Moral capitalism reconciling private interest with the public good

Moral CAPITALISM Moral CAPITALISM Reconciling PRIVATE INTEREST with the PUBLIC GOOD STEPHEN YOUNG Moral Capitalism Copyright © 2003 by Stephen Young All rights reserved No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address below Berrett-Koehler Publishers, Inc 235 Montgomery Street, Suite 650 San Francisco, California 94104-2916 Tel: (415) 288-0260, Fax: (415) 362-2512 www.bkconnection.com Ordering information for print editions Quantity sales Special discounts are available on quantity purchases by corporations, associations, and others For details, contact the “Special Sales Department” at the Berrett-Koehler address above Individual sales Berrett-Koehler publications are available through most bookstores They can also be ordered directly from Berrett-Koehler: Tel: (800) 929-2929; Fax: (802) 864-7626; www.bkconnection.com Orders for college textbook/course adoption use Please contact Berrett-Koehler: Tel: (800) 9292929; Fax: (802) 864-7626 Orders by U.S trade bookstores and wholesalers Please contact Ingram Publisher Services, Tel: (800) 509-4887; Fax: (800) 838-1149; E-mail: customer.service@ingrampublisherservices.com; or visit www.ingrampublisherservices.com/Ordering for details about electronic ordering Berrett-Koehler and the BK logo are registered trademarks of Berrett-Koehler Publishers, Inc First Edition Hardcover print edition ISBN 978-1-57675-257-9 PDF e-book ISBN 978-1-60994-197-0 IDPF e-book ISBN 978-1-60994-605-0 2011-1 Cover design by Marquardt Art / Design CONTENTS Preface Is a Moral Capitalism Possible? The Many Varieties of Capitalism Brute Capitalism: Survival of the Fittest Moral Capitalism: Using Private Interest for the Public Good Moral Capitalism and Poverty: Must the Poor Be With Us Always? The Caux Round Table: Advocate for Moral Capitalism Customers: The Moral Compass for Capitalism Employees: Parts for a Machine or Moral Agents? Owners and Investors: Exploiters or Potential Victims? 10 Suppliers: Friends or Foes? 11 Competitors: Repealing the Law of the Jungle 12 Community: Enhancing Social Capital 13 Principled Business Leadership: Stepping up to the Challenge of Moral Capitalism Appendix I Appendix II Notes Index About the Author PREFACE like the Caux Round Table (CRT) Principles for Business to apply in their calculations of how best to gain business advantage will impact their behavior Teaching of norms, while no guarantee that students will apply their lessons well, nonetheless is where we must start in building a moral community Great teachers like Jesus Christ, Confucius and the Gautama Buddha gave us stories and principles by which we could, in their minds, so order our daily lives that we would become more worthy and find greater happiness The end of their teachings was that we would apply in our own lives—by means of our own mental and emotional abilities—ideas and understandings that we have learned from them Such idealists and teachers of morality, however, are often dismissed by self-proclaimed realists or “practical people” as being excessively naïve in that their aspirations for humanity go beyond the apparent scope of the possible We may note that sin is still with us, even among his followers, though Jesus preached against it Nowhere is this skepticism more vibrant than in business Ideals and morality are often spoken of as virtual antimatter to the behaviors allegedly needed to maximize profits Allegedly, Brute Capitalism is the way to go, so that any admonitions contrary to its teachings are dismissed as drivel So the CRT has a problem: publishing principles does little to get them implemented The CRT understands that morality works in the business corporation though hierarchy, moving from vague but lofty ideals down through principles and standards, to objectives and then to action Consider the following chart illustrating the flow-throw of ideals into accomplishments: This chart represents the value-action system of Moral Capitalism It stands in contrast to the Enron Chart of Chapter 3, which illustrates the more brutish version of market capitalism At the highest level of the Moral Capitalism Chart directing our principles, our standards, our management benchmarks and our decisions, we find our best ideals, our highest aspirations, our vision of the common good Setting these