Contents 5 Towards a new Via degli Aldobrandeschi 190, Rome, 00165, Italy Tel. +39 06 6654 3707 www.fidelisinstitute.org
perspective of an enterprise
By Dr. Jesús A. Ordieres Sieres
20 Conflicts of
Interests in the determination of Ethical Investment funds, Part 2. By Rafael García Pavón
Editorial Committee Vicente Arancón Editor in Chief and Executive Director Michael Ryan President
Research Staff:
12 A view on Ethical,
SRI and Faith Based Investments
Interview with Marcelo Benítez
Senior Analysts Christopher Oleson Rafael García Pavón Michael Augros José Ángel Agejas Junior Analysts Israel Camarillo Rubén Sánchez Ana Karen Martínez FIDELIS ETHICS REVIEW is a quarterly publication of Fidelis International Institute, distributed directly by this organization with the address:
15 Personal responsibility and social contribution to sustainability.
By Dra. Teresa de Dios Alija, Dra. María del Carmen de la Calle Maldonado, Dr. José Ángel Agejas Esteban
Av. de las Fuentes 41-A, 4º piso, Lomas de Tecamachalco, Naucalpan, Estado de México, México. Phone: 52 55 3685 2600 ext. 1013 E-mail: vicente.arancon@fidelisinstitute.org Webpage: www.fidelisinstitute.org Publisher: Vicente Arancón
Photos in pages: 5, 6, 11, 12, 13, 14, 15, 17, 18, 21, 22, 23, 25 and 26. By istock by getty Images.
Certificado de Reserva de Derechos al Uso Exclusivo del Título: En trámite. Número de Certificado de Licitud de Título: En trámite. Número de Certificado de Licitud de Contenido: En trámite. Design by: César García Pavón. Printed by Litografía Gil, S.A., Calle Tolteca Nº 169, Col. San Pedro de los Pinos, Deleg. Álvaro Obregón, México, D.F., C.P. 01180 Phone: (55) 5273 0507 www.litogil.com.mx The articles represent the personal views of their authors, which does not necessarily match , those of the publisher. The liability is limited to the amount the acquirer paid for the magazine. This journal is published with the support of its sponsors.
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Editorial
Photo by Jesús Laveaga
Dear Reader, It has been a while since you received a copy of our magazine, but here we are again, with a new issue that includes new articles written by top ethics academics from the Universidad Anahuac México Norte, Instituto Tecnológico Autónomo de México and the Universidad Francisco de Vitoria from Spain. The topics that are addressed cover several ethical issues, from the relationship between enterprises and communities, the interaction of individual and social interests in the enterprise to personal and social responsibility. In the article Personal Responsibility And Social Contribution To Sustainability, the authors try to answer the question of how could we achieve the sustainability of the world we live in. In this issue you will also find the second part of Rafael García Pavón’s article on conflicts of interest when conforming an ethical fund. We think it could be a very interesting reading for anyone involved in the conformation of investment funds of any kind. www.fidelisinstitute.org
We also include an interview with Marcelo Benítez, former Director of Fidelis and CEO of Proaltus Capital Partners, where you will have the opportunity to read about the practical use of ethical screening services and how they help investors take better decisions. Finally, I would like to inform you that you can find online all the Fidelis Ethics Review issues we have published to date in our website www.fidelisintistitue.org and at www.issuu.org. We are also working on a new digital format of the magazine and hope to have it ready soon. Thank you for been a reader of Fidelis Ethics Review and enjoy!
Vicente Arancón Executive Director Fidelis International Institute
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Towards a new perspective of an enterprise By Dr. Jesús Alejandro Ordieres Sieres1, Professor of General Studies Department. ITAM.
An enterprise is, from a sociological perspective, one of the fundamental institutions in modern societies. But it is not, as is usually suggested, an institution born in the industrial society. Under different forms, the enterprise was already present even before the Industrial Revolution, and it seems that it will survive to the industrial society itself as a basic institution of equivalent importance to Family, State or Education. Though of course, the ways that the company will acquire in the new postindustrial society will certainly differ profoundly to the known until now. It will correspond to a new social formation which we might call “informational” because its productive base will rest in the production, distribution and consumption of information and knowledge.
The word enterprise was born in the field of the collective actions, in the late XV century, as part of the beginnings the first commercial capitalism. Indeed, as Weber noted, “capitalism existed in China, India, Babylon, in the classic world, and in the Middle Ages. But in all these cases, as we shall see, this particular ethos [the spirit of capitalism] was lacking.”2 A spirit, according to Weber, that the Protestant Reformation would bring and that will introduce a system of beliefs in which “economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs” 3 but an end in itselft, and “the earning of money within the modern economic order is, so long as it is done legally, the result and the expression of virtue and proficiency in a calling.”4 But above all, and this is the most important part, this process is bound to moral norms and rational management rules. In fact, those who were slowly introducing the capitalist system in traditional societies of Europe were not “dare-devil and unscrupulous speculators, economic adventurers susch as we meet at all periods of economic history, nor simply great www.fidelisinstitute.org
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financers who have earned through this change, outwardly so inconspicuous, but nevertheless so decisive for the penetration of economic life with the new spirit. On the contrary, they were men who had grown up in the hard school of life, calculating and daring at the same time, above all temperate and reliable, shrewd and completely devoted to their business, with strictly bourgeois opinions and principles. […] He avoids ostentation and unnecessary expenditure, as well as conscious enjoyment of his power, and is embarrassed by the outward signs of the social recognition which he receives. His manner of life is […] distinguished by a certain ascetic tendency”.5 Certainly, this description doesn’t have much to do with the ideal types of entrepreneurs that in recent years have been lavished. Without knowing the attitudes of those early bourgeois entrepreneurs we can not understand the rapid spread of capitalism, and then the Industrial Revolution in the modern world. No wonder that www.fidelisinstitute.org
the first sense of the word enterprise was related to efforts, almost as mystical as utilitarian, as was the enterprise of Christopher Columbus. When the word enterprise began to be used in an economic sense in the late Eighteenth century, capitalism was something quite different: an unstoppable force that industrialized England and Central Europe. At the beginning of that same century, the factories began to spread in the more advanced societies. It will be one of the first economists, that belonged to the school of the Physiocrats, Quesnay, who enter the word “entrepreneur” into economic science to designate the person “who governs and directs his business”. That is, the enterprise, as we know it today, emerged bounded to the capitalism and the industrial society, determining not only the economy, but also social relations and everyday life of men and women in the industrial society.
