The Responsibilities of a Businessman




MANY thinkers deny the possibility of businessmen having responsibilities or ethical obligations. A businessman has no alternative, in view of the competition of the market-place, to do anything other than buy at the cheapest and sell at the dearest price he can. In any case, it would be irrational-if, indeed, it were possible-not to do so. Admittedly, there is a framework of law within which he has to operate, but that is all, and so long as he keeps the law he is free to maximise his profits without being constrained by any moral or social considerations, or any further sense of responsibility for what he does.

This view is mistaken. Economic determinism is false. The iron laws of supply and demand are not made of iron, and indicate tendencies only, without fixing everything, leaving no room for choice. In economic affairs we are often faced with decisions, and often can choose between a number of alternative courses of action. It is up to us what we do; we are responsible agents, and may fairly be asked to explain why we did as we did.

Nor do canons of rationality pick out one single course of action as the only rational one to take. They do not show that it is irrational to do anything other than maximise our profits. It is a mistake to construe rationality in terms of maximising. Even though some economists, influenced by the Theory of Games, offer it as a definition, it is, as the prisoners' dilemma shows, an incoherent one. For individuals each to seek to maximise their own pay-off can lead to sub-optimal outcomes assessed in maximising terms. It may seem like a good idea for me to maximise irrespective of what others do, but if it is really a good idea for me, it is a good idea for them too, and then we shall all be worse off than if we had each pursued a policy that considered others as well as ourselves. Rationality requires us not just to maximise, but also to widen our range of concern. We


accept that it would be foolish to be guided only by immediate payoffs without considering future ones; we need to extend our vision not only over times, but over persons, identifying with certain groups, and thinking not only of my individual good, but our collective one as well.

It is a mistake, finally, to think that once the law has been laid down, the businessman is free to pursue profits within the limits laid down by law. The standards enforced by the law can only be minimal ones, not replacing moral standards, but needing to be supplemented by them. We generally acknowledge that there is a moral obligation to obey the law, and that almost every legal system enshrines much moral teaching, and that moral considerations have an important influence on the interpretation and development of the law. The legal system would break down unless most people obeyed most laws most of the time, and unless witnesses told the truth, and judges and juries reached honest verdicts, without being made to by the threat of coercion. We need the law to be enforced on occasion because civil society, unlike some voluntary associations, is unselective, and contains some members who are not minded to abide by the law, and would flout it if they could; and if they got away with it, others would follow suit. The law therefore needs to be backed by the threat of coercive sanctions, but just because these sanctions are severe, their use has to be subject to many safeguards. We need trials and burdens of proof, and often are chary about legislating against some admitted evil on account of the difficulty of actually enforcing the law, or of the dangers of blackmail, or for many other cogent reasons. Hence the standard required by the law is necessarily a minimal one, well below what is tolerable in social or commercial life.

Businessmen do have some, although only limited, room for making decisions; they are not being irrational if they take into consideration a wider range of concerns than simply maximising immediate individual profit; and their legal duties do not exhaust their obligations generally. In deciding what to do, and justifying their decisions afterwards, there are a variety of reasons, for and against, the different courses of action open to them, these reasons not being necessarily confined to maximising profits while keeping within the law.

Many businessmen are shy of moral argument. It is partly because moral philosophy seems remote from practical decision-making, partly because the claims of morality seem insatiable, and if once

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allowed a foothold will end up by demanding that the businessman sell all his plant to buy low-cost housing for unmarried mothers.


Much moral philosophy is, indeed, remote from practical decision-making, and often is unduly simpliste. Many of the questions we have to decide are ones where there are weighty considerations on either side, and it is a matter of weighing the pros against the cons, and striking the best balance we can. Some of the considerations may be said to be moral, but there is a wide variety of reasons for action covered by that term. An existentialist may find himself impelled by his authenticity to abandon everything, and go off and stage an art exhibition in Paris; a young man may be called to give away his possessions and follow St Francis; a middle-aged woman to throw up her job and devote herself to caring for a sick relative: but these vocations are not ones to which a businessman is called. Corporations have no souls: they cannot be called to witness to artistic integrity, the monastic ideal, or altruistic devotion to another's good. But it does not follow that the ordinary universal obligations of communal life do not apply to them. These obligations arise from the activities we engage in and the context in which we carry them out, and apply to businesses as much as to other undertakings not because they have souls, but because they are centres of decision-taking.

