The “business ethics” of management theory
The Authors
Mark Schwartz, Atkinson Faculty of Liberal and Professional Studies, School of Administrative Studies, York University, Toronto, Ontario, Canada
Abstract
Purpose – The purpose of this paper is to examine the current gap between the subjects of business ethics and pre-1960 management theory.Design/methodology/approach – In an attempt to achieve the objective of the paper, the business ethics content of three leading management theorists during the first half of the 1900s is examined: Frederick Taylor; Chester Barnard; and Peter Drucker.
Findings – The paper concludes that there are significant business ethics content as well as ethical implications in the writings of each of the three management theorists.
Research limitations/implications – The analysis focused on only three, albeit significant, management theorists. A more complete discussion would have included other important management theorists as well.
Practical implications – The analysis suggests that management theory should not be taught without discussing both the business ethics implications and the business ethics content inherent in the theory. In addition, failure on the part of business ethics academics to understand early management theory, the ethical ramifications of such theory, and the business ethics issues explicitly discussed by leading management theorists, may lead to teaching and research in a subject without a proper theoretical foundation.
Originality/value – The paper attempts to address a gap in management literature by demonstrating some of the linkages between business ethics and business management thought, and thereby be of value to management theorists as well as business ethicists in their teaching and research efforts.
Article Type:
General review
Keyword(s):
Business ethics; Management theory.
Journal:
Journal of Management History
Volume:
13
Number:
1
Year:
2007
pp:
43-54
Copyright ©
Emerald Group Publishing Limited
ISSN:
1751-1348
Although it is always difficult and somewhat arbitrary to attempt to identify the exact point in time a particular field of study emerged, both the fields of management as well as business ethics appear to have only recently become formal fields of study. For example, according to Bluedorn (1986, p. 442) in his introduction to a special book review section on the classics of management in the Academy of Management Review, around “100 years [ago] … management began as a discipline.” The emergence of the management field, according to Bluedorn, may have commenced upon the delivery by Henry Towne of his paper “The Engineer as an Economist” to a meeting of the American Society of Mechanical Engineers in 1886. Towne's paper “made a resounding call for both management research and education” (Bluedorn, 1986, p. 442).While “the history of ethics in business is a long one, going back to the beginning of business” (De George, 1987, p. 201), the academic field of business ethics appears to have emerged even more recently. According to De George (1987, p. 203), “By 1985 business ethics had become an academic field, albeit still in the process of definition.” As his evidence, De George points out that by 1985, there were already hundreds of university business ethics courses across the USA, at least 20 textbooks, at least ten casebooks, numerous business ethics centers, as well as conferences taking place.
Today, on just about every business school campus in North America, one can find courses in either subject. As the “new kid on the block” however, business ethics academics continue to face scepticism as to the legitimacy and practicality of their newly emerged field (Swanson, 2005). Such criticism is typically raised by management professors who may fail to realize that they too have only relatively recently been validated as a legitimate academic field. For example, one might hear the following question from a management professor: “So what does business ethics have to do with business anyways?” In response, however, one could reply with: “By the way, what can you tell me about the ethical implications of Frederick Taylor's theories and how he responded to such criticisms? What did Chester Barnard say about the moral status and responsibility of executives? Why is Peter Drucker so concerned with the social responsibilities of business?”
This type of discussion may lead to other general questions about the relationship between management theory and business ethics. How have the two subjects evolved? Are there any linkages between them? Should they be integrated together? Have the origins of business ethics theory been properly identified? A review of management and business ethics literature suggests that these are issues which do not appear to have been explored to date to any great extent.
To address this gap in the literature, this paper will briefly examine the evolution or historical development of US management thought during the first half of the 1900s as expounded by three of its more significant theorists:
Following a brief summary of each individual's contribution to management theory, an analysis will be conducted from a business ethics perspective. Criteria used in the analysis will consist of:
- the ethical implications of their theory; and
- the business ethics content inherent in their theory.
