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Individual Moral Responsibilities in Business: Dilemmas of Business Persons

by Patricia H. Werhane

The topic of the symposium is business ethics. Another way to look at the topic is to think of it as the intersection between ethics and economics. It will be my contention that issues in economics and ethics not only overlap; they are inseparable. All economic issues have ethical components, and alternately, one cannot do ethics in business without dealing with economic problems.

Today I shall focus on one aspect of the intersection between ethics and economics -- the moral dilemmas and responsibilities of business persons. I am going to argue that being moral is a risky business, but no more risky than taking economic risks. The topic of my presentation, then, is deliberately vague, but I shall alleviate your fears by not talking in a general way about individual moral responsibility per se. Instead I want to use a specific dilemma faced by a business person to illustrate some of the kinds of problems -- moral problems -- that business persons face today. I shall start by describing a case study.

An American bank, wishing to open a branch in Italy sent over a young bank manager to start the operations. He was instructed to contact certain legal and accounting affiliates in Italy who would help him set up the business and adjust to Italian customs. In starting up the bank, the bank manager discovered that, in Italy, the Italians do not do taxes the way Americans do. Although there is a tax schedule, this is virtually ignored. Instead, a company figures out approximately how much in tax they think they should pay, and then taxes are negotiated with the government. Ordinarily one hires a consultant, a commercialista, to carry out these negotiations, and it is common practice, particularly when large sums are involved, for the commercialista to pay the revenue agent a bustarella, a cash payment, for his or her services in handling the particular tax case. This payment is figured in the lump sum paid the commercialista by the company, so whether the bustarella is paid in every case, and if it is paid, what the exact amount is, is never known by the company. These tax negotiations are particularly important, because it is assumed in Italy that once a company makes a profit, it will continue to do so. So if a company sustains a loss in one year, in the following year it will still have to pay at least the same amount in taxes it did the previous, profitable, year.

What happened in this case is that our bank manager felt that this way of filing taxes was wrong, both because it involved falsifying one's tax return, and also because it entailed a form of bribery to a government official. So our manager filed a tax return based on the earnings of his bank, as he would have done in the United States, and eventually sent the Italian government a check in the amount he had calculated. The obvious thing happened. The Italian tax officials simply did not understand this sort of action. They fined the bank for interest on its deposits, they charged the bank three times the amount they had paid, and the bank manager was sent back to the United States.(1)

The dilemmas facing our bank manager are obvious. Should he falsify his tax return, that is, lie, and be party to bribery? These are actions ordinarily frowned upon, although perhaps sometimes performed, in this country. If he does falsify and bribe, how can he justify his actions? That answer, too, seems obvious. Values are different in different places, and what is acceptable practice in Rome may not be acceptable here. In filing taxes the Italian way, our friend is merely conforming to the Italian way of doing business. It was to his economic advantage, and to the advantage of the bank, to do so. By this argument, he would be neither praising nor condoning this action. He would merely be accepting the culturally relative differences in values between this country and Italy. In Rome, one does as the Romans do, so the saying goes, but at home, of course, one conforms to American customs. So the case is simple -- in doing business in Italy the bank manager should have done things the Italian way. He did not, and so the bank had to pay more in taxes and the manager was deservedly sent home.

However, there is something upsetting about this obvious and pat solution. It is too simple, and philosophers hate simple solutions. It is disturbing because we are asking our bank manager to forego his ordinary intuitions about what is right and wrong in order to carry out his business responsibilities as an Italian bank manager. The case, then, raises a number of questions about morality, and about moral decision-making in business. Some of these are philosophical questions. Is lying ever justified, and if so, in what circumstances? Are values only relative to a particular society so that one should act in Rome the way the Romans do, and one cannot even say whether or not the Italian way of doing business is wrong? Most disturbing, can one separate business decisions from moral ones, so that certain actions that might be morally questionable practices in one's private life are all-right in business? What are the moral responsibilities, if any, of our bank manager?

To respond to these questions, let us first discuss the question of lying, or alternately, truth-telling. As a child you all learned that lying was wrong, so the issue seems trivial. But are there situations where one must lie, or where lying is acceptable and justifiable? What kinds of situations might these be? In certain desperate circumstances where lying will save lives, it seems obvious it is justifiable. For example if there is a murderer at the door who asks for your best friend, one tends not to tell the truth, or in times of war, or in espionage situations. What about in situations where it is the accepted practice to lie, such as in poker games, or in labor negotiations, or where it is a culturally accepted practice as in bargaining in the open markets in Mexico for example? What about telling stories, for example, the Santa Claus myth -- is that an acceptable practice? Or what about giving placebos, harmless medication, to someone who is a hypochondriac? Finally, what about situations where it is to my economic advantage to lie. Is lying justified then? As you can see, by focusing on the issue of lying (or truth-telling) we are raising some general issues concerning moral decision-making and moral responsibility, and at the same time, we are trying to help our bank manager.

