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39475Business ethics is often regarded as a low priority in newly formed democracies because it seems there are more urgent demands that have to be dealt with first. It is argued that this perception is not only wrong, but also dangerous. A lack of morality in business can undermine exactly those priorities that newly formed democracies regard as most urgent. Morality in business is a precondition for the legitimacy of a market economy as well as for excellence in a global market economy. It is argued that ethics in business is also a precondition for establishing a legitimate political democracy. The necessity of moral business behavior is advocated, and the main stumbling blocks that impede the development of moral business culture in newly formed democracies such as South Africa are discussed. Measures that can be taken to foster the development of moral business culture in these countries are discussed.
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ABSTRACT. Business Ethics is often regarded as a low priority in newly formed democracies, because it seems there are more urgent demands that have to be dealt with first. In this paper it is argued that this perception is not only wrong, but also dangerous. A lack of morality in business can undermine exactly those priorities that newly formed democracies regard as most urgent.
It starts by indicating why morality in business is a precondition for the legitimacy of a market economy as well as for excellence in a global market economy. It continues to argue that ethics in business is also a precondition for establishing a legitimate political democracy. Once the necessity of moral business behaviour has been argued, the focus shifts to the main stumbling blocks that impede the development of moral business culture in newly formed democracies such as South Africa.
In the final part of the paper, measures are discussed that can be taken to foster the development of moral business culture in these countries. The role that business leaders, politicians, civil society and the media can play in this regard are highlighted.
Introduction
The beginning of the nineties coincided with the emergence of newly formed democracies in Eastern Europe and South Africa. These newly formed democracies face many challenges. In this paper, one of those challenges facing these societies, i.e. establishing a moral business culture, will be examined.
Newly formed democracies are often associated with unethical business practices. One almost gets the impression that the transition from authoritarian government to democratic government stimulates corruption and other forms of unethical behaviour. In South Africa, for example, white collar crime has more than doubled during the first year of the newly formed democratic government. Only the cases with which the Police Department for Serious Economic Offences dealt with during 1994 amounts to more than 16 milliard South African Rand. That is more than all the money lost due to strikes and industrial action during the same period – and 1994 was a year of massive strikes and industrial action (cf. Anon., 1994, p. 8). According to the police it is estimated that only 10% of all economic crimes are being reported (Beeld, Feb., 12, 1993, p. 6). Should one further take into consideration the fact that the success rate of the police in prosecuting these reported cases, stands at 53%, speculations that the value of transactions associated with economic crime are in excess of South Africa’s gross domestic product (GDP), become more credible (Financial Mail, July 9, 1993, p. 42).
The establishment of a moral business culture in these newly formed democracies is often regarded as a low priority, because there appear to be more urgent demands that have to be dealt with first. Foremost amongst these urgent priorities is the establishment of a democratic political culture and the building of a prospering market economy. In this article I want to argue that the neglect of Business Ethics in newly formed democracies, such as South Africa and the former Eastern Bloc countries, is not only wrong, but also dangerous. A lack of morality in business can undermine exactly those priorities that newly formed democracies regard as most urgent. Unethical business practises can transform these young political democracies and market economies of newly formed democracies into kleptocracies (cf. Griffin, 1993, p. 13).
In this article it is assumed that something can be done to foster the development of a moral business culture in these countries despite their legacies of social injustice. Schwartz’ argument (1996) that it is “utter nonsense to debate the morality of business” (p. 112) in situations where “business failed morally” (p. 115), will not be taken seriously, simply because it is too linear and too deterministic. To the contrary the lack of moral values in business is seen as a serious problem that needs urgent attention. Unless newly formed democracies are able to turn the tide of immoral business behaviour around, both political democracy and the market economy will suffer heavily.
I shall start by motivating my claim that a lack of morality in business could undermine both a democratic political culture and a market economy. (Although a lack of morality in politics and the affairs of the state could have similar devastating consequences, this will not be discussed in this paper.) Then the focus shifts to the main stumbling blocks that impede the development of moral business culture in South Africa’s newly formed democracy. Finally, I shall discuss measures that can be taken to foster the development of moral business culture in such newly formed democracies.
