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Practical Ethical Principles for Business

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Respect for human dignity and the common good are foundational principles that should inform the way we organise the labour and capital employed, and the processes of innovation, in a market system. The deep and abiding purpose of individual businesses and commercial systems is to address real human needs, which is to say the relevant needs of everyone who is served in some way by a business. In particular, there are three interdependent activities that businesses should take up:

  • addressing genuine human needs through the creation, development, and production of goods and services;
  • organising good and productive work; and
  • using resources to create and to share wealth and prosperity in sustainable ways.

The Church's social tradition addresses these three interdependent spheres of activity by providing practical principles to help guide decision-makers in the good they may do. These practical principles build on the foundational principles, and they aim to respect the multi-cultural, multi-faith situations that are characteristic of business today. They also help clarify the vocation of the Christian businessperson and the role of a true business leader.

Meeting the Needs of the World Through Goods and Services

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Successful businesses identify and seek to address genuine human needs at a level of excellence using a great deal of innovation, creativity and initiative. They produce what has been produced before but often—as in the arenas of medicine, communication, credit, food production, energy, and welfare provision —they invent entirely new ways of meeting human needs. And they incrementally improve their products and services, which, where they are genuinely good, improve the quality of people’s lives.

In contribution to the common good:1 As the Compendium of the Social Doctrine of the Church puts it: “Businesses should be characterised by their capacity to serve the common good of society through the production of useful goods and services”.2 Business is inherently other-centred: a business joins together people’s gifts, talents, energies and skills to serve the needs of others. This in turn supports the development of the people who do the work. The tasks they perform in common bring forth the goods and services needed by a healthy community. “The business leader is not a speculator, but essentially an innovator. The speculator makes it his goal to maximise profit; for him, business is merely a means to an end, and that end is profit. For the speculator, building roads and establishing hospitals or schools is not the goal, but merely a means to the goal of maximum profit. It should be immediately clear that the speculator is not the model of business leader which the Church holds up as an agent and builder of the common good”.3 Rather, the Christian business leader serves the common good by creating goods that are truly good and services that truly serve. The goods and services that businesses produce should meet authentic human needs, so they include not only things with clear social value—such as lifesaving medical devices, microfinance, education, social investment, fair trade products, health care, or affordable housing—but also anything that genuinely contributes to human development and fulfilment, ranging from simple products, such as bolts, tables and fabrics, to complex systems such as waste removal, roads and transportation.

In 1931, Pope Pius XI wrote in his encyclical letter, Quadragesimo Anno , of the importance of businesses “producing really useful goods" for others.4 The good entrepreneur is one who “gives first thought to service and second thought to gain, who [. . .] employs workingmen for the creation of goods of true worth; who does not wrong them by demanding that they take part in the creation of futilities, or even harmful and evil things; who offers to the consumer nothing but u seful goods and services rather than, taking advantage of the latter’s inexperience or weakness, betrays him into spending his money for things he does not need, or that are not only useless but even injurious to him".5 Needs ought to be contrasted with mere wants, which might be characterised as those desires that are not essential to human well-being. In extreme cases, satisfying mere wants may even be detrimental to human well-being as, for example, in the sale of non-therapeutic drugs, pornography, gambling, violent video games, and other harmful products. This preoccupation with wants, often called “consumerism,” severs production and consumption from the common good and impedes the development of the person.6 Goods that are truly good serve the needs of consumers in a hierarchical order; the need for nutritious goods, for example, clearly outweights the wants of gambling entertainment. This is an objective order, which is why the production of goods and services must abide by truth instead of mere utility.