Frederick Taylor
Frederick Taylor is recognized as the leading advocate of scientific management. He is considered one of the first major management theorists. Taylor's (1903, 1911, 1912) major contribution consisted of three papers, which were originally published at different times for different audiences: Shop Management; The Principles of Scientific Management; and Testimony Before the Special House Committee. The three papers were later compiled together and published well after Taylor's (1947) death in 1915 in Scientific Management. Taylor's observations of workers at a steel mill led to his three reasons why workers were deliberately not achieving maximum efficiency:- the fallacy that a material increase in the output of each man or machine would result in a large number of men being thrown out of work;
- the defective management systems which make it necessary for each employee to work slowly in order to protect his own best interests (classified as “natural” and “systematic soldiering”); and
- the passing on of inefficient “rule of thumb” work methods.
Taylor: business ethics content of theory
At first glance, Taylor does not appear to explicitly say anything about the subject of business ethics in his writings. In addition, a review of general business ethics literature (i.e. business ethics textbooks) does not reveal any direct mention of the scientific method. Taylor's theory, however, despite not specifically addressing business ethics, generates significant business ethics implications. For example, discussion of any employee related business ethics issue such as employee job satisfaction, well-being, participation, or rights, might be related to Taylor-based management practices.The major charges raised against Taylor's theory were the coldness and impersonality of scientific management and the omission of the human factor in his theory. His scientific method was seen as rationalizing the work process and increasing managerial control over employees by establishing standards. By doing so, employees were viewed as merely a labour resource as opposed to human beings with personal needs and aspirations (Green, 1986). This paradigm was seen as reversing Kant's moral law by always treating people as a means and never as an ends in themselves (Waring, 1991, p. 40). By implication, managers would not hesitate to replace individual employees who were not maximizing their output. Piece rate compensation would lead to a highly competitive environment which emphasized individual output as opposed to group output. Managers would find it much easier to manipulate the resulting highly fractionalized organizational work force. Little emphasis was seen to be placed on employee participation in the work process.
There is no question that scientific management is still influential in management theory (Nelson, 1980; Waring, 1991) and continues to generate many ethical issues. In fact, Taylor was aware of many of the ethical challenges levelled against scientific management, and responded to such concerns. Taylor indicated that there were some basic limits to the optimum daily production rates; they were not based on spurts of activity and were not intended to injure the worker's health (Wren, 1972, p. 122). Taylor did not advocate that workers stop thinking; in fact, Taylor (1947, p. 128) believed that every encouragement should be given to the worker to suggest improvements, both in methods and in implementation. In response to a general question on the issue of human relations in his theory, Taylor (1947, pp. 184-5) replied:
No system of management, however good, should be applied in a wooden way. The proper personal relations should always be maintained between the employers and men; and even the prejudices of the workmen should be considered in dealing with them. The employer … who talks to his men in a condescending or patronizing way, or else not at all, has no chance whatever of ascertaining their real thoughts or feelings … Each man should be encouraged to discuss any trouble which he may have, either in the works or outside, with those over him.Despite Taylor's response (which almost sounds like a business ethics dialogue), ethical challenges against Taylor based management practices continue even today, especially with respect to mass production or the delivery of fast-food service (Royle, 2005).