Before turning to the above agenda, three central concepts that will be used frequently need first be defined, viz., moral business culture, fraud and corruption.
Moral business culture refers to a commitment by business to conduct business in a manner which will respect the interests of all stakeholders affected by their activities within the framework of a competitive market-driven economy.
Corruption refers to the misuse of their position by persons in positions of public trust, for their personal benefit. This could either involve the acceptance of bribes in return for favours or the fraudulent expenditure of public funds for private benefit.
Fraud refers to intentional criminal deception for private benefit. It includes such acts as bribery, illegal campaign contributions, laundering of funds, consumer frauds, environmental pollution, price fixing, embezzlement, incometax fraud, and computer break-ins. Fraud is often also referred to as economic crime or white collar crime.
1. Why is ethics in business so important?
1.1. Importance for market economy
Business Ethics is often portrayed as being important for the relationship between business and society. In this section I want to argue that there are also economic and business reasons for the importance of Business Ethics. Specifically I want to argue that moral business conduct is important both for the legitimacy of the market economy and for sustained excellent performance in the competitive global economy.
1.1.1. Legitimacy of the market economy
The political founders and pioneers of the newly formed democracies in Eastern Europe and in South Africa confess that a free enterprise economy is the most appropriate and beneficial economic system for both business and society. The legitimacy they ascribe to the free market is however not a true reflection of the way in which the population at large regard the free market system. This system is viewed with suspicion by large segments of the population in both South Africa as well as in the former East Bloc countries, albeit for different reasons. In South Africa the Apartheid experience has convinced many in the non-white sector of the population that capitalism is one of the causes of their exploitation and humiliation. The dean of a black college in South Africa expresses a fairly common perspective: “For Blacks the free enterprise system is associated with wide raciallybased income and wealth inequalities, which are seen as the cause of poverty, unemployment, urban slums, and rural despair amongst blacks” (Beaty et al., 1987, p. 37). This sentiment was also reflected at the 1994 annual conference of South Africa’s largest labour union movement, COSATU, which is politically closely alligned with the ruling party (ANC). At the conference banners with the slogan “Forward to Socialism” were prominently displayed. The distrust in the morality of market economy in South Africa is also echoed in the ANC’s policy document on reconstruction and development that states: “under the apartheid system the state co-operated with a handful of conglomerates to shape the economy to benefit a minority of whites at the expense of the black people. . . . Economic policy and the main economic actors in industry systematically excluded and hindered black people. As a result South Africa has one of the most unequal patterns of distribution of income, wealth and opportunity in the world” (ANC, 1994, p. 34).
The seeming legitimacy that the free market system enjoys amongst the current generation of political leaders, thus seems to be a very fragile one. It is by no means guaranteed. To the contrary, the free market still has to earn its legitimacy. In this process of establishing the legitimacy of the free market system, ethical business behaviour plays a crucial role. If the free enterprise system is widely associated with fraud, corruption and unethical behaviour of all sorts, the population will simply not trust the system. If bribery is booming and mafia-like groups control economic activity, the free enterprise system will be regarded with mistrust. A strong work ethic will never develop in such circumstances, because people will believe that their future do not depend on their own hard work, but on corrupt officials or the mercy of strong-handed groups. Signs of such negative reaction to a free market system marred by unethical practices is already visible. In Russia, with its reputation of corruption and mafia-like activities, for example, a recent poll indicated that 65% of the population regarded the old system as more acceptable than the current one (Elliot, 1994, p. 12). Far from being a second phase priority, it rather seems that morality in business is a precondition for establishing the legitimacy of the market economy in newly formed democracies.
1.1.2. Precondition for excellence
A strong commitment to morality in business is not only a precondition for the legitimacy of a market economy, but also for success within the global economy, and thus for economic growth, that is so desperately needed in all these newly formed democracies. In their quest for a prospering economy that will enable newly formed democracies to fund the cost of social change, they can hardly afford to assign a second order priority to ethical behaviour in business.
