“The XXI Century powerfully demonstrates the need for a second Humanism”

Stefano Zamagni’s resume is too long to be published here.
But when reading this interview, which indeed looks more like an essay, it is immediately perceptible that the professor of Economics, author, member of distinguished institutions and awarded with several prizes, is not “only” an economist. In an extensive journey through the world of business, Zamagni gives us different ethical, historical, philosophical, sociological and theological perspectives, all of them converging towards the same result: the urgency of a more humane society and the idea that the “common good” will have to play an increasing role in the rethinking of the responsibility of business in society

As an economist and taking in account the macro vision you have regarding the corporate world, how would you define the current position of companies in society?

Whoever observes the relationship between the economy and society today will notice that civil

Stefano Zamagni, Economist, Professor and Author

societies no longer only expect enterprises to produce wealth, make quality products at low cost, pay their taxes and respect the law, but rather it is expected that they will also take in tasks that until recently were considered the responsibility of the State, the Church or of the family. At the same time, the expectations of civil society organizations have also changed; they are now expected to operate efficiently in ways that public opinion in the past did not expected of them. This is one of the central theme of the forthcoming UNIAPAC World Congress in Lisbon.

This process of bringing social relationships more visibly together with efficiency whether on the side of capitalistic enterprise or social enterprise, begins in the early 1950s, but is only recently, due in large part to the insistence on the principle of subsidiarity that it has gone beyond a critical mass, now influencing in a profound way the general public and political institutions in general. This phenomenon is now highly diversified and complex, more so that one might think. On the one side, enterprises that were founded within a liberal capitalistic system have begun to take social factors into account, under pressure from consumer groups; one the other, various associations with a clear social goal begin to experience the need to become enterprises, that is, to deal with the typical dynamics of the market. This phenomenon captures within itself two distinct and different traditions: the capitalistic business that moves beyond its previous limits into the social dimension, and the world of social value that takes on an enterprising face.

You wrote in a paper that “virtue ethics has the capacity to resolve the opposition between self-interest and interest for others”. How do you evaluate this virtue ethics in business nowadays?

“The corporation” – has written Colin Mayer – “has evolved substantially over the past hundred years, but the very evolutionary processes that might have been expected to make it better suited to the world in which we live, have done exactly the opposite” (Firm Commitment, Oxford, Oxford University Press, 2013, p.2).   One factor determining this state of affairs is our own misconception about the nature and the purpose of the firm. It is unwisely reductionist to characterize it as a mere “nexus of contracts” between different parties, attributing to the firm only one purpose: profit maximization as the only admitted metric of business success. Such an approach has serious defects, the most relevant of which is its reductionism: the firm can do much more and better than solely maximizing profits. The dominant corporate governance ideology is that, to achieve superior long run economic performance, companies should maximize shareholder value (MSV). As promulgated by agency theorists, MSV is an ideology of value extraction that lacks a theory of value creation.

According to many scholars there are neither compelling legal nor economic arguments to support the shareholder myth. Indeed, contrary to what many believe, corporate law does not impose any legal duty on corporate executives to maximize profits or share prices. And there is no persuasive empirical evidence demonstrating that corporations run according to the principles of MSV perform better over time than those that are not. A company is a human community with a specific role: to produce goods and services in a way that consumes fewer resources than it produces and which are useful to people who buy them. Its moral duty is to be profitable, but not only. It has a clear responsibility towards its members, to suppliers, to clients and to society at large. These include the long term interest of future generations, including ecological sustainability and pro-socialness. Profit is a bottom line, not the exclusive criterion for judging any single business decision. Such accountability is ethical in nature. But to speak of ethics is not sufficient, since there are many different ethical stances and theories, among which to choose. Neither utilitarian ethics nor deontological ethics are up to. What is required is virtue ethics.

Mission-driven organisations develop from a vocation that is born out of the intrinsic motivations

of their promoters/founders as stressed by UNIAPAC.  The ideal that moves these organisations can take various forms: in can be in the type of activity that is carried out, or in the reasons why the organisation exists (if, for example, it comes into existence in order to provide work for the most disadvantaged), or in the way of carrying on the activity, as regards its form of governance or its organisational structure. These aspects must be present together in a values-based organisation, even if to different degrees, since it is difficult to imagine, for example, that motivation towards an intrinsic good would not be linked to a form of governance that is appropriate to this, since the “new wine” of this mission usually needs the “new wineskins” to hold it, and to help it mature with time.

As a specialist and author of an important book on the subject of common good – L’economia del bene comune – what is the most appropriate way to define it?

