“But I don’t want to be moral!” That’s what a CEO spontaneously exclaimed when he was given my book, How to Be Profitable and Moral. Why did he say that, and did he really mean it? I wasn’t there to ask, but I can guess what prompted his response.
As most people, the CEO likely associated morality with altruism, the moral code that dominates today’s culture. Altruism prescribes self-sacrifice for others’ benefit and therefore condemns profit maximization as selfish – and immoral. When prescribed altruism for moral guidance, CEOs and other executives who are legally obligated to maximize profits in return to their shareholders’ investment, are faced with an impossible choice: profit maximization or ethics.
What do business executives, like this CEO, choose when they conclude that ethics, or morality, is anti-profit and anti-business? They put morality aside because they think it hurts business and opt for pragmatism: maximize profits in whichever way works the best. Yet, many executives pay lip service to altruism (and some may even be true believers although money-losing companies cannot be sustained for long). They invest some resources in initiatives such as ESG (environment, social, governance) and DEI (diversity, equity, inclusion) programs to signal corporate social responsibility to their companies’ stakeholders and to avoid being labeled “greedy capitalists.”
Such approaches to long-term profit maximization are bound to fail. Just look at Sam Bankman-Fried (SBF), former CEO of FTX, and Elizabeth Holmes, former CEO of Theranos. Both tried to maximize profits in whichever way “worked” and were convicted of defrauding their investors. Virtue signaling may not lead to jail sentences, but it does detract from profits. Observe asset managers such as BlackRock that are now quietly closing their underperforming ESG funds that they had touted as “ethical investments.”
Such approaches are bound to fail because long-term profit maximization requires guidance from ethics, albeit not from altruism. Business executives need guidance from moral principles because they (and the rest of us) don’t have automatic knowledge about how to maximize profits and are prone to making errors, including the really bad decisions that SBF, Holmes, and others have made. As fallible beings (we must think to obtain accurate knowledge), we don’t have a choice about the necessity of ethical guidance to achieve long-term goals. The question is not: Should we apply ethical principles in business? But: Which ethics should we adopt?.
Altruism is not the right ethics for business. Fortunately, there is another moral code that provides guidance for long-term profit maximization: rational egoism (egoism for short). Instead of self-sacrifice, egoism advocates pursuing rational self-interest, which business firms do by creating and trading material values.
Material values are goods and services that are beneficial to human life, such as investment products that increase wealth (instead of diluting or destroying wealth like the ESG funds or FTX’s cryptocurrency exchange), blood tests that detect illnesses (unlike Theranos’ tests) – and countless other life-enhancing products besides, from energy to food to pharmaceuticals. Egoism guides the creation of material values with the principle of rationality: the commitment to reality in one’s thinking and action (against any kind of pretense or evasion).
Rational self-interest is also guided by the principle of justice. In business, this means mutually beneficial, voluntary trade with various partners (customers, employees, and suppliers), as opposed to exploiting others through fraud or coercion, or sacrificing to any claimant that seeks unearned benefits from the company. Creating and trading material values leads to win-win outcomes, instead of the unsustainable lose-lose outcomes of companies diluting profits in altruistic equity-seeking initiatives such as ESG and DEI programs or fraudulent exploiting of others.
Voluntary trade of material values leads to win-win outcomes to all parties. Customers get products and services they value more than the price they pay; in exchange for their productive input, employees get jobs and salaries that they value more than the next best alternative; suppliers get the best possible price for their products that the client values more than the price it pays, and shareholders get the best possible return on their investment. Each trading partner gets what they deserve, or they go and trade elsewhere.
Once business executives, like the CEO who didn’t want anything to do with morality, learn that there is an egoist alternative to altruism and amoral pragmatism, they may want to reconsider their view of ethics as at best irrelevant or at worst, harmful, to business.
If they study the principles of egoism (self-interest, rationality, productiveness (value creation), justice, and others) and want to maximize profits, they will benefit from revising their conclusion to: “I want to be moral – because I want to be profitable” and then seek guidance from the egoist principles.
Photo credit: Jhon Jim on Unsplash