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In my last consideration of morality and ethics, I supposed that being good presumes an engagement with reality and not just with principle and abstractions. Then, I saw a report that for the first nine months of 2019, Airbnb experienced losses, in other words, no profit. This development caught the attention of many who were open to buying Airbnb stock once it was sold to the public. Now, however, warned by the fact of the company making losses and not profits, there are questions about how much a share of Airbnb might be worth in a public offering.

Now, for 200 years, profit has been touted as evidence of inherent immorality in capitalism. Capitalism, with its private property, cash nexus and the rights of owners to net profits, has been criticized by moralists from Christians like Charles Dickens to Karl Marx as misguided and an abuse of human potential. Because of profit, capitalism is said to draw out the worst in people; that it is sin institutionalized; that one can’t serve both mammon and God and since profit sits at the feet of mammon, to choose capitalism is to reject God.

And yet, as we see in the Airbnb case, profit ties our aspirations to reality. It is the reality principle operating to check the pleasure principle, to use Freudian terms. Where there is no profit, there is a mismatch in reality between supply and demand. Simply put, losses reveal that there is insufficient demand for the company’s goods or services at the price needed by the company to remain a going concern. Losses are not sustainable over time.

Profit links Airbnb to others. Thus, it functions as a moral presence in the working of the mind, directing our attention to the needs and situations of others. Lack of profit causes us to question Airbnb’s ability to relate to the needs of others.

I would then suggest that anything which works to ground our self-centered romanticism or hubristic self-conceits externally in relationships with others, who are an important reality, is both a public and a private good. It is morality in action.

Two recent articles about pollution and global warming triggered a thought which had been a latent reflection arising from reading Cicero’s writing on duties (De Officis) where he seems to be descriptive about morality and ethics rather than prescriptive, though it is clear he advises choosing some behaviors and values over others.

Nevertheless, one of his notable assertions is that the honestum and the utile in reality are interdependent. What is virtuous and authentically good when shown in public leads to prudent and efficacious consequences and what is of real utility in life tends to have an affinity with virtue and goodness.

My college education largely posed a conflict between morality – deontology, like Kant’s categorical imperative – and reality – utilitarian calculation of benefits and enjoyments, following Bentham and John Stuart Mill. We were told to take sides – either the moral and impractical or the practical, though it might be immoral on occasion.

But if reality is part of morality and ethics, then the decision as to what to do is either more simple – just follow the facts – or more complicated – figure out what the facts are when much is poorly known or unknown.

Since it is said that we live in a “post-truth” age, taking reality and facts as our guideposts seems foolish and a throwback to past imperfections.

One article I just read described how certain California communities and firefighters are preparing for the coming dry months and forest fires. They have moved beyond a Greta Thunberg moment when looming catastrophe overwhelms judgment and, immobilized, we resort to emotion and denunciation. They are rather learning from reality how these fires start and spread. They are clearing dry brush and grass from the forest understory; planting rows of trees as firebreaks where fierce winds will blow; and telling homeowners not to put flammable plantings near houses.

I consider their behavior to be ethical and admirable.

Next fall, we will learn how successful these intentional efforts will have been.

In another commentary, the author, John Tierney, broke ranks intellectually with many who see the moral course of action as prohibiting the use of plastic bags. His sense of reality is that plastic bags are not the problem many say they are and, in fact, have advantages for sanitation and sustainability.

He asserts as fact – as a reality check – that most of the plastic in the Pacific Ocean does not come from more wealthy consumers, but from ships and from Asia “as mismanaged waste.”

His take on reality leads him to make certain policy recommendations. Those recommendations would seem to deserve the status of being ethical or moral, as they are designed to reduce harm.

One of the ethical principles we proposed for NGOs and other civil society organizations is to take care – to be guided by reality when trying to be moral. The principle of care is:

“A Civil Society Institution (CSI) will recognize that its policies and activities are a legitimate subject of public comment and analysis. It is, therefore, willing to engage in reasoned discourse regarding its mission and objectives, values, principles, governance, actions and means used to achieve its objectives. When engaging in advocacy, a CSI will always, in good faith, present accurate facts and truthful information. When planning its actions or executing its policies, a CSI will demonstrate enlightened care and concern for those whose interests will be affected by its contemplated actions. In case a CSI inflicts damage upon a government, international organization, corporation, or other party, it will be accountable for its actions.”

Our recent round tables exploring modernization of balance sheets and valuation methodology have produced consensus that intangibles can be valuable assets of a company.

In support of this conclusion, I just read two reports in the Wall Street Journal.

One was that the stock of Morgan Stanley, Bank of America and Citigroup trade at levels still below their market valuation in 2007, before the 2008 collapse of credit markets.

Badly wounded by the 2008 crisis, Morgan Stanley and Bank of America switched business models to lessen their dependency on trading and investment banking revenue and bring in wealth management clients. Those changes in their business model – an intangible aspect of governance – did lead to increases in their stock prices. An analyst’s comment was that “some people” still put a discount on their valuation, given their line of business.

Another comment by John D. Stoll pointed out that the valuation of Peloton, a maker of exercise bikes, depended on its being able to bill itself as a “tech” company because it includes an internet feature on its stationary bikes. The company – like Uber and WeWork – sought a tech aspect to its goods which would differentiate it from the competition when “tech” companies are given higher multiples on earnings by market speculators. Thus, the intellectual property, along with access to its creators and maintainers of a program for internet access to others also using the bikes has important value for Peloton.

I have found it very helpful and persuasive to remark on when reality aligns with the guidance or perhaps even teachings implicit in our Principles for Business. My justification for doing so is that such coincidence is not by chance, but show the principles congruent with reality.