values and ideals in place for a corporation or a business is the responsibility of its owners, its board of directors and its top managers These governing ideals could be taken from religion, but they don’t have to be found only there People responsible for an enterprise could agree among themselves on a common goal, arriving at that end from different religious starting points In just such a fashion did the CRT Principles for Business themselves arise from a blending of Roman Catholic teachings and American Protestant and secular traditions of stewardship with Japanese Buddhist and Shinto perspectives At the next level below our ideals, the socially responsible business should place a set of principles, like the CRT Principles for Business, or the nine principles of the United Nations’ Global Compact Flowing down towards more objectivity and specificity, we next find standards and guidelines such as the self-assessment and implementation management process invented by the CRT and called “ARCTURUS” At the level of stakeholder engagement, a company seeking to meet its proper responsibilities under a Moral Capitalism would apply to its decision making the considerations listed for each of the six stakeholder groups in Section of the CRT Principles for Business These specific stakeholder considerations are discussed in Chapters through 12 following GIVING PEOPLE MENTAL CONSTRUCTS Then we come down to the most challenging level of all: the level of walking-the-talk—actual rubber-meets-the-road, shoulder-to-the-wheel, management performance At this level, the devil is truly in the details Judgment and intellectual effort are required to square-up the details with the company’s standards, principles and ideals ACKNOWLEDGMENTS A book such as this, which hopes to cover intellectual ground from ancient philosophers both Eastern and Western through theories of political jurisprudence and economics to practical business realities, has many authors I especially want to acknowledge the following who contributed in specialways to my ability to write this book From my college years at Harvard, I am especially indebted to Professors David Riesman (a mentor until his death), Samuel Beer for his course Social Science II, and Samuel P Huntington for advising my senior thesis Also, Barrington Moore, who taught me Marxist analysis, and Evon Vogt, who accepted me for the Chiapas internship in social anthropology in 1965 and put me to the study of Tzotzil Maya At the Harvard Law School, Victor Brudney opened my eyes to the inner dynamic of capitalism— corporate finance—and Harold Berman showed me how law is given context by religion For learning to look at the First World from a Third World perspective, I am grateful to the late Chep Sanchez, Presidente of the Municipio, who brought me into the process of judicial decision making as a Mayol, or police deputy during my months in Zinancantan, Chiapas; to Nai Promee Srisanakrua and his family, who warmly introduced me to Ban Chiang, Thailand, in 1965; and to numerous village elders in Vinh Long, Vietnam For understanding how to rise above cultural relativity and to enter the cultural world of the Vietnamese, I am in special debt to my father-in-law, Mr Pham Do Binh, and to Prof Nguyen Ngoc Huy, whose wisdom and humanity were unsurpassed in his generation Lewis M “Skipper” Purnell of the US Foreign Service and Dr Walter Slote of New York City taught me how to see social psychology as the cauldron into which is poured politics, economics, culture, religion, life, and out of which come our destinies For an introduction to the Caux Round Table, I must thank Michael Olson, whose dedication to principled leadership is most worthy of rememberance Winston R Wallin and George J Vojta have given me the opportunity to serve the vision of that organization under their guidance and instruction as successive Caux Round Table Chairmen Jean-Loup Dherse of France, John Dalla Costa of Canada, and Prof Kenneth Goodpaster of the University of St Thomas gave shape to my thinking on business ethics And for the truth that service brings both honor and assurance of a life well-lived, I thank my great grandmother, Mina Lamb of Calais, Maine, my grandparents, George M Morris and his wife Miriam Hubbard Morris, my grandmother Marion Hunt Young, my father, Kenneth Todd Young, Jr., and my mother, Patricia