Jul 012015
 

PROFITS vs. ETHICS

Overview

There are many who mistakenly think that the phrase, “business ethics”, is an oxymoron – that there is something inherently unethical about making a profit. In the sections below, I will not only address this fallacy, but will also go on to explain the four paradigms from which business owners can select how they will prioritize their ethics in relation to their profits.

What Is “Ethical”?

The best definition I know for an ethical act is, “any act that increases awareness, creativity, love, objective truth, or personal evolution without limiting or diminishing any of these resources for anyone.” While this definition may seem a little clumsy to some, it is nonetheless valid, in that acting in accordance with it actually increases all of the resources listed. Also, a simple exercise of logic applied to this definition yields an extensive set of ethical principles, allowing for its straightforward application to the day-to-day decisions we all are called upon to make.

For a much more detailed discussion of this subject, read, “Ethics, Law, & Government” on the titanians.org website.

Profit Motivation

It is a fundamental fact of life that living beings choose to engage in actions that improve their condition. Plants do this. Animals do it. And so do humans. In the case of the most generous self-effacing charitable giving, the giver’s condition is improved by feeling good about having given the gift.

In the world of business, improving one’s condition translates into making a profit – be that profit financial, emotional, or otherwise. In the absence of such motivation, there would be no business; almost no one would work, and all of society would suffer. For the purposes of this analysis, let’s think just in terms of financial profit.

The Four Paradigms

  1. The first paradigm applies to all businesses that rank profit as more important than ethics. In this instance, the ethics is irrelevant and need not be considered at all. I call this the “Mafia Paradigm”; and its de facto ethic is the Power Ethic; i.e. “Might Makes Right”. This paradigm is parasitic, and inevitably leads to self-destruction – as the parasite kills its host. A hallmark of this paradigm is the fact that businesses that adopt it almost always form cartels and then call on government to enforce the cartel’s rules.

  2. The other three paradigms under discussion all place the ethics ahead of the profit, requiring the business to avoid acting unethically. The differences between the three being in the role of profit. In the second paradigm, every transaction is constrained to be profitable or otherwise advantageous. This model is, in fact, the one chosen by most successful businesses.

  3. The third paradigm, sometimes chosen by people who disapprove of profit, constrains actions to be ethical; but only requires transactions to break even, rather than turn a profit.

    This model consistently fails – resulting in an organization that is constantly on the brink of insolvency – until it eventually goes bankrupt. This is often the fate of “non-profit” organizations, because their self-image is incompatible with profitability.

  4. The fourth paradigm is often the most successful, though there’s a trick to making it work. This paradigm requires impeccable ethics with no consideration of profitability whatever. While conceptually very counter-intuitive, this actually works – but there’s a catch.

    Successful businesses employing this paradigm never start out using it. Instead they begin by using the 2nd paradigm, and later transition to the 4th after establishing a solid financial base. Not infrequently such organizations eventually become donation-based, permitting each customer to define the value of what they have received.

Conclusion

It should be noted that most businesses do not operate consistently within one of these paradigms, often applying the ethics more or less randomly – even though they would be improved if they picked a paradigm that works and stuck with it. It’s my hypothesis that the inconsistency in applying the ethics is due primarily to ignorance concerning the nature and importance of ethics per se. If you are a business-person, and you apply what you’ve learned from this little article, your probability of success will be much improved.

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