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From this, we may understand the importance of understanding perfectly what an enterprise is and means. The company is not an appendage of the individual life of every man but is, increasingly, the natural environment in which we conduct most of our activities, directly or indirectly. Our society is an entrepreneurial society in the broadest sense of the word; it is the new form of organization of society as it was, at the time, feudalism or absolute monarchies.
ceivable not operable if, indeed, there were no other concurrent interests in the people who participate in it. Investors, for example, are willing to give their capital and “know how� to other individuals who work with them in return for a greater gain; employees, on their side, work together for the investors looking to get their personal nourishment; moreover, customers are willing to grant the price of the product requested by the enterprise in exchange for the fulfillment of their own needs or desires.
The word enterprise is not always used in the same manner and with the same meaning. Many times we talk about enterprise as a material reality that has economic value, consisting of buildings, machinery, equipment, finished products, etc. Other times, however, enterprise is considered as a legal structure to which is granted the status of moral person to indicate the unity that is typical of normal people as subjects of law. The term is also used to identify a set of individuals performing in a coordinated manner, a series of activities serving a common goal. This last view insists in its internal unity that is is fundamentally a unit of order considering it as an organization.
It is true that for the investors or the entrepreneur, the company has as its primary objective to get utilities and satisfy the ambition of profit. But trying to say that from this goal everything else will be achieved automatically, is to confuse the personal aim of a group of individuals with the business purpose. If the pursuit of profit by investors is the primary and sole purpose of the enterprise, we could still consider ourselves in the time of slavery because we would be no more than a production medium, an instrument in the hands of our masters to facilitate productive function.7 Undoubtedly, profit is the main interest of the entrepreneur and the investors, but to say that this is the essential and sole purpose of the enterprise is to confuse the whole for the parts.
Putting together all these elements, we could initially define the enterprise as the economic and social unit in which capital, labor and management are coordinated to achieve a production that meets the requirements of the human environment in which the company operates.6 This definition, as can be seen, only mentions that acts as a unit in achieving the requirements of the human environment in which the company operates, but what are these requirements? What is the purpose that the enterprise seeks to look for? Individual interest and social interests in the enterprise. While the enterprise, in any of its definitions, is considered as a unit that aims, in fact, a common purpose, we can not ignore the fact that it is composed of different elements and wills that retain or seek, at the same time, their own purposes. Moreover, the upper unit of the enterprise would be incon-
Likewise, it can not be considered the interest of the workers the only and main purpose of the enterprise. For them, getting a high salary, better working conditions and security of their livelihood, are the main aim of the company. If so, it would be to take, again, the whole by one of its parts. The objectives of the enterprise must be determined beyond the particular needs of each of the groups within it (investors, entrepreneurs, managers, employees, customers and suppliers) but without neglecting the personal interests of each group that are, ultimately, the underlying reason why all are united under a common structure. Not only that, the enterprise, being immersed in a social context and being part of the basic structure of our society, must also play a role within it and look, therefore, for the greatest good (according to groups and individuals who own the company) of the population. www.fidelisinstitute.org
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However, because there are several private purposes and aims, the occurrence of conflicts is inevitable. Milton Friedman indicates precisely the problem that is set when we claim that the enterprises acquire responsibilities against the society. In his words:
“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. [...] ‘social responsibility’ reduces returns to stockholders, he is spending their money. Insofar as his action raises the price to customers, he is spending the customers’ money.”8 Friedman argues that when doing business, managers are simultaneously responsible to the owner for the achievement of the objectives, of profits and to society for the achievement of social welfare. This is ultimately a conflict of interest that could impair the free enterprise system. According to Friedman, this pitfall could lead to the demise of the business institution as if it is continually forced to adopt a social behavior that is in direct conflict with the goals of the company. The author also argues that asking the management to meet socially desirable goals may in fact be a breach of ethics, since it requires that the management, to reach these goals, uses funds that do not really belong to it. It is quite noticeable that this approach considers the enterprise simply as a conglomeration of individuals who share a common vision and are integrated to seek mutual benefit, everyone looking for, selfishly, their own purposes. I wonder, however, if it is possible to achieve a common goal based on the “union” of selfish interests in a society where the common denominator is social inequality. It looks more, as have claimed countless authors throughout history,9 that selfishness www.fidelisinstitute.org
leads to destruction or to the domain of the other as far as he interferes with my personal interests. It is important to point out that the traditional contract between enterprise and society has been based on economic growth as the only legitimate source of social and economic growth. The enterprise was, and is, the engine that moves the economy and the growth of social opportunities. In carrying out its productive function and the growth of capital, the enterprise fulfilled its social function. However, over the time, we have realized that the company not only contributes to society’s growth and development but it also takes the elements of its own livelihoods. In this sense, an enterprise is not a magical entity that appears, from nowhere, the economic gains which it focuses, but it takes them from the individuals who form it and from the society to which it relates. The business administrator is responsible not only to their employers, the investors, but he is also, together with the latter, responsible for the social and human capital involved in the production. Capital does not appear money like a tree that replicates itself; it needs from the others and the nature around it. The administrator also manages a natural and social “capital” that belongs neither to him nor to the investors. Undoubtedly, every company has a social and human cost caused by the side effects of their productive activities that are harmful to society, and ultimately, to the enterprise itself. Pretending that the company should only be governed by a sole purpose, the investors’, is also to want to rob part of the society’s assets. The responsability arises from the conviction that the business operations affect the interests of others and can often generate undesirable social consequences for society and for the company itself.”10 Society has entrusted to companies much of its resources to enable them to perform their mission; and expects them to manage and take advantage in the most rational way. As the repository of a society’s resources, companies must take into account the interests of all its members, not just those of their owners, customers and employees.”11
