CHAPTER I ONE

General Business Ethics

Peter Drucker was extremely ethical in his outlook as well as in his actions. On
a personal level, he was one of the most principled individuals I have ever met.
From both his writing and his classroom lectures, it was clear that he sought to
arrive at basic ethical principles that were essential for business. He believed
that ethical behavior was an absolute requirement of all organizational leaders,
that they should incorporate integrity and ethics into how they conducted their
business. First and foremost, he concluded that while followers would forgive
an organizational leader much, they would not forgive a lack of integrity in
personal dealings. However, Drucker well understood that interpretations of
ethics and integrity might vary and therefore it was not easy trying to derive a
common point of ethics that would be applicable as general business ethics.
Drucker Investigates Business Ethics
As he grappled mightily to understand ethics, Peter Drucker cast a wide net,
beginning with ethical philosophies from the Western tradition and expanding
his search both geographically and historically. He did find a single point of
complete agreement, and one point only, in which an ethical code of sorts
applied universally. (More about that later.) There were usually various types of
extenuating circumstances within all ethical interpretations. For example,
clemency might be granted to someone who violates a code of ethics under
certain circumstances. "Thou shalt not steal" is one of the Ten Commandments.
Yet a mother stealing to feed a starving child might be excused as committing
a lesser evil for a greater good. Differences in ethics owing to differences in
social or cultural mores might also be accepted. Javier Bardern won an
Academy Award for Best Supporting Actor for his role as the villain and killer
Anton Chigurh in the movie No Country for Old Men. Asked who Chigurh was,
Woody Harrelson's character, Carson Welles, responded: "Anton is a man of
principle. But he just doesn't follow the same principles that you and I might
agree should be followed." In fact, practices of questionable morality by one
individual, or a group of individuals, might not only be considered acceptable
but also quite ethical.1 For example, extremists who willingly blow themselves
and innocent bystanders up with explosives for their radical version of Islam
consider their actions to be ethical, while others might vigorously disagree. But
what about doing things in business that are clearly "unethical"? Can business
ethics be defined in this manner? This came up in Drucker's class, and I also
found his response in one of his books: "Hiring call girls to entertain visiting
executives does not make you unethical. It merely makes you a pimp."2 This
brought general laughter in class, but it was clearly representative of Drucker's
limitations of business ethics.

Extortion or Bribery
Drucker noted that bribery was hardly desirable from the viewpoint of the
victim who was being extorted. It had been made illegal for U.S. companies
through a law prohibiting the payment of 'bribes to obtain foreign contracts.
This bribery was cited as a gross violation of "business ethics." But Drucker was
very clear on this. He thought it was stupid to pay bribes. However, was paying
bribes in itself a violation of the law or of business ethics? Most countries have
laws against bribery. Yet it is a fact that bribery, as we define it, is routine and
expected in some of these countries. Several of the countries recognize
"baksheesh" as the traditional way of doing business. Their citizens may ignore
any local laws that have been enacted, regarding them as "window dressing"
and not part of their own culture. Drucker noted in his investigation that a
private citizen who was extorted into paying a bribe to a criminal might be
considered foolish or a helpless victim of intimidation. And certainly paying
extortion is never desirable. But this was clearly not an ethical issue on the part
of the individual who might be forced to face a greater ethical threat, not to
himself, but to members of his family or the general public. He objected to any
"new business ethics" that might assert that acts not immoral or illegal if done
by private citizens would become immoral or illegal if done in the context of a
business organization without examining the circumstances. They might be
stupid, they might be illegal, and they might be the wrong thing to do.
However, they do not necessarily constitute "business ethics."
The Ethics of Social Responsibility
Drucker looked closely at casuistry, or rationalization. Casuistry might also be
termed cost-benefit ethics, or ethics for the greater good. Essentially it says
that someone in power, such as a CEO, a king, or a president, has a higher duty
if it can be argued that his behavior confers benefits on others. So, it is wrong
to lie, but in the interests of "the country" or "the company," or "the
organization," it sometimes has to be done. Drucker maintained that this was
too dangerous a concept to be adopted as business ethics because a business
leader could use it to justify what would clearly be unethical behavior for
anyone else./ Drucker looked further.
The Ethics of Prudence
To be prudent means to be careful or cautious. It is a rather unusual philosophy
for an ethical approach, but admittedly it has some benefits. Drucker gave an
example of prudence that pertains to senior military officers. He said that Harry
Truman, at the time a U.S. senator,'gave this advice to a general officer witness
before his committee in the early years of World War II: "Generals should never
do anything that needs to be explained to a Senate Committeethere is
nothing one can explain to a Senate Committee."4 He thought that Truman's