Chester Barnard
Barnard's (1938) best known work, The Functions of the Executive, focused on formal organizations as cooperative systems. His main contribution to management theory was his attempt to bridge the requirements of the formal organization with the needs of the socio-human system. His work has been considered “… a landmark in management thought which persists to this day” (Wren, 1972, p. 313). Barnard recognized that individuals in an organization have their own motives (i.e. purposes, desires, and impulses) which can be modified through the executive function to match the goals of the organization (i.e. by offering incentives or changing attitudes). If the individual and organizational goals match and cooperation is achieved, the system is considered effective. Barnard also developed the acceptance theory of authority by which a “zone of indifference” (i.e. acceptance of orders without questioning authority) was created if four conditions were met: understanding of order; consistency with purpose of organization; compatibility with personal interests; and mental and physical ability to comply. Barnard also suggested three major executive functions: to provide a system of communication; to promote the securing of essential personal efforts; and to formulate and define the organization's purpose and objectives (Barnard, 1938, p. 217).Barnard: business ethics content of theory
Barnard's theory raises a number of business ethics issues. The most significant issue is with respect to the methods used by managers to bring the individual's motives in line with the corporation's goals. Just as concerns have been raised over the manipulation of consumer desires (Galbraith, 1958), one could argue that Barnard is advocating the manipulation of employee desires and goals. The inculcation of ideas designed to nurture cooperation such as appeals to loyalty, esprit de corps, and belief in organizational purpose, could be criticized as violating the freedom of conscience and belief of employees (Tubbs, 1993).In addition to such ethical implications of Barnard's theory, there is specific inclusion of business ethics by Barnard in his discussion of the nature of executive responsibility. In fact, one could argue that the current business ethics discussion on ethical leadership can trace its roots to Barnard's (1938, 1948, 1958) writings, and in particular, in The Functions of the Executive, Organization and Management, and “Elementary Conditions of Business Morals” published in California Management Review. In his chapter entitled “The Nature of Executive Responsibility” in The Functions of the Executive, Barnard (1938, pp. 262, 263, 1948, p. 95) identifies the origins of an individual's morals or private code of conduct; the social environment (including political, religious, economic environments); biological properties and phylogenetic history; technological practice or habit; and education or training. He defines responsibility as “the power of a particular code of morals to control the conduct of the individual in the presence of strong contrary desires or impulses”. In his later work, Organization and Management, he similarly defines responsibility “as an emotional condition that gives an individual a sense of acute dissatisfaction because of failure to do what he feels he is morally bound to do or because of doing what he thinks he is morally bound not to do, in particular concrete situations.” One finds strong similarities between Barnard's views and Kant's expression of the obligation to act according to one's moral duty despite inclination and self-interest (Kant, 1988). For example, some suggest that Barnard, based on an Aristotelean view of human nature, deeply respects the worth of each human being despite asking employees to willingly cooperate (i.e. self-abnegation) in order to achieve their organizations' objectives (Vasillopulos, 1988).
Barnard (1938, pp. 273, 279) suggests the responsibilities which executives have in relation to morals. First, leaders must hold some moral code, and possess strong responsibility or adherence to it. Second, leaders must demonstrate a high capacity for responsibility. Executives face a higher level of moral complexity and require the ability to withstand inconsistent immediate impulses, desires, or interests. The ethical codes which may be involved include: government codes; established systems; purpose of department codes; subordinates codes; technical situation; code of his peers; code for the good of the organization as a whole; informal organization of department code; and technical requirements of department code. Third, leaders must be able to create moral codes for others. For example, executives must often invent a moral basis for the solution of moral conflicts: “The solution of such cases lies either in substituting a new action which avoids the conflict, or in providing a moral justification for exception or compromise”. In fact, one might argue that the modern origins of corporate codes of ethics are found in Barnard's explicit discussion of ethical codes. Barnard (1958, p. 2) later reaffirms his view that management is significantly based on ethics: “to a large extent management decisions are concerned with moral issues.”
Barnard may also have been one of the first to recognize the importance of external stakeholders to the corporation. The traditional view of the organization was that it consisted of a definite number of internal members, leading to a focus on intra-organizational analysis. Barnard (1958, p. 7), despite facing criticism, rejected this view and included in his concept of organizations other stakeholders whose actions contributed to the firm. He states:
The responsibilities of corporations [include]: (1) those which may be called internal, relating to … stockholders, creditors, directors, officers, and employees; and (2) those relating to the interest of competitors, communities, government, and society in general.It was not until much later that strategic management theorists such as Freeman (1984) and others in business ethics (Carroll, 1991; Clarkson, 1995) picked up on the idea of stakeholder management as a practical theoretical framework for managers.