Peters and Waterman illustrated in their bestselling book “II Search of Excellence” that socalled excellent American companies are strong morally cultured companies that treat their employees fairly and with dignity and respect (1984, pp. 235-278)fi. It is not hard to understand why a moral business culture is one of the preconditions for success in today’s competitive global economy. Any company can only deliver as much, as excellently, and as creatively as its employees are willing to deliver. A key dimension of success is therefore the ability of a company to motivate its employees, to obtain and keep their loyalty, and to inspire them to contribute creatively to the productive process. Strong-handed and inhumane tactics for achieving these objectives tend to backfire in the long run. Respect for employees, fair treatment, quality of working life, recognition of personal contributions, pride in the company and its achievements, in short, a meaningful working environment, is what is needed to get employees on all levels to contribute maximally and creatively (cf. Peters, 1996, p. 22). This kind of respect and care for employees is nothing other than the moral treatment of employees. In this sense a commitment to the moral treatment of employees is indeed one of the preconditions for continued excellence in business.
South Africa, for example, has a notoriously poor record with regards to productivity and the development of its human potential. There may be a variety of causes for it, but foremost amongst them should count the legacy of discrimination against the majority of its citizens during the Apartheid years – also in the work place (Slabbert, 1990, p. 51). A key element in the rebuilding of the South African economy is exactly a commitment by business to treat its employees in a moral manner. Business Ethics cannot wait until the economy is flourishing, simply because it is a precondition for the flourishing of the economy.
1.2. Important for democracy
As illustrated above, it is not hard to prove the case for the importance of ethics for the economy. However, it is somewhat harder to prove the importance of business ethics for establishing a democratic political culture, simply because it is not that obvious. I shall present two arguments to support my conviction that it is also essential for the building of a strong political democracy.
1.2.1. Trust
Democracy consists of more than merely a democratic constitution and regular elections. For a democracy to function well, a relationship of trust is needed between the electorate and the state (cf. Rawls, 1988, p. 252 and Walzer, 1990, p. 15). This relationship of trust is cultivated when the elected government adheres to a number of democratic principles. Amongst these are the principles of equality, transparency and public interest. When politicians or officials of the state become involved in bribery or other forms of corruption, these democratic principles are violated.
Firstly, the principle of equality of all citizens is violated. When business should offer bribes to public officials in order to gain favour, then citizens are no longer treated as equals, as those who pay the best bribes, are rendered the best service. Equality is thus sacrificed. Secondly, when business should corrupt officials of the state, the principle of transparency is violated. Transparency requires that all persons are treated as equals and that when some are given priority, such preference should be in accordance with well defined guidelines set by the elected government. This transparency which should be typical of a democracy, is clouded by bribery, which gives preference to those who are willing to pay a bribe to the politician or state official. Citizens are therefore no longer treated as equals, and expressed government priorities are no longer respected. Society thus become the hostage of the corrupt politician or state official. Thirdly, the principle that the state should act in the public interest, is abolished. The democratic government being the representative of the people, is always expected to act in the interest of the electorate. When corruption occurs, the personal interest of the person involved overrides the interest of the public. The official, for example, no longer buys the best product at the best price in order to provide the public with the best service, but buys the product that will secure him/her the most lucrative bribe.
When these principles are violated by the state or politicians, the relationship of trust between the electorate and the state breaks down. This initially results into disillusionment with politicians, but eventually also into disillusionment with political democracy as such.
This shows that unethical business behaviour is not a purely economic matter, but also has grave consequences for a political democracy. It can destroy the legitimacy of the democratic state thus putting its future at risk. Ethical conduct in business is therefore also a precondition for the legitimacy and survival of a political democracy.
1.2.2. Experience of democracy There is also a second way in which moral conduct in business is essential for the survival of newly formed democracies. This has to do with the way in which businesses treat their employees who have just recently gained political rights. People who have just been empowered in the political arena will not be prepared to be stripped of their personal empowerment when they enter the doors of the work place. Corporations face the challenge to accommodate this trend towards individual empowerment in the interest of the corporation itself. Furthermore they have a definite responsibility toward society to provide a working environment which is in harmony with employees’ experiences and status in the political sphere. Anton Moolman, Executive Director of Transnet (the South African transport giant) is undoubtedly correct when he says: “In the microcosmos of our businesses, behind factory gates and office doors, the majority of the work force in South Africa is employed by us and is influenced either positively or negatively by their experiences in the working environment. [. . .] If these experiences are in line with the future vision of South Africa, the vision will become reality. The other side of the coin is, however, also true. If the experience of the work force, black, coloured, and Indian as well as whites, are at odds with the new just and unbiased vision of South Africa, they will not share this vision and it will not material(i)se” (1990, p. 5).
