Good ethics don't overrule profits, two books show
Beyond the Bottom Line: How America's Top Corporations are Proving that Sound Business Ethics Means Good Business Practice, by Tad Tuleja. New York: Penguin Books. 228 pp. $7.95. Rating America's Corporate Conscience, By Steven D. Lydenberg, Alice Tepper Marlin, Sean O'Brien Strub, and the Council on Economic Priorities. Reading, Mass.: Addison-Wesley. 500 pp. $14.95 paperback, $21.95 cloth.
For some months now, newspapers have carried frequent stories of insider trading and other financial scandals. The impression given the public may be that the ethics of businessmen have gone down the drain.
Yet there is some evidence that the financial community is becoming more concerned with ethics and values.
One sign is the publication of books on ethical issues. For example, ``Rating America's Corporate Conscience'' evaluates and ranks corporate social performance. Ratings are based on such criteria as involvement in South Africa, the number of women and minority directors and officers, and the size of charitable contributions. Companies are also evaluated on their environmental records, political contributions, and animal testing. The authors hope readers can use these ratings when shopping, working, or investing.
`Socially conscious' investments grow
Such ``ethical'' information is already being used increasingly by investors with a social conscience. For example, an ``advisory letter for concerned investors'' called Insight was started in 1983 by Franklin Research and Development, an investment management firm, as a service for its clients interested in ``socially responsible'' investing. It now has a subscription list of some 800.
Says a blurb for the service: ``Once the province of a handful of social activists, concerned or socially responsible investing is today an important part of the investment scene.''
Tad Tuleja's book, ``Beyond the Bottom Line,'' just published as a paperback, is more philosophical; it's a deeper book than the pragmatic ``Rating'' book.
Mr. Tuleja notes: ``One legacy of the Watergate fiasco, and of the attendant flap over illegal campaign contributions, was the creation of a cottage industry in the study of `business ethics.''' A recent bibliography of business-ethics articles lists more than 2,000 items published between 1976 and 1980.
`Good works' and a `healthy bottom line'
Patrick McVeigh, a senior research analyst with Franklin Research, maintains that socially responsible investing does not need to take a penalty in its financial return, because the investment list has been narrowed. His company has $120 million invested that takes into account such things as a company's employee relations, South African ties, charitable and community activities, and product quality, and whether it makes weapons, drugs, alcohol, or tobacco products.
Generally, the return has compared favorably with stock market averages.
``We don't feel social investing involves a penalty,'' Mr. McVeigh says. ``In many cases it is an asset. You have better and more information. This is not merely a do-good type of thing. Investors want to make money.''
Author Tuleja makes a point similar to McVeigh's: The former's review of successful companies that take their ethics seriously shows that ``good works'' are ``quite compatible with a healthy bottom line.''
``Of course,'' notes ``Rating America's Corporate Conscience,'' ``one cannot claim that social responsibility assures profits, or that all profitable companies are socially responsible.'' The authors point out that Polaroid, with one of the best social records, has lost market share, while American Brands has been a consistently profitable company largely because of its sale of cigarettes.
``Because numerous factors determine a company's performance, it would be naive to attribute financial success or failure to a single one,'' the book states.
``Rating'' maintains that, within the past 20 years, the concept of social responsibility ``has earned a place in the practice of corporate management. Numerous positive social programs have been institutionalized in a wide range of companies.''
Tuleja says: ``The larceny of some people aside, vast numbers of American business professionals can and do behave in a perfectly respectable fashion. And they do so even though their ethical decisions are frequently confusing, costly, and misrepresented by the press.''
After reviewing the philosophy of ethics, Tuleja supports a broad concept of business ethics. He says corporations have responsibilities not only to stockholders (the owners), but to employees, customers, the community, and society as a whole. Further, he contends, corporations must behave ethically toward the competition.
``An ethical stance toward the competition does not require that you let them win the game, only that you do not use tactics that you would deplore if they were used against you,'' he writes.
The author, moreover, shoots down with missiles of logical argument the rationalizations of those committing such unethical business activities as insider trading, bribery, knocking the competition, expense-account cheating, etc. This thoughtful, well-organized book could be painful to read for those not conducting themselves ethically. It could also be useful to business executives drawing up ethical guidelines for their companies.
David R. Francis is an economics columnist for The Christian Science Monitor.