Morris Young For suggesting that this book be attempted all credit goes to Fred Senn of Minneapolis My colleagues at the Caux Round Table—Maarten de Pous, Lorri Kopschike, Dean Maines, Ronald Lattin, Minoru Inaoka—and all those who read the manuscript to improve it—have my most grateful thanks for their support I offer this work to all these and more in partial payment of the debt of life Stephen Young St Paul, MN October 2003 CHAPTER IS MORAL CAPITALISM POSSIBLE? The mind of the superior man is conversant with righteousness; the mind of the mean man is conversant with gain —Confucius, The Analects, Bk IV, Chpt XVI As there is a degree of depravity in mankind which requires a certain degree of circumspection and distrust, so there are other qualities in human nature which justify a certain portion of esteem and confidence —Federalist No 55, Friday, February 15, 1788 that moral capitalism is possible First, in Chapters through 5, it justifies faith in moral capitalism; then, in chapters through 12, it provides a practical guide for those who want to achieve moral capitalism in their business pursuits and professional undertakings Finally, in a concluding chapter, it discusses how, in these times, we can cultivate leadership sufficient to build a moral capitalism Seeking market profit through business and the professions is honorable and worthy Based on the ideas and principles set forth in these chapters, I believe that each of us can indeed go to work every day for any business, great or small, feeling genuinely happy and proud of our career commitment For those more removed from careers in business, this book affirms a vision of social justice: that moral capitalism is the most appropriate means by which our modern, global human civilization can empower people and enrich their lives materially and spiritually The understanding of human potential that I present in this chapter is not just mine I have endeavored to link its main features to the thoughts and writings of great minds from different cultures throughout the centuries In 1994, business leaders from Japan, Europe, and the United States met as a round table discussion group in the little Swiss mountain hamlet of Caux and proposed certain principles for moral capitalist decision making These Principles are known as the Caux Round Table Principles for Business For several years now I have come to know these Principles well through my work as the global executive director of the Caux Round Table organization I have seen them affirmed by experienced and successful business leaders in many cultures The Caux Round Table Principles are a concentrate of moral, ethical, philosophical, and jurisprudential wisdom from many traditions We have explored how they reflect teachings from Chinese moral philosophy, Islam, Hinduism, African Spirituality, Judaism, Roman Catholic social teachings, Protestant insights, Japanese Shinto, Mahayana and Theravada Buddhism, and the ethical traditions of native Meso-American peoples Importantly, however, the Caux Round Table Principles also draw wisdom from successful business accomplishment Written by senior business leaders, these Principles combine social virtue and self-interest into one way of doing business In this book, I present my view as to how the Caux Round Table Principles for Business justify and structure a moral capitalism for the world THIS BOOK AFFIRMS THE MOST PROFITABLE BUSINESS COMBINES VIRTUE AND INTEREST A successful business maximizes the present value of future earnings The first requirement, therefore, of business success is sustainable profits Onetime winnings, in business as in casinos, are disappointing We expect more from our investments than that To sustain our profits over time, we need to replenish the capital we invest in the business That capital comes in five different forms: social capital, reputational capital or “goodwill,” finance capital, physical capital, and human capital These forms of capital are the essential factors of production We must pay for them out of the earnings of the business A business that neglects to pay for its capital will soon lose access to capital Then it will quickly lose its profitability Failure results when capital flows are insufficiently nourished Social capital is provided by society; it is the quality of laws, the cultural and social