It would still be possible for a businessman to remain sceptical. Scepticism is always possible-at a price. The tough-minded can dismiss all concern for the environment as unrealistic woollymindedness, and may defer payment to his suppliers until the last possible moment: but when the Mafia call, and suggest that he might like to purchase protection from arson attacks, he is likely to be indignant. He believes vehemently in the rule of law, and that violence has no place in a civilised society; his scepticism, in short, is selective. And each selection of sceptical theses is likely to turn out incoherent. Different arguments are needed to show the untenability of different positions, and with each position there is a contrast between immediate self-interest, narrowly conceived, and wide-ranging reason, conveniently termed moral. Morality and self-interest remain opposed, but each version of self-interest is seen ultimately to be lacking in enlightenment. Scepticism is always possible, but never in the long run reasonable.

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The positive grounds of obligation for a businessman arise from the nature of business. Contrary to present perceptions, business is fundamentally a co-operative activity. Business transactions would not take place unless there were fruits of co-operation that could, perhaps by means of some pecuniary adjustment, benefit both parties. Business transactions are essentially two-sided, with both parties benefiting as the result of the transaction. Co-operation, not competition, is the most fundamental aspect of business, and though competition remains important, the co-operative setting constitutes grounds for many obligations which a businessman should recognise. Moreover, the co-operation is normally long term and wide-ranging; the one-off transaction is the exception rather than the rule. Business is typically a process continuing over time and set within a definite social system of mutual understanding. I sell to customers who are in the habit of buying the sort of goods I sell, and buy from suppliers, who make their living by regularly and reliably supplying goods or services to those who want them. The obligations of a businessman arise from the co-operative nature of business, and the shared values and mutual understanding of the co-operative associations within which business transactions take place.

In many cases the co-operative setting is obvious. It is only because shareholders, superiors, colleagues, and employees co-operate with him that a businessman is able to do business, and the shared values on which that co-operation is based constitute considerations he should have in mind when reaching his decisions. Exactly what duties he has to shareholders, superiors, colleagues, and employees, and, more problematically, how conflicts of duties are to be resolved, still remains to be seen. But it is hardly controversial to claim that he does have duties to them, and that these duties arise from their being fellow members of the same business enterprise. It is, however, controversial to argue that a businessman has duties also to his customers, suppliers-and even his competitors-for in these cases we are more immediately aware of the adversarial, competitive aspect of the relationship, which seems altogether external. And, indeed, these relationships are more external. There is an adversarial element in bargaining with suppliers or customers, and competitors are competing. But bargains cannot take place unless there is some co-operators' surplus to bargain about, and nobody will do business



The Responsibilities of a Businessman




with me in order to make me better off. Only if I hold myself out as meeting the other person's wants or needs will that person want to do business with me, so that if I am a person people want to do business with, I must see myself as others see me, and see to it that my business is good from their point of view. Although I may, for a season, be successful in ripping customers off, I cannot construct a coherent account of what I do in those terms alone, as I cannot offer any reason why people should want to do business with me. Much as we distinguish what it is to be a good doctor from what it is to be a successful one, so we can, following Plato's lead in the first book of the Republic, argue that the role of the businessman is socially defined in terms of the services he offers to others. These provide the criteria for judging whether he performs his role well or ill, and constitute grounds for his obligations to those he does business with. My competitors share these, and we collectively may need to uphold standards, and ensure that the public is well served by members of our trade generally. Beyond these shared values, there is the further bond of a common humanity, which enjoins us to recognise other people as fellow human beings; so that even where I have no common interest with my customers, suppliers, or competitors, I still need to treat them as persons, each with his own point of view, to whom I have, as a matter of justice, certain obligations of fair dealing and honesty.