In solidarity with the poor: The production of goods and services has "a progressively expanding chain of solidarity", which raises several critical issues and opportunities for the business community.7 One is the importance of identifying, in a spirit of solidarity, the real needs of the poor and the vulnerable, including people with special needs, which are often overlooked in a marketplace driven by short-term profit.8 The Christian business leader is alert for opportunities to serve these neglected populations and sees this not only as a proper social responsibility but also as a great business opportunity. Developments in the field of the “bottom of the pyramid” products and services—such as microenterprises, microcredit, social enterprises, and social investment funds— have played an important role in addressing the needs of the poor. These innovations will not only help to lift people from extreme poverty but could also spark their creativity and entrepreneurship and contribute to launching a dynamic of development.9

Organising Good and Productive Work

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Businesses create goods and services and organise the work people do together. Successful businesses design work that is good and effective, efficient and engaging, autonomous and collaborative. The way human work is designed and managed has a significant impact on whether an organisation can compete in the marketplace and whether people will flourish through their work. Blessed John Paul II explained that “whereas at one time the decisive factor of production was the land, and later capital—understood as a total complex of the instruments of production—today the decisive factor is increasingly man himself , that is, his knowledge, especially his scientific knowledge, his capacity for interrelated and compact organisation, as well as his ability to perceive the needs of others and to satisfy them”.1 Within increasing globalisation and a rapidly changing marketplace, the farsighted o rganisation of work assures an organisation’s agility, responsiveness and dynamism. This may be expedited where sensible regulations ensure that economic relations and mentalities can develop in a sustainable way, and that virtuous business can effectively profit and excel through its achievements.

Foster dignified work: “It is a scandal,” Pope Pius XI wrote, “when dead matter comes forth from the factory ennobled, while men there are corrupted and degraded”.2 The grandeur of human work not only leads to improved products and services, but develops the workers themselves. The Catholic social tradition has been particularly outspoken about the nature of work and how it affects the person. Blessed John Paul II spoke of “the subjective dimension of work", distinguishing it from its "objective dimension". He set forth a beautiful vision, indicating that when people work, they do not simply make more, but they become more. The changes brought about by work cannot be fully accounted for by its objective dimension. The worker, the subject of work, is also greatly affected by his or her own work. Whether we think about the executive, the farmer, the nurse, the janitor,the engineer, or tradespeople, work changes both the world (objective dimension) and the worker (subjective dimension). Because work changes the person, it can enhance or supress that person's dignity; it can allow a person to develop or to be dmanged. Thus "the sources of the dignity of work are to be sought primarily in the subjective dimension, not in the objective one".3 When we regard work from that perspective, we should find a joint commitment fromt both the employer and the employee to elevate work to that splendidn vision. It is the unity of sound business practice and ethics.

Recognising the subjective dimension of work acknowledges its dignity and importance. It helps us to see that work is for the person and not the other way around.4 Employees are not mere “human resources” or “human capital”. Consequently, work must be designed for the capacities and qualities of human beings, and so we must not simply require that people adapt to their work as if they were machines. Good work gives scope for the intelligence and freedom of workers; its context promotes social relationships and real collaboration; and it does not damage the health and physical well-being of the worker. This requires that leaders have the freedom, responsibility and ability to develop the right person in the right job. Good work is directed toward satisfying genuine human needs so that workers may provide for themselves and their families while also serving the flourishing of others. Good work must be sufficiently well-organised and managed to be productive so that the worker can indeed earn his or her living. Moreover, reward structures should make sure that those workers who do engage their labour in a sincere way also receive the necessary esteem and compensation from their companies. The encyclical Mater et Magistra is perfectly clear on this point: “if the whole structure and organisation of an economic system is such as to compromise human dignity, to lessen a man’s sense of responsibility or rob him of opportunity for exercising personal initiative, then such a system, We maintain, is altogether unjust—no matter how much wealth it produces, or how justly and equitably such wealth is distributed”.5

