Care Ethics and Business Management (2)

Are you a caring manager? Do you work for a caring company? This post may help answer these and related questions. It follows the first post, which outlined the ethics of care.

The relationship between business management and care ethics goes back a relatively long time but in a relatively silent way. The early, and to this day probably the most significant context, for care ethics in business focuses on stakeholder theory within the more general context of corporate governance.

Introduction

Care ethics challenges the neoclassical understanding of business. Friedman promulgated the principle that business organizations should focus solely on increasing shareholder value. Jensen and Meckling soon followed with the principal-agent theory (owners must create ways to align the executive’s interest with their own). The shareholder/agency principle espoused a legalistic view of the firm centering on rights and power.

Since the ’70s this principle has dominated both the economic theory of the firm and business management. Freeman’s 1984 book, Strategic Management: A Stakeholder Approach, championed a contrasting theory of the firm. Stakeholder theory holds that businesses should consider in their policies and operations the needs of employees, shareholders, consumers, suppliers, and the local community. Freeman eventually promoted a different understanding of the firm, one that centered on a connected set of relationships. Nonetheless, as illustrated by Marchold et al., traditional utilitarian and Kantian ethics dominated both shareholder and stakeholder theories.

The stakeholder theory lacked a moral theory upon which to make decisions relative to stakeholder relationships. But beginning in the early 1990s, Freeman and others began discussing feminist ethics theory to oppose traditional ethic theories that underscored most legal and contractual aspects of business firms. The early decades of care ethics viewed traditional ethics and moral theory as entirely concerned with abstract, universal, impartial, and rational values. As noted in the first post in this series, the care ethic views the person as essentially relational and not independent. Further, early care ethics saw people’s knowledge as developing through relationships. Because relationships are inherent in the human condition these conditions also inhere in business firms. Consequently, the initial thrust trying to connect care ethics and business management focused on care ethics as a more appropriate moral basis ethic than traditional utilitarian or Kantian ethics.

Care ethics and stakeholder theory

Daniel Engster developed perhaps the most significant work on care ethics and stakeholder theory. First, Engster lays out his understanding of care: “When we care for individuals, we usually aim to help them to meet their basic needs, develop or maintain their basic capabilities, or alleviate their pain and suffering.”  Because the nature of an individual’s needs varies with the person and his or her situation, attentiveness, responsiveness, and respect in caring for others becomes important. He then uses these elements to provide his definition of care ethics as a “theory that associates moral action with meeting the needs, fostering the capabilities, and alleviating the pain and suffering of individuals in attentive, responsive, and respectful ways.”

Three guidelines for the distribution of resources

How do managers address conflicts among stakeholders? He offers three guidelines for distributing scarce resources with care ethics, noting that the three guidelines can pull in different directions:

1. The proximity principle – “we are justified in (a) caring for ourselves before others, (b) caring for individuals who are geographically and temporally close to us before those who are far away, and (c) caring for individuals in our own culture or state before those in foreign cultures or states.”
   2. The relational principle – caring for those with whom we have a close personal relationship over others is justified because people close to us tend to be seen as inherent in our caring responsibilities.
   3. The urgency principle – this principle gives greater priority to caring for those individuals with more urgent needs than those with less urgent needs.

The fundamental moral and social purpose of business activity

A care-based stakeholder theory suggests that the moral and social value of business activity, including productive work, rests in the support it provides to human life. People buy and sell goods “in order to produce and obtain the goods necessary for our survival and functioning.” Engster further comments that a business’s social and moral ends are mediated by care: “care translates the products of business activity into usable goods that can support human life and functioning.” Thus, he concludes, the “most fundamental moral and social purpose of business activity may be said to lie in supporting care.”

If one accepts this argument, then it would be morally and socially wrong for a business to take actions that are in opposition to this goal. “When the pursuit of profits and production of goods directly interferes with the abilities of individuals who are close to us or dependent on us to care for themselves and others, it violates caring values. In order for business activity to fulfill its fundamental social and moral purpose business people need to take account of the impact of their actions and policies on the ability of individuals who are most directly affected by them to care for themselves and others. Business practices that lose touch with this goal can be rightly condemned as immoral and antisocial.”