A simple but effective way to grasp its meaning is to contrast it with the notion of the total good (which derives from an ethics of rules, either utilitarian, or deontologist). Whereas the latter can be rendered by the metaphor of an addition, in which the items to be added stand for the good of each individual (or the social groups that make up society), the common good is more like a multiplication, whose factors stand for the good of each individual or group. The meaning of the metaphor is clear. In an addition, the total remains positive even if some of the items cancel out. Thus, if the goal is to maximize the total good (e.g. national GDP), anyone’s good (or welfare) can actually be ‘cancelled out’ provided someone else’s welfare increases by more than the other person loses. In a multiplication, on the other hand, canceling out just one factor reduces the entire product to zero.

In other words, the logic of the common good does not allow trade-offs: one person’s good cannot be sacrificed – whatever the person’s life situation or social rank – in order to increase someone else’s good, for the basic reason that the former is a human being. According to the logic of the total good, the ‘someone else’ is an individual, i.e. a subject identified by a particular utility function – and, as we know, utilities can simply be added up (or compared), since they have no faces, no identities, no histories. As Aristotle made clear, life lived in common by human beings is something very different from the mere sharing of pastures by animals. In the pasture, each animal eats for itself and attempts to take food away from the rest. In human society, on the other hand, each person’s good can only be achieved by working in common. Above all, each person’s good cannot be enjoyed unless it is also enjoyed by everyone else.

Why do the common good and the total good continue to be mixed up, even by experts, creating numerous misunderstandings and leading to many sterile, inconclusive arguments? The most convincing answer is that today’s prevailing culture is so imbued with philosophical utilitarianism that even those who, at least in words, oppose it are in practice conditioned by it. Indeed, it should be remembered that Bentham’s utilitarian ethics stated and spread the idea that the goal of politics was the total good of the nation – and hence that the market (i.e. the economy) and public institutions should not be organized so as to prevent such a goal from being attained.

In the 10th anniversary of the bankruptcy that shook the world, would you say that there are some positive lessons to be shared?

Allow me to cite two recent relevant initiatives. The first one is the MBA Oath, started by a group of Class of 2009 Graduates of Harvard Business School. The goal is to make a difference in the lives of MBAs who take the oath; to challenge other MBAs to work with a higher professional standard, whether they sign the oath or not; finally, to create a public conversation in the media about improving management. Let me quote few of the promises: “I promise that I will manage my enterprise with loyalty and care and will not advance my personal interests at the expense of my enterprise or society… I will refrain from corruption, unfair competition or business practices harmful to society… I will protect the human rights and dignity of all people affected by my enterprise and I will oppose discrimination and exploitation… I will remain accountable to my peers and to society for my actions and for upholding those standards. This oath I make freely and upon my honor”. (M. Anderson, P. Escher, The MBA Oath. Setting a Higher Standard for Business Leaders, Portfolio, 2010). The second initiative is the one taken by the Dutch Banking Association in April 2015. All the bankers in the Netherlands have been required to take the following oath: “I swear within the boundaries of the position that I hold in the banking sector that I will perform my duties with integrity and care, … that I will put the interests of the customer first; … that I will make no misuse of my banking knowledge; that I will be open and transparent, and am aware of my responsibility to society”. (For the full text of the oath, see M. O’Hara, Something for Nothing. Arbitrage and Ethics on Wall Street, New York, Norton & Co., 2016, pp.175-176).

You have been one of the most preeminent collaborators of Pope Emeritus Benedict XVI in the writing of Caritas in Veritate. This utmost encyclical poses a challenge to the business community when it asks for “a profoundly new way of understanding business enterprise” (CV 40) and also the concept of the already mentioned “common good”. In your perspective, are business leaders accepting the challenge and in which ways are they committed to walk this path?

Business leaders need to shape the conditions for continued prosperity. In a most interesting Report

by UN Global Compact and Accenture (CEO Study on sustainability, Sept. 2013, one reads: “The global economy is on the wrong track and business is not playing its part in forging a sustainable future”. This is a study of more than 1000 CEOs from 27 industries across 103 countries: the largest study to date. CEOs are committed to take action. They recognize that market rules need to be shaped to create a level playing field and a race to the top that rewards socially responsible performances. A corporate leadership agenda to shape the future is today particularly urgent. The great challenge is to balance two apparently conflicting objective. First, business leaders need to secure the sustainability and prosperity of their own companies. Second, they need to shape the conditions for continued and more inclusive economic prosperity and for global economic integration. This implies shaping the next wave of globalization. Whereas the last wave centered on accessing foreign markets and creating low-cost global supply chains, the next wave will follow a very different pattern that might look like: more decentralized, more geographically differentiated, more digitally interconnected, more cognizant of social impact and the importance of building capabilities rather than exploiting labor cost differentials.