The moral treatment of employees that will ensure that they are respected and treated with dignity, thus once again holds the key to the legitimacy of the newly formed political democracy. Negatively stated, unethical business behaviour can destroy the dream of a democratic society.
2. Stumbling blocks
Now that the case for the urgency of business ethics in newly formed democracies has been argued, the question that inevitably arises deals with the way in which it should be established. One can, however, only answer this question once the causes for the lack of ethical behaviour in business in these newly formed democracies have been identified. Here the focus will specifically be on five stumbling blocks that impede the development of a moral business culture in South Africa.
2.1. Lack of commitment to new dispensation
Self-interest is simultaneously a main driving force of a free enterprise economy, and a main cause of unethical behaviour therein. Self-interest cannot, and should not, be eliminated. It should however be constrained by other concerns. Persons trend to curb their self-centred behaviour only when they realise that they have a responsibility towards other persons or towards the society they live in. One of the problems newly formed democracies often face, is that citizens do not identify strongly with the newly formed society. They therefore do not take responsibility for the survival or development of the new society (cf. Massie, 1993, p. 40). Thus there seems to be a lack of commitment to curb unethical behaviour that might harm the new society.
The causes for this lack of strong identification with the newly formed society, can once again be various. Some may simply take a “wait and see” attitude, whilst others might have negative feelings of resentment toward the new society. This resentment might result from either the fact that the new dispensation harmed their former privileged position, or because their expectations of the new dispensation have been frustrated.
2.2. Business culture
The existing unethical behaviour could also be attributed to the prevailing business culture. Often the prevailing culture is formed by a mixture of corruption inherited from the old regime and a wild west style of immature capitalism. If corruption, unethical behaviour and unbridled self-centeredness are widely prevalent in economic activity, people tend to believe that it simply is the way business is being done. They then “do in Rome as the Romans do”. If the law of the business jungle is “survival of the fittest” and “dog eats dog”, they simply live and die by that rule.
The impact of the prevailing business culture can hardly be overestimated. People tend to see the prevailing culture as a natural and fixed order which is almost impossible to change. They therefore defend their own unethical behaviour with a kind of tu quo que (or you-too) argument in which they allege that it is impossible to act differently in an environment where unethical business behaviour is the order of the day.
In South Africa, such an immoral business culture was established, especially when international sanctions struck the country during the eighties. Sanctions barred South Africa from entrance to world markets. South African businesses where thus forced to find alternative means of access to these markets. Ingenious, but often also immoral means were used to gain access. these attempts were praised, rather than repudiated. In this way a culture started growing where unethical means for doing business were valued. This contributed to the weakening of the moral fibre of the business community (cf. Massie, 1993). The trend that was set then, did not stop when sanctions were lifted, but is still continuing. This immoral culture was also fed by other sources, such as the immoral nature of the Apartheid ideology and the fact that the majority of the population considered the Apartheid socio-economic dispensation illegitimate and therefore felt no moral obligation towards it.
2.3. Lawlessness
Many people practice a reactive morality (cf. Rossouw, 1994, p. 9). This means that they tend to refrain from unethical behaviour only out of fear of punishment. One of the most important forms of punishment in any society is punishment by the criminal justice system of the society. The problem that newly formed democracies often face in this regard, is that they either do not have sufficient laws or adequate enforcement of laws to deter people from unethical behaviour.
South Africa finds itself as far as the former is concerned, in a more favourable situation than its counterparts of the former Eastern Bloc countries. The economic system as such did not change dramatically during the transition process. What has changed are opportunities for access to the economic system. Affirmative action is widely regarded as one of the most important mechanisms to give the previously disadvantaged groups access to the market. As far as regulation of business activities go, many laws that were made in the old dispensation still apply to the new order. The problem is therefore not in the first instance a lack of appropriate laws.
