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A modest business proposal

Business has lost its way; modern businesses say that as long as they haven’t broken the law, they’ve done nothing wrong. So, is it time for big companies to learn a bit of humility?

In his classic book After Virtue the philosopher Alasdair MacIntyre paints a picture of a world where some cataclysmic event has occurred that has somehow destroyed our understanding of science.

The body of knowledge which had been built up over thousands of years has been torn apart and only bits and pieces of it have survived. In this dystopia, our understanding of the world around us is fragmented and confused.

He then suggests that exactly something like this has happened not in the realm of the natural sciences, but in ethics. The apocalyptic event was, he says, the Enlightenment, which destroyed the subtle ethical knowledge and practice that had grown out of thousands of years of Greek, Roman and Christian culture.

Our current moral discourse, MacIntyre thinks, is a paltry, threadbare thing, the equivalent of science if Newton’s, Galileo’s and Einstein’s works had all been forgotten.

I was reminded of all this last week when talking to a former chairman of a flourishing 200-year-old family business, who told me that business leaders need to rediscover “modesty”. People who build real, stable, sustainable businesses are invariably modest, he said.

He then introduced me to an entrepreneur who had built two very successful companies. “Ah, I have been very lucky,” said the second man, rather elegantly proving the point.

Modesty is a pretty unfashionable concept, like prudence, honesty, probity, honour and compassion. It’s almost impossible to imagine most businesspeople using these terms, yet these were common concepts to many founders of family firms, such as the Quaker families behind Clarks, Rowntree, Barclays, Lloyds and – believe it or not – Sony.

At some point, business lost its ability to employ this old moral language. Often, modern businesses say that as long as they haven’t broken the law, they’ve done nothing wrong. (Starbucks, Amazon, Google et al.) That’s a pretty minimal definition of ethical behaviour.

A word like “modesty” might sound abstruse and old-fashioned, but it is actually very pertinent to one of the biggest issues in modern business: executive pay. We all know that CEOs are paid massive multiples of their firms’ average worker. According to recent Bloomberg research, in 2011 the CEOs of S&P 500 companies earned 204 times the average worker in their firm, up from a ratio of 170:1 since 2009 (and 20:1 in the 1950s).

Most people dislike those numbers. But a recent International Labour Organisation study suggests that the picture is even worse. It found that since 1970 profits at leading firms have increased way above the historical trend. In fact, profits increased at almost exactly the amount that wages have fallen, and the trend is seen in almost all economies. It seems that executives have cut wages to increase profits, which has in turn boosted their own profit-linked pay.

Such behaviour is going to cost those businesses dear sooner or later as shareholders and customers get sick of it. The arrogance – or, to use another term, lack of modesty –these CEOs display will be their businesses’ undoing.

There are few decisions more evidently ethical in business than cutting people’s wages, but the prevailing business language sees that decision solely in terms of economics: if you can reduce salaries, you should. This crude view aids and abets decisions that adversely affect millions of people. We need a new language for business with ethics at its core. Talking about modesty might be a good start. 

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