What we mean by lying? Lying might be defined as any intentionally deceptive talk or behavior. Sometimes lying is limited only to deceptive statements, but we might want to broaden the definition to include other forms of deceptive behavior. For example, one can distinguish between outright lying, merely shrugging one's shoulders, and silence, where the lie is implied. One can also distinguish between telling the truth, or a bit of it, and telling the whole truth. Here one is not exactly lying, but it might be said that there is a bit of deception in the answer.(2)

Before we talk about lying in business, and the dilemma of our poor bank manager, let us talk about lying from the point of view of one philosopher famous for his position on the issue -- the 18th century German thinker, Immanuel Kant. Kant is well-known for his view that lying in any circumstance is wrong, period. If a murderer is at your door asking for your best friend, one may remain silent, but to lie about her whereabouts would be wrong. How does Kant reach this apparently absurd conclusion? In brief, Kant argued that morality and moral decision-making have to do with what is uniquely human -- our ability to make rational free choices from a number of possible alternatives. Moreover, according to Kant, moral decisions have to do with what we can bring under our control -- our choices and our intentional actions -- rather than the consequences of our actions which we cannot always control. According to Kant, moral choices and moral actions also have to do with actions which apply to all human beings. So the best moral choices are those which you would want others to do. A moral act, then, can be defined as an act done from a sense of principle. In contemporary terms, a moral act would be an act that reasonable persons would agree was right, that you would expect others to do, that respects people equally, and one which we could make public on television.(3)

The problem with lying and other forms of deception, according to Kant, is that ordinarily we do not want others to lie or to deceive us. While I have no moral commitment to the murderer, since she is a morally reprehensible person, when I lie to the murderer at the door, I am saying lying is all right, at least in certain circumstances. Now Kant was worried that, by lying to the murderer at the door, I am setting a precedent. First I lie to murderers, then to thieves, then to my parents, then as a politician to the public, and finally, if the habit persists, I begin lying to myself. Moreover, the trust that most people tell the truth most of the time is the basis for social interactions. We live in a society based on trust, and truth-telling, so that lying is a deviation. Notice how upset we are when such a trust is broken. A few years ago, the head of the Boy Scouts of America, of all people, was found to be embezzling the Scout funds. Imagine what that did to our basic trust in scouting, and to our trust for other human beings. When lying becomes habitual, one begins to deceive oneself. Imagine what it would be like if we lived in a society where lying was the mode of operation. You could not trust your history professors, for example. Perhaps they simply make up stories about what might have happened in the past. Suppose I simply made up this Kant fellow, or that I really was not a professor at Loyola, or that the degree you allegedly will receive from San Angelo will be a forged document? You could not operate in such a milieu. There would be no trust and worse, no knowledge, no respect for others, and with self-deception, no self-respect either. According to Kant, then, the bank manager's commitment to truth was the right one, even though the consequences of his commitment were not positive.(4)

Kant is what philosophers call an ethical absolutist. Kant thinks that there are moral principles which hold in all situations, for all persons, everywhere, no matter what. He is so concerned about the negative consequences of pervasive lying that he takes an extreme position. Most persons would argue that there are special circumstances where lying is permissible, and indeed, where it is the right thing to do. In these extreme instances, one is saying that human life is more important than truth, although these cases are exceptions rather than the rule. What is of interest to us is whether one can justify lying in other circumstances, in particular, when it is an accepted practice to do so. Is Kant right that lying is never, or almost never, acceptable -- even when it is an agreed upon way of acting in a particular kind of situation?