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Social personality of the person and moral unit of the company. Man, considered in itself, is primarily an individual identity. This individuality is given by the physical and ontological unity of the being that makes it what it is and nothing else. However, individual is not the same as indivisible. Individuality indicates only the fact of being one in itself, different from others and keeping unit- stability over time and space. This does not mean that it can be divided into several parts separated from items that originally were part of the essential unity. In fact everything that exists, exists as a compound, and therefore, is divisible into parts. However, the composite being, if divisible, is one as it remains undivided. The unit is the first characteristic of the person and it’s defined as such.12
Personality, on the other hand, is a psychological set with which we refer to a dynamic set of characteristics of a person. These features may be social, biological or physical and determine the lifestyle of the person, make him different from all other individuals and identical to itself not only from a biological point of view but also from the psychological one. From the point of view that interests us at this time, we could say that man has a social personality and an another metaphysical personality. Both make personal way of being of each individual and interact in the psychological and biological development of the person. Guzmán Valdivia says that “the social character of a man is a peripheral, superficial, external, common or at least, very similar to others’ characters and in some way fungible within the social environwww.fidelisinstitute.org
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ment.”13 The social personality is growing under our social relations and is affected by the conditions of life in which we evolved. However, says the same author, “the metaphysical personality of each individual is a substantial, intimate, deep, intransferable, single, exclusive of each one.”14 This personality is seen as the center of our lives, as the focus of which arise our ideas, our actions, our feelings, etc. Both figures are in close contact and imply and determine each other. The social personality is made within the coexistence, and even if it presupposes the existence of the self that acts, also conforms it as it appropriates the characteristics of the social personality and adheres to his life. I become a husband, father, professional, etc. while it remains my most intimate structure that determines my tenure as a professional, as spouse, as a parent, etc. The ontological personality (which Guzmán Valdivia calls metaphysics) holds social personality and prints in it his own peculiarity and vice versa. In the other hand, as Delos says, “--the man-- is a physical being, whose members have substantial unity; the second, --the society--, is a moral being, whose members have unit of order and moral unity formed with relationships. We pass, consequently, from a physical and substantial being to a moral or social being.”15 The enterprise, and specially the modern enterprise, is a manifestation of an evolved form of organized social life. In it exists norms, precepts and rules that guide the behavior of those who form the enterprise. These rules are set according to criteria and principles through which men guide their relationships. For this reason, the enterprise is and can be considered rightly as a moral person, identical with itself and able to relate to other people whether physical or moral. It is true, the enterprise, as a person, has no substantial reality. Only men, individually considered, have it. The enterprise is, however, “the moral union of men who constitute it”16 and “this union consists of the established relations between individuals in virtue of the orientation they print to guide their behavior routing them towards the www.fidelisinstitute.org
same goal which is the common good”.17 Thus, the enterprise is a moral union of intelligent beings seeking a common goal and that cooperate in achieving it. Without this common pursuit of a known good and loved by all cannot be moral unity, it is, the company cannot exist as such. However, the criteria so far exposed, have not always been reflected and taken as the foundation of any society. We can distinguish, in fact, three types of criteria that give rise to three different figures of business organization. 1. As a group of individuals whose interaction is based on rational calculation. This position is given by capitalism from modernism and especially advocated by Milton Friedman and the Chicago school. It proposes that society, and therefore the company, is simply a tool that helps us to protect certain rights and produce goods more efficiently. In essence, the proposed individualism says that the company is a set of rational beings, generators of wishes and preferences, essentially free and defenders of their own particular interests. In this sense, any association is only valid if it seeks to fullfil personal interests. Proposes that the market and the enterprise are guided by rational beings, and therefore, can operate without the intervention of the State, just based in the mutual interest of being better. 2. As a whole that rejects individuality. This is the proposal of the socialist left and the Marxism. It privileges the totality rather than individuality. The only reason of being of the enterprise is for and by collectivity and therefore the employer is identified with the ruling class enslaving and subjugating others, taking advantage of the weakness of the worker. According to this view, the most important is the worker not as an individual but as a member of a social class. It seeks to eliminate private property trying to benefit all equally. Individuality and the pursuit of personal goals are canceled in
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personal and selfish interest is pursued or where only matters the good of the community above the individual interest. Both positions are extreme and blur the eminently social, and at the same time, individual nature of every human being. If you want to change the paradigm of the company to responsability, you must change the concept of business (as indeed many already have) and integrate the interests of everyone in those things that they have in common.
References 1
I will appreciate any comment or suggestion: aordieres@itam.mx
2
Max Weber, The Protestant Ethic and the Spirit of Capitalism.
New York: Routledge, 2001, p. 17.
favor of all equating all needs and trying to eliminate any distinctive element and, therefore, individual progress. 3. As a community-related with an agreed and shared purpose. An enterprise is characterized by a set of relationships that are mutually defined. The enterprise conceived as a community-related stresses not either extreme, society or individuality, but both realities are perceived as an essential interrelationship to reality itself. From the beginning man exists and coexists, look for his own interests but need other individuals to get most of his needs. There is no human life that is not, directly or indirectly, life in common. The interrelationship of every society is based not on a dominant attitude of an individual over others nor the disappearance of the personal characteristics of each human being (interests, desires, purposes, goals, etc.) but in the community of interests, in pursuit of a shared and agreed purpose. In the enterprise-community relationship, the interests of all are important even if everyone can not be reached out. It seems impossible that there can be a successful business where only a
3
Ibidem, p. 18.
4
Ibidem, p. 19.
5
Ibidem, p. 31-32 y 33.