C.B.Handy distinguishes six different sorts of 'stakeholder', whose interests ought to be considered by those taking decisions: financiers, employees, suppliers, customers, the environment, and society as a whole; he argues that these six classes constitute a hexagon, within which a decision-maker has to balance different, and sometimes conflicting, obligations (Handy 1995: 130-1, 143). Further distinctions may be drawn. Shareholders are in a different position from other creditors. Employees have obligations to employers, as well as vice versa. Obligations to society comprise obligations to the local community, to the nation and perhaps to the international community and the whole of mankind. Many firms also recognise some obligation to their industry or trade. There are certain obligations of honesty and fair-play to competitors.

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We may summarise:

(1) shareholders

(2) employees and employers

(3) customers

(4) suppliers

(5) creditors

(6) competitors

(7) trade or profession

(8) the local community

(9) the state

(10) the international community and mankind generally

(11) the environment

It is tempting to describe these as duties. Certainly, we could tax a businessman to explain why he had failed to consider his shareholders, employees, locality, country, or the environment, and if the question were brushed off with a 'Why should 1? It is none of my business', his reply would sound hollow. But the word 'duty' denotes a stringency of obligation that often does not obtain. The duties of avoiding violence and of honesty are stringent, but many obligations are prima facie only, and may be overridden by others. A business has to survive, and that may require sacking not just an incompetent, but even a hard-working, employee. Faced with the apparently insatiable demands of morality, a businessman may feel inclined to follow Machiavelli and relegate morality to a private world, as not being practicable in the serious conduct of affairs. That is a mistake. We can guard against that mistake by talking not of peremptory duties, but grounds of obligation. I do not always have to keep redundant or incompetent employees in work: but I have some obligation towards them. If the survival of the firm depends on it, I must take the hard decision: but I am not usually in that extremity, and may be able to postpone the sacking, giving warnings in the case of incompetence, and long notice in the case of redundancy. It is not a matter of hard-and-fast rules. A businessman is not required always to be soft. But neither need he be always ruthless as a matter of course.

Obligations to shareholders and employees, as well as obligations of shareholders and employees, are primarily internal obligations, arising out of shared concerns. Obligations to customers, suppliers, creditors, and competitors are primarily external obligations, arising from our recognition of the validity of the other person's point of



The Responsibilities of a Businessman


view as a necessary condition of making coherent sense of business activity. But in each of these cases some of the other considerations also apply, and the remainder are evidently mixed cases.




It is often thought that public limited companies are owned by their shareholders, and that in consequence obligations towards shareholders are paramount. But, strictly speaking, shareholders do not own their company. Public limited companies are artificial creations, in which shareholders have certain rights, but as their liabilities are limited, so their rights are limited too. Their directors have certain specific obligations, spelled out by law, particularly in relation to take-over bids, and more generally to make the company prosper, but the latter does not override all other obligations. Managers are not under an obligation to drive the hardest bargain possible on each and every occasion so as to maximise dividend payments. Although they have a commission to seek profits, they have, as in all cases of people acting on behalf of others, some discretion as to how they carry out their commission, and are empowered to take other factors into consideration. Paying employees more may mean less money immediately available for dividends, but may prove more profitable in the long run, and may also enhance the standing of the company. Although the shareholders might instruct their board to go for immediate profits and to screw their employees as much as possible, it is not to be assumed as a matter of course that shareholders want to be Gradgrinds. The natural assumption is that they want their company to be one they can be proud of, treating its employees fairly and doing its bit for the locality in which it operates and the wider context in which it carries on business. It is a matter of degree: Pilkington, an exceptionally generous and community-minded firm, gave just over 0.4 per cent of its profits in charitable donations in 1983 (Sorell and Hendry 1994: 160). Only the most exacting shareholders could insist on their dividends being increased by a negligible amount rather than their company play its part in its sphere of operations.

