Business as Morality in Practice

As I was preparing what I would say today, I read again a book by someone I admire very much, the former president of the Czech Republic, Vaclav Havel. The book is a collection of speeches that he made as president and it is entitled, The Art of the Impossible: Politics as Morality in Practice . Please permit me to begin by reading from a speech he gave in 1990 about the situation in his country.

After reviewing the terrible economic and social conditions left by the communists, he said this:

"But all of this is still not the main problem. The worst thing is that we live in a contaminated moral environment. We fell morally ill because we got used to saying something different from what we thought. We learned not to believe in anything, to ignore each other, to care only for ourselves. Concepts such as love, friendship, compassion, humility, and forgiveness lost their depth and dimensions….

"The previous regime…reduced man to a force of production and nature to a tool of production…. It reduced gifted and talented people to nuts and bolts of some monstrously huge, noisy and stinking machine, whose real meaning is not clear to anyone.

"When I talk about contaminated moral atmosphere, I am not just talking about the [communist officials]. I am talking about all of us. We had all become used to the totalitarian system and accepted it as an unalterable fact of life, and thus we helped to perpetuate it…. None of us are just its victims: we are all also its co-creators."¹

I do not mean by reading this to imply a moral equivalency between communism and free enterprise. But there is a similar moral atmosphere in this country that had resulted in "the monstrously huge, noisy and stinking machine[s]" known as Enron, Global Crossing and WorldCom. Today, we could talk about a different art of the impossible, that is, business as morality in practice.

I would like to suggest that contrary to the impression given by recent scandals in the business world, not only is it possible to conduct business from a moral standpoint, but it is possible to do so in a way that is successful. Furthermore, I think that Catholics have an important contribution to make in this area and there are lessons that may be learned from the experience of the Knights of Columbus.

But a word of caution at the beginning: I am not suggesting by this that moral perfection in business or anywhere else is possible. People are tempted and at times succumb to temptation.

But even when temptation is not an issue, people make mistakes as a result of failures in training, in diligence, in prudence and in foresight. And there are matters in which reasonable persons can and do disagree with the best of intentions but which may in retrospect look morally questionable.

Nonetheless there is a definite place for ethical decision-making in business practice and that place, in a word, is everywhere—ethical decision-making should permeate every aspect of the life of a company and its employees. Ethics should provide the context for product development, marketing, investments and employee relationships. And a moral purpose can account for the existence of the company itself as well as its goals.

One of the most important contributions to this discussion in the last decade was the book by James Collins and Jerry Porras entitled, Built to Last: Successful Habits of Visionary Companies.² The book was based upon the authors' study of some of the largest, most successful companies in American history in an attempt to understand how companies that the authors describe as "the best of the best" could succeed decade after decade while their nearest competitor could not.

One of their most important findings is to reject the idea that "the most successful companies exist first and foremost to maximize profits." The authors found that maximizing shareholder wealth or profits "has not been the dominant driving force or primary objective through the history of the visionary companies. Visionary companies pursue a cluster of objectives, of which making money is only one—and not necessarily the primary one. [T]hey seek profits, but they're equally guided by … —core values and sense of purpose beyond just making money. Yet, paradoxically, the authors "found that the visionary companies make more money than the more purely profit-driven comparison companies."³

It is not my purpose to defend their thesis. To me their analysis makes sense—not only on the basis of their findings, but also on the basis of my experience with the Knights of Columbus. I would only add that when one reflects upon the various examples of what the authors describe as a company's "core ideology" one usually finds an ethical context for that company's vision of itself.

There is an interesting parallel with an observation by Pope John Paul II in his encyclical letter, On the Hundredth Anniversary of Rerum Novarum⁴. After acknowledging the legitimate role of profit, the pope said this, "The purpose of a business firm is not simply to make a profit….
Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business."⁵

Most people know the Knights of Columbus as a volunteer Catholic men's organization involved in charitable projects in their local communities. But the organization is also a fraternal benefit society that sells life insurance products to its members and through them to their families.

Last year, our nearly 1.7 million members provided more than $130 million to charity and more than 61 million hours of volunteer service. We also sold more than $5.2 billion of insurance to our members. Today, the Knights of Columbus has more than $52 billion of insurance in force and more than $11 billion of assets under management.

