Do we need new morals in economy and politics?

What happened during recent months leading to panic, hysteria and fear in the financial economy in the last few weeks makes more and more people say: „managers are greedy, corrupt and totally abstract, without manners, morals and ethics. So do we need new morals in economy and politics? The answer is easy: no, we do not. All we need is for people to adhere to the existing morals and ethics. However, we also need more competence in ethics and morals.

Because it does not look good. As early as 2004, an Emnid poll for the world Economic Forum showed that 70 per cent of the Germans considered directors of companies dishonest and their behaviour unethical. Eighty per cent of the Germans think that directors of companies are too powerful.

Let me compare our statistics internationally: 22 per cent of the French think their economical leaders are dishonest. The number among the British population is 42 per cent, in the USA 37 per cent, and in Japan 47 per cent. As you see, we are far ahead.

According to a research project by Ulich/Lunau/Weber of 1998, enterprises are growing more sensitive towards the sense and necessity of ethical behaviour, but an actual realization of individual activities to make sure that ethics is guaranteed is still not happening on a broad scale. I am talking moral balancing, ethics commissions or moral representatives, a list of potential punishments in case of offence or a complete ethics training program.

The careless treatment of ethics will probably continue until enterprises realize that 70 per cent of all potential customers all over Europe take the social activities of an enterprise as one of the decisive criteria for buying or not.

Mere technical qualification is not good enough.

A helpful step is made as early as you select your employees. Who is going to be a success in an enterprise? Managers are mostly selected according to their technical qualifications. This needs to be modified. Besides technical qualification, the social and ethical qualification should be considered. Social qualification means that someone can generate a climate of trust. Ethical qualification means that you can implement a value system that does not only look good on paper but is actually realized on a daily basis. For me, ethical qualification also includes the competence to make decisions. However, sometimes when I see how many meetings are needed and how much time is invested in order to come up with decisions that later turn out to have been the wrong decisions, then I become worried. Mind you, it is basically not really difficult to reach good decisions. Greek and Roman dialectics have developed all the right methods, all you have to do is learn them and apply them.

In theory this could have been the end of my article, but it is nowhere near as easy as it sounds. We are all offspring of this society, even economic leaders and politicians. Unfortunately, they are not always the best we could have wished for.

A few weeks ago, CDU and SPD fought hard.

CDU general secretary Ronald Pofalla said that the SPD had “already stopped being a party of the people”. SPD party representative Peter Struck replied by criticising that Huber behaved “totally coalition unfriendly” when trying to “get a few more points in the election campaign for his disrupted CSU” by demanding special tax legislation for commuters.

George Hamilton, an English member of parliament two hundred years ago who wrote the book ‘Logics During Discussions’ would have said: “if your agenda are weak, put the blame on your party. If your party’s agenda are weak, take the blame yourself. If both are weak, put the blame on your political adversary.”

So what about competence, ethics and morals? Cicero said morals are a list of norms in a society making sure that the system is socially acceptable. Since the French have other morals than the Germans, Indians, Swiss, or Chinese, morals is not good enough on an international and global level. Being a science separate from society, ethics can help.

Well, there is no ethics as such. During the millennia, there have been many ethics. Basically, there are three types of ethics: an ethics of attitude, an ethics of results and an ethics of behaviour.

• The ethics of attitude is content to stick by meaning well. It does not ask for competence.

• The ethics of results is content if the results are ethical. The ends justify the means.

• The only ethics that demands the responsibility of the individual is the ethics of active behaviour. It requires that I accept responsibility for what I do. I have to face the foreseeable consequences of my activities.

To me, the ethics of responsibility seem to be the only ethics that make sense in economy and politics where ethical competence is necessary. Because if I want to act, I need competence. Otherwise, mere behaviour is enough.

Acting is based on five principles:

1. The principle of contingency – I could as well do something else

2. The principle of finality – my activity is goal-oriented

3. The principle of efficiency – something should change

4. The principle of rationality – I must be able to give a reason why I did it

5. The principle of responsibility – I accept responsibility for the foreseeable consequences.

Active behaviour and responsibility

Commonly, responsibility is meant as responsibility towards one’s conscience.

Conscience

Conscience is the ethical evaluation of an action immediately before it happens. To me, it seems that there was a deficit in this among several leading persons in the financial sector. Admittedly, this is not only true for leaders in economy, but also in politics.

First and foremost, we should distinguish between activity and mere behaviour. If you just behave, you are not willing to take responsibility. But it is the question of taking responsibility that makes all the difference on the ethical level.