Shareholders have duties. Some are spelled out by law-mostly concerned with treating other shareholders fairly if acquiring a majority of the shares. Others arise from the fact that each shareholder

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derives some benefit from the operations of his company, and can make his voice heard at the annual general meeting. Many modern thinkers deny that shareholders are under any obligations-their motive for buying shares is to make money, and that is their sole concern. But the argument is a non-sequitur: there are many things I do in order to make money, but that does not abrogate my responsibilities in the matter. I may have invested money in land or houses, but am still open to criticism if the land becomes a public nuisance, or the houses are used for immoral purposes. Some pension funds have invested in works of art, but if the works of art went out of fashion and were consigned to the scrap heap, we should think that the fund had not only made a bad investment, but acted irresponsibly. Equally, if I own shares, I cannot escape from the obligations of ownership on the grounds that I had only owned them in order to make money.

But the obligations are different. Although I have a voice, I have only one voice among many others. I can call attention to gross breaches of reasonable behaviour, but I cannot exercise much control. Moreover, all business is conducted on the basis of my not being my brother's keeper, and not being answerable for all his actions. Much criticism of the conduct of particular public limited companies is based on unreasonable requirements of moral purity if they are in business, they are going to do business with the Soviet Union, South Africa, South America, and other (erstwhile) unsavoury places. A shareholder is-slightly-responsible for what his company does, and can-and occasionally should-criticize, but his criticisms should be reasonable and realistic, and not based on fashionable prejudice or idiosyncratic ideals.




One reason why thinkers recently have been anxious to emphasize the duty of managers to maximise the shareholders' profit is that other competing claims have been advanced, and they fear that companies were coming to be regarded as milch cows to be run for the benefit of other parties, most notably of their employees. Businessmen do have obligations to employees, but not unlimited ones. The obligations arise from the common enterprise in which the employees engage to do what the employer tells them in return for a wage. There are two



The Responsibilities of a Businessman ,


aspects to this relationship: not only the external, adversarial one in which their interests are opposed, but an internal, co-operative one, arising from the common enterprise that generates the surplus available for division between them.

The employer tells the employee what to do, and therefore shares responsibility for what he does. Both have responsibilities, but the employer has the greater one. He owes it to the employee to give him the amount of direction appropriate to the job, neither depriving him of all autonomy nor leaving him without clear objectives; and to ensure that he does nothing illegal, imprudent or immoral. Many of these obligations have been hammered out in the law of master and servant and in Workmen's Compensation Acts. Equally, the employee owes it to his employer to carry out instructions efficiently, and to exercise his discretion responsibly.

Conflicts arise when explicit instructions run counter to the general policy of the firm, often now articulated in a mission statement, or are manifestly illegal or immoral. The general duty of obedience and confidentiality may be overridden in such cases. This is nothing new. In the Middle Ages the servants of the King sometimes disobeyed the explicit orders of the monarch out of loyalty to the Crown. But only in extreme cases is such behaviour warranted, and even then not in some jobs: confidential secretaries, like solicitors and priests, have a duty to keep silent even in the knowledge of grave legal or moral wrongdoing.

Because the employer has greater responsibility, it is reasonable for him to shoulder greater burdens and have more of the benefits resulting from the enterprise. Although most contracts of employment are short-term, the reality is that most employment is fairly long-term. Employers could not train a new workforce each week, and employees value the security of a job. It is reasonable for the employer, in the absence of welfare provided by the state, to carry some of the risk of ill health, because the cost of an absentee is a small part of his budget, and can be averaged out over the whole of the workforce, whereas the loss of the weekly wage is calamitous for the individual; and in the same way, though both parties should give long notice, it is more incumbent on the employer to do so. But these obligations, though real, are not indefinitely extensible. Not only the idle and incompetent, but even the hard-working but redundant employee may have to be sacked, if the firm can no longer employ him profitably. It is not the employer's business to provide employment---

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and recent history makes it very doubtful whether it can be the state's responsibility either.

Many people think that employees should have a share of the profits, and that this would remove the adversarial element. It is a possible arrangement, adopted by a few firms, but it has difficulties. There is still an adversarial aspect in the determination of what share each employee should have. Moreover, profits are uncertain, and can well fail to materialise in bad years; few employees can withstand a prolonged drop in earnings. They are rationally risk-averse, and just as widows were encouraged to take preference shares with a lower but more reliable yield, so it is natural for employees to want a fixed return rather than a greater, but less certain, share in the profits. Again, the holders of tradable shares can be fairly relaxed about forgoing immediate dividends for the sake of future growth, whereas an employee approaching retirement, or thinking of moving jobs, has no incentive to support policies of ploughing back profits into the firm. These objections are none of them conclusive, but together suggest that the current practice of paying employees fixed wages rather than some share of the profits is a reasonable and fair one.