Application of care ethics to stakeholders

Engster defines stakeholders more narrowly than some: any groups or individuals whose ability to care for themselves or others is directly dependent a firm’s actions or decisions.” Managers, therefore, “should give their attention strictly to groups or individuals whose capacities for care are in some ways directly tied up with their firms’ activities.” Care ethics, in Engster’s view, give special attention to two stakeholder groups: shareholders and employees. Firms have important but more limited responsibilities to the local community and customers.

Shareholders

” Shareholders provide capital to a firm in return for a fair return on their investment. He places shareholders in this special group because many people depend on their investment returns for a significant share of their income or as insurance for emergencies; this includes many people with investments in pension funds and retirement accounts.

Employees

• ” Employees also have an explicit contract of money in exchange for labor. But this contract implies other obligations and responsibilities, such as a safe and healthy workplace. [My bold] Free market advocates often argue that a worker who finds himself in an unhealthy or unsafe work environment should look for another job; such an environment is not part of a worker’s contract. Engster argues against this because “it abstracts economic activity from its most fundamental purpose: provisioning for human life. It further assumes a degree of freedom, voluntariness, and information on the part of workers that they often lack. Care ethics suggests that firms have a duty to make sure that their work processes and conditions meet high health and safety standards on the grounds that any work processes or conditions that unnecessarily or unreasonably endanger the lives or health of their workers are contrary to the fundamental normative purposes of business activity.”
• ” Care ethics also argues that “employers have an obligation to pay their workers at least a living wage, meaning a wage sufficient to meet their basic needs and sustain their functioning.” Work that does not pay a living wage “falls short of the fundamental purpose for which work exists.
• ” Additionally, workers should have “adequate time to care for themselves and others by setting reasonable limits on daily and weekly work hours, not requiring overtime, providing workers with vacations, and offering a number of paid sick days each year.” Workers must have the opportunity to care for themselves and others.
• ” Finally, “a caring firm should foster a work environment that allows workers to exercise their basic capabilities for reason, imagination, communication, and sociability, and avoid assigning mind-numbing or back-breaking work that erodes workers’ basic capabilities.”
• ” A firm may have additional responsibilities to an employee depending on such factors as length of services (those who have worked for a firm for a long time period) or specialized skills that may make it difficult for the worker to find employment elsewhere. Such employees are highly dependent on the firm and the firm, in Engster’s estimation, bear some responsibility for this dependency. This means only that the more dependent a worker is on the firm which he is employed has a responsibility to retrain the employee or help the employee find another job. It does not mean that a firm cannot legitimately terminate or lay-off employees.

Local community

” Firms have several kinds of responsibilities to a local community. These might relate to harmful environmental practices that damage the health and safety of community members. Or they might relate to significant public investment through tax relief and the provision of public facilities or roads. Engster believes that firms have strong responsibilities to a community when it is making business decisions at least until they have repaid a local community’s investment.

Customers

” Firms must provide customers with safe and reliable products/services and truthful information. A caring firm should produce only goods and services that are reasonably safe and reliable.

Other stakeholders

Engster believes that a firm’s responsibilities to other stakeholders are important but not a firm’s primary concern. Many of these responsibilities relate to general obligations to ensure legal and fair business practices. They also have some responsibility to ensure that their suppliers operate in a minimally caring way, particularly regarding employee and environmental practices. They should not contract with firms that exploit workers or create unhealthy work conditions for their employees.

Stakeholder conflicts

Engster acknowledges that issues remain in trying to operate within an ethic of care. The most important among these may be the conflicts that occur among various stakeholders. Here, Engster says, managers should use this general rule: managers should take actions that promote the success and continuation of the firm. A firm that fails is not much good to shareholders, employees, and the local community.

After the application of this general rule, the next guideline is for managers to try to balance the interests of their main stakeholders. When conflicts arise among different interests, “care ethics dictates that the highest priority be given to the health and safety of employees, community members, customers, and others.”

Engster goes on to say that “any action that directly infringes on these goods falls outside the scope of moral business activity. While a strong commitment to worker health and safety and high environmental standards may result in lesser profits for investors and possibly even the loss of jobs for some workers, individuals are likely to suffer much greater and immediate threats to their survival and functioning when health, safety, and environmental standards are compromised.” Engster bases this position on the fundamental principle that “the firm exists at root to promote the survival, health, and functioning of its stakeholders.”