Our 23 story office building on Church Street houses approximately 650 employees and nearly 1,400 agents work throughout the United States and Canada.

During the past decade, the Knights of Columbus is one of only six insurance corporations out of approximately 1,700 in North America that have received the highest ratings from Standard and Poor's and A.M. Best as well as the Insurance Marketplace Standards Association.

In its credit rating of the Knights of Columbus issued just two months ago, Standard and Poor's stated that its "AAA" rating was based upon the following strengths: extremely strong capital, very strong competitive position, extremely strong liquidity and historically strong profitability.

Not bad for an organization founded in the basement of St. Mary's Church on Hillhouse Avenue in 1882 by a 27-year-old priest and 10 men from his parish.

And I would suggest to you that a principal reason that we were able to achieve that "extremely strong" capital position, that "very strong" competitive position and that "historically strong" profitability, is precisely because we placed a value ahead of all of these objectives. The reason we achieved what Standard and Poor's described as "a distinct competitive advantage" and "a loyal customer base" and "a unique rapport with clients" is because we have been steadfastly committed to our motto, "Protecting Families for Generations" by means of "life insurance by brother Knights for brother Knights."

That commitment is an essential core value of the Knights of Columbus as a business enterprise. It is such values and not solely the search for profits that has made possible our extraordinary level of success.

For example, our core values permeate all levels of our marketing program. Our "Marketing Code of Ethics" is modeled after the Ten Commandments and includes statements such as "Thou shall present honestly and accurately, all facts necessary to enable a member to make an informed decision."

And all our ethical principles for marketing are summed up by our Golden Rule: "In all my professional relationships, I pledge myself to the following rule of conduct: I shall, in light of all conditions surrounding those I serve, render that service which, under the same circumstances, I would apply to myself."

The Insurance Marketplace Standards Association has cited the Knights of Columbus as one of the leaders in the insurance industry for ethical sales and has identified numerous areas where we provide a model for best industry practices.

We follow-up on the marketplace conduct of our agents by randomly selecting clients monthly to survey their views on their recent purchase of insurance from us. We consider how they were treated by their agent, whether they understood what they purchased and their level of satisfaction.

Finally, we have initiated a mandatory third party mediation process where complaints are handled without recourse to lengthy legal proceedings. Policyholders who have a complaint are represented by counsel in the mediation process without cost to themselves. We think a Catholic company ought to be able to develop a system of dispute resolution without depending upon trial attorneys and lengthy court proceedings.

We also provide ethical criteria for the investments we make in order to reflect the moral teachings of the Catholic Church. Particular attention is paid to the product lines of companies whose debt and equity securities we consider. In this regard, we use six criteria to screen our investments: abortion, contraception, pornography, for-profit healthcare, embryonic stem cell research and human cloning.

As a result there are nearly 60 companies trading on the New York Stock Exchange and the NASDAQ in which we will not invest. Our screening efforts are a continuing challenge because companies develop new products that may be objectionable or may merge with or acquire new companies with objectionable products.

When this happens with companies in which we currently have investments we sell them with all deliberate speed. For example, in 2001 we had substantial holdings in two large, well-known corporations that made decisions to enter the "adult entertainment" market in cable television. When it became clear that senior management in those companies had no intention of altering those policies, we disposed of all our stock holdings even though it resulted in a loss of approximately $775,000. Earlier, we disposed of all our holdings in the Disney Corporation because of its subsidiary's release of the film, The Priest.

Even though we have consistently applied these ethical criteria to our investments and therefore have refused to invest in companies that many analysts insist are superior investments, we have continued to achieve strong earnings year after year.

In addition to the ethical principles involved in marketing and investment, ethics play a large role in the development of our insurance products as well. Ethical principles can substantially affect product design, especially in regard to lapse rates and pricing.

In other words, we measure the suitability of our products to the needs of our members, rather than primarily to profitability. We design insurance products that we intend and we anticipate will be used by the policyholder.