In negotiating wages the employer's and employee's interests are opposed; but the immediate opposition is largely subsumed under a longer-term profitable partnership. It is in the interests of each that the other, and others similarly situated, should want to continue the relationship; and that therefore that it should be a profitable relationship from the other's point of view. These considerations do not suffice to determine an exact just wage or just price: usually we leave it to the market to determine the going rate, and normally to pay the going rate is fair enough. But the market is imperfect, and the market rate can be unfair; we can justly criticize the employer who pays starvation wages, even though he can find desperate workers ready to work for a pittance, and trade unions which drive industries into bankruptcy through their exorbitant wage demands.


The relationship with customers and suppliers is much more external than that with shareholders or employees, and the obligations arise from the other-directedness of the business transaction rather than from a long-term association. Traditionally the responsibility has



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been on the purchaser to make sure that the transaction suits his purposes: caveat emptor, for only the purchaser can know what his priorities really are, and only he can decide whether to buy or not. But even in the Middle Ages there were qualifications of this doctrine, and the Crown took responsibility for hallmarking precious metals and monitoring weights and measures. The Sale of Goods Act 1893 laid on sellers the responsibility of seeing that goods were of a merchantable quality, but the motor manufacturers used to evade its provisions by getting purchasers to sign an order form waiving their statutory and common-law rights. At length this practice was disallowed under the Unfair Contract Terms Act, 1977, and a further Sale of Goods Act, 1979, which was extended to cover services as well under the Supply of Goods and Services Act, 1982. Most recently the insurance companies have been brought to task for the sale of unsuitable pensions by over-eager salesmen, and Lloyds Bank for encouraging a couple to borrow unwisely, and one might think that instead of caveat emptor we now have caveat vendor (strictly speaking, caveat venditor, but that is ugly and unnatural).

In reality the situation is more complex. It remains true that only the purchaser can decide what his priorities are, and that the final decision is his. But we now recognise that in deciding to buy he is not exercising an arbitrary whim in a particular case, but is to be presumed to be making a rational choice to buy some good or some service of a suitable type, whereupon the onus is on the seller, who is in a position to know what he has to sell, to supply what the purchaser may reasonably be supposed to want. Caveat emptor represents the ultimate responsibility of the unique individual who alone can decide what he shall do: caveat vendor the ensuing responsibility of the seller to meet the requirements of the sort of purchaser that someone who holds himself out as providing goods or services must expect to satisfy.

Those who sell get paid standardised units of accredited value. Since they can be sure that one man's money is as good as another's, they should be ready to treat all corners equally, and not discriminate against some or charge them extortionate prices. In some jurisdictions discounts may not be given at all, without prior permission, even to long-standing and valued customers, but usually discounts are allowed, provided the outsider is not greatly disadvantaged. Taxi drivers in St Petersburg or Prague, who charge exorbitant prices to vulnerable foreigners, are acting unfairly. If I can rely on being paid

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in standard coin of the realm, others should be able to rely on me to ask only standard charges for standard services.

Many modern businesses, some of them household names, cheat their suppliers by not paying them on time. It is thought to be clever financial management to defer payment until the last moment before a writ is issued, so as to increase cash balances or avoid paying interest on overdrafts. Many small firms have been bankrupted in consequence. The fact that the practice has not been effectively outlawed shows a shoddiness in British business culture of which all businessmen should be ashamed. Of course, it is open to a firm, and in some cases reasonable, to negotiate long terms of credit. The contract price will then reflect that fact. What is indefensible is to agree to pay at a certain time and then not pay. For the reasons already given, the law is difficult and expensive to invoke. The obligation is to pay on the date agreed, not when ordered to do so by a court.

