“Honesty is the best policy, but he who is governed by that maxim is not an honest man.” Richard Whately, Archbishop of Dublin, was a 19th-century theologian, but his observation is very relevant to a modern debate about the nature of business ethics.
The Co-operative Bank has just announced a restructuring that wipes out the value of existing equity. Over many years, the message of the bank’s advertising has been its aspiration to higher standards of ethical conduct than its competitors. The devil’s advocates might seize on the bank’s financial problems as evidence that honesty does not pay, but that is not what happened here: the Co-op Bank failed for the usual reasons banks and businesses fail – bad lending on commercial property and the misguided acquisition of another business by a management whose ambitions exceeded its capabilities.
The bond holders will now have a controlling interest in the bank. In practice, these are mainly hedge funds specialising in distressed debt, institutions not renowned for their social and environmental commitment. The former owner of the bank, the mutual Co-operative Wholesale Society, will inject fresh capital and hold a minority stake. The Society has stated that the restructured company’s articles of association will include a commitment to ethical behaviour, but it would be unwise to attach weight to this: such commitments in the mission statements of other organisations have made little impact on what they do in practice.
Worried customers can take more reassurance from the bank’s recognition that it makes hard commercial sense for the new owners to continue the Co-op’s policies – to support environmental projects and eschew lending to arms dealers, tobacco merchants and others engaged in supposedly “immoral” businesses. This ethical stance has been a significant competitive advantage in attracting business from socially concerned individuals, organisations and local authorities in left-leaning areas of the country. It is likely that the profits that arise from a policy of differentiating itself from its competitors in this way exceed the profits otherwise foregone.
The slogan that good business is profitable business is superficial – an attempt to make moral dilemmas dissolve in a warm bath of goodwill. When the right thing to do is also in your own self interest, you do not need advice from philosophers and theologians. Ethics are about what to do when good behaviour and profitable business are not necessarily the same thing.
Bishop Whately noted the difference between the honest man and the man for whom honesty is the best policy. When you deal with the man for whom honesty is the best policy, you never know when it might be the occasion on which honesty is no longer the best policy. Bankers, not bishops, deliver lectures extolling their own personal integrity; the man who repeatedly reminds us how honest he is rarely acquires, or deserves, our trust. The integrity we value is a personal or organisational characteristic, not a business strategy.
We can usually tell the difference, just as we can distinguish the solicitousness of our friends from the bonhomie of the man trying to sell us double glazing. The psychologists Lara Cosmides and John Tooby have suggested we have evolved a finely honed capacity to detect such deceptions. And so the world we live in is one in which most people are honest most of the time and most people trust most people most of the time. A few exploit that situation, and we are inclined to punish their deviant behaviour even if it is not in our self-interest to do so. That is a better outcome for everyone than one in which opportunistic behaviour is the norm.
General Robert E Lee, whose personal integrity made him an effective commander and revered figure, echoed Bishop Whateley in observing that the honest man is honest from conviction, not policy. Paradoxically, the best long-run commercial strategy for the hedge funds that now own the Co-op Bank may be to recruit managers whose commitment to its ethical stance is entirely genuine, and to facilitate the resumption of control by an organisation with similar values.
If honesty is the best policy then the best policy is to be honest from conviction.