Political Ethics

Sat, Jan 16, 2010, 5:00 am  //  Craig Mayberry

The Political Stakeholder Model

I teach business ethics. And as I talk about the importance of ethics in business, it is always interesting to see the similarities between business ethics and political ethics.  Given what is going on in Washington, D.C. and Olympia I thought it would be interesting to explore those similarities in more depth.  At the start of each quarter we explore the different stakeholders that business has to deal with.  The chart shows the business stakeholder model including shareholders, customers, employees, suppliers, communities, environment, and government as major stakeholders.  When any business makes a decision that is going to impact one or more of these stakeholders, it becomes an ethical issue.  As a class we talk about what is important to each of the different stakeholders and the result is about 100-150 different needs that businesses have to pay attention to.  I define business ethics as the responsibility of business to balance the needs of each of those stakeholders and make sure that decisions do not unnecessarily harm one stakeholder while benefiting another. For example, if you do have to terminate employees, at least do it in a manner to retain the dignity and respect of the employee.  The ultimate challenge a business leader faces is dealing with the wide variety of needs amongst all the various stakeholders.

Politicians face a similar stakeholder model.  Each politician has to deal with his/her political party as well as voters, special interest groups, citizens in their districts (who may or may not vote), citizens outside their district, business interests and other governments (for instance federal politicians have responsibilities to their state and local governments.)   Each of these stakeholders has a wide variety of needs and an ethical politician will learn to balance these needs and not make decisions that unduly impact one stakeholder over another.

One big issue in business is the power of the shareholders (or owners) of the company.  Often a decision is made that benefits the shareholders at the expense of other stakeholders.  In fact, many business classes teach that the primary responsibility of business is to make a profit for their shareholders/owners (a policy I then need to de-program).  Politicians face their own powerful stakeholder in the form of their political party.  The party is responsible for that politician's committee assignments, legislative support, campaign fundraising, and 'get out the vote' efforts.  This creates the business equivalent of shareholders and politicians face a lot of pressure to support one stakeholder, often at the expense of other political stakeholders. 

The second most powerful stakeholder for business is customers, who can inflict serious harm on a company if they choose to boycott that business's product.  There is such a direct link between customers and the financial health of a company that business has to watch its patrons very carefully to make sure decisions will not negatively impact the customer.  The equivalent of this relationship for a politician is the special interest groups who provide the bulk of campaign financing.  Like businesses monitoring customers, politicians have to monitor special interest groups who can make or break political futures.

In business, the dynamic that shareholders and customers have so much power makes it difficult for other stakeholders, who are often subject to harmful decisions in order to protect “more important” stakeholders.  This situation creates most of the ethical issues in business.  One of the foundations for successful market economies is that businesses must behave ethically, an increasingly difficult challenge.  Politicians face the same dynamic, but in that instance political parties and special interest groups hold more sway in decision making than other stakeholders. This creates one of the foundational pieces required for democracies to work, as politicians have to behave ethically and figure out how to balance all stakeholders, not just their political party and special interest groups.  As long as politicians behave unethically by shortchanging other stakeholders to maintain their ties with special interest groups and political parties, we will continue to struggle.

I also teach that transparency and communication are the two requirements for managing all stakeholders.  Businesses have to be completely transparent with everyone or, even if they are acting ethically, they may have the appearance of impropriety. To make sure needs are being met and issues dealt with in a timely fashion, business must communicate with all stakeholders on a regular basis. Politicians must act in a transparent manner as well.  If our politicians are not transparent, even if they are doing the right things they can be perceived as acting unethically, simply because it is easy to assume they are hiding things.  Secret meetings and closed-door negotiations, voting on 2,000 page bills before anyone can read them, special agreements with special interest groups, middle of the night debates and votes all lead to the appearance of a lack of ethics.  The health care bill may still pass, but the politicians advocating the bill have already lost.  Based on a political stakeholder model, there is no way any politician can say the process has been ethical.  When Washington is making Enron look ethical, you know you have a problem. 

 It is increasingly important that business balances the needs of all of their stakeholders, but it is even more important that politicians recognize they have to balance the needs of all their stakeholders.  There are some politicians who need to spend less time editorializing on the ethics of various industries, and spend more time worrying about their own lack of ethics.