institutions, the roads, ports, airports and telecommunications, the educational achievements, the health and value environments that encourage or discourage successful enterprise Reputational capital adds value to a business by attracting and keeping customers, employees, investors, and suppliers Finance capital is the classic form of capital: access to money Physical capital is land, plant, and equipment And human capital embraces the quality, creativity, loyalty, and productivity of employees When a business contributes to social capital, it is acting responsibly and ethically When a business invests in its reputation, it better serves the needs of consumers and meets the expectations of society When a business invests in its human capital, it provides better lives and working conditions for its employees In preserving its access to these necessary forms of capital by paying a return on capital from earnings, a business acts from self-interest but promotes social well-being at the same time The selfish pursuit of the “bottom line,” therefore, leads a responsible business to satisfy the needs of others The consequences arising from self-interest when a business seeks to maximize sustainable profits is selfish from one perspective but simultaneously moral from another Figure 1.1 illustrates the cycle of a successful, self-sustaining business In one half of the cycle, five forms of capital inputs are converted by the business into a good or service for sale to a customer for a profit Then, along the bottom, Figure 1.1 illustrates the other half of the business success cycle —the reverse flow of profits paid out as a return on all forms of business capital The successful business stays in business; it repeatedly cycles capital through the production of goods and services to please customers and make an attractive profit for itself It maintains the adequacy of its capital inputs just as it continually attracts customers willing to buy its product or service Michael Porter advises, “Gaining competitive advantage requires that a firm’s value chain is managed as a system rather than a collection of separate parts.”1 The wise steward of enterprise makes a profit in ways that preserve access to all forms of capital The enterprise is not self-contained and self-sufficient but, rather, is importantly dependent on inputs controlled by others It must please others in order to prosper That service is a moral activity, subordinating self to what is beyond the self Dependency, 135 Dickens, Charles, 36, 171 Dignity, 50, 63, 65, 81, 117, 120 serving human dignity, 96–98 Discrimination, 120 Dot.coms, 18, 162, 163, 164 E Economies, 19–20 See also Business values Education, 65, 71 promoting, 180–181 Emerson, Ralph Waldo, 193, 195–196 Employees, 141–142 communication with, 118 discrimination against, 120 discussed, 109–122 health and dignity, 118 living conditions, 117 protecting, 120 Engles, Friedrich, 36, 171 English Corn Laws, 35 Enron, 18, 34, 37, 38, 40, 44, 49, 58, 87, 95, 96, 103, 104–105, 119, 127, 129, 130, 131, 143–144, 162, 163, 168, 171, 193 Environmental considerations, 26, 82, 85–86 Equity, 126, 176 Ethics, 5, 12, 192 “business ethics”, 79 Protestant ethic, 94 Extractive industries, 175 F Facticity, 9, 12 Fads, 50 Failure, 121 Fairness, 148 Faith, 192 Fan Li, 10 Fear, 188 Fiduciary ideal, discussed, 56–59 Fiduciary law, 127–128 See also Law Finance capital, Foreign investment, 66–69 Fraud, 101 Free markets, 35, 49 Freud, Sigmund, 11 G Game theory, 156 Genius of And, 5, Giri-on, 24 Global Crossing, 95, 130, 171 Global Reporting Initiative (GRI), 170 Globalization, 160–161, 169 consumer and, 101–102 greed and, 17–18 poverty and, 61–63, 66–67, 74–75 Goals, 14 God, 8, 18, 36, 136 Golden Rule, 132 Goldman Sachs, 164 Goldwater, Barry, 43 Good to Great (Collins), 5, 191 Goodwill, 2, 102, 103 Great Depression, 42, 163 Greed, 132–133 globalization and, 17–18 GRI See Global Reporting Initiative H Habermas, Jurgen, 9, 12 Habit, 14 Hacendado, 26 Hegel, G.F.W., 8, 47, 48 Human capital, 3, 174 Human rights, 170, 172–173 I Illicit operations, 86 Immigrants, 69 Incentives, 57, 116 Individuality, 50, 168, 178 Industrialism, 35 Inflation, 63 Infrastructure, 71 Innovation, 157–159 International Standards Organization (ISO), 170 standard 9000, 142, 170 standard 14000, 170 Investment competition for, 162–164 money, 136–138 money held