Others might argue that the surest road to profitability are products that are designed to attract customers in the early profitable years and then as the actuarial tables suggest the customers become greater risks to encourage them through significantly higher premiums or shorter term products to lapse their policies.

To the contrary, we work hard to reach the opposite outcome. We have one of the lowest lapse rates in the industry—under four percent. We continue to work to get that rate even lower in the hope that when a policyholder's family needs insurance protection it will still be there for them.

When we see our $52 billion of insurance in force, we see the resources to provide for the financial security of hundreds of thousands of Catholic families—to provide health care, mortgages and college tuition payments.

We have some policyholders still with us whose insurance policies were purchased in 1924. They have taken the long-term view in their relationship with us and we reciprocate it. Whether the issue involves marketing, investment or product development we will not trade either our policy-holder's or the company's long-term best interest for short-term gain.

Finally, permit me to make several observations regarding employer-employee relationships. In his encyclical on human work entitled, Laborem Exercens, Pope John Paul II wrote, "the basis for determining the value of human work is not primarily the kind of work being done, but the fact that the one who is doing it is a person. The sources of the dignity of work are to be sought primarily in the subjective dimension, not in the objective one." The pope also said that this understanding "constitutes the fundamental and perennial heart of the Christian teaching on human work."⁶

Obviously, this way of understanding work is essentially ethical in character since it derives first and foremost from a commitment to the dignity of the human person. It requires that all employer-employee relationships rest upon the recognition of the dignity of all those whose efforts combine to form the cooperative initiative that make a company's effort a success.

And while the Knights of Columbus has had unions representing many of its employees since the 1960s, it is my view that the social teaching of the Church suggests that management should approach its dealings with labor from a non-adversarial position whenever possible. Moreover, the employer cannot ethically relinquish his responsibility to promote the best interest of his own employees.

One recent example of such cooperation—and one of which I am especially proud—is that in our latest union contract negotiation we reached agreement with our union representatives three months before contract expiration and extended the existing contract for three years with only one minor language change.

We also have implemented significant employee education incentives which reimburse employees from $100 to $2,000 for achieving advanced education in a variety of areas. We have implemented advanced training programs and we encourage employees to apply for management positions when such positions open. Nearly one-third of our management employees were promoted from non-management positions.

In short, we have attempted to recognize the valuable contribution our employees at all levels of the company make through our "Employee of the Month" and "Employee of the Year" programs. And we have sought to provide all our employees with opportunity for advancement within the company.

Finally, we remain committed to the health and welfare of our employees and we are one of a very small number of companies that continue a commitment to provide comprehensive health care coverage for all employees and their families on a non-contributory basis. In addition, we maintain a medical office on site staffed by an Occupational Health Nurse who provides a wide variety of programs.

Gifted and talented people should not be reduced to "nuts and bolts." The moment a company loses sight of the reality that its people—its employees—are its most important resource, that is the moment a company begins to lose both its moral foundation and its capacity for long-term success.

Earlier, I mentioned John Paul II's encyclical, On the Anniversary of Rerum Novarum. In it he raises the issue of the moral conditions for what he calls "an authentic 'human ecology'."⁷ Indeed, one might say that the entire encyclical develops the criteria for just such an "authentic human ecology" in the economic life of a free society.

All of us have an obligation to help build this moral "ecology" through the choices we make. Our choices are the best way we can join in this effort "to safeguard the moral conditions for an authentic 'human ecology'." Moral choosing is the only way ultimately that we can recognize the inherent dignity of each person and to build an economy that recognizes it as well.

Vaclav Havel was right when he reminded us that in matters of both natural and ethical ecology "none of us are just its victims: we are all also its co-creators."

^{1 Vaclav Havel, The Art of the Impossible: Politics as Morality in Practice (New York: Fromm International, 1998), p. 4.
2 James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: Harper Collins, 1994).
3 Ibid., p. 8.
3 James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: Harper Collins, 1994).
3 Ibid., p. 8.
3 John Paul II, Encyclical Centesimus Annus (1991).
4 John Paul II, Encyclical Centesimus Annus (1991).
5 Ibid., no. 35.
6 John Paul II, Encyclical Laborem Exercens (1981), no.6.
7 Centesimus Annus, no. 38.}