University at Buffalo School of Management

16 Buffalo Business Autumn 2019 The curious case of business ethics— and why nobody can quite agree BY JIM LEMOINE, ASSISTANT PROFESSOR OF ORGANIZATION AND HUMAN RESOURCES Several years before I became a pro- fessor, I was a regional director for a large business that had just completed a top man- agement change. A rumor was circulating in the company that most branch assistant managers—the lowest level managers— would be laid off as part of the new CEO's plan. This rumor had reached my team, so I was swamped with questions about wheth- er their jobs were safe. I promised to get to the bottom of it at an upcoming managerial retreat. As the meeting progressed, the CEO and his team talked vaguely about a prom- ising future without providing specifics on the fate of our people. At the end of the day, I finally had a chance to ask what the plan was for the assistant managers. The reply was simple and positive: "Please let your as- sistant managers know they've got a future with this company, so we hope they'll con- tinue their work." "Great," I said. "They'll be relieved to hear their jobs are safe." The executive quickly laughed and replied: "Oh, their jobs aren't safe. We're laying them off in three months. But we don't want to lose their pro- ductivity in the meantime." I didn't last long at the company aer that, but was surprised by how many peo- ple did. Several of them debated me over whether this course of action was ethical. I thought lying to our people was unethi- cal, but my colleagues insisted it was more complicated than that. They argued that the best thing for the company and its (remain- ing) employees would be to get as much as possible out of those assistant managers in the time they had le—in other words, the good of the many over the good of the few. Though it would hurt the people being laid off, it would benefit the majority of employ- ees and, ultimately, the people the busi- ness was formed to benefit: its owners and stockholders. What are business ethics? This dilemma suggests a key question for leaders: What are business ethics? Most peo- ple answer, "Doing what is right," but that fails to tell us exactly what is right— and what is wrong. Martin Shkreli, CEO of Turing Pharmaceuticals, called himself "altruistic" for hiking the price of a lifesav- ing drug by more than 5,000% to raise cap- ital to increase research, development and dividends. In a less extreme case, Apple marks up iPhones by about 300%, aggres- sively markets them to the poor, gener- ates exorbitant profits and keeps billions of dollars overseas to avoid U.S. taxation. Opinion is widespread against Turing, but Apple has many defenders who say its man- agement is simply doing what's best for the company (and their happy stockholders). Two views on business leadership and ethics have emerged over the past few decades: The first is a stockholder-cen- tric view conceived by economist Milton Friedman. He claimed the most ethical thing for a business leader to do is focus on profits alone, to the exclusion of all other Quantitative researchers have attempted to resolve this conflict, and their results may surprise you.

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