There are three recent stories which provide such congruence.

First, John Stumpf, former Chairman and CEO of Wells Fargo, was banned from working in the banking industry and fined $17.5 million by the American Comptroller of the Currency for his role in creating fake accounts a few years ago. Stumpf agreed to the ban and payment of the fine in a settlement with the Comptroller.

The alignment of reality with our principles is that not taking reasonable care of stakeholders and acting without integrity lead to losses. To enhance profitability, it is necessary to manage stakeholder relationships with due care, follow the letter of the law and then go beyond that to establish trust.

Secondly, Boeing just incurred its first annual loss since 1997. In 2018, the company reported profits of $10.46 billion. In 2019, the company reported a loss of $636 million. That drop in profits was a big hit to its shareholders. Boeing also just reported that the costs associated with its 737 Max 8 aircraft have passed $19 billion, another hit to shareholder’s equity. The cause of these losses was failure to design and build a sufficiently safe 737 Max 8 aircraft. This constituted a failure to provide customers and their customers with a quality product. As a consequence, Boeing lost money. Profit followed on customer experience.

Thirdly, Goldman Sachs has given its shareholders an unprecedented look inside the company to reveal its plan for making profits going forward. For the first time ever, the company set financial targets for itself and previewed new business models to enhance profitability. The bank will offer new consumer products like checking accounts and financial management, as does its competitors JPMorgan Chase and Bank of America. Since the collapse of credit markets in 2008, Goldman’s stock has not been as highly valued as the stocks of those competitors.

In taking care of its shareholders, Goldman proposes to satisfy new customers. In its repositioning, Goldman is seeking to better manage its relationship with two stakeholder constituencies – customers who might or might not buy its services and investors who might or might not buy its shares.

The relevant principle is:

PRINCIPLE 1 – RESPECT STAKEHOLDERS BEYOND SHAREHOLDERS

• A responsible business acknowledges its duty to contribute value to society through the wealth and employment it creates and the products and services it provides to consumers.
• A responsible business maintains its economic health and viability not just for shareholders, but also for other stakeholders.
• A responsible business respects the interests of and acts with honesty and fairness towards its customers, employees, suppliers, competitors and the broader community.

Today is Brexit. The withdrawal of the United Kingdom from the European Union is historic. One way of thinking about its implications is to revert to history and culture: the Anglo-Saxons were never meant to be part of the continent. Over the centuries, they built on the fusion of Norman and Saxon cultures something unique, shaped by a unique legal system – the common law – and later by a Protestant sense of ministry – capitalism in the economy and constitutionalism in politics and governance.

Shakespeare famously put it thus: “This royal throne of kings, this sceptered isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea, Which serves it in the office of a wall Or as a moat defensive to a house, Against the envy of less happier lands,–This blessed plot, this earth, this realm, this England.”

The motivation for Brexit expressed by its proponents is a kind of ethnic exceptionalism – the economic advantages of union were not enough to offset resentment at subordination to a micro-managing, regulatory authority in Brussels. Napoleonic civil law procedures and bureaucratic norms did not wear well with common law values and traditions.

The Caux Round Table for Moral Capitalism’s Principles for Business and Principles for Government give value to internationalism and participation in global markets in order to provide value for customers, employees, investors and citizens. We would, therefore, advise the government of Boris Johnson to implement such principles from its new position of full sovereign autonomy.

Stepping back and looking at the big picture, Brexit should cause us to think about large dynamics in human civilization – what are the inter-dependencies among the economy, culture, politics and social structure? The complexities of these inter-relationships have attracted great minds – Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, Emile Durkheim, Max Weber, Antonio Gramsci, Keynes, Hayek and countless contemporary historians, sociologists, anthropologists, economists and political scientists.

What we can say with certainty is that each sector influences the others. A declining economy has political, social and cultural effects. A dysfunctional culture will lead to corrupt politics and lower economic growth. Social conflict will detract from just government and economic well-being. Totalitarian government will adversely impact culture and constrain economic innovation and efficiency.

The United Kingdom going forward will need to carefully balance its exceptional culture and political traditions with sound economic policy as part of a global civilization.

In response to my recent email on who should stop whom from deciding as a consumer what to buy and use, Don Samuels sent me a very thoughtful reply saying:

“I remember in the late 70s, sitting in smoke-filled rooms for company meetings, where our CEO chomped on a huge, smoldering cigar and leaders at various levels puffed on a dozen cigarettes, in the middle of winter, with all windows shut tight. I remember gasping for air and struggling to speak without a hitch. The health considerations of second-hand smoke were still up for debate between the scientific research and the tobacco industry, but non-smokers like me were becoming convinced that we were paying a price for our smoking-co-workers’ freedom.”

His point about concern for others as a restriction on our liberties is a very sound one.

The old adage is: my right to swing my fist ends where your nose begins.

In the 1883 English case of Heaven v. Pender, Master of the Rolls Brett ruled that: “Whenever one person is by circumstances placed in such a position with regard to another… whereby he may cause danger of injury… a duty arises to use ordinary care and skill to avoid such danger.”

I was reminded of this source of personal duty to be careful of others by the recent outbreak of coronavirus in China. It seems most likely that the virus began to infect humans in a wet market for wild animals in China. Thus, personal decisions to buy and sell in a free market imposed dangers on others and have lead to many restrictions on personal freedoms in the Wuhan region.

The police powers of the state have long been accepted as reaching far enough to restrain our personal choices in order to decrease risks of harm to the health of others.