in trust, 127–128 need for finance, 125–127 owner as stakeholder, 128–136 poverty and, 67–69 return on investment, 128–129 Islam, 18, 65, 69 ISO See International Standards Organization J James, William, 137, 152 Japan, 69, 142–143 business values, 24–26, 77, 122 John Paul II, Pope, 58, 80 Judaism, 18 K Kaku, Ryuzaburo, 8–9, 78–79, 80 Keiretsu, 24–26 Kickbacks, 146 Kohlberg, Lawrence, 11–12, 14 Koran, 9, 19, 77, 167, 187, 195 Kyosei, 78–79, 80, 81, 85 L Labor, 53, 109–110, 160, 171 Labor markets, 50 Law, 56–57, 71, 127 See also Rules agency law, 111–113, 116–117, 142 Common Law, 112 contract law, 110–111 corporate law, 19 fiduciary law, 127–128 rule of law, 49, 100 Leadership, 133–134 See also Business center of gravity, 189–192 in general, 185–186 good judgment and, 194–195 moral capitalism and, 186–187 principled leadership, 192–193 virtue and, 195–198 Libertarians, 33–34 M MacGregor, Robert, 79 Mahatir, Mohammed, 75 Maine, Henry, 110 Malaysia, 66, 67, 72, 75 Malcolm Baldridge Quality Award Program, 89, 142 Markets, 171–172 Marx, Karl, 36, 94, 111, 171 Maslow, Abraham, 14–15, 116 Mencius, 8, 10, 12, 101 Mentoring, 197 Mergers, 161–162 Mexico, 70 business values, 26–28, 77 Middle class, 35, 99–100 Minnesota Center for Corporate Responsibility, 79 Mo Di, 20, 22–23 Mohammad, Money, 52, 63 as bitch goddess, 136–138, 152, 163 Monopoly, 104, 161–162 Moral capitalism company obligations and, 102–105 democratic choice and, 99–100 fiduciary ideal, 56–59 finding an office to perform, 53–56 finding persons to build, 11–16 in general, 1–2 individualism, 50 leadership and, 186–187 moral behavior, 49 mutuality, 50–53 private property, 47–49 Moral development, 11–16 Morality, 54, 87 business morality, 5–8 choosing the moral way, 16–17 Morgan, J.P., 130 Mutuality, 104, 113, 116, 141, 153 See also Reciprocity discussed, 50–53 N Negotiation, good-faith negotiation, 119–120 NGO See Non-governmental organization Ninjo, 24, 25, 30, 79 Non-governmental organization (NGO), 169–170 Normativity, 9, 12 O Officis, 54, 56 Opportunism, 146 Organisation for Economic Co-operation and Development, 73 Owner, as stakeholder, 128–136 P Peace, 174 Pension plans, 68–69, 95 Philips, Frederick, 8–9, 77, 78 Physical capital, Pilgrims, 51–52 Plato, Pol Pot, 62 Political stability, 70 Population, demographics, 69 Porter, Michael, 3, 20, 145, 157–158 Poverty, 56, 177 See also Wealth Caux Round Table principles, 71–72, 83 discussed, 61–63 globalization and, 61–63, 66–67, 74–75 private investment and, 67–69 social capital creation, 70–71 twelve core best-practice standards, 72–74 wealth and, 63–66 Power, 44, 99, 137, 167, 171, 173, 178, 187 Price, competition and, 159–161 Prisoner’s dilemma, 156 Private property, 168 discussed, 47–49 Private sector, wealth, 66–67 Productivity enhancement, 65 Profit, 143–144, 159 combining with virtue and interest, 2–5 Proudhon, Pierre Joseph, 35, 169, 171 Q Quakers, 54 Quality, 144, 157–159 R Reciprocity, 100–101, 113, 187, 189 See also Mutuality Reid, Thomas, 6, 188, 194 Religion, 8, 14, 16, 18, 48, 87, 100 Rents, 29–30 Reputation capital, 3, 102–103 Responsibility, social responsibility, 171–172 Retirement plans, 68–69 Risk, 121 Robber barons, 42, 110, 137 Rules, 84–85 See also Law S Schumpeter, Joseph, 62, 171 Secrecy, 135–136 Self-interest profit and, 2–5 trust and, 51–52 “Self-interest considered upon the whole”, 5–8, 14–16, 34, 102, 122, 129, 187 Services, 147–148 Shinto, 58, 87 Six Sigma, 142, 157 Smith, Adam, 6, 8, 10, 12, 16, 34–35, 36, 41, 47, 52–53, 57, 151, 152–153, 154–155, 158, 194 Social Accountability International, 147 Social capital avoiding waste of, 181–182 costs of, 176–177 creation, 70–71, 174–175 Social Darwinism, 34, 37, 41–42, 43, 79, 94, 95, 110–111, 137, 153, 155, 180, 198 Social responsibility, demand for, 171–172 Socialism, 109 Soto, Hernando de, 48 South Korea, 63, 66, 67, 72, 99, 146 Southeby’s, 39 Southwest Airlines, 94–95, 114 Soviet Union, 80 Spain, 69 Spears, Britney, 17, 175 Spencer, Herbert, 36–37, 41–42, 43, 44, 79, 110–111, 116, 135, 155 Spitzer, Robert J., 12, 14 Stakeholder, owner as, 128–136 Stakeholder ethic, 81–82 “Stakeholder theory”, 79 Status, 27, 111, 112 Stock market, 61, 95 Stock ownership, 132 Subsidies, 62, 83, 94 Suppliers in general, 141–147 of services, 147–148 Sweatshops, 146 T Tao Te Ching, 19, 171, 196 Tao Zhu Gong, 10, 77, 93, 109, 141 Taoism, 11, 