Here is an example: I remember well the time when the SPD under Gerhard Schröder lost the elections in Hessen and Lower Saxony. Our then-chancellor stood before the microphones and said publicly: “I take full responsibility”. Unfortunately, at the time nobody thought to ask: “How exactly can we see your taking responsibility now?”

Thinking in ethical categories, it seems to me that politics and some economic leaders adhere to ethics of attitude. Relatively often, I can see ethical intentions in politics, but they are not accompanied by the necessary competence. And nothing is worse than a coupling of best intentions and incompetence. Only nonsense can come of this. It is still true that the way to hell is paved with good intentions.

Is managerial income immoral?

The current discussion about managerial income, closing the lid and restriction of tax reduction options is the best example for ethical incompetence.

Manager, so it seems, are greedy and egoistical bastards, with a habit to take whatever they want when it comes to income. The financial crisis made for an even more guilty verdict. Even federal president Horst Köhler warned against threatening the national social piece by undue income demands. And the American investment giant Warren Buffet came up with the term “epidemics of greed” two years ago.

All this suggests that the managerial income demands are undue and ethically corrupt. Does that mean that our managers have lost their grip on reality with their ideas of proper income? Ethics means that we have to look for what is just. According to Ulpian, justice is still the wish to let every person get what is his due. So let us look at managerial income under the aspect of justice.

The public discussion shows one thing above all: we do not have ample standards for deciding whether someone’s income is just or not. The problem will definitely not be solved by asking if certain parts of the population concur with what managers earn or not.

Is the income unjust or immoral?

Top managers get considerably more than administrative or manual workers. The chasm between workers and managers gets broader and broader. But is this really true?

If you consider the average of all enterprises, a leading personality earned about three times as much as an administrative or manual worker in 1975; in the year 2005, the quota was 2.85. That means that, compared with manual and administrative workers, the level has gone down, not up.

A comparison between directors and leading administrators, too, shows that the difference is not as much as is often assumed. The average director earned about 2.5 times the money a leading administrator got in 1986. Today it is about 3.7 times as much. This was found out in a survey of Kienbaum. Karl-Friedrich Raible, who is responsible for this department at Kienbaum, found out that the relative increase in incomes of manual and administrative workers between 1991 and 2005 was higher than that of directors of joint-stock companies.

Is criticism fair?

So where is the legitimacy of criticism? Maybe it is because the incomes of directors working in enterprises with more than five billion turnover have seen a rather different development. Their incomes increased by almost 800 per cent between 1976 and today. So if we can talk about an ever broadening chasm, this is only true for an extremely small group of top managers. We are talking the hundred biggest enterprises in Germany. Assuming that each of these enterprises has an average of five to ten directors, then the public discussion is about approximately 650 top managers, not even all of which are concerned. The managing director of Metro, for example, has a yearly income of a little more than 570,000 Euros per year.

However, we pretend that all top managers have experienced such exorbitant income developments. It is possible that the question of incomes is an issue of public criticism where the dog bites its own tail.

The state goes along with it

It is also a little strange that especially those enterprises where our state is involved pay particularly high director’s incomes. According to a survey by the Berlin Humboldt University, the Deutsche Post is on top of the list. During the last 11 years, the income of Deutsche Post directors have risen from being 11 times that of an average postal worker to being 87 times that of an average postal worker.

The Deutsch Telecom, also an enterprise with state involvement, lies way over the average of the other DAX enterprises. This meant that politicians criticize a development that, as parliamentarians, they have influenced themselves. If you wanted to be cynical, you might say that the only reason politicians did this is in order to have an easy time criticising top managers.

Justice and income – are they in harmony?

Even in ancient times, the question of justice was intensely debated. For instance, Aristotle postulated a virtuous ethics in his “nicomachical ethics”, saying that the “right thing” has been done if a common good has been achieved for society. For him, justice was the most noble of virtues. He named it Eudaimonia.

In his eyes, a citizen could only reach Eudainonia if he enhanced the well-being of other citizens. It is interesting that Aristotle thought the citizen himself, rather than the state, was responsible for the general well-being. Therefore, Aristitle would probably not have asked how much managers earn, but instead what they do in order to optimize the well-being of other citizens. Today, enterprises call this corporate social responsibility. What we are saying is that Aristotle would not have dealt with managerial incomes under ethical aspects, but rather with their cause.

Social justice

Again and again, public discussions about ethical and moral questions address the issue of social justice. I wonder if social justice is the right term. It might be quite helpful to look at the history of social justice.

