A question of business ethics?

DeLisa Winters asked:

The Budgeting VP for the large publicly traded corporation which I work for was very upset with me. I am a Divisional Manager with the company. After reviewing the midyear budget reports my Budgeting VP was angry because I had not spent all the monies allocated for new equipment purchases, i.e. computers, copiers, etc.

I indicated that my department did not need new equipment at this time and mentioned that I would like to use the money on employee training since no new equipment was needed.

My VP told me that it is not my job to decide how monies should be spent. In fact, I was reprimanded by my VP because I had not spent the money as directed. I was told also, if I did not spend the money as directed by the end of the third quarter, the money would be reallocated to a colleague’s budget, who is also a Divisional Manager, for equipment purchases in her department.

A statement was made that my colleague would spend the money allocated to her department as directed regardless of whether the equipment was needed or not. Additionally, I was told that my budget for next year will be significantly reduced if I did not adhere to what was told to me.

To me, my VP violated all ethical standards. I’m wanting to get someone else perspective on this so that I can see if I’m looking at this wrong or if what she said to me was unethical.

If so, if you were in my place what would you do? and … What changes should my company make to improve our resource allocation within the organization in cases like this?

Answer by Peter Jones

My sympathies. I see you have run foul of a very common problem. When chasing public funds it is often best to do so when budget deadlines are just coming up, since may public institution adopt the same ‘use it as we planned or lose it next year’ approach, including central government, and they can be desperate sometimes to spend up the budget in time.

I do not see an ethical issue but a management problem. The issue for the company, I would say, is whether it wants to devolve responsibilities or run everything from the centre. The modern trend is towards the the latter since modern communications technology and computer power now allow it to be done very easily. But it is usually highly inefficient at a local level in important respects, and very often for the reasons you give.

What would I do? I would buy myself a fantastic new music workstation, a couple of laptops, a big screen TV, a top of the range photocopier, lots of fancy software, call it miscellaneous equipment and take it home. If there’s anything left I’d ask my staff what they wanted for Christmas.

No. Really. What I would do is spend it in advance. I’d pay my suppliers for some appropriate but notional products and services, stuff you expect to have to pay for next year, get an invoice and if possible a receipt, account for it as spent, and then be in credit with them for next year. I used to do this all the time to get around the problem. It means next year you can make amazing budget savings. It’s standard practice for European Commission funded projects and used to be about the only way to make them work. All big institutions fall foul of this sort of wastage unless they trust their managers to make sensible decisions. Just check out a few government departments, they are masters of this sort of nonsense. Come February/March everybody is desperately trying to waste money all over the place in order to avoid budget cuts in the next year. Better to hide it away for a rainy day. Budget management by dictat from the centre can be globally efficient, but at a local level it’s often just a recipe for wasting money and demotivating managers.

Not sure what this has to do with philosophy but it’s an interesting issue. If you find the solution a lot of people will be interested.

Answer by Jürgen Lawrenz

The rather brutal answer to your predicament is this: that ethics and business are never happy bedfellows.

The reason is that ethical philosophy seeks a standard of behaviour by which human beings may live in society without hurting each other, and at the same time facilitating the pursuit of happiness for each individual.

Business, on the other hand, resembles politics by being principally concerned with the exercise of power. Business has a target or purpose in which the human being is made happy contingent on accepting the benefits rendered by business. In the context of small business, the two frequently go hand in hand. People in society have a need for shoes, and the cobbler serves that need while serving his own needs at the same time by charging money that enables him to buy food for himself and his family.

Big business, however, although it exists in principle for the same reason, has none of the needs that explain the existence of small business. It does not charge for its services because it needs food etc., but because its investors want a return for their investment. Accordingly the self-perpetuating principle is the escalation of autonomy for money. The success of a business is gauged by the amount of excess of profit over expenses.

One practical outcome of this is that business must exert power on several fronts. In society by advertising to ensure that consumer will buy product X rather than product Y, and telling lies is part of that game. Inside by ensuring that staff minimise costs and maximise income. The staff are accordingly under pressure from the power of the business which affects their life significantly.

Your predicament is, that the exercise of this power is generally enhanced by mechanisation of its procedures — that is, removing the decisions of human beings from the scene, because humans are driven by ethical considerations. For business, ethics are a necessary evil, not a value. One look at the pharmaceutical industry or the weapons industry will tell you this.

Your idea of enhancing the skills of staff is an ethical idea. If this was useful to the company, they would support you. But it costs money; and while equipment costs money too, this disbursal can be rationalised under the ethics-free tenets of mechanisation. Business would always choose machines to do the work that has to be done and dismiss personnel, if it is possible. But if business has to hire staff, they would obviously also prefer staff that arrives, already trained. Why not? Why do we have technical colleges, run by government (i.e. public money)? To make staff training cost-free to business.

What you are doing, therefore, is to infract the power structure of business. You are operating under the assumption that human values play a positive role in business, whereas the opposite is the case in most instances.

It is very sad, for you and for mankind altogether. We Westerners have promoted the idea (based on Locke’s political theories) that freedom of economic agency is the foundation of a liberal society. Poor old Locke had no notion that business would thereby become a political power running in parallel with social political power. Furthermore that this political power can be restrained with only the greatest difficulty under the principles on which democratic societies are structured.

I think I’ve said enough to make the point. I will conclude by noting that Machiavelli is nowadays part of the business curriculum. Machiavellianism has become the philosophical backbone of business; it is being studied more intensively by business leaders than by political leaders. I think that says more than a thousand words in explanation of your ethical worries. I’m sorry to say that your situation is practically hopeless. Philosophy and ethics are each concerned with ‘truth’ and ‘justice’ in the human context. The truth and justice of business is the benefit such concepts render to business.

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