To contribute to society, and to gain its support, businesses must be deeply embedded in it. One way this can be achieved is to establish social businesses that are adjacent to their core business models. This puts corporations in a position to solve some important problems by unsustainable philanthropic contributions. To this regard, one should consider the emergence, in very recent times, of benefit corporations, that are a new, fast-growing legal form of for-profit incorporation. They are under no legal obligation to maximize shareholder value. Instead, they are legally bound to pursue social benefit. Born in the US ten years ago, benefit corporations exist in Italy, UK and legislation is advancing in Australia, Argentina, Chile and Canada. Many entrepreneurs adhering to UNIAPAC are using this form of incorporation to signal that they are serious about doing business in a different, more responsible way.

And what does a business firm accepting to be guided by the principle of the common good has to do?

First, it must facilitate communication among members. Second, it must practice fairness, avoiding both subjection and exploitation. Third, it has to take into consideration the motivational structure of each person. Let me explain. Communication is not the same thing as information. While full information is all that is needed for the coordination of decisions, cooperation presupposes the practice of a special form of deliberative democracy: the exercise between members of the “voice” option. For the key distinction between “exit” and “voice” option, we are indebted to A.O. Hirschman [economist and author of Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations, and States], who went on to say that while the ideal-typical field of application of the former is the economy, that of the latter is politics. Well, the proper significance of cooperative action is that of extending the “voice” option to the sphere of business relations. As we know, the process of deliberation posits the possibility of self-correction, hence that each person admits, at the outset, the possibility of changing his/her own views in the light of the arguments of others. This means that the deliberative method excludes all those who declare, in the name of hierarchy, that they are impermeable to the reasons of others. With this in mind, then, deliberation necessary presupposes communication.

The other prerequisite mentioned is the commitment to internal equity. The prime reason that motivates the members to come freely together to solve a cooperative problem is to banish subjection and exploitation. The precept of cooperation is set apart from coordination by the fact that it posits not hierarchy but the equal dignity of persons and of the areas in which they work. As John Rawls observes, cooperation is much more demanding than coordination, as it is based on rules and procedures that have to be agreed to by all participants. To be sure, every common action, hence every enterprise needs someone to exercise the command function to get the wills of the different individuals to converge. But whereas in the firm as a commodity command flows from the power of hierarchy, which may be more or less authoritarian as a matter of personal style, in the  firm as association command depends on  leadership in a way that makes it impossible for anyone to impose his/her own concept of the common  good on the others.

The central thematic of the UNIAPAC World Congress 2018 is transforming business into a noble vocation. If you had to convince business leaders that this is the right thing to do, what would you say to them?

The 15th Century was the century of the first Humanism, a typically European event. The XXI

Century, from the very outset, powerfully demonstrates the need for a second Humanism. At that time, the shift from Feudalism to Modernity was the decisive factor which pushed in that direction. Today, it is an equally Great Transformation (in Polanyi’s sense) – from industrial society to post-industrial society – that shows us the need for a new Humanism. Globalization, financialization of the economy, convergent technologies, migrations, identity conflicts, environmental challenge, increasing inequalities are only a few of the key words telling us about the “discontent of civilization”, to cite S. Freud’s well known essay. In facing these new challenges, merely updating our old categories of thought or refurbishing collective decision techniques, however, refined, would not be suitable for the purpose. We must have the wisdom and the courage to walk on new paths. To this regard, a relevant admonition comes from a beautifully written piece of work of some time ago by J. Ratzinger: “A morality that believes itself able to dispense with the technical knowledge of economic laws is not morality, but moralism. A scientific approach that believes itself capable of managing without an ethos misunderstands the reality of man. Therefore it is not scientific. Today we need a maximum of specialized economic understanding but also a maximum of ethics, so that specialized economic understanding may enter the service of the right goals”. (“Market economy and Ethics”, Communio, 13, 1986, p.204).

Companies are part of business ecosystems, which in turn are embedded in local and transnational economies, which are interwoven with societies. Today, business leaders understand that focusing only on the narrow game of business – i.e. maximizing total shareholder return – has become a very risky proposition. The idea that is getting more and more consensus is that of Total Societal Impact according to which companies, as cognitive institutions, are considering the impact of their multifarious activities on the social and environmental dimensions as well as on the pure economic one. (A cognitive institution is an institution that constrains the action of an agent not in a coercive way, but shaping his/her cognitive map). The notion of total societal impact is an expression of the larger notion of corporate political responsibility that refers to the impact of corporate activity on the polis and on the political network where companies operate. There is today a broad recognition that meeting the 17 UN Sustainable Development Goals and in particular coping with the endemic increases of social inequalities will not be possible without the significant capabilities of the business sector. Companies know very well how to measure outputs and outcomes; they have to learn how to measure the social impact of their activities. Ultimately, this is what makes one hopeful that the category of common good will play an increasing role in the rethinking of the role of business in society.  As we know, in the long run, few things are as powerful as good ideas: this is the guiding principle accompanying UNIAPAC’s work.