6
Cfr. Isaac Guzmán Valdivia, La sociología de la empresa. México:
Editorial Jus, 1979, p. 24. 7
Aristotle, for example, believed that every family must had a slave
because “it” was the better instrument to achieve the family’s manteinance. 8
Milton, Friedman, “Does Business Have Social Responsibility” in
New York Time Magazine, September 13, 1970. 9
Authors like Hobbes, Locke or Hume suggest that selfishness, in
its various forms, is the reason for political or civic organization. The law limits and rectify the shortcomings of the selfish nature of man. 10
The enterprises that ignore this reality, are threatened by, accord-
ing to Blomstron, the Iron Law of Social Resposability: “In the long run, those who do not use power in a manner which society considers responsible will tend to lose it.” Keith, Davis y R. Blomstrom, “Business and Society: Environment and Responsibility”. New York: McGraw Hill, 1975, p. 50. 11
Juan Pedro Sulbarán, El concepto de Responsabilidad Social de
la Empresa, Consulted on August 20th, 2014 in http://servimeca. blogspot.mx/2006/02/el-concepto-de-responsabilidad-social.html 12
The first technical definition of person and that last until now is
Boecio’s: “Individual substance of a rational nature”. 13
Isaac Guzmán Valdivia, La sociología de la empresa. México:
Editorial Jus, 1979, p. 37. 14
Ibidem.
15
J.T. Delos, “¿Qué es la sociedad?” in Jus magazine, no. 32, p. 173.
16
Isaac Guzman Valdivia, Para una metafísica social. México:
Editorial Jus, 1985, p. 150. 17
Ibidem, p. 150.
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A view on Ethical, SRI and Faith Based Investments Interview with Marcelo Benítez, Founder and Main Partner Proaltus Capital Partners.
• One of the main criticisms Ethical, SRI and Faith Based investments have is that they have to give up profits in order to stay true to the ethical standards of their investors. Do you agree with this? I disagree. Making investments of this kind does not necessarily mean that investors will have either under-performance or over-performance. Statistical studies show that the tracking error of an ethical investment is very low and that is not characterized by having a better or worse result. Therefore, we can say with confidence that investors can invest according to their principles without sacrificing return. www.fidelisinstitute.org
Empirically, it can be concluded that companies with strong corporate governance have shown better performance than those without it. In the case of taking into account certain frames or values of faith we have found that this does not affect either. • Do you think that companies that apply strong ethical standards will financially perform better than the ones that don’t have them or do not apply them? I do believe that companies that apply certain welldefined ethical criteria will have better results over those that do not. It has been proven that the fact of having a code of ethics can help to achieve better performance by employees and the company itself, both in the operational and financial part, giving a good image to the community. • Do you consider there is a difference between an ethical investment, a faith based and a Social Responsible Investment? What would be that difference?
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There are many differences, because faith based investments apply very specific criteria in relation to the beliefs for those who created the screening filter. Almost all religious filters are based on social responsibility criteria.
However, this is a matter of consistency. Someone who is consistent with his acts, should look to invest his money according to his values. From my point of view, investing equity in accordance with one’s beliefs is a matter of personal coherence.
Faith based criteria would be an “upgraded” version of the social responsibility criteria or a broader vision of it. In any case, faith based criteria would apply the general criteria of social responsibility and in many cases would go much further.
It is a common belief that investors may not have the sensitivity to find this type of investments, or do not pay enough attention to them, however, stats suggest that the category of ethical investments is increasing, growing at twice the rate of growth of other instruments.
• From an investor standpoint, why would it be important to be concerned with where the money is invested? Generally, the investor professes a faith, and has certain principles and behaviors. When these values are not applied in investment, a division that should not exist is created. It happens sometimes because of certain preconceptions in which money and beliefs should not be mixed or be related.
Under the premise that there is no significant difference in their performance and that there are several options, I think there is no excuse for not being consistent with personal values when investing. • Normally, fraud and money laundering issues are not tackled when companies conduct an ethical screening. Do you think it is something that must have to be taken into account?
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I definitely think that any screening service should take these criteria into account. Companies cannot be considered ethical if the relationship with their customers, vendors or partners does not involve a decent behavior. In my opinion, many of the problems we have today in the financial world is that banks have moved away from ethical behavior. They are constantly immersed in scandals and they are the ones who offer investment products to their customers. Since they would be excluded from most of the screenings available today, if these criteria were included, there wouldn’t be and incentive to promote their inclusion. It’s a shame that some financial institutions have to be constantly fined for their behavior towards customers, employees and society. This issue should be a pillar in the conduct of companies, if it is not taken into account in an ethical or religious filter, it would not be fully meeting its goal. • What other issues do your clients consider as important to be taken into account? It is essential that ethical screening services have a strong research methodology and are able to practically apply their criteria in the evaluation of companies. The screening should allow us to make decisions in a prudential manner. If the criterion is applied thoughtlessly or automatically, usually many errors of judgment or interpretation will appear. The screening filter should be applied logically and according to the criteria that have been established for it. It has to be a very complete service, in accordance with what the users or customers are expecting to see. It cannot be just a collection of information but have a proper methodology behind it. • Who do you think should invest in products that have passed a certain ethical screening process? Are ethical investment instruments products for everyone? www.fidelisinstitute.org
Any person who is aware that her faith and values are important in her life should invest in them. There are products suitable for all kinds of investors. I think that some product alternatives might be missing. In stocks, bonds or funds you can find almost any kind of products, although it is yet to be seen if the way they are distributed is appropriate for the level of market knowledge investors have. • Is there a special issue ethical investors are most worried about? They are worried that their ethical screening provider continues to use the same screening criteria values, since, sometimes, they are tempted to relax them due to current problems with banks and fraud in companies, thus approving certain companies that are attractive for investing. Investors should be concerned on the growth of such problems in business and require their ethical screening providers to apply these criteria in a good way. Other investors are concerned about the return on investment. In the long run, yields should not represent a significant difference, investors can rest easy on that topic, financially speaking, that there will be yields. • How do you use the Fidelis Ethical Screening services in your Firm? What we do is to hire managers who can adapt the analysis methodology based on economic or financial criteria to the use of ethical criteria before making any investment. The list of ethical screening is sent monthly to all our managers so they can use it. They all agree that an instrument of this type has to exist. So far, the results we have obtained are satisfactory for our customers, and therefore for us. They can be confident in knowing that their money is being invested in accordance with their values.