The business world needs to set its house in order, and create a climate of opinion in which no businessman could hold up his head if he failed to pay his suppliers on time. It could be done by government action, but it would be better if it were undertaken by the Confederation of British Industry (CBI). The CBI could investigate firms suspected of late payment, asking to see invoices and cheque stubs, checking up with the suppliers concerned, and publishing a black list of those who refused to supply details or were found to be in default. A few firms might try to outface the black list, but soon compliance would be seen as the easier course.



It may seem strange to say that we have duties towards our competitors, because on the classical view we are locked in cut-throat competition with them in a zero-sum game, where their gain is our loss. But, as the analogy with games, competitions, and the law courts shows, the fact that the exercise is adversarial does not mean that there are no obligations, only that some do not obtain in these situations. The obligations of honesty and fair dealing hold good both in competitive sports and in the market-place. Although there is a natural opposition of interest, with each party striving to succeed, even though it will be at the expense of its rivals, there are


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different ways of competing, and we have a strong intuitive sense of which are fair and which unfair. To provide a better product or render a better service at a lower price is fair: but when British Airways got hold of the names of those intending to fly with their rival, Virgin, and telephoned them offering a comparable flight at a reduced fare, it was properly seen as unethical conduct. They were not competing on a level playing-field, but were using information they should not have obtained in order to make special offers, not open to the general public, to persuade just those who had made up their minds to fly with Virgin to change their minds. Many people buy the Independent newspaper, just in order to frustrate what they believe to be Mr Murdoch's attempts to drive it out of business by selling The Times at a loss.

Less controversial than the claim that a firm has duties to its competitors is that it has duties to its trade, or line of business. In some modern industries, especially in newer science-based ones, research will benefit the industry as a whole, but is too expensive to be undertaken by any one firm. Many firms help to provide education for new recruits to the industry. In both cases a partial justification can be made out in terms of enlightened self-interest, but it is evident that this is often only a rationalisation. When a new product is being launched, or a new factory built, very careful estimates are made of the return on the expenditure. But no such analysis is made of likely benefits from contributing to a research centre or providing scholarships for students. Sometimes the research pays off, sometimes the students supported subsequently take jobs with the company. But the connection between money laid out and benefits obtained is tenuous. We cast bread upon the waters, hoping that in many days the return will justify the deed, but reckoning that anyhow it behoves a firm in a particular trade to make some contribution to the good of that trade.

Trades often also seek to maintain standards, to police themselves, eliminating cowboy operators who cheat the public and bring the whole trade into disrepute. They are right to do so, but care is needed. The mediaeval guilds kept up standards, but tended also to restrict competition. Doctors in the United States manage to be very well remunerated, with the result that medical attention is usually difficult and always expensive to obtain; so much so that it is beyond the reach of the poor. Many economists have argued that all restrictions in the name of quality control are against the public

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interest, and that members of the public should be left free to make their own choice. But that is unrealistic. I do not have the knowledge to choose a good doctor, and having only one life, cannot afford to discover by trial and error who is competent to look after my health. Although at first it might seem that an absence of regulation would extend competition by opening the industry to new competitors, if there were a general perception that many operators were shoddy, the end result would be to put a great premium on having already acquired a reputation for reliability. Some degree of regulation and certification not only gives the public information that it needs about quality, but also can enable new firms to compete with those already established. But the dangers remain. There is a standing temptation to raise standards, ostensibly for the benefit of the public, but actually to restrict competition and increase the remuneration of those already practising. Although it is good to have a very highly trained doctor to attend me, it is better to have some less highly qualified medical auxiliary than none at all. Many occupations are over-qualified and too expensive. Moreover, by setting a long obstacle race for would-be entrants, they not only restrict the number of those who actually qualify, but ensure that nobody can qualify until he is past the first flush of youth, and no longer liable to have new ideas. Lawyers and chartered accountants, in particular, have a reputation for being staid, dull, and obstructive: the air of middle-aged mediocrity of these professions is at least partly due to the way their governing bodies demand an over-long period of deadening training.




