George Pitcher: Why ethical investment is rarely good for business

Capitalism is undoubtedly exploitative. While protesters take the moral high ground, it’s up to marketers to highlight the positive aspects of business

Ethical investment has always presented a problem. Some might go so far as to suggest that it’s an oxymoron. I have some sympathy with that view. A study of ethics is the science of morals and, where business is operated within a capitalist system, it is at best amoral and, in many of its manifestations, downright immoral.

Business is not principally concerned with morality. It is principally concerned with profit, from which it seeks to reward shareholders. It’s true that modern society has chosen to broaden that benefit to a wider constituency of “stakeholders” and that good capitalists are encouraged by moral leaders to contribute to the common good with their wealth. However, it remains axiomatic that creating wealth requires some degree of exploitation.

One doesn’t have to be a Marxist to accept this as truth. But, it is as well to accept the exploitative nature of capitalism. The difference between the cost of producing an item and the price at which it actually sells exploits consumers’ willingness to pay. Similarly, the difference between what a workforce is paid and its real value to business exploits labour. Over time, we have adopted the least bad method of operating an economy. To paraphrase Churchill on democracy: capitalism is the worst way to run an economy, except for all the other ways.

That’s why the concept of ethical investment presents such a problem. To pursue ethics is to abandon, to some degree, making money. You don’t have to be like a 19th-century mill-owner to build a business today, but you can’t behave like a 20th-century hippy either.

The trouble with ethical investment is a question of degree. You may know where to start – eschewing industries such as arms and tobacco (though neither make the money they once did, so the decision to avoid them could be as commercial as it is ethical) – but where do you stop? Cutting out companies that pollute the environment would significantly narrow the investment market and, hypothetically, by the time you reach a truly ethical requirement to invest only in companies that don’t exploit workers, by any accurate definition of capitalism the investment cupboard is now bare.

And so we chug along in a spirit of dynamic compromise, knowing that business is ethically imperfect, but, we hope, constantly testing our moral boundaries to ensure that we haven’t trespassed into what we consider to be unrespectable. Those boundaries differ between people and the companies they manage. As a rule, those less concerned with a moral framework for their working lives make more money than those who serve moral imperatives.

Generally, we accept this compromise as the price we pay for capitalism’s comforts: designer clothes made by children in Third World sweatshops, heat and light from generators that destroy the earth’s atmosphere, intensive farming that feeds us what we want, when we want it, and experiments on live mammals for the development of pharmaceuticals to treat human diseases.

Occasionally, our commercially compromised ethical boundaries are challenged by those who believe they know better. Sometimes these people are regulators, sometimes they are terrorists. Protocol has it that we obey the former and resist the latter. This is the position in which Huntingdon Life Sciences (HLS) has found itself and in which, we are told by the extremists, newly merged drugs manufacturer GlaxoSmithKline is about to find itself.

This is no place for further examination of the ethics of vivisection. But, on the basis of the business definitions I have just rehearsed, I have three pragmatic points to make. The first is that animal rights protesters are wrong to believe that forcing shareholders and bankers to disinvest in companies such as HLS is a triumph. The sale of shares is not a mathematical formula that ends in zero.

To push such shareholdings offshore or to the United States – where the Royal Bank of Scotland’s loan facilities to HLS have just been rescheduled – is to significantly diminish British influence in vivisection. Ethical boundaries are considerably less well guarded abroad and much tougher to reach and influence.

Secondly, there is the sheer value of an investment to consider. HLS turned out to be a duff investment and was close to bankruptcy, until its loan facility was renewed and its shares rallied somewhat last week. Investors were entitled to bale out as HLS collapsed, whatever the cause of its trouble.

Investors aren’t there to make a stand – least of all a stand on behalf of their clients. They’re there to make money. It’s for the lily-livered Government to provide a company with adequate protection, so that it can go about its lawful business.

Thirdly and finally, we are to understand that companies such as GlaxoSmithKline produce treatments that dramatically improve the quality of, and prolong or even save, lives. It’s difficult to conceive, on any rational definition of marketing, of a better exemplar of efficiently satisfying a market requirement.

It follows that the intellectual case for humane vivisection is to be won by marketers, not hand-wringing moralists. And the longer marketers remain silent, the more the market will tend to believe that the animal rights lobby has a point.

George Pitcher is a partner of issue management consultancy Luther Pendragon


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