The problem with social justice is that there is no official definition, let alone a consensus. Maybe the dilemma originated in article number 20 of the German constitution. It says: “The Federal Republic of Germany is a democratic and social federal state”. Unfortunately, it does not go on to say what exactly the definition of a social state is. The only clue we can find in the constitution is the remark that we cannot demand anything from the state when it comes to fair distribution. To be sure, everybody wants social justice, but it cannot be brought about by public announcement. Neither is the idea of re-distribution any real help.

As soon as anybody talks social justice, we hear about duty, fair balance, political correctness or a sense of mission or social solidarity. Or else, someone says a great injustice has been committed and it badly needs to be corrected.

We should finally stop the charlatans who claim to promote universal justice by accusing the successful person that he can only have become a success by unethical means. As I see it, this foul-mouthing is what is really unethical and amoral.

Psychologists say the source of this is envy. However, they say at the same time that envy is not one of the original “talents” of man. People who envy others must have been badly wounded emotionally by people they loved early in their lives. Karl Marx said: “Common and powerfully manifested envy is the hidden form of greed”. An envious person needs relationships because of money which he does not want others to have. Intrigue, mobbing and ill rumours are all caused by envy. Unless we get rid of envy, there is hardly a chance that mobbing and intrigues will be removed from our enterprises. All we can do is fight them.

I think in the current situation it would be quite useful to tell some politicians, union activists and economical leaders a thing or two about social justice as soon as they start babbling about it.

Social justice is not a term that fits

What am I actually saying? I am saying that whoever talks social justice when managerial income is mentioned has chosen a totally unsuitable term. As early as 1875, even Karl Marx said: “Let everybody work according to their ability and their needs”. The SPIEGEL, too, published an article saying that “the social state as manifested in Germany has become a monster threatening to be suffocated by its own dimension”. SPIEGEL even went so far as to assure its readers that the social state is “deeply unfair, because the distribution of money is often at random and frequently the recipients are not those who need it most”.

Thus, the public discussion shows that we really do not know all about what is social, neither about what is just. In our country, we are probably a lot more social and just than some politicians suggest. Far be it from me to turn a blind eye on the fact that many people in our country are not very well off. Some get between three and four Euros per hour for their work. Nobody can live on that. But nobody has to, either; there is solidarity of the community supporting him.

Today, a recipient of social welfare enjoys a significantly higher standard of living than a well-to-do trained worker did in the fifties. This is only possible because the rich people contribute significantly: the top five per cent of earners in Germany (that is those with more than 85,000 Euros income) pay more than 40 per cent of income tax. The total lower half of earners pays 8.3 per cent of the entire tax received by the state.

The “rich man’s tax”, for instance, suggests that top earners do not pay enough tax. In reality, the “broad shoulders” pay a lot more tax than all other tax-payers. All citizens earning more than 67,000 Euros per year – that is only ten per cent of the taxpayers – contribute with 53! Per cent of the entire income tax volume.

Currently, there are around 35,000 people earning more than 500,000 Euros in the Federal Republic of Germany. That is only 0.13 per cent of all taxpayers. However, they already pay 13 per cent of the total income tax.

In June 2008, the magazine CAPITAL asked some top managers and politicians about their income tax. With the exception of Peter Müller, Saarland’s prime minister, all politicians, including the chancellor, either refused to reply or sent the questionnaire back unanswered. Peter Müller paid 35,700 Euro tax.

Among the top managers, this was not so. Götz Werner paid 7 millions, Herberg Hainer of Adidas paid 2.5 millions, Martin Winterkorn of VW paid 2 millions, the boss of Conti paid 1.2 millions. Herr Wiedeking paid tax in the two-digit million regions, so does Jürgen Großmann of RWE who is also a member in the BWA and pays considerably more than 10 million Euros.

According to the federal statistical bureau, people with an income of 548,000 Euros and more pay 8.2 per cent of all the income tax going to the state while only constituting 0.1 per cent of the tax payers. And if you take all people earning more than 170,100 Euros, then you have exactly one per cent of all tax payers who pay 20.4 per cent of all taxes. That means: accusing these people of contributing inadequately is not correct, it is more like a lie.

So what do we need? We need more honesty when dealing with each other.

On honesty

But let me proceed according to the criteria of honesty. According the Aristotle, the honest person is characterized by the fact that he can say what he is talking about. That means that the honest person talks about the issue itself, not just the emotions accompanying it.

The tax refund of managerial incomes

Now, the discussion about volume and fairness of managerial incomes in German has also reached the EU. “It can no longer be tolerated that certain bosses of enterprises profit from too high income and, above all, golden handshakes”, said Jean-Claude Juncker, the director of Eurogruppe and prime minister of Luxembourg after a session of Euro-zone finance ministers.