What does our discussion of truth-telling have to do with business? Do we ever engage in sort of half-truths in the marketplace? While outright lying seldom occurs, sometimes some of what goes on is not the pursuit of pure absolute truth. Examples abound. For example, while advertisements seldom lie, exaggeration and puffing of a product does occur. The most infamous of this is the so-called "bait-and switch" when a store promises a walkman at $39.95, but when you get there, the only one was sold to the store manager's mother early that morning. There are plenty of walkmans at $79.95 left for you to purchase. This practice was so widespread that it was fortunately outlawed, and that is why we have "rain checks" in many stores today. What about the insurance company's promise to insure anyone between the ages of 55 and 80 -- a truth, but deceptively so, because the ads never say what the cost of the insurance will be. There are lots of other kinds of examples too. In applying for a job, do you wear the clothes you wear to class? If asked what magazines you read by the interviewer, do you answer Playboy or Penthouse? Well, no, of course not. The proper clothes are business clothes and the proper answers are Barrons and Business Week, and perhaps Time or Newsweek. Are you lying? Well I don't know, but I suspect you are not telling the total truth either. Does everyone tell the whole truth on their tax returns? Is every lunch really a business lunch, and every donation truly charitable?

Notice three things about these examples. Each case is a borderline case. Outright lying does not occur, but neither is the whole truth being revealed. So some deception may result. Secondly, in each instance, it appears to be part of the game of business to engage in these practices. One does not expect non-exaggeration in advertising. No personnel officer would expect someone to say they had read Playboy. Third, while some business people might write exaggerated advertisements or entice elderly people to buy extra insurance, by and large, these same people are religious people, loyal to their family and friends, and if asked, would probably say that they would not engage in such practices in their private lives. So, then, is exaggeration, puffing, or deception all right if it is part of a game, in this case the game of business, where all the players understand the rules?(5)

Describing business as a game is an instance of what anthropologists call cultural relativism, and so the analogy applies nicely to our bank manager. The cultural relativist notices that values, customs, and even ethical principles are different in different cultures. These differences can range from a love or hate of pasta to a justification or abhorrence of mercy killing. Just as in business certain games are played which are not played elsewhere, so in different cultures there are different ways to play the business game. From this perspective our bank manager was rude. He did not learn how to play the Italian business tax game. He was a bad player, and a sore loser.

Let us look at the game analogy and see whether certain kinds of accepted practices of semi-truth-telling can be warranted? While it is clear that games are played in business, and while it is true that most rational adults understand some or all of these games as games, there are difficulties with the analogy. First, it is impossible to identify all the players, and to be sure that all the players know the rules. Some time ago, Wonder Bread had an advertisement showing a little boy eating bread and then growing up within the 30-second time period of the ad. You know and I know that this is a wild exaggeration, and we would never take the ad literally. It turned out, however, that some of the viewers are not so intelligent, or they were children, and they believed in the miracles of Wonder Bread. The ad was taken off the air, but it illustrates the problem. Not everyone understands what game is being played.

Second, should the rules of business include deception? Even if these practices occur, are they morally acceptable? I do not think they are, and one of the reasons they are not is that one cannot define the limits of the game. There is a thin line between exaggeration and deception, and once begun, what is to preclude drifting off toward deception. If I advertise that my company's insurance policy is the best, even when it is not, the next step is to sell it at a higher premium to older people who can ill afford it.

A third complication with the game approach is that there is always a temptation to introduce a new game without informing everyone of the new rules. Also, what happens when business gets "carried away" with a game of business and loses track of its responsibilities? The manufacture of the Pinto automobile is an example. Ford wanted to produce a small and inexpensive car for a mass market, a commendable goal, but it lost track of the fact that not changing the placement of the gas tank of the Pinto might cost lives which otherwise need not have been lost. According to Ford records, the company officers knew the dangers of the gas tank, but decided to take a chance and make the auto anyway -- since, at most, only a few lives would possibly be affected. Here, we see that involvement in the competitive game of manufacturing automobiles distracted Ford from "the big picture" -- that is, how it might affect other persons. What happens when we lose trust in business? Free competition between trusted parties breaks down, and worse, government steps in to regulate.

How does this discussion help our bank manager? While lying in business in the United States may be wrong, our bank manager is trying to do business in another culture. Moreover, it is to the economic advantage of the bank to file taxes the Italian way, and to their grave disadvantage not to do so. So, as a business person, can I bracket and leave at home my ordinary moral intuitions that lying and bribery are questionable practices when I am in another culture, or where it appears to be greatly advantageous economically to do so? I shall suggest that the answer is a qualified no.