Peter Drucker
Drucker (1946, 1954) wrote two influential texts on management theory, Concept of the Corporation and The Practice of Management. A careful examination of these two texts reveals numerous business ethics considerations by Drucker in his theory. Each of the two texts devotes an entire chapter to business ethics considerations: “The Corporation as a Social Institution” in Concept of the Corporation and “The Responsibilities of Management” in The Practice of Management.Drucker is often considered the founder of modern American management (Romar, 2004). Drucker arguably provided two major contributions to management theory:
- advocacy of the federally decentralized organization; and
- the concept of “management by objectives” (MBO).
- focus on performance and results;
- avoidance of profitable product lines subsidizing unprofitable lines;
- better assessment of managers' performance; and
- early and reasonable testing of employees in independent command.
Drucker: business ethics content of theory
Drucker's management theory generates several ethical implications. His support of decentralization raises several ethical concerns such as increased reliance on the moral judgment of autonomous managers. The creation of autonomous profit/loss centres in a decentralized organization may generate inter-organizational competition for resources which is detrimental to the organization as a whole. MBO also leads to an emphasis on the maximization of financial performance and results, often short-term, which may in turn create pressures for short cuts and ethical abuses by managers and employees. For example, some attribute the recent corporate ethical scandals such as Enron and WorldCom to an emphasis on short-term results (Romar, 2004).As well as raising ethical complications, Drucker's theory of management specifically addresses business ethics by making three arguments:
- profits, although important, are not the purpose of business;
- corporations are social institutions and therefore have social responsibilities; and
- business has special responsibilities towards its employees.
Second, Drucker makes arguments regarding corporate social responsibility (CSR) which appear to be primarily attributed to later business ethics or CSR theorists. For example, Drucker (1954, p. 381) is clearly an advocate of the “social institution” view of corporations. He states: “society is not just the environment of the enterprise. Even the most private of private enterprises is an organ of society and serves a social function.”
One finds elements of the “social power” justification for social responsibilities in Drucker's early writings. The social power justification suggests that the immense power of corporations demands responsibility due to the significant potential consequences that can result from corporate behavior. Most business ethicists attribute the social power argument for corporate social responsibilities to Davis (1975). Drucker (1954, p. 382), however, makes note of the concentration of resources controlled by managers which results in immense power: “[Managers'] decisions have great impact upon society, and they have to make decisions that shape the economy, the society, and the lives of individuals within it for a long time to come.” It is the granting of this vast concentration of power which requires additional responsibilities of corporations according to Drucker (1954, pp. 382-3):
[This concentration of power] imposes upon the business and its managers a responsibility which not only goes far beyond any traditional responsibility of private property but is altogether different. It can no longer be based on the assumption that the self-interest of the owner of property will lead to the public good, or that self-interest and public good can be kept apart and considered to have nothing to do with each other. On the contrary, it requires of the manager that he assume responsibility for the public good, that he subordinate his actions to an ethical standard of conduct, and that he restrain his self-interest and his authority wherever their exercise would infringe upon the commonwealth and upon the freedom of the individual.The following statement emphasizes the critical importance Drucker (1954, p. 383) attached to the social responsibilities of business:
The responsibility of management in our society is decisive not only for the enterprise itself but for management's public standing, its success and status, for the very future of our economic and social system and the survival of the enterprise as an autonomous institution. The public responsibility of management must therefore underlie all its behavior. Basically it furnishes the ethics of management … This responsibility cannot be compromised or side-stepped.Drucker (1954, p. 386) also outlines the strategic implications for a corporation's fulfilment of its social responsibilities. The first step is for the corporation to consider demands made by society on the enterprise both at present or likely to be made within the near future as may affect the attainment of the corporation's objectives. The second step is to find a way to convert these demands from threats to, or restrictions on, the corporation's freedom of activity into opportunities for sound growth, or to at least satisfy them with the least amount of damage to the corporation. Drucker provides concrete examples such as old age pensions, closing down of plants, or out-of-house hiring. Drucker (1954, p. 386) states:
