Why CEOs need principles, not pragmatism

Why CEOs need principles, not pragmatism

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In a recent column in the Financial Post Magazine, Terence Corcoran praises the chairman and former CEO of Nestlé Group, Peter Brabeck-Letmathe, for his principled defense of business, capitalism, and property rights. Corcoran quotes Mr. Brabeck-Letmathe as having said: “I don’t feel we should have to give back to society because we have not been stealing from society.” (See Yaron Brook and Don Watkins’ Forbes.com column about “giving back” here.)  Nestlé’s chairman has also dismissed the argument that water is a human right: “Water is a foodstuff like any other, and like any other foodstuff it should have a market value.”

Mr. Corcoran then contrasts Brabeck-Letmathe’s principled stance to the mixed bag of conflicting principles of the Canadian Council of Chief Executives. On one hand, it advocates free trade and dismantling of supply management (of Canadian agricultural products), yet, on the other, it endorses anti-business and anti-market ideas such as “sustainable” development, carbon taxes, and government subsidies for R&D, and even compromising property rights (at least some members do, such as CEOs of pipeline companies).

In the council’s defense, Corcoran argues that pragmatism, a mix of opposite principles to be applied expediently, is necessary for survival in a mixed economy such as Canada. He suggests the council and its member CEOs are politically savvy by checking which way the parade is going before joining in. But Mr. Corcoran is wrong, and such pragmatism is not defensible. While it is true that in any statist system, such as a mixed economy, the government can and does initiate force against its citizens and while it is not in anyone’s self-interest to become a martyr by upholding principles under the threat of force, CEOs (and all businesspeople) should follow the example of Nestlé’s chairman, not of the Canadian Council of CEOs. Let’s see why.

Upholding the principle of property rights by refusing to pay taxes leads to a loss of property or freedom: fines, confiscation of property, and even prison sentences. Such self-sacrifice is not advisable. However, in mixed economies such as Canada, the United States, and most Western countries, government’s power to initiate force is limited and freedom of speech generally prevails (despite the efforts of Human Rights Commissions in Canada and similar initiatives elsewhere). Unlike Mr. Corcoran, I argue that in such contexts of relative freedom, it is crucially important that CEOs act consistently on principle and abandon expediency: switching between opposite principles when convenient.

CEOs are responsible for the long-term direction and performance of their companies. If they want to achieve long-term flourishing for their firms, they do not have a choice: the only way to get there is to act on principle. As humans, we do not have automatic knowledge of the right goals to pursue or the means to get there, yet our goals are long term and the route to them not clear cut, which requires complex choices. The only way fallible beings can achieve long-term flourishing, such as running a successful, complex business, is to identify principles—general, fundamental truths—and use them as guidelines to action. If a CEO identifies a principle that a long-term success of business requires, such as free trade, but then lobbies the government for protectionism against foreign competition, he is compromising the principle—and undermining the long-term success of his company (which requires freedom, not government interference in the economy).

CEOs need to identify the principles required for the long-term success of running a company. Some of them pertain to the political and economic context of business, such as the principle of free trade and the principle of property and other individual rights. Some pertain to operating a business, such as principles of value creation, competitive advantage, and moral principles of honesty, independence and justice. When these principles are under attack, CEOs must speak up. Remaining silent implies agreement with the attackers, and endorsement of principles antithetical to flourishing business is worse. Both undermine the requirements of business success. The Canadian Council of Chief Executives, and all CEOs, should learn from Mr. Brabeck-Letmathe. Defending pro-business principles and acting on them often takes courage but that is what CEOs must do—if long-term success is their goal.

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4 Responses

  1. Excellent, as always, Jaana. Thank you!

    When Rearden finally learns, he will save the world. Ideas direct the course of history, but wealth is the fuel.

  2. Well said. Thank you for writing this. Unfortunately, it seems that pragmatism is widely regarded as a virtue. Politicians tout pragmatic decision making and the general public accepts and advocates it. Those who are principled are labeled as ideologues, dogmatists, extremists, etc.

    If people understood the virtue of being principled I think they’d act on it.

    Principled = consistently right in the face of wrong
    Pragmatic = mixing right with wrong and calling it right

    How can we inspire people to value principles and reject pragmatism when the opposite has been the norm for so long?

    1. Thank you for your comment.–Acting on principle is in people’s self-interest. They would not throw out the map or the GPS when they are trying to reach an unfamiliar, distant destination. Abandoning principles, or compromising them, while trying to achieve long-term values is analogous of throwing out the map. Once people see that, they will be inspired to apply principles.

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.

She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.

Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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