If the stakeholder conflict is between reducing employment or reducing profits, managers “should generally favor jobs over profits, at least in the short term.” The basis of this guideline is that workers are usually much more dependent on their jobs for income to support themselves and their families more so than are shareholders depend on their investment income.

If employee cuts become necessary Engster advocates that managers use the rule of consensus. This rule has two parts: “(1) managers should try to find solutions to stakeholder conflicts that are acceptable to all, and (2) managers should communicate with stakeholders both by explaining proposed solutions to them and soliciting alternative proposals from them.”

If after all this employee reductions are unavoidable, managers should follow the relationship principle: “If an employee is essential to a firm’s success, he or she would have to be retained regardless of age or experience. Otherwise, managers should try to protect the jobs of individuals who might have difficulty finding work elsewhere or transferring their skills to a new firm.”

The value of a care-based stakeholder theory

To reprise Engster’s thesis: “Care ethics provides a justification for stakeholder rooted in the moral and social aims of business activity itself. The most fundamental aim of business activity is to generate the resources necessary to supporting caregiving. Managers should, therefore, pay attention to the effects of their actions on stakeholder’s ability to care for themselves and others because the moral and social integrity of business activity depends on it.”

Engster characterizes stakeholders in a way that allows him to develop priorities: “Individuals or groups are considered stakeholders in this theory of their ability to care for themselves and others, survive and function, is directly dependent on or tied up with firm decisions. A stakeholder’s dependency can be gauged, in turn, by (1) their proximity to the firm, (2) the closeness of their relationship with the firm, and (3) the urgency of their claims.

Thus, the interests of stockholders and employees are generally more important than those of other stakeholders, but the urgency associated with the health and safety of workers, customers, and other individuals means that these interests should always receive the highest priority.” He is clearing making the point that providing investors with a fair return on investments does not override all other management responsibilities.

Discussion

Other care ethic approaches to stakeholder theory

I chose to highlight Engster’s work because his care ethic approach to stakeholder theory tries to develop a specific set of operational guidelines for managers. Nearly all other approaches to placing care ethics in corporate governance usually forcefully make the point that care ethics is a significant moral basis for making firm decisions. But operationally these other works end up with very general recommendations that are very ambiguous in most specific contexts.

For example, Burton and Dunn develop this care ethic-based principle: “Care enough for the least advantaged stakeholders that they not be harmed; insofar as they are not harmed, privilege those stakeholders with whom you have a close relationship. This principle may not eliminate harm, but it at least limits harm among those who are most vulnerable and who will suffer more from harm than the more advantaged in society. The least advantaged stakeholders thus enjoy a special relationship with the firm.”

In another illustration, Machold et al. give this description of a feminist governing model: “The universal principle underpinning the governance relationships is the obligation to care, a sense of responsibility in individuals within and outside the organization to nurture others . . . to aim towards the empowerment of each other . . . learning about the immediate background and identity of those within their immediate care, understanding the individual’s need for job satisfaction or a work-like balance and empathizing with it. . . Care does not also mean sacrificing the self in the process, the ability of individuals to care is circumscribed by their competencies and the responsiveness of the cared-for.”

I am not arguing that these and the work of others trying to connect care ethics with stakeholder theory are valueless, but they tend to be starting points for more analytical work. Remember, the ethics of care rests significantly in context and specific situations; it does not give priority to abstract principles.
I find Engster’s work, for example, to be instructive and not directive. Their commonality, however, strongly stresses the importance of seeing firm behavior and management decisions through the lens of an ethic of care. Importantly, they all see an ethic of care as providing a much need moral platform for firm and management behavior.

Focus on employees

My reading of this material suggests care ethicists recognize the importance, if not the priority, of shareholders. However, they constrain this priority by emphasizing a caring priority for employees, even if at times, or perhaps even often, the result is a reduction of shareholder wealth or firm profits. I further explore this issue here.

Care ethic special emphasis on employees deserves further attention. In part, this reflects the extent to which labor policy (laws, rules, regulations, and practices) seems stuck in circa the 1980s. Labor policy has not significantly recognized how precarious employment, fissured workplaces, and the gig economy have affected employment conditions and labor earnings.