In brief, management, in every one of its policies and decisions, should ask: What would be the public reaction if everyone in the industry did the same? What would be the public impact if this behavior were general business behavior?Drucker (1954, p. 387) does provide limitations and qualifications to his advocacy of CSR. First, a corporation should never assume paternal authority over its managers; it “is not and must never claim to be home, family, religion, life or fate for the individual. It must never interfere in his private life or his citizenship.” Second, a corporation should never assert responsibilities for a group which it does not have, such as education, culture and the arts, the press, or foreign affairs. If corporations were to assume such responsibilities, Drucker states that society would find sole control of such an activity by management intolerable. From this argument one finds the possible origins of Levitt's (1958) famous business ethics article, “The Dangers of Social Responsibility”. In this paper, Levitt (1958, p. 47) argues that business and government each have functional responsibilities in society, and should not coalesce into a “single power, unopposed and unopposable.” There is also similarity between Drucker's ideas and the “Iron Law of Responsibility,” often attributed to Davis and Blomstrom (1975), who state that whoever does not use his social power responsibly will inevitably lose it. In addition, in Concept of the Corporation, Drucker (1946) argues that the corporation has special responsibilities towards its employees. Primarily based on Christian philosophy, Drucker says that corporations must fulfil the human dignity of status and function for the individual and provide equal opportunities to employees. By status and function Drucker (1946, pp. 140-1) means that:
the citizen must obtain both standing in his society and individual satisfaction through his membership in the plant, that is, through being an employee. Individual dignity and fulfilment in an industrial society can only be given in and through work … everybody from the boss to the sweeper must be seen as equally necessary to the success of the common enterprise.At the same time corporations must offer equal opportunities for advancement. Drucker (1946, p. 142) explains that equal opportunity means that advancement is not based on external hereditary or other fortuitous factors. One finds here the potential origins of the business ethics issue of affirmative action. Drucker provides three reasons why corporations have failed to provide equal opportunities:
- from the view of the worker, promotion selection is seen as arbitrary;
- an emphasis on formal training and education as a prerequisite to the job; and
- the failure to provide opportunities for workers to demonstrate their abilities due to specialization.
- offer training;
- provide opportunities to demonstrate talent and to acquire knowledge and training (e.g. through rotation); and
- rewards for inventiveness.
More recently, Drucker (1981) felt it necessary to address the question of what is business ethics. His discussion is a critique on the current understanding of business ethics, as a subject which advocates lower moral standards for business activities as opposed to those applied to individuals in daily life. Drucker first rejects business ethics in its current formulation, that of “casuistry” or the balancing of individual and societal demands due to the responsibility of holding a certain position. Instead, Drucker argues in favour of the ethics of prudence (i.e. the exemplification of ethics by leaders) and the Confucian ethics of interdependence (i.e. right behavior appropriate to the specific relationship of mutual dependence because it optimizes benefits for both parties, not merely an ethics for individuals) (Romar, 2004). In any event, despite what some might see as an antagonistic view towards business ethics (Hoffman and Moore, 1982), Drucker's earlier writings clearly raise ethical issues as well as explicitly address business ethics concerns. Some have even gone so far as to label Drucker a “business moralist” (Klein, 2000, p. 121) or someone having a “deep preoccupation with morality” (Schwartz, 1998, p. 1685).
Limitations and implications
The above analysis focused on only three, albeit significant, management theorists: Frederick Taylor; Chester Barnard; and Peter Drucker. A more complete discussion would have delved much deeper into the writings of the three theorists, and would also have included other important management theorists such as Frank and Lillian Gilbreth, Mary Parker Follett, Henri Fayol, Elton Mayo, F.J. Roethlisberger, Herbert Simon, Alfred Chandler, Paul Lawrence, Kenneth Andrews, Jay Lorsch, Henry Mintzberg, and Michael Porter among others. Although not directly addressing business ethics, each of their theories arguably raises ethical implications. The continued discussion of such implications is left for another paper.Despite the limited scope of the paper, the above discussion reveals an important consequence for management professors, i.e. that one cannot and should not teach management theory without discussing both the business ethics implications and the business ethics content inherent in the theory. For example, to teach Frederick Taylor's scientific management and not discuss the potential ethical ramifications for employees, arguably leads to an incomplete and morally biased education. A discussion of Chester Barnard without mentioning his concern over the responsibilities of executives in holding a moral code and creating a moral code for others could be considered deficient and unbalanced. Finally, a lack of discussion of the concerns of Peter Drucker with respect to profits, social responsibility, and respect towards employees might be seen as demonstrating a lack of understanding of his theory.