As far as law enforcement is concerned, South Africa however experiences an equally unfavourable position in that it simply does not have sufficient human resources available to ensure that these laws are enforced and that perpetrators of economic crimes are prosecuted. The police force always seems to have more urgent tasks to attend to, and also lack adequate expertise to identify and prosecute perpetrators of serious economic offences (cf. Van Zyl, 1991, pp. 260-262).
2.4. Civil society
Important as the role of the criminal justice might be, it is naive to expect that it is sufficient for curtailing unethical business behaviour (cf. Stone, 1992, pp. 443-446). The involvement of various sectors of civil society is needed. Civil society should put either pressure on business to respect their obligations towards society, or should rally support for societal values which all stakeholders – including business – should respect. Newly formed democracies face a serious problem in this regard. Both in South Africa and in former Eastern Bloc countries the previous regimes systematically undermined the development of civil society. In South Africa this was done during the Apartheid years through the crippling or banning of most organisations that were perceived as a threat by the Apartheid regime. Also the restrictions on public demonstrations and meetings undermined the formation of civil organisations.
This situation is aggravated by the fact that the South African situation became severely politicised during the struggle to end Apartheid. Other dimensions of life in the South African situation were forced to take a back seat. Amongst these also count the economic dimension. The legacy of this development is that civil society is still quite underdeveloped in its capacity to play a constructive role in the economy.
A well developed civil society with deeply engrained democratic and social values and with a good understanding of the way a democratic society functions takes time to develop. Civil society is therefore not yet sufficiently empowered to play its role in curbing unethical business behaviour.
2.5. Scarcity
Wherever there is a scarcity of goods that people need for their survival, fierce competition develops. The newly formed democracies that are discussed in this article are all victims of situations marked by severe scarcity. In South Africa many people suffer from, amongst other, a lack of food, money, housing, medical services, and jobs. The current population growth rate of 2.3% per annum, increases the fierce competition for these scarce goods.
Although competition is the driving force of a free enterprise economy, morality tends to fly out of the arena when the competition gets too severe. When life becomes a struggle for survival, morality can be easily sacrificed. It then becomes a case of bread first, morals later. And people in such a desperate situation can hardly be blamed for immoral behaviour if it is really for the sake of physical survival. Moral philosophers regard such situations as “excusing conditions” (DeGeorge, 1986, pp. 83-87, also see Singer, 1989, p. 348).
This survival morality is well illustrated in an article published in a South African newspaper. The article examined the phenomenon of jobless people who are involved in criminal activities, because there is no other way to secure an income. In the newspaper article the “career” of Mandla (not his real name), a standard 8 pupil who had already been convicted for housebreaking and theft, and who was out on bail, is described in the following way:
Mandla stays with his mother who works as a domestic worker, his two sisters and a brother who had passed matric and: `is idling because there is no money to send him to university’, he said. Mandla proudly admitted to steeling because he saw no other way to help his mother buy food and clothes for the schoolgoing children. `Our father passed away in 1986 and my mother struggled to raise us . . . ‘I would like to go to university when I pass matric, but I know she can’t afford the fees’. Mandla knows that he might get shot while stealing but he vowed that that won’t stop him from doing his ‘job’. `How will I survive if I stopped?’ he asked.” (Mkhuma, 1991, p. 6).
Scarcity of resources and the resulting fierce competition thus proves.to be another cause of unethical behaviour in these newly formed democracies.
3. What is the remedy?
It should be evident by now that a problem with such a variety of causes will also require a complex remedy. In this final part of the article I shall give a broad outline of the kind of action that should be taken to overcome the stumbling blocks that prevent the development of moral business culture in newly formed democracies.
The objective is to find out what should be done in order to curb unethical business behaviour in these societies. A good starting point for this endeavour, is to first define what ethical business behaviour entails. A simple, but adequate definition for ethical behaviour can be built around the three concepts: “the self”, “the good” and “the other”. The definition would then be that business ethics requires that one should act in such a way that one does not merely consider what is good for oneself, but also what is good for others (cf. Hoffman et al., 1990, p. 1 and Velasquez, 1982, p. 12). Differently stated, it means that one should take responsibility for one’s business actions in order to ensure that it does not harm the society in which one lives. It is taken for granted that this should occur within the competitive framework of a free enterprise system where business strive to maximise their profit.
