# The Ethics of Profit

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> Source: Bahá'í Library Online (bahai-library.com), curated by Jonah Winters. Used by permission of the curator. Original citation: Oliver Giscard d'Estaing, The Ethics of Profit, bahai-library.com.
> ──────────────────────────────────────────────────────────────────────
> 
> The Ethics of Profit
> 
> Oliver Giscard d'Estaing
> 
> Paris: European Bahá'í Business Forum, 2001
> 
> Glorified in the United States, traditionally held in contempt in France, the word profit
> arouses numerous and strong reactions, some emotional and others rational. We must try to
> take the heat out of the debate and reach a consensus about its economic and social and --
> why not -- spiritual function. In addition to its motivational and regulating role, it
> has, for me, an essential ethical dimension.
> 
> Without dwelling at length on its economic function, one can only underscore its
> absolute necessity for the proper functioning of enterprises. It represents an important
> element both as a constraint and as a stimulant. It provides a basis for evaluating the
> decisions inherent in the functioning of the enterprise: prices; salaries of personnel and
> of management; choice of investments; commercial, technical, and industrial strategies;
> and dividend policies for shareholders. Those companies which ignore profit, or which do
> not pay sufficient attention to it, collapse. Recent examples are sufficiently numerous
> and well known to make it useless to repeat them.
> 
> Why then are such obvious experiences contested, even rejected? Because, with respect
> to all of the aspects mentioned, human decisions enter in and thus there is an ethical
> dimension which is part of all individual and collective activity. All behavior which
> ignores ethics is shocking, first for those who become the victims, and then for public
> opinion.
> 
> This ethical dimension comes up again in the way in which profit is understood, in its
> definition and its amount, in its utilization, and in the importance it is given in our
> hierarchy of values.
> 
> Let’s dispense immediately with profits which result from immoral or illegal
> activities because these acts are reprehensible, and they are even more so because they
> are motivated by profit. As for profits obtained from speculation, these profits are often
> very substantial as a result of large risks. They are curiously enough accepted by certain
> segments of public opinion. Nevertheless, there is a need to limit such speculations which
> are perverse and make no positive social contribution. Thus, speculation on variations in
> exchange rates will disappear between European moneys included in the euro, a situation
> which is already a step in the right direction.
> 
> The Amount of Profit
> 
> Let’s concentrate our analysis on corporate profits. Profit represents the
> difference between receipts and expenditures. Decisions which influence this profit margin
> are the allocation to depreciation, to research and development, to various provisions for
> risks and unforeseen events, to gifts, and to taxes. One immediately sees that both
> subjective and objective evaluations enter in at each stage. Some result from market
> conditions and others from negotiation.
> 
> Establishing prices seeks to maximize profits and does not imply an ethical concept.
> Some may feel that a profit margin is excessive for certain products or services, but it
> is based upon the quality of an innovation, the cost of development, and the risk incurred
> as well as market conditions and an eventual monopoly. Competition and its regulation
> should prevent excessive profits. What must be eliminated are monopolies and collusion on
> prices. Moreover, in general, competition should tend to create lower prices which is
> generally the case for products of current use; for other products, the buyer remains free
> to decide.
> 
> As for expenditures, the amount should be compatible with the amount of financial
> resources available. The tendency to exploit both personnel and suppliers should be
> tempered with a sentiment of equity, a principle which should also apply to compensation
> policies, purchase of raw materials, and subcontracting. Some companies which refuse to
> consider fairness in their dealings apply competitive pressures beyond acceptable limits.
> Suppliers are often obliged to comply to them. Such practices do not generally last very
> long because they lead to bankruptcy, refusal to comply, or strikes. Taking into account
> the interests of all upon whom the success of the enterprise depends is the reasonable and
> ethical approach.
> 
> Profit and Compensation
> 
> Levels of compensation are at the heart of decisions about expenditures, and in this
> area wisdom as well as ethics is required, notably in providing the best possible
> compensation considering the work to be done. Such an evaluation should be shared with the
> interested parties, and in this lies the essential difficulty. It can be overcome only if
> there is a climate of mutual trust and respect which in turn is the result of ethical
> behavior on the part of both of the parties concerned.
> 
> The extraordinarily high levels of compensation of certain top executives -- notably in
> the United States -- is shocking, especially in the case of companies losing money! It may
> appear justified to some people as the only way to attract exceptional talents and,
> finally, to increase profits, thereby ensuring the success and perpetuity of the
> enterprise. I do not share this view, and it appears difficult for me to defend paying, in
> 1997, the president of a large American bank 230 million dollars, or 1.4 billion francs,
> even if an important part comes from exercising stock options of the bank whose share
> prices do not derive only from his performance and capability.
> 
> Surely, such cases are exceptional, but annual compensation of between 2 and 10 million
> dollars are frequently the case in the United States, which equals 5 million French francs
> per month. Such is not the case in other countries like Japan, the Scandinavian countries,
> or France. Some American top executives have shown the courage to correct this anomaly.
> One is the president of Kodak whose financial results were disappointing. His compensation
> remained the same at 2 million dollars and he turned down a bonus of 1.75 million dollars.
> 
> Profit, Employment, and Investment
> 
> Poorly managed enterprises which are no longer competitive and are losing money are the
> ones which pose the most serious problems for their personnel and for the communities in
> which they operate. Unfortunately, because of new and changing technology, maintaining the
> competitiveness of an industrial enterprise always leads to producing more with fewer
> personnel.