advice may be pretty good for staying out of trouble, but it was not much of a
basis for ethical business decision making. For one thing, it doesn't tell a
person anything about what the right kind of behavior is. For another, there are
decisions that a leader must make that are risky and that may be difficult to
explain, especially if things go wrongbut they may nevertheless be the
correct decisions to make.
The Ethics of Profit
Though he called it "The Ethics of Profit," it is not what you might think.
Drucker did not say anything about limiting profits. Much to the contrary, he
wrote that it would be socially irresponsible, and most certainly unethical, if a
business did not show a profit at least equal to the cost of capital, because
failing to do so would waste society's resources.5 However, the only logical
rationale for the justification of "profit" was that it was a cost. His advice was as
follows: "('heck to 'see if you are earning enough profit to cover the cost of
capital and provide for innovation. If not, what are you going to do about it?"6
Although he died just days short of his ninety-sixth birthday in 2005, two years
before the onset of the recession he had predicted years earlier, Drucker would
have supported those companies defending their profits as necessary for
marketing and innovation, two essential (and ethical, Drucker implied)
requirements for any business. For, while profit was an ethical goal, its use as a
"metric" rested on very weak moral grounds, and as an ethical incentive it
could be justified only it' it were a genuine cost, especially if this cost was
required to maintain jobs and to grow new ones.'
Confucian Ethics Calling Confucian ethics "the most successful and most
durable of them all," Drucker looked to the East for guidance. He maintained an
interest in Japan and China, which perhaps explains why the latter was the only
country where he allowed an educational institution outside the United States
(the Peter F. Drucker Academies of China and Hong Kong) to use his name. In
Confucian ethics. the rules are the same for everyone, but there are different
general rules that vary according to five basic relationships, all based on
interdependence. These five relationships are:
1. Superior and subordinate
2. Father and child
3. Husband and wife
4. Oldest brother and sibling
5. Friend and friend
The "right" behavior in each case differs, so as to optimize benefits to both
parties in the relationship. In essence, all have mutual obligations. This concept

is not compatible with what is considered business ethics in many countries,

including the United States, where one side has obligations and the other side
in addition has rights and entitlements. Though he clearly admired Confucian
ethics, which he called "The Ethics of Interdependence," he concluded that its
principles cannot be applied as business ethics because the Confucian system
deals with matters between individuals, not between groups.
A "Common Point" for Business Ethics
Primum non nocere is Latin for "above all, do no harm." It was part of the
ancient physician Hippocrates's writings, but it is not the Hippocratic Oath as
many (including Drucker) believed.9 This simple phrase, Drucker thought,
should be the basis of all notions of business ethics, though he did have other
corollary conclusions based on his in-depth analysis. So his ethics struggles
were not in vain. He concluded that business ethics as we know them today are
not that at all. If ever business ethics were to be codified, he felt, they ought to
be based on Confucian ethics, focusing on the right behavior rather than on
misbehaviors or wrongdoings. In the meantime, organizational executives and
practitioners should understand the following things about business ethics:It)
1. There are many different approaches to ethics; none of them are 100
percent compatible with what we really should consider business ethics.
2. Confucian ethicsthat is, the Ethics of Interdependenceprobably
comes closest to the ideal for what might be called organizational ethics.
3. The ethics of personal responsibility from the physician Hippocrates,
"above all (or first), do no harm," is a good basis for business ethics.
4. The mirror test is not bad: "What kind of person do I want to see when I
look into the mirror every morning?"