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Personal responsibility and social contribution to sustainability. By Dra. Teresa de Dios Alija, Profesora de Dirección y Desarrollo de Personas. Universidad Francisco de Vitoria. Dra. María del Carmen de la Calle Maldonado, Directora de la Cátedra de Responsabilidad Social Corporativa. Universidad Francisco de Vitoria. Dr. José Ángel Agejas Esteban, Profesor Titular de Ética y Ética Social. Universidad Francisco de Vitoria.
Summary The history of humanity has passed through different streams of thought that have substantiated social, cultural and political movements of various kinds. We are the children of other times marked by coercive utopias, totalitarianism, authoritarianism and liberalism which have never worked at all. Today we are living, in part, the failure of a democratic and capitalist model, considered by many the ideal system, despite the fact that it has caused a significant economic and social crisis because of greed, recklessness and mismanagement. In the current economic model is prioritized the possibility to market anything, whether a service or type of relationship, that can meet the diverse needs of the human being. In the regulation of these transactions, which may turn out to be absurd, the individual has a primary role in which he must www.fidelisinstitute.org
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be aware of himself and of his great work in building a sustainable social reality. On the basis of everything, what fails are not the ideals, but the lack of shared moral convictions that allow the individual to actually live in freedom in a society that belongs to him in his own right. In order to achieve the sustainability of the world we live in, it is necessary to provoke critical thinking in man that promotes change in his way of thinking. It is not enough that a few will rebel against a system that encourages individualism, selfishness and material welfare. The transformation of society is possible only through raising awareness of people in favor of the responsibility that is possible within the framework of freedom and justice. 1. Responsibility, Freedom and Justice Responsibility is a consequence of one’s own consciousness, which determines that man is responsible for his acts, acting in accordance with fundamental moral principles. A responsible person has the initiative and the power to decide what actions he is going to take. This choice must be, as far as possible, objective and independent from the surrounding circumstances, but we know that in his approach, one is always influenced by the environment in which he carries out his activities and it is, therefore, difficult to discharge all subjectivity. If the individual through his conduct loses the power to act in ways that respond to his actions and the consequences thereof, we cannot consider him a socially responsible man. We cannot judge a person just by the outcome of his actions. It is necessary to take into account the causes and reasons for his behavior and its consequences. Being responsible involves not only consideration of the type of acts that are performed, but also the inner principles that move a person to decide to perform certain actions. The intention to do what our conscience tells us is the key and foundation of responsibility. Each individual acts in a manner guided by his own thoughts and decisions, but also influenced by his own feelings. The expectation of pleasure or displeasure as the result of his behavior can interfere with the outcome of his conduct. The person cannot be www.fidelisinstitute.org
conducted only in accordance with the guidelines set by reason. Good will is not to do what has to be done following rules and regulations that others propose, but wanting to do what must be in accordance with reason. This is not only to follow our own interests or emotions, but rather to pursue perfection through the development of a sense of duty. There are values that guide actions in the right direction and disvalues that disorient the individual on the purpose of responsible behavior. The moral principles at all times act in undertaking an activity from the very decision to carry it out, to the analysis of its consequences and implications, and even the intention of reparation or compensation of injustice or harm. 2. Cultural Transmission and Socialization That an individual is responsible for each of his actions requires the development of virtues in the course of all stages of life. In this work are involved the State, for its role in the transmission of culture through, for example, regulation of education systems, and alsosocialization agents (family, school, media) in their task of disseminating values, morals and even
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professional and personal levels. Business activity does not, however, appear to be used today in the sense of guaranteeing minimum social standards that we have mentioned above, rather it aims to obtain economic returns, regardless of whether the value the individual can generate is larger than the economic benefit of a few, supporting the belief in the importance of having over being, and with it the false belief that the accumulation of material goods ensures status, power, or even happiness. At present, it seems that prestige is achieved only by that person or organization that is able to get rich quicker, that achieves its goals effortlessly, that can use others at will as means to achieve its purposes. This way of measuring success leads to thinking that it is not really important to be socially responsible, but just to look like it. Hence, the best efforts of many companies are focused on communicating their good deeds, regardless of whether the activities carried out according to their lines of businessare truly socially responsible. lifestyles and groups of relation and influence, such as the organization (institution, company) where the person performs his duties. The discovery and understanding of moral values is easier when people are capable of inspiring respect in the place of fear, and genuine authority, not just power, and honesty rather than the mere appearance of it, and especially humility. In their role as transmitters of culture, States must ensure minimum social standards and equal opportunities for all citizens, while considering that each of them has different capabilities. The difficulty lies in establishing what minimums are really needed and how to justly reward them without anyone feeling hurt. We cannot answer this question unless we enable each individual to be aware of his own limitations and privileges, and understand the realities facing others who share with him the dignity of every human being but are determined by a different social reality. Another important agent of socialization is the business organization, the place where human beings work for much of their lives, spend time with others and where, ideally, we grow and develop at
Socializing agents play an important role in this regard, as they have the ability to influence and persuade people, and even to discover innovative and creative solutions that promote greater involvement of individuals and social groups, thus enabling the individual to stop worrying about what will benefit only himself. 3. Personal and Social Responsibility Progress should not be understood solely as economic development, as advocated by some ardent supporters of radical capitalism, nor should it be based only on the consideration of differing aspects of an individual, as advocated by some relativists, to justify the many rights that the person has, without questioning at all the obligations or responsibilities of life in society. There is no social progress without the possibility of generating well-being for all. The company is not sustainable without creating value for all stakeholders. Although organizations are formed by people, by values, principles, responsibilities and corporate goals, they need not identify with the personal members of the organization. In short, business ethics employs differential components www.fidelisinstitute.org