Create subsidiary structures: The principle of subsidiarity is rooted in the conviction that, as images of God, the flourishing of human beings entails the best use of their intelligence and freedom. Human dignity is never respected by unnecessarily constraining or suppressing that intelligence and freedom. The principle of subsidiarity recognises that in human societies, smaller communities exist within larger ones. For example, a family, itself a small community, is part of a village or a city, which in turn is part of a county, a state or province, then a nation, and so on. The principle insists that the freedom and input of those closest to the effects to be felt should not be arbitrarily disregarded. As Blessed John Paul II pointed out, “a community of a higher order should not interfere in the internal life of a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to coordinate its activity with the activities of the rest of society, always with a view to the common good”.6

The principle of subsidiarity, usually applied to the structures of the State, applies as well to business organisations. We develop best in our work when we use our intelligence and freedom to achieve shared goals and to create and sustain right relationships with one another and with those served by the organisation. In other words, the more participatory the workplace, the more likely each worker will be to develop. Employees should have a voice in their work, especially in the day-to-day work. This fosters initiative, innovation, creativity, and a sense of shared responsibility.
49. The principle of subsidiarity offers business leaders great insights. It encourages them to use their power at the service of everyone in their organization and prompts them to question whether their authority serves the development of all their employees. Specifically, this principle engages business leaders in three related responsibilities:

  • To define the scope of autonomy and decision making at every level in the company. The business leader should allow these to be as significant as possible, but set limits so that decision rights do not exceed a person or group’s access to the information required to make the decision, and so that the consequences of their decisions do not go beyond their realm of responsibility.
  • To provide employees the needed tools and training and to ensure that they have the experience to carry out their tasks.
  • To establish a corporate culture of trust so that those to whom tasks and responsibilities have been given will make their decisions with genuine freedom. The company informed by subsidiarity nurtures mutual respect and shared responsibility among all personnel. It allows employees to clearly appreciate the link between good results and their sincere engagement.

This last point about decision-making is what distinguishes subsidiarity from delegation. Someone who delegates confers responsibility or decisionmaking power, but it can be taken back at any time. So delegation does not call employees to the same level of excellence and genuine engagement as do arrangements governed by the principle of subsidiarity, and thus, the employees are less likely to grow and to accept their full responsibility.

Under the principle of subsidiarity, employees on a lower level who are trusted, trained and experienced, know precisely the extent of their responsibilities, and are free to make decisions, can fully use their freedom and intelligence, and thus are enabled to develop as people; they are indeed “co-entrepreneurs”. For business leaders on every level, from team leader up to chief executive, this is very demanding but rewarding. Working under the principle of subsidiarity calls for restraint and a humble acceptance of the role of a servant leader.

Creating Sustainable Wealth and Distributing It Justly

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Entrepreneurs exercise their creativity to organise the talents and energies of labour and to assemble capital and other resources from the earth’s abundance to produce goods and services. When this is done effectively, well-paying jobs are created, profit is realised, the resulting wealth is shared with investors, and everyone involved excels. The Church acknowledges the legitimate role of profit as an indicator that a business is functioning well. When a firm makes a profit, it generally means that the factors of production have been properly employed and corresponding human needs have been duly satisfied.1 A profitable business, by creating wealth and promoting prosperity, helps individuals excel and realise the common good of a society. Yet creating wealth is not restricted to financial profit alone. The very etymology of the word “wealth” reveals the broader notion of “well-being”: the physical, mental, psychological, moral and spiritual well-being of others. The economic value of wealth is inextricably linked to this wider notion of well-being.

Stewarding resources: Scripture teaches that good stewards are creative and productive with the resources placed in their care.2 They do not merely take from creation’s abundance; instead they use their talents and skills to produce more from what has been given to them. One manifestation of this within the business context is financial profit—the surplus of retained earnings over expenses that enables an organisation’s sustainability. The best business leaders use resources effectively and maintain reasonable levels of revenue, margin, market share, productivity and efficiency, in order to ensure the viability of the organisation. If financial wealth is not created, it cannot be distributed and organisations cannot be sustained.