12, 189, 196 Teenagerism, 17–18, 43, 44, 101 Third world, economic development, 68 Time, 138 Tobacco, 82, 98–99, 102 Total Quality Movement, 111, 119, 142 Trade, 85 Trust, 49, 119, 145 mistrust and, 135 money held in trust, 127–128 Tyranny of the Or, 5, U Unemployment, 121 United Nations Global Compact, 87, 168, 170 V Values, 33, 138 Virtue, leadership and, 195–198 Vocation, 6–7 W Wall Street, 39, 41 War, 175, 178 Washington, George, 167, 177 Wealth, 48, 62 See also Poverty creation, 6, 115, 153 poverty and, 63–66 private sector wealth, 66–67 World Bank, 72 World Trade Organization, 75, 85, 160 WorldCom, 18, 39, 49, 95, 96, 119, 130, 168, 171 X Xun Zi, 1, 9–10, 14, 16, 20 Y Yeltsin, Boris, 173 Yin/yang, 20, 23 Z Zambia, 71–72 “Zen mind”, 12 ABOUT THE AUTHOR Stephen B Young has been Global Executive Director of the Caux Round Table since 2000 Educated at Harvard College and with a law degree from the Harvard University Law School, Young has taught and practiced law, writing in the area of fiduciary duties and agency relationships His scholarly examination of accountability has ranged from the law of war to the special status of native tribal communities in the United States as “domestic dependent nations.” Young has examined in nineteenth century common law court decisions how moral notions of stewardship accountability gave rise to modern standards of accountable business behavior in negligence and other tort liability He was an Assistant Dean at the Harvard Law School, and Dean of the Hamline University School of Law He has taught at the University of Minnesota and Minnesota State University, Mankato Young attended high school in Bangkok, Thailand where he learned to speak Thai; later, he also learned Tzotzil Maya and Vietnamese In 1966 Young discovered the bronze-age culture of Ban Chiang, Thailand, now a UNESCO World Heritage Site He worked in rural and economic development for the United States Agency for International Development in the Republic of Vietnam from 1968 through 1971 In 1975 Young initiated efforts to bring refugees from South Vietnam to the United States and in 1989 proposed the initiative of a United Nations interim stewardship administration as a formula for bringing peace to Cambodia At the Harvard Law School East Asian Studies Program, Young assisted with the translation and analysis of the Quoc Trieu Hinh Luat, the Vietnamese national law code of 1433, and, with Prof Nguyen Ngoc Huy, wrote on human rights values in China and Vietnam—The Tradition of Human Rights in China and Vietnam (published by Yale Southeast Asian Studies) Young has written on Chinese moral and political philosophy and has published on the psycho-cultural dynamics of politics in Vietnam and Thailand as well In 1976 he co-authored a monograph, Thailand: Domino by Default, which led to significant political reform in Thailand As Dean of the Hamline University School of Law, Young initiated the Journal of Law and Religion As a commentator on public affairs, Young has been published in the Wall Street Journal, The New York Times and the Washington Post He has been a commentator on television and public radio His essays are published monthly on www.fifthcolumnmag.com Berrett-Koehler Publishers Berrett-Koehler is an independent publisher of books and other 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To find out about what’s happening at Berrett-Koehler and to receive announcements of our new books, special offers, free excerpts, and much more, subscribe to our free monthly e-newsletter at www.bkconnection.com Berrett-Koehler Publishers PO Box 565, Williston, VT 05495-9900 Call toll-free! 800-929-2929 am-9 pm Eastern Standard Time Or fax your order to 802-864-7627 For fastest service order online: www.bkconnection.com ... Preface Is a Moral Capitalism Possible? The Many Varieties of Capitalism Brute Capitalism: Survival of the Fittest Moral Capitalism: Using Private Interest for the Public Good Moral Capitalism. . .Moral CAPITALISM Moral CAPITALISM Reconciling PRIVATE INTEREST with the PUBLIC GOOD STEPHEN YOUNG Moral Capitalism Copyright © 2003 by Stephen Young All rights reserved No part of this publication... superior The individual would take orders from his or her father, the father from the village chief, the village chief from the district chief, the district chief from the provincial governor, the