In order to say that, let us step back again and look at what underlies the view that in Rome one should do as the Romans do. This view is called "ethical relativism." The ethical relativist is different from the cultural relativist. We are all cultural relativists -- that is, we recognize that what people do in Italy is different from, and sometimes contrary to, our customs. The cultural relativist recognizes these diversities, but the ethical relativist goes further. She argues that, at least in the area of values, sometimes value differences are so serious that one cannot resolve them. This is not merely because I think my beliefs are right, and Texans think theirs are right. No, it is because there are no principles -- no universal principles that override value differences. So for example, underlying the customary diversity in the way Americans and Italians do taxes is an unresolvable disagreement in the importance of the value of truth-telling in human relationships -- a disagreement for which there is no resolution.(6)

Ethical relativism seems right because we do disagree about what is right and wrong, and like many political and religious disagreements, serious controversies about values are seldom settled or settled amicably. The problem with ethical relativism is that, like the game analogy description of business, it is a theory that looks fine, but when you start evaluating it in specific contexts it becomes problematic. For example, while there are apparently clear-cut differences in Roman and American views about lying, this is not really so. If you ask an Italian about truth-telling, she will probably reply that telling the truth is the acceptable way of doing things; it is just that, in doing taxes, it is not accepted practice.

A more serious difficulty with ethical relativism occurs when you start to draw the boundaries between the United States and Italy. Are there American values, as opposed to Italian values? What about the differences between San Angelo values, say, and Chicago ones? Or, in San Angelo itself, what about the differences in religious values in the community. Or merely taking the Protestant churches, what about their disagreements? What about the differences between peer and faculty values? Or, the differences just among your peers? Worse, what about the changes you have personally made in your own value system? Do you each still believe in all the same things you did, say, when you were ten? And do you place the same emphasis on the same things now as you did then? The problem with ethical relativism is that unless you live in an isolated monolithic culture like Tibet used to be before the Chinese took over, it is impossible to isolate a set of values that distinguishes each culture. In each culture there are a multitude of conflicting values at work and in process of change, and within each of us, these changes occur too. Does this leave us with the conclusion that since there is this variety of values and since it is difficult at best to resolve all value conflicts, that there are no values, or that values are merely personal beliefs -- what I think is right, or what I think is right at this moment in time? If that were the case, then we could make no moral judgments at all. We could not say whether the bank manager was right or wrong, because he was just following his moral intuitions he had on that occasion.

People who argue against ethical relativism say that the ethical relativist has reached the wrong conclusion. It is the wrong conclusion because, although we have value differences and conflicts, and even though sometimes we get into trouble like the bank manager did, we nevertheless hold to the conviction that moral conflicts are resolvable based on some principle that holds for everyone. In serious moral decision-making, and in making moral judgments, we operate as if there are some general principles, or universal values, even though we are unsure of what they are. Moral decision-making is an evolving process where we are ever trying to perfect our actions and find the moral ideal. Changes in ethical beliefs, and changes in values, are not signs that there are no values, but rather an indication of the evolving process of discovering them. Ethical relativism is a dead end-street because it belies what we actually do all the time -- engage in the process of moral decision-making where we try to figure out what is right and what values are universal values.

Note that opponents to ethical relativism are not contending that "what I think is right is right." Part of moral decision-making is recognizing that there are vast differences and conflicts in values and customs, the resolution of which is part of the challenge to the decision maker. Whatever our bank manager does, because he is in another country, he must find out what the customs and mores of that country are, and he must be careful not to insult the host country. The decisions he makes should not be merely from his perspective, nor even from a purely American perspective, but should take into account a broader view of what might be valuable for everyone universally. On the contrary, our particular manager was rude because he simply applied American standards to the Italian culture without finding out fully what the situation was. In other words, the bank manager acted like an ethical relativist, assuming that his values were "the best," without recognizing other possibilities.

If lying has detrimental societal effects, if the game analogy in business is problematic, and if values are not merely ethically relative, then as outsiders, we can evaluate the Italian tax system. There are a number of difficulties with the system, many of which have been recognized by the Italians themselves. First, most Italian companies keep three or four sets of books. Accounting procedures are chaotic, and one is never sure which set is the correct one. Moreover, if falsification of records is a pervasive practice, one can never get at the truth, and trust in business is almost nonexistent. Finally, while all major tax payers in Italy know the "game" of taxes and play the game, not every Italian is privy to playing. Particularly, salaried workers, whose taxes are withheld from the paychecks, have difficulty negotiating their tax payments, and those who are unemployed have no chance to play at all. So the system is unfair because not everyone is served equally.

All of these grandiose conclusions do not solve the dilemma of the bank manager. Even if the Italian way of doing taxes is harmful to the Italians, and even if the bank manager was trying to do the right thing according to what we think are principles which should hold for everyone, and even if it is true that lying undermines trust, and even if the Italians do not think that lying is acceptable practice, the fact of the matter is that here and now the Italians do taxes in a certain way that is unacceptable to the bank manager. So how can our manager honor his business commitments, and his moral ones as well?