Policy changes have been made regarding capital that has heightened the value of capital, so much so that the term financialization has become a standard way of describing our society. These changes largely include tax changes that dramatically benefit shareholders and the use/value of capital, such as significant reductions in the income tax rates of the wealthy, lowered capital gains taxes, lowered corporate income taxes, increased depreciation allowances, and reduced estate taxes. Regulatory reform increased the capabilities of the finance sector to dramatically increase profits (and at the same time increase risks). Changes in Security Exchange Commission rules fostered stock buybacks that increased the wealth of shareholders and senior executives.

A 2019 McKinsey Global Institute report states: “Official data from the Bureau of Labor Statistics (BLS) suggests that, while the labor share [of national income] had already started to decrease in the 1960s, three-fourths of the entire post-1947 decline occurred between 2000 and 2016. The steepest part of this decline – from 63.3 % in 2000 to 56.7% in 2016 – followed a moderate downward drift in the 1980s and early 1990s, and a slight recovery in the late 1990s.”

Finally, in 2018 dollars the average hourly wage increased from $20.27 in 1964 to $22.65 in 2018.

Care ethics must wrestle with this relative lack of concern if not attention. Two recent papers focus on care ethics in the workplace relative to employees.

The Caring Company

The first paper is a recent report of the Harvard Business School’s Project of Managing the Future of Work titled The Caring Company. I think this report is important enough to spend a bit of time on it. The following are nearly all quotes from the report, but I have placed them as if they were all on the same page.

“American companies are facing a caregiving crisis – they just refuse to recognize it. The spectrum of care, from childcare to elder care, ranges across every demographic in the work organization. Workers of all ages and levels of seniority are affected. Given the lack of support at work, many employees hide the growing burden of caregiving responsibilities. They struggle to balance the responsibilities of work and caregiving, often dealing with the unexpected and recurring care obligations that require mental, physical, and financial resources to address them.

“The neglected care crisis is only going to worsen due to several reasons including the rising number of members of the ‘sandwich” generation – workers who care for both their young children and their elderly parents.

• “Many employers remain strangely unaware of the magnitude and impact of the changing demographics of care and their economic consequences:
• ” Employers do not measure and thus do not realize the extent to which employees are burdened by care.
• ” In the absence of a supportive ‘care culture,’ employees worry that admitting to caregiving responsibilities penalizes their career growth.
• ” Employers do not realize the extent to which caregiving affects employee performance.
• ” Employers grossly underestimate the direct and indirect costs of caregiving.
• ” Employers’ higher-titled and more responsible employees are most likely to be affected.
• ” Employers underestimate the spectrum of care responsibilities affecting the different demographics (focusing mainly on maternity and adoption events while paying little if any attention to caring for a sick child or managing a child’s daily needs)
• ” Employers implicitly know that caregiving impedes employees’ careers in that they identify unplanned absences and missed days of work, late arrival at work, and early departure from work as the three top behaviors that always undermine career progression – and these behaviors frequently arise because of an employee’s need to respond to a caregiving obligation.

“Companies that do not acknowledge the near-universality of care concerns in their workforce create a culture in which employees are reluctant to make their caregiving obligations too apparent lest they pay a price for the disclosure.

“In a caring company, management will have to demonstrate commitment both by acknowledging its employees’ care concerns and by investing in innovative solutions. It will require buying into a culture of care, an investment that goes beyond dollars to include time and leadership.”

Family-friendly employment laws?

The second paper, Grace James’ Family-friendly employment laws (re)assessed: the potential of care ethics, reviews and assesses the United Kingdom’s laws available to pregnant workers and caregivers. Although the UK’s laws are more advanced or progressive in this area than the United States’ laws, she finds that the laws are limited and flawed in many respects. She outlines an alternative approach based on care ethics.

She makes the point that the current law is flawed because it focuses “on new mothers and does little to help challenge the traditional constructions of care as a female responsibility or challenge the dominant ethos of the labour market, which promotes the unencumbered worker as ideal and fails to reflect the interdependence of care across our life course.”

Family-friendly employment laws are precarious because they are “vulnerable to economic downturns and often shelved or diluted when perceived to be a burden on business.”