This definition implies that the establishment of a moral business culture starts when people in business take the responsibility to ensure that their actions are not harmful to their society. The key question thus becomes what could be done to ensure that people do take responsibility for their actions. Two possibilities exist in this regard. The one option is that persons will themselves develop the desired responsibility. In this instance responsibility is developed internally. The other option is that people will be persuaded, or if necessary, forced, to act in a responsible way. Responsibility is then externally induced. The first, or internal option, does not seem to be a viable one in the short run, simply because there are not enough promising signs that it is about to happen spontaneously in these newly formed democracies. The second or external option thus seems to be the more realistic route to take. The question now becomes what could be done to persuade people to take responsibility for their actions.
3.1. Externally induced responsibility
As far as externally induced responsibility is concerned, there are three main players: The state, civil society and the business community. Each has a distinct role to play.
The state has two devices to its disposal to induce responsibility in its citizens. These are the criminal justice system and the education system. On the one hand it should ensure that there are sufficient laws and law enforcement to deal with corruption, fraud and other forms of unethical behaviour. On the other hand it should educate its citizens in schools, tertiary education and lifelong learning programs to be responsible citizens of the state. This implies that students should be brought to an understanding of the functioning of a democratic society and how the job they will perform fits into and contributes towards the society in which they live. The current trend of a too narrow focus on isolated disciplines with insufficient career guidance and career preparation should thus be countered.
There are an endless variety of things that civil society can do to push or pull people into responsible business behaviour. A variety of civil organisations should be formed to protect the interests of society and nature. These could include consumers, conservationists, churches and many other organisations. They should not only reprimand those businesses that harm the interests that the specific organisation is caring for, but also praise and reward those who foster the interests they are caring for. A very important player in civil society is the media. Their role in educating the public and in exposing irresponsible business behaviour can hardly be overestimated.
The business community itself also needs to become involved in building a strong moral business culture. It can be done amongst other things, through a commitment to ethical codes or value statements for the different industries and corporations. It once again goes without saying that these ethical codes and value statements would not be worth the paper they are written on if they are not induced in employees through proper training and other measures to reinforce the ethical commitment of the company. Business leaders should take special care to ensure that the message gets around that ethical business is good business. The news of how they could benefit from ethical business should be circulated in the business community.
3.2. Internal responsibility
The moral genius could probably develop a sense of responsibility towards society without outside interference or despite a prevailing unethical culture. Most people however needs the support of the society in which they live to develop a strong sense of responsibility. The measures discussed above will go a long way towards cultivating a sense of responsibility in people. The problem with externally induced responsibility is that it may collapse again when there is no external pressure. Internal locus of control of responsibility thus remains the ideal. The above actions should therefore always be taken with this ideal in mind. What is needed is a pro-active attitude towards morality. This would entail that people act morally in business because they believe it to be beneficial for themselves and their community.
3.3. Other measures
All the stumbling blocks raised in the previous section, but one, can be addressed through the measures discussed until now. The remaining one being the scarcity and the resulting fierce competition it poses. This one could be overcome through two measures. On the one hand the population growth should be slowed down to a sustainable level, and on the other hand the economy should grow at a pace that will at least keep up with the population growth. Both these routes should be taken. This however, will require a combined effort by the state, civil society and the business sector. Ongoing dialogue as well as co-operation between these three role players in this regard is therefore essential.
Conclusion
Establishing moral business culture in newly formed democracies is not an easy task, but is a necessity if these societies were to survive and prosper. The president of South Africa, Nelson Mandela acknowledged this at the first party conference held by the ANC after they became the leading party in the new government. He called for “a moral crusade to put an end to rampant corruption in the public and private sectors.” (Hartlet et al., 1994, p. 1). In his presidential address at the opening of Parliament (February 17, 1995) Nelson Mandela once again reiterated the importance of a moral business culture, when he said: “We are conscious of the reality that corruption in many forms has deeply infected the fibre of our society. Precisely because we face the challenge of dealing with systematic corruption, we need a dispassionate and systematic approach to this question.” The same kind of noises are made in the former Eastern Bloc countries. Although continents apart, these newly formed democracies should support and learn from one another in this regard.
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