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A company is a wide network of relationships between individuals who, for one reason or another are affected directly or indirectly by what happens in it. The cooperative action does not relieve the company of having a moral behavior. On the contrary, it should give you more strength if possible. The provider, supplier, shareholder, employee, employer and the client, all groups of interest that relate to an organization, should ask themselves whether their moral principles are consistent with the activity involved in certain organizations. To do this they must understand the operation of enterprises and contrast it with objective benchmarks, with the assumed stable moral values they themselves believe in, without being susceptible to change in the scale assumed by particular circumstances and impulses, interests and unilateral judgments or distorted values. With this in mind, they may look for common strategies aimed at the satisfaction of all parties and encourage the entrepreneurship that often tries to force things without getting any positive result. in order to clearly discern individual ethics. While individual ethics appeal to the conscience or the right of every person, the ethics of organizations has to appeal to the organizational equivalent of the processes that determine the decisions and behavior of enterprises. However, individual ethics and organizational ethics cannot be separated, because after all, those who perform tasks in organizations are real people with moral values and personal convictions about what to do at all times. Individual responsibility is the basis on which social responsibility is based. The person who decides to act in a certain way is responsible for it. But the responsibility should not be understood only from the acts themselves, but also from their influence on others. We cannot always give an answer about what aspects of our behavior affect others, but if we are not aware of the implications of each of our actions, we cannot take responsibility for each of our actions. We need to reflect about what we do, how we do it, and what impact it will have on ourselves and others. This is the only way to achieve socially responsibility someday. www.fidelisinstitute.org
Behind the responsibility of the company, which is itself an abstract entity, we can always find the responsible subject, which in any case has to be an individual (or group of individuals) to respond to the consequences of a particular type of performance. In this way we can hold an operator accountable for the result of a certain activity, for making a mistake, his supervisor for failing to control the operator’s job, the area coordinator who does not provide the means and appropriate procedures for others to carry out their functions and tasks correctly, and even managers who possibly have not been careful in defining work processes and the allocation of tasks. Thus, responsibility belongs not only to the owners or managers of a company, but to each of its members and all those who, by interacting with it, pursue certain economic objectives and/ or social, personal or collective. Each member of the chain of production is partly responsible for the results of the actions taken. Each has responsibility for a certain act, but they all are responsible to some extent.
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Each person can lead the CSR in the company. Regardless of occupying a certain hierarchical or functional position, any individual can exert a positive influence on others guided by the sense of encouraging responsible behavior. Man’s duty is to act according to the dictates of his own conscience without expecting others to do the same. We should not wait for others to lead by example, but rather encourage and be an example to others. If we always wait for somebody else to take the first step. progress will never achieved. Conclusion We think that social responsibility is a virtue that helps individuals to improve, to become that to which one should tend to be. The way someone acts in life makes one a happy or unhappy person, to choose one or another way to go toward the goal of happiness is a decision that each individual must make for himself. Human beings have the ability to learn from experience, by correcting their deviations they can manage to have a responsible behavior, which will make them responsible persons. For the development of virtue, it is wise to recognize reckless behavior. Prudence helps us to weigh the consequences of our actions and therefore their meaning for others and for the whole of society. Prudence is what allows us to properly discuss the methods and means that will lead to the aim pursued and that will lead to responsible behavior. We cannot choose to be socially responsible or not, we can simply choose to behave responsibly or not in every action that we perform, taking into account the consequences to ourselves and others. The intention of the action determines its goodness. It is not only the action in itself and its consequences that are important. The foundation of a good action comes from goodwill, the sense of duty that is marked by conscience. Man can distinguish between what is right and what is wrong, if he freely uses reason to think in universal terms (which are valid for all men in all situations).
The first premise we must begin with in order to find universal moral laws is to respect the dignity of every human being. We are social beings, able to know ourselves through reciprocal relationships with each other, who are dependent on each other to develop as individuals, and to that extent we are all worthy of respect. The biggest challenge is to ensure that all people consider the same universal laws and this can only be achieved through language and communication. Dialogical ethics that transcends contexts, cultures, traditions, circumstances, and the particular situations experienced by each person, may be established in a way that is valid and fair to all. The Western world is profoundly marked by the importance it gives to material goods, to capital. Our is largelya purely economic system that is transmitted through culture and communication to all individuals, and unfortunately it gives precedence above all to havingrather than to being. But we must not forget that the profit motive is not a natural instinct of man but a historical and ideological product that meets the need of control, security, success and self-seeking.
References DEDIOS-ALIJA, T. (2013), Perspectivas económicas, sociales y filantrópicas para el análisis de la responsabilidad social corporativa, Revista de responsabilidad Social de la Empresa, 15, Centro de estudios Sociales, ISSN 1888-9638. DEDIOS-ALIJA, T. (2013), Ser socialmente responsable. Decisión y compromiso. Comunicación y Hombre. Noviembre 2013, ISSN 1885365 DEDIOS-ALIJA, T. (2012), Responsabilidad Social Corporativa: De La Antropología a la Empresa, Editorial Académica Española, Nº. 15606. ISBN 978-3-659-05118-0. DEDIOS-ALIJA, T. y OUBIÑA, J. (2011). Hombre, ética y responsabilidad social corporativa desde un enfoque antropológico, Encuentros Multidisciplinares nº 40, 2012. Madrid. ISSN: 11399325. AGEJAS ESTEBAN, J.A y DE DIOS-ALIJA, T. (2011) Aplicación a la empresa periodística de un nuevo paradigma de Responsabilidad Social Corporativa, Comunicación escrita, 9º Congreso internacional de Ética y Derecho de la información, Fundación Coso, celebrado en Valencia los días 11 y 12 de noviembre de 2011. ISSN: 9788461543274.
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Photo by Fidelis International Institute
sons and ethical values offered by the intermediation of financial services become a source of inspiration, self-criticism and purpose for their own practices. Otherwise there would not be a genuine and committed sense of social or moral responsibility behind the promises of the ethical funds offered. That is why it is important to think about the ethical criteria of the possible conflicts of interests that have to be taken into account when the methodology for screening companies in an investment fund pretend to be ethical as the one applied in Fidelis. The aim of this article, then, is to clarify within the screening methodology of Fidelis, which ones might possibly present conflicts of interests, and how we have to regard them as researchers.