It appears that the manager has two choices -- to go back to the United States, or to acquiesce to the Italian system. That is the way moral choices often seem to present themselves -- in the form of two unpalpable alternatives. But this is only an appearance because often there is a third alternative, if one can only think of what it might be. So choices in these cases involve moral creativity, and sometimes some moral risk because one has to think up new alternatives and try out something where one is never sure just how things will work out. Is there a third alternative which does not insult the Italians, which might be agreeable to their tax officials and which does not clash with what the bank manager thinks is right? Can he uphold his economic, as well as his ethical, responsibilities?

I do not have a factually true Italian example to give you, but let me suggest how moral compromises have been made in other similar situations. As you all know, a number of American companies have business in South Africa. These companies provide employment for nonwhites, they provide needed goods and services, and they are profitable. Yet, these companies face the obvious dilemma of doing business in a country whose racial policy of apartheid is abhorrent. If these companies abandon their South African operations, they will lose all their investment because, under South African law, a foreign company cannot expatriate its investments. Like the Italian tax situation, this seems to be a simple case of taking a moral stance, or an economic one. However, under the leadership of a Black Baptist minister, Leon Sullivan, a number of companies have taken a compromise position. They have adopted what are called the Sullivan Principles for their South African companies -- integrating their workplaces, promoting nonwhites to supervisory positions, and paying blacks and whites equally for equal jobs, all of which is illegal in South Africa. These activities take place within each company and no American company "waves a flag" or makes a fuss about how wonderful they are, or how bad the white South African government is. The white South African government, in turn, has simply pretended to ignore these activities. The companies remain, now applying American employment standards for their operations. Notice that this is an ethically risky position because no manager can be sure that he is not contributing more to the apartheid government than he is achieving in his workplace. It is a compromise, but many moral decisions are compromises, even private ones.

A second example, and one which will help our bank manager. When American companies thought of expanding their operations into European countries, one country which was particularly enticing was Belgium because of its central location and inexpensive skilled labor. However, the Belgians do taxes the way the Italians do. Because of massive cheating on income taxes, the Belgian tax schedule taxes most ordinary incomes at the rate of 90 percent since almost no person and no company admits to earning any money. The managers of American companies planning to do business in Belgium decided they could not ask their personnel to falsify tax returns. So they appealed to the Belgian government to allow them to file taxes the "American way," giving identical tax returns to the American and Belgian governments. They also asked that American employees be given a 50 percent tax deduction as foreigners, since they too were not accustomed to doing taxes the Belgian way. After much negotiation, the Belgians were convinced that they would receive as much revenue as they might under "normal circumstances," and this agreement exists even today.

The bank manager, then, might have first found out what the Italian way of doing taxes was, and there is little evidence he did so. Then he might have negotiated with the Italian government and found a way both to pay taxes his way and do business in Italy. While he might not have been successful, it was worth a try, and there was precedent for success.

What I am suggesting, then, is that when business persons, like our poor bank manager, face ethical dilemmas, it may appear that one has to compartmentalize one's personal values -- that is, leave them at home in order to carry out business. This is not the case. This leads to a sort of personal relativism that is unthinkable. Moreover, even in private moral-decision making, choices are seldom easy and compromises are often necessary. So, rather than abandon one's moral principles, or leave the economic scene, one needs to see whether there is another alternative which is morally acceptable without creating economic harm. There are situations where one can uphold moral principles, and do business profitably. The Italian Tax Case is one such example. This case illustrates that ethics cannot be divorced from economics. To do so places persons, and businesses, at moral and economic peril.


(1) Arthur Kelly, "Italian Tax Mores," in Ethical Issues in Business, Thomas Donaldson and Patricia Werhane, editors (Englewood Cliffs, NJ: Prentice-Hall, 1979; 1996).

(2) Sissela Bok, Lying (New York: Vintage Books, 1978).

(3) Immanuel Kant, "Ethical Duties Towards Others: 'Truthfulness'," pp. 224-235 in Lectures on Ethics, Louis Infield, translator (New York: Harper " Row, 1792; 1963).

(4) Ibid.

(5) Albert Z. Carr, "Is Business Bluffing Ethical?" Harvard Business Review (Jan.-Feb., 1968).

(6) Richard Brandt, Ethical Theory (Englewood Cliffs, NJ: Prentice-Hall, 1959).