2014,?‘An Introduction to Business Ethics’, 5th?Edition, McGraw-Hill, New York,?Chapter 2-12, pp.23-286.

[5] Hofstede, G. H. 2001, ‘Culture’s Consequences: Comparing Values, Behaviors, Institutions?and Organizations Across?Nations’, 2nd Edition, Sage Publications, 6 Bonhill Street, London, United Kingdom, Chapter 8, pp. 373-414.

[6] Law, I. (1999), ‘Rule-Consequentialisms Dilemma’,?Ethical Theory and Moral Practice, Vol. 2,?No. 3, September, pp. 263-276.

[7] Mandeville, B. 1732,?'The Fable of Bees',?https://www.earlymoderntexts.com/assets/pdfs/mandeville1732_1.pdf

[8] O’Hagan, E. (2009), ‘Moral Self-Knowledge in Kantian Ethics’,?Ethical Theory and?Moral Practice, Vol. 12, No. 5, November, pp. 525-537.

[9] Westacott E. 2019, 'What is Ethical Egoism', ThoughtCo. https://www.thoughtco.com/what-is-ethical-egoism-3573630

[10] Standford Encyclopedia of Philosophy?(SEP), 2021,?https://plato.stanford.edu/index.html?