Conflicts of Interests in the determination of ethical Investment funds. PART 2
By Rafael García Pavón, Centro de Investigación en Ética Aplicada y Valores, Universidad Anáhuac México Norte.
Types of Conflicts of Interest Within the Screening Methodology of Fidelis. This work is the second part of “Conflicts of interests in the determination of Ethical Investment Funds,” an article published in the last issue of Fidelis Ethics Review. In that first article, I explained the importance and sources of the possible conflict of interests that could arise when establishing an ethical investment fund. I concluded that to make it possible for economic actors to become a true field of moral realization, it is necessary that reawww.fidelisinstitute.org
The Fidelis Ethical Negative Screening Methodology Financial intermediaries require not only a good financial analysis of companies to make an ethical fund, but also a methodology specifically designed for ethical issues. This consists of a screening of the companies’ moral practices. These methodologies consist, in general, of three elements that are the result of specialized research: first, a rational basis and justification of the principles and ethical values that companies of the ethical investment fund must accomplish in order to be considered ethical; second, a methodology of negative screening, which is the tool that helps to exclude from the fund those companies which do not comply directly with these values; third, a methodology of positive screening of the list of companies that resulted from the negative screening, through which the companies with the best ethical practices are discerned. Fidelis has developed and applied a negative screening methodology until now, and then to understand the conflicts of interest that could be generated in its research is necessary to describe how it works in general. That is why the type of conflicts of interests we will describe corresponds to the second element of the process mentioned above.
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ones.The different levels of acceptance implies that an accepted company has to be monitored and reviewed again more frequently. The complete verdict, whether for companies accepted or for companies excluded, gives an ethical certificate to the list of the bank that handles the fund. For this reason the researchers are confronted, in the various moments of the methodology, with various ethical conflicts of interests about the ethical practices of the companies in the fund. They need to adopt a way of confronting these conflicts ethically, to ensure that the research is ethically coherent and in keeping with its promises. We can discuss next three types of conflicts of interests in this process: first, conflicts of interest related to the validity of the information and its adequacy for a moral judgment; second, conflicts of interests related to the implications for companies of the moral verdict from the screening process; third, conflicts related to the interests of the bank with the fund enterprises, and their own practices.
Photo littleny / Shutterstock.com
The basis of the methodology consists in transforming the general principles in nine core questions about the compliance or non-compliance with these values within the practices of the fund enterprises. The questions are applied to analyze the practices of the companies of the fund. Information is obtained from public and global sources classified in 160 different categories and corroborated in a variety of public information media. These are then reviewed in three levels of analysis: at the data level, at the level of universal moral judgments, and at the level of the particular moral context of the company’s business sector. The possible verdict that the company could have from the Fidelis screening methodology is very simple: exclusion or acceptance. The analysis, which is a more precise and complicated process, is to determine the level of acceptance. This could have three variants: total acceptance, acceptance with objections, and acceptance with concerns. This is based on the principle that exclusion has to have clear evidence of a bad practice and that the good practices are neither perfect nor ideal
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First type of conflicts of interests: Regarding the information validation for a moral judgment.
Ethical conflicts faced by the researcher in this activity have to do mainly with recognizing the nature of moral knowledge and its limitations, which has the following features - and in respect with each of them there is a type of conflict:
knowledge aims to establish a criterion for choice and therefore of meaningful human actions, and this cannot be separated from the circumstances and limitations of the acting subject and its context of affectation. In the case of the research methodology it seemed to us that the objective of the fund is precisely that the act of investing does promote or collaborate directly with evil practices that the beneficiaries of the investment could cause; so that the subject assumed as the perspective of the moral knowledge of the methodology is the act of the investor and not so much the act of the financial intermediary. The service that the bank offers to the investor, in this way, with the negative screening methodology, is to help him to discern the moral implications of his investment in relation to the practices of the companies that constitute the fund and that immediately the investor cannot know.
First, there is a knowledge that cannot be totally impersonal, that requires taking the perspective of one of the moral agents. This is because moral
This happens in such a way that all the discussion questions for making the screening are made as if the researcher is the one who invests from a
The first part of the methodology is to search public information under certain categories (160): information, news or data that give evidence of the corporation’s practices, or some of its practices, or some of its policies or all of them, and proof that because of these practices or policies the corporation in question does not adhere tohence “negative filtering�- the moral principles and values of the fund1.