In fact, while some may discuss the ethical implications arising from Frederick Taylor, what many scholars may fail to realize is that both Chester Barnard and Peter Drucker presented their overall theories and approaches within an ethical framework. While Barnard may not have focused on the subject of business ethics, he fully embraced it in his work. In addition, a review of the works of Peter Drucker indicates that he paid keen attention to ethics within a business context throughout his career.
At the same time, the above analysis reveals an important weakness in the field of business ethics and implications for business ethics academics. Failure on the part of business ethics professors to understand management theory, the ethical ramifications of such theory, and the business ethics issues explicitly discussed by leading management theorists, is to teach a subject without a theoretical foundation in business management. Currently, most business ethicists argue that moral philosophy and other strands of academic disciplines form the foundation for the subject as an independent academic field (De George, 1987). Unfortunately, the one body of theory which is currently not discussed to any great extent in the business ethics literature, that of management theory, is possibly the most important to incorporate if business ethics is to gain greater legitimacy as a mainstream business subject. To even claim that business ethics is a subject which should be taught in a business school and then proceed to teach the subject without any knowledge or reference to management theory is only to support those who might criticize business ethics as irrelevant, impractical, and lacking any firm management theory foundation. At the very least, business ethics professors may be able to attain a greater level of legitimacy by demonstrating a knowledge and appreciation of the relationship between business ethics and management theory. By doing so, the current strain and barriers to acceptance of business ethics caused more by ignorance than anything else may be reduced. This, in turn, may increase opportunities for fruitful discussion between the two disciplines.
The inclusion of management theory as part of the business ethics field will aid business ethics professors in better understanding some of the historical origins and ethical implications of management theory. Numerous individuals have questioned what exactly the field of business ethics covers and how it should be defined (Lewis, 1985; Beversluis, 1987; De George, 1987; Nel et al., 1989). Clearly, the ethical implications of management theory should also be considered a critical component of the business ethics field. In addition, the failure to properly attribute business ethics concepts to their original source, quite often consisting of management theory itself, also needs to be addressed.
Finally, both management and business ethics professors must recognize the necessity to better integrate their disciplines or at least acknowledge the linkages between them if they are to have a greater impact on managers. Although many managers are now recognizing the importance of business ethics in terms of corporate survival, many still reject its usefulness. Stark (1993) points out a number of concerns over the field of business ethics: too general, too theoretical, and too impractical. Although there generally appears to be greater acceptance and use of management theory and business ethics by practitioners, there may still be reluctance on the part of many to accept the theory as having any practical utility. A greater merging between the disciplines of management theory and business ethics may provide a more comprehensive body of literature, hopefully leading to a more robust theoretical foundation for each field, and thereby help diminish potential criticism levied towards the business ethics field. Understanding the historical roots of management theory and its business ethics content is necessary in order for this to take place.
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De George, R.T. (1986), "Theological ethics and business ethics", Journal of Business Ethics, Vol. 5 pp.421-32.[Manual request] [Infotrieve]
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Solomon, R.C. (1992), "Corporate roles, personal virtues: an Aristotelian approach to business ethics", Business Ethics Quarterly, Vol. 2 No.3, pp.317-39.
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Corresponding author
Mark Schwartz can be contacted at: schwartz@yorku.caPrinted from: http://www.emeraldinsight.com/journals.htm?issn=1751-1348&volume=13&issue=1&articleid=1585579&show=html on Thursday January 26th, 2012
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