While profitability is an indicator of organisational health, it is neither the only one, nor the most important by which business should be judged.3 Profit is necessary to sustain a business; however, “once profit becomes the exclusive focus, if it is produced by improper means and without the common good as its end, it risks destroying prosperity and creating poverty”.4 Profit is like food. An organism must eat, but that is not the overriding purpose of its existence. Profit is a good servant, but it makes a poor master.

Just as financial resources are important, so too is stewardship of the environment, both physical and cultural. As Pope Benedict XVI wrote, “The environment is God’s gift to everyone, and in our use of it we have a responsibility towards the poor, towards future generations and towards humanity as a whole”.5 Creation is endowed with an order that we discover but do not create. Living creatures and the natural world may reasonably be employed to serve genuine human needs. As collaborators with God in the unfolding of creation, however, we have a duty to respect and not to attack the world around us. We are free to cultivate this world but not to devastate it. Or as the early chapters of Genesis suggest, we are called to exercise a careful dominion over the world, to cultivate it and make it fruitful, but we do not have license to exploit it as we please.

Distribute justly: As creators of wealth and prosperity, businesses and their leaders must find ways to make a just distribution of this wealth to employees (following the principle of the right to a just wage), customers (just prices), owners (just returns), suppliers (just prices), and the community (just tax payments).6

If one accepts that God’s creation is intended for everyone—rich and poor, powerful and weak, now and in the future—then it follows that all resources are conferred on humankind with a “social mortgage”.7 The Catholic social tradition understands this obligation as applying to property as well as capital. While property and capital should as a rule be privately held, the right to private property should be “subordinated to the right to common use, to the fact that goods are meant for everyone”.8 This principle urges business leaders to consider the distributive effect of the way they set prices, allocate wages, share ownership, distribute dividends, manage payables, and so on. Their decisions should aim not at an equal but at a just distribution of wealth, which meets people’s needs, rewards their contributions and risks, and preserves and promotes the organisation’s financial health. Denying people legitimate access to the fruits of the earth, especially the means to sustain life, amounts to a negation of God’s command to humanity to discover, cultivate and use its gifts.

Business as a Community of Persons

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These six principles point us to the purpose of business, which Blessed John Paul II stated “is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs, and who form a particular group at the service of the whole of society”.1 While the phrase “community of persons” is not common in business literature today, it actually best expresses the full realisation of what a company and corporation can be. The etymology of the words “company” and “companions”—cum (with), and panis (bread)—suggests “breaking bread together”. The etymology of the word “corporation”—the Latin corpus (body)— suggests a group of people “united in one body”.

When we consider a business organisation as a community of persons, it becomes clear that the bonds which hold us in common are not merely legal contracts or mutual self-interests, but commitments to real goods, shared with others to serve the world. It is dangerous and misinformed simply to consider business as a “society of shares”, where self-interests, contracts, utility and financial profit maximisation exhaust its meaning.2 An inherent characteristic of work is that “it first and foremost unites people. Therein lies its social power: the power to build a community”.3 This understanding helps avoid the spiritual poverty that often arises in market economies from a lack of human relationships within and around a business.4

Building a company as a community of persons based on the six principles above is no easy task. Large multinational corporations in particular can find it challenging to create practices and policies to foster a community of persons among its members. Yet leaders in large or small firms are greatly helped by the practice of personal virtue, those life-enhancing habits and qualities of character essential to any profession. Two very important virtues for the business professional, which we discuss in further detail in the next section, are practical wisdom and justice. There is no substitute in practice for sound judgment (practical wisdom) and right relationships (justice). The six principles above do not provide all that is needed for good judgment in response to the challenges of daily work. They do not provide blueprints or technical solutions, nor are they meant to do so. Ethical social principles, illuminated for Christians by the Gospel, provide direction for good businesses, but the navigation falls to the seasoned and intelligent judgments of virtuous business leaders who can wisely manage the complexity and tensions arising in particular cases.

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