Firms have duties to the local community and to wider ones. The underlying argument is the one already given, that a firm is a corporation, a centre of decision-making, and hence able, and needing, to take into account a wide variety of considerations in arriving at its decisions. In particular, a firm can reasonably be said to be located in the place where it operates. It has the power to alter the way things happen in its locality, just as I have in mine, and questions can be asked about the things it does, which a responsible businessman will want to be able to answer satisfactorily, and show thereby that business is, indeed, a co-operative exercise, and not merely a matter



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of self-interest. Three different sets of neighbours may be identified: the local community, the national state, and-perhaps-the whole of mankind. In addition, we can identify a non-personal neighbourhood, the environment, as being also a focus of concern. To a considerable extent the firm's responsibilities to the local community are commuted into the payment of rates and taxes. But sometimes there are special needs which the local community is unable to meet, or opportunities open only to the firm, and then there may be good reason for further action. As in other cases, the action can be justified on grounds of enlightened self-interest-if the locality is a good one and the local community flourishing, people will want to work for the firm and to do business with it but in many cases the underlying motivation is purely moral.

Economic activities often pollute, and businessmen are often asked to take into consideration the effect they are having on the environment. Some feel obscurely guilty, and wonder if there is any way they can obtain a clean bill of health: others are robustly defiant, and say it is up to the legislators to lay down acceptable standards of emissions, and within those limits they are free to do whatever will maximise profits.

Both views are wrong. While it is true that all human activity impinges on the environment, it is not the case that it is necessarily for the worse. The English countryside is the result of centuries of human interaction with the land. Sometimes it is right to take steps to keep some areas in their pristine state: in Brazil almost all the Atlantic seaboard has been brought under cultivation, and it is right to protect the remaining virgin forest. The Amazon rainforest needs protection because of the extremely destructive exploitation to which it has been subject hitherto. But not every exploitation is malign: to eliminate malarial swamps or the very existence of the smallpox virus is to make the world a better place, even though a less natural one.

Many industrial processes, however, do have bad effects. Waste products pollute the atmosphere, the water table, or landfill sites. Each ton of coal burnt contributes to acid rain, eroding ancient buildings and destroying forests, and to the greenhouse effect, which may, for all we know, have disastrous consequences in the twenty-first century. Such considerations should weigh with anyone taking decisions. The view that it is up to the law to set limits to what may be legitimately done, and that within those limits the businessman is free to do whatever seems most profitable is, as we have seen, a mistake.

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The law is too crude an instrument to define accurately what may or may not be done, and often considerations of enforceability or public policy will make it impracticable or inexpedient to enact a law which, on the merits of the case, ought to be enacted. The fact that there is no law against sending out sulphur dioxide into the atmosphere is no reason for thinking that it is perfectly all right to do so. Considerations of practicality often also prevent laws actually in force from being enforced. Adverse neighbourhood effects are covered by the law of nuisance, but it is often difficult and expensive to invoke the law. Can an angling association prove in court that the dearth of fish in its stretch of the river is due to the effluent from my factory and not to that from another one higher up the stream? But the doctrine that one can damage one's neighbour so long as the damage cannot be provably laid at one's door is a doctrine that few responsible people would care to endorse.

The absence of legally enforced restraints is relevant. It determines the context in which the businessman operates, and the competition he has to meet. If everyone else is spewing out sulphur dioxide, I cannot afford to put in expensive apparatus to scrub my emissions and anyhow it will not make much difference to an atmosphere already much polluted. My customers are not prepared to pay for the privilege of being environmentally pure, and the actual benefit will be marginal. And even if there were laws imposing strict controls on emissions, we should merely lose business to Third World countries that were not so pernickety.

There is force in these arguments, but they do not conclude the matter. At any one time we are caught up in a situation not of our own devising, and must live in the world as it is, not as we would like it to be. But we need not be completely conformed to the world. Some moves are open, at least to monitor, and perhaps to mitigate, the adverse effects of our activities. Carelessness, rather than economy, is often responsible for the worst pollution. Many effluents can be recycled, or made less noxious before they are released. Often, indeed, they can be degraded biologically, if only we allow time and take trouble to find the bacterium with the right appetite. And the pressure of the best practice is effective over time in raising standards in the locality, or industry, as a whole.