James argues that “an ethic of care calls for the necessity of caregiving and inevitability of interdependence between all individuals across our life course to be reflected more prominently within the employment laws and the processes and institutions that support this package of rights. . . . An approach motivated by the core beliefs of care ethics could help transform the legal framework by challenging its individualistic approach and supporting the shifts we are witnessing by encouraging a better distribution of care responsibilities between individuals and communities: in fact helping (re)focus attention away from individual working mothers (or fathers) and onto families, communities, and the welfare state. Women’s participation in the labour market has been compromised because care work has been individualized and assigned to women and care ethics challenges this construction.

“It requires a greater appreciation of the need to move beyond the traditional breadwinner/homemaker divide, not because of concern for equal parenting or women’s (in)ability to function in the labour market and provide care, but because it fundamentally recognizes that we are all responsible for and all capable of providing care for others.”

She notes that “policy does not have to be overtly gendered to have normative cores that are implicitly gendered and perpetuate the notion that care work is, predominantly, a female undertaking.”

James believes that “child and welfare concerns have been marginalized. Care ethics help challenge this marginalisation and the overall tenet of this legal framework’s focus by allowing the complex realities of interdependence to be at its core: the reciprocity of care and its impact on everyone’s lives including the needs of children and adults for whom working carers care and not what had driven policy innovation in this area. If that were the case, we might have been provided with provisions that better explore and facilitate children’s needs beyond the first year – the focus on the majority of the legislation. . . We might also better encapsulate the realities of those with eldercare responsibilities – a type of care that differs, in so many ways, from childcare and requires a more nuanced approach.”

In concluding, James remarks that an ethic of care “if incorporated into business ‘good practice,’ challenge current constructions of what a ‘good’ worker looks like and allow all workers when relevant, to reveal the true implications of the interdependent realities of their lives and find means of accommodating that reality.

“This would allow us to progress beyond the façade that Bridgeman articulated when she suggested that, ‘the work of care for dependents and emotional dependency with our children, spouses, partners, and families must remain concealed lest we appear not to be independent souls suited for the public world’.”

Compatibility of care ethics to business

Most work on care ethics and stakeholders recognize that many businesses may see care ethics as incompatible with the nature of the business firm. Businesses usually prioritize individual and group/organizational competition where a good degree of aggressiveness becomes important. Business usually projects a masculine aura, sometimes hostile to a care ethic. Borgerson, for example, implies that the masculine nature of most businesses may mean that when a care ethic is adopted females will be assigned, or at least seen as, the key providers of care. She suggests that a masculine business culture will confuse a feminine care ethic rather than a feminist care ethic.

Many care ethicists and stakeholder advocates often remark that the changing nature of businesses enlarges the opening for an ethic of care. Businesses increasingly resemble networks and webs of relationships. At one time the organization chart clearly delineated lines of communication and influence. Today, if a company has an organization chart it tends not to capture the communications and relationships that dominate. One might suggest that businesses rely more on interdependence and cooperation. Yet one wonders if this reality acquiesces to much less promotes decision making that significantly prioritizes employees and local communities to the possible detriment of profits and shareholder value.

Likewise, one can wonder whether emotions like compassion, empathy, concern for others is making significant inroads to decision making based primarily if not fully on rationality and efficiency fostered by the profit motive.

The conflict among care ethicists is this: can care ethics make a significant change in the culture of business that more than marginally improves the nature of businesses? Or is there first a need to alter the fundamentals of our economy and polity in order for care ethics to be fully embraced by business. I will return to this conflict in later posts in this series. But I think it is instructive that the two reports referred to above strongly suggest that businesses pay very little if any attention to the caregiving needs of their employees. Thus they generally fail the first phase of caring, caring about, and its moral quality of attentiveness. At the same time employees with caregiving responsibilities are very reluctant to identify their caregiving responsibilities. They fear seeming out of place in a work world that values independence and frowns on dependency.

The changing nature of stakeholder theory and business ethics?

Finally, to what extent has care ethics influenced the changing nature or development of stakeholder theory and business ethics? As each of these has developed over the past decade or so, have they become more compatible with the ethics of care? Or does an ethic of care remain marginal to the core content of stakeholder theory or business ethics? I will also return to this issue more fully in later posts.

The next two posts in this series will focus on caring leadership.