> 
> This painful ordeal of "restructuring" is inevitable, but it must be foreseen
> far ahead of time and its consequences taken into consideration with all the social
> partners involved. Therein resides an ethical approach which does not ignore reality, but
> which takes into consideration the human problems involved. One cannot systematically put
> off investments in productivity, but one can generally program them over a certain period
> of time in order to minimize their social impact.
> 
> An excellent example was given by the owner of a small company who decided not to
> invest in a new and more efficient machine which would permit elimination of three jobs.
> He turned it down in order to avoid having to lay people off and to retain his employees
> and their confidence. This example, however, is an exception because of the extreme
> pressures of competition.
> 
> Another ethical attitude consists in accepting responsibility for the placement of
> employees to be laid off whether by innovation within the enterprise or by helping place
> them elsewhere.
> 
> Profit and Interest
> 
> Outside sources of financing enterprises include capital and loans, the first being
> remunerated with part of the profit, the other reimbursed before profits with solid
> guaranties and fixed rates from the beginning. The Koran forbids interest. It considers
> interest as a sin, or usury, regardless of the amount. The only financing mechanism
> envisaged is taking part of the shares or equity with an equitable sharing of both profits
> and risks.
> 
> Bankers can explain that amounts loaned are not their own, but rather those of their
> clients, and that they must protect against the risk of losing the funds.
> 
> The economic consequences are not negligible. This explains the shortage of risk
> capital and the fact that many investors have found themselves ruined because banks
> holding debt are reimbursed before those who have invested the capital. That situation
> justifies, however, a higher level of compensation for capital which has a higher risk.
> 
> Profit and Taxes
> 
> We should not forget that the government is the greatest beneficiary of profits through
> the double and sometimes triple collection of taxes: on the profits of the enterprise, on
> personal income, and then on the sales tax on purchases made with these same dividends.
> Such taxation should make those who feel profits are unethical happy or at least those who
> are concerned with equity. Unfortunately, excessive taxes lead some individuals to a
> reprehensible evasion of taxes and lead others to emigrate elsewhere.
> 
> Is it ethical to create an enterprise abroad whose activities are essentially those
> carried out previously in one’s home or host country? Is it ethical to leave
> one’s country for six months? It is perfectly legal, but one has the right to
> question the different aspects of such a delicate solution.
> 
> When a tax takes everything, as for example, when it exceeds the revenue of the
> taxpayer, and when the tax takes most of the pension one has worked for and to which one
> has contributed all his or her working life, can one blame those who evade taxes? When one
> totally disapproves of the way the government is being run, or when one loses hope and
> confidence in the government of his or her country, it is understandable that the person
> should seek to reside abroad.
> 
> Nevertheless, other factors which weigh against emigration and which are qualitative,
> cultural, and ethical can have more influence than those concerned with taxation. Such
> factors can be the recognition of the education one has received and a certain sentiment
> of solidarity with one’s fellow citizens. Let us not make any definitive judgment in
> these cases because it not up to us to condemn, yet it is desirable to bring up these
> problems and to avoid their causes.
> 
> The Purpose of the Enterprise
> 
> I am always surprised when one defends the thesis that the only objective of the
> enterprise is profit. This is the great vice of capitalism which I denounced before. The
> goal of the enterprise and its purpose are the product and the service which it renders in
> a competitive manner. The means which it has to achieve its purpose are, on the one hand,
> money which it receives in compensation for its services, from its capital, its reinvested
> profits and loans, and, on the other hand, the work of all employees.
> 
> We should not confuse the objective and the means. The priority given to profit
> disfigures the image of the enterprise and in some ways distorts it. To put service
> rendered at the heart of company’s objectives makes the enterprise’s activities
> more humane and meaningful. It is up to the managers to allocate resources equitably among
> all the expenses and constraints already discussed. It is up to them to make the decisions
> which optimize profit and remunerations taking into consideration all those who are linked
> to the enterprise and the community as a whole.
> 
> Conclusion
> 
> If we accept the definition of Spinoza, "ethics defines the good as being that
> which corresponds to my nature and the bad that which does not correspond", we may
> conclude in saying, ethically speaking, that there is good and bad profit. Such an
> attitude finds expression in the spirit of those who create profit and in the work they
> carry out.
> 
> The continuing success of the enterprise depends not only on the professional
> competencies at all levels but also on the climate of confidence which prevails. Only
> ethical behavior can elicit and sustain confidence. If, in one’s concern about
> earning profit, the only preoccupation is the short term price of the company’s
> shares, that attitude is not the right motivation. The objective should not be the search
> to maximize profit short term, but rather to optimize profits medium and long term.
> 
> If an objective of profit coexists with the concern for an optimum contribution to the
> enduring success of the enterprise, to its environment, and to enriching all those who
> participate, then a much greater social cohesion can be obtained. The level of profits and
> of economic and social results will be even more satisfying if they result from actions
> profoundly inspired by ethical values.
> 
> METADATA
> 
> Views9778 views since posted 2012-07-30; last edit 2025-01-31 18:49 UTC;
> 
> previous at archive.org.../destaing_ethics_profit
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> — *The Ethics of Profit (Used by permission of the curator)*