Because some environmentalists are woolly-minded idealists, anxious to save the whale, but altogether unaware of the realities of industrial life, and because the neighbours who suffer from



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neighbourhood effects are manifestly only neighbours, many businessmen and politicians have responded by rejecting environmental concerns, even against their own interests. But often they need to employ woolly-minded idealists as researchers, or sell to them as customers: one of the key factors in the rehabilitation of the North of England has been to make it a place where managers and those with rare abilities are willing to have their families grow up. Britain and the United States have been scandalously complacent over their emissions of sulphur dioxide and nitrogen oxides because Members of Parliament and Congress think that Norway and Canada are good places for acid rain to fall, but forget that most of the damage is done to their own buildings and their own woods and lakes. The communists cared little for the environment, and one of the factors that undermined the morale of their ruling 6lite was the evident mess they were making of the world, and the coughs and asthma of their families.



We find it difficult to think clearly about the state. At times it seems an alien, even a hostile, power, which makes us obey its laws, pay its taxes, and fight its wars: but then, especially at times of national crisis, we-the businessmen among us very prominently-identify strongly with our country, and reckon its failures our failures, its successes our successes, and its values constitutive of our own individual identities.

Many thinkers hold that the state is omnipotent. Some, mostly in the Anglo-Saxon tradition, extrapolate from its having a monopoly of coercive power, and suppose that since its commands cannot be successfully flouted by any individual, it is able to issue whatever commands it pleases. Others, often influenced by Rousseau or Hegel, hold that the state is entitled to whatever it thinks best on account of its being that with which we all identify. Both views are wrong. Although the state can overpower any recalcitrant individual, it can do so only with the aid of other uncoerced individuals. As we have seen, it needs the unforced co-operation of witnesses, judges, and jurors, if it is to function effectively, and therefore needs to have their allegiance, and hence be worthy of allegiance. For similar reasons the state is not entitled to do whatever it thinks fit. Although many

76 J R. Lucas

individuals identify with the state, it is not constitutive of their identity, and each individual finds himself in membership of many other groups, and having a mind of his own that he can make up for himself. If he finds the state worthy of his allegiance, he may make great sacrifices on its behalf, and be willing to obey its laws and pay its taxes at great personal expense. But it needs to be legitimate in his eyes, and legitimacy has to be earned and can be forfeited. Even democracies can err, and issue commands that ought not to be obeyed.

As far as businessmen are concerned, the state exacts taxes and demands compliance with various laws and regulations. Whether the taxes are paid or evaded, and whether the regulations are complied with or circumvented depends on the legitimacy of the state and the reasonableness of its demands. Heavy and complicated taxes, absurd and inappropriate regulations, are less likely to command respect than simple and uniform taxes, and regulations whose rationale is clear and which are adjusted to the actual circumstances of the case. Under these conditions a businessman has a clear obligation to abide by the enactments of the state. It is unfortunate that many states have abused their power, and lost the legitimacy that would lead businessmen and other citizens to obey them wholeheartedly.



The considerations a businessman has to bear in mind are structured by the role he occupies as employee, colleague, manager, or director. He has duties to his superiors, to his directors, to his shareholders, which certainly restrict his freedom of action, and which may seem to leave him with no alternative. But often he is the victim of false images which distort the picture he forms of himself and his situation. He is led to believe that he has no freedom of action, or that his one overriding duty is to maximise the profits of the shareholders. Yet he feels that the arguments are not all one way, and would like to be able to think clearly through a maze of conflicting responsibilities. it can be done, but is not easy. Often there is no clear-cut path of duty, and the businessman has to balance conflicting obligations. But that is nothing new. We are familiar with the dilemmas of private life, and though their resolution is not easy, we are sometimes able to



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discern what we ought to do. The same is true in business life. If we can understand, without distortion, the true nature of business transactions, we can try to think out the differing obligations that flow from them. The aim of this article is to help the businessman do that; not to give him easy answers, but help him in the difficult task of working out his own answers on his own.




Handy, C. B. (1995), The Empty Raincoat (London: Arrow Business).

Sorell, T. and Hendry, J. (1994), Business Ethics (Oxford: Butterworth-