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certain context and with the good will of having returns without collaborating directly with evil practices. This also means that the moral knowledge must be taken into account as a content that affects directly the one that acts in its ethical condition. Second, moral knowledge is not a theoretical form of contemplation or formulation of reality, but a way of discerning possibilities and those areas of human action where values could be achieved. In this sense we cannot judge the company itself or the people who act there, but we could judge the coherence and consistency of their acts, or their practices, which are the means where these fields of possibilities of value realize. Then, the moral judgment of the screening methodology is done not as a function of finding the most virtuous corporations or to blame them ontologically, but to assess the practices of the companies in their contexts of activity in relation to the values and ethical principles. For the same reason the public information that is taken as the basis of the moral judgment should make evidence that the bad actions are in direct
relationship with the company practices or policies in a range of time. This generates several conflicts of interests: 1. Information may not be privileged or confidential, since the fund is intended to guide the decision of the investor in relation to the public practice of the company. 2. The evidence must be clear, actual and persistent in prestigious information media. 3. Sometimes the evidence is not explicit but a trend. 4. Information must be confronted with the statements of the company itself. 5. The classification of the information as relevant for the final judgment can vary in relation to the criteria of frequency, timeliness, gravity, direct or indirect relationship with the action, resolution of the conflict or not, inclusion in the policy. The conflict of interest is that if this information is not enough there are not enough reasons for justifying, before the bank or companies, the inclusion or exclusion. Due to the variety of ways in which evidence can be presented, Fidelis made
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a methodological decision classifying it as an exclusion, objection, or concern. Exclusion means there is total evidence, objection is when there is obviously a bad practice where the company is not directly responsible - because the methodology has to take into account the circumstances in which companies are sometimes obliged to operate against their own ethical principles- and concerns, when in the process of screening or in the statements of the company and the information, there is something suspicious of a bad practice, but cannot be corroborated completely. The researcher then must deal with the conflict between truth and certainty and truth as the meaning and interpretation in a context of possibilities. Second type of conflicts of interests: Regarding the implications for companies. This type of conflicts arises in a second moment of the analysis, when the first moral judgment, result of the screening, is confronted with the context, needs, and possibilities required by the companies to work. This is done not only to assess the compliance or not of the company practices to the values of the fund, but to know if the bad practice is an isolated case or is a way of being derived from the policies and strategies of the company. This implies that the analysis will interpret the first moral judgments with the history of the companies, with their current context and their changes in relation to certain practices. The most typical cases of this type of conflict of interests, and also difficult to discern, are the cases of allegations, claims or lawsuits of all kinds to companies, especially to the financial ones. Because as long as there is not a legal sentence, a court case cannot be considered evidence at all; but sometimes there are situations where a company has several lawsuits and allegations of the same type at different moments in time, so the conflict is to determine whether that gives a sign, for the researcher and the fund, to be more careful with the practices and analysis of the company or to exclude it from the fund. This often happens with the type of financial companies, banks and insurance companies, and their business operations, www.fidelisinstitute.org
especially the stock market prices. Also, sometimes practices are not directly those of the company, but only indirectly, for example the presence of pornographic magazines in supermarkets. The supermarket does not produce pornography as something inherent to their activity, but they have an indirect relation when they distribute this type of magazines. What we could conclude about these types of conflicts of interests is that all of them involve a dialectical relation between: the world of the spirit and the facts, the ideals and the concrete circumstances, freedom and needs. This requires a synthesis by means of dialogue, and thought about the way to make decisions between the researchers of the screening and the financial intermediaries, not in the solitude of their own mental background, but in collaboration. For this reason, the methodology of negative screening should be a source for good self-criticism for the bank and financial institutions, rather than a harsh judge of their moral failures; becoming a source for the dialogue with other semantic horizons of their own activities. This means considering not only financial criteria in relation to their business interests, but criteria related to the integral dignity of persons as individuals affected by their decisions and the moral responsibility toward them not only as financial clients. The problem is that in general, because the companies have an interest in maintaining a good image, they tend to deny the evidences against them that may arise from an analysis of the contextualized information without actually corroborating them, producing different interpretations of the meaning of the practices. Third type of conflicts of interests: Regarding the interests of the bank that offers the fund with the companies included in it. This conflict appears when the companies are of the same financial branch or has relevant financial quantitative interests with the bank that offers the fund. This is the conflict between being consis-
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tent with the values and principles of screening methodology and the interests of the bank with the companies. And in this sense there are various possibilities of the same conflict, because the company could be of central importance for the business interest of the bank, or could be important but not as relevant, or could be of the same business branch. The conflict cannot be resolved as such, but I think that it could be resolved by two possibilities: Either the fund can decide not to include this company in ethical funds, or the bank can have a strategic meeting with the company in question in order to make explicit the criteria for the fund. This conflict could be worse if the bank itself, which offers the ethical investment fund, is not coherent in its practices with the ethical criteria, with the consequence of losing ethical credibility and therefore the economic relations the fund pretends to establish. At this point, it is necessary to find the midpoint of agreement to each situation, in which at least, the bank could use the research
of the screening methodology as a source for a responsible moral self-reflection of its own practices—all with the objective of determining whether they should or should not follow these principles and how and why or whether they should change their practices in this direction. The researchers of the screening methodology, as the one of Fidelis, has at least the moral obligation to be intellectual honest to recognize the limits of moral deliberation and give the opportunity to the companies, or to the bank, to collaborate in the interpretation of the screening information through a responsible dialogue. The objective is not to find someone guilty or cause scandal, but to assist in the consciousness and moral formation for better ethical decisions of the financial intermediaries in behalf of the good will and good conscious of investors. This means assuming a greater responsibility over their activity as well as assuring the investor a minimum of discernment criteria with authentic moral foundations. www.fidelisinstitute.org
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Conclusion
cally calculations without grounding, but more a thought of concrete actions with grounding principles and values.
Analyzing how the typical conflicts of interests arise in the process of applying the screening methodology for the establishment of an ethical investment fund, we can conclude that they obey to a dialectical characteristic of human decisions, deeper than the mere external motives, between: the spirit and the world, the ideals and the circumstances, freedom and necessity. In which none of the dialectical components by its own could determine the best decision, because it would be a way to annihilate the human condition itself. Then the process of research in a screening methodology could be a way to resolve this synthesis or at least to be aware of it, in particular with the collaboration of the financial actors, in terms of an hermeneutic and prudential reflection and not only following strictly a number of categorical moral or business. The synthesis has to be done between the moral goodness and the interests. This has to become one of the actual tasks for moral philosophy, for not being neither fundamentalist without concrete cases, nor mere pragmati-
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In this respect and in accordance with the foregoing, the research in a screening methodology must start by resolving these conflicts of interest through dialogues that form the conscience of the actors involved, and giving elements of justified discernment as a process that can be redefined, but what we cannot do is to forget the responsibility inherent in it.
References 1
These 9 criteria are: 1. Violence against human life and
manipulation of procreation. 2. Violation of the rights of workers. 3. Development, production and sales of armaments from the 10% of its revenues. 4. Take part in the production, distribution, advertising or media sales of pornography. 5. The marketing of alcohol in forms morally objectionable or production by more than 20% of their total revenues on sales of tobacco products or sale of game. 6. If the company is failing in their moral or legal obligations to respect the natural resources. 7. Fraud, money laundering, corruption and similar illegal activities. 8. Promotion of non-Christian or activists agendas 9. Complicity with governments based on injustice.