The SPD installed a task force on this. I took a closer look at the SPD working paper under the ethical aspect. It says: “During the last few years, the development of managerial incomes, in particular of directors in huge enterprises, has separated itself dramatically from the general income development: the income of the bosses of DAX enterprises increased from being 14 times that of the average worker (here I ask myself when that was supposed to have been?) to being 44 times that of average workers. This development continues.“

With the exception of directors and managers, incomes in DAX enterprises range between 26,000 euros and 80,000 Euros. If the SPD paper is correct and we take an average income for the worker of 40,000 Euros, then the average DAX director would have to earn around 2 million Euros. Some DAX directors earn 13.6 million and sometimes more, but as an average this is simply wrong. Do not misunderstand me: what I am saying is that the average income of directors is more than 44 times that of the worker. Let me remind you of Franz Müntefering who stated that many German managers earn “a thousand times that” of their employees. 44 times as much is just as wrong as a thousand times.

Top DAX director Josef Ackermann earned 13.2 million Euros in 2007, but even his simplest workers get a lot more than the thousandth part of this, namely 13,200 Euros. Directors who are not quite as well paid as Ackermann are far away from earning a thousand times that of their employees. According to the latest survey, the average DAX boss earns about 3.42 million Euros, which is about a hundred times that of a normal employee, not a thousand times. Müntefering had a problem with the position of the comma, which means that part of the hysteria is due to a mathematical mistake.

Even where the income is a hundred times that of the employee, this is more the exception than the rule. In middle-class and smaller joint venture companies, the factor is usually between 10 and 20.

The working paper is overflowing with statements that are not proved. You should know one thing: statements are ethically justified only by being proved. Where there is no proof, we are often dealing with pure polemics, which violates the principle of honesty. We read about a “breathtaking increase of managerial income”, of “the interest of the company’s stakeholders being systematically disregarded”. Allegedly, the managerial income is “inflated and motivationally distorted”.

Among other things, the task force advises “the restriction of tax refund potential for managerial income and compensation as company expenses to around 1 million Euros plus 50 per cent of what goes beyond that sum”.

What is missing is an understandable economical, judicial or ethical justification. Why one million and not more or less, why 50 per cent and not more or less? This is the prevailing style all through the paper.

It would be helpful to have a little more understanding and competence and a little less emotions when the fairness of managerial income is evaluated. The financial crisis made the discussion even more dramatic. At the moment, nobody dares to question the lid on managerial income. Herr Juncker and his political friends have the general opinion on their side, but not a single ethical competence documenting which ethical values have to prevail when the lid is put on the incomes. Unfortunately, more than a few people these days act according to the motto: “Why bother with knowledge, if I already have made up my mind”.

UDP (translated by EG)

5 Kommentare zu “„Is the Income of Managers Unethical? – On Ethics in German Economy“”

  1. Chris Wood (Sunday November 9th, 2008)

    “Manager werden überwiegend nach fachlicher Qualifikation ausgesucht. Ich fordere hier ein Umdenken. Neben der fachlichen Qualifikation ist unbedingt die soziale und ethische Qualifikation”.

    This made me gulp. I believe I am good technically, but have social deficiencies, particularly a lack of tact. I have always tended to think that managers were chosen more for social abilities than anything else. I was often frustrated to see managers make technically false decisions. Particularly at Siemens, I saw technicians well paid to sort out the mess resulting from bad technical decisions by managers, who rarely consulted the technicians before deciding. I think most technicians would agree with me about this. Of course somebody whose competence is rather social will tend to see things differently.
    As regards ethics, I see deficits almost everywhere, (including myself). It lies in the nature of things that all living beings compete to propagate their genes. Animals are “red in tooth and claw”. Viruses and bacteria are just as bad. Plants try hard to deprive each other of light. We can see that the world could be much pleasanter for mankind if we were all really nice to each other, but most of us are only nice to those close to us. We hope then that they will reciprocate. Perhaps without competition between people and countries, there would be no progress. But I fear that competition for resources and industrial growth will lead to a dismal future for most of mankind, when the oil runs out.

  2. ist anonym erlaubt? (Thursday December 4th, 2008)

    Nach meinem Dafürhalten werden “die Manager” an den Stammtischen aber (auch) aus anderen Gründen negativ wahrgenommen. Betrachten wir ein aktuelles Beispiel für das, was ich meine.

    Was wird Herr Middelhoff an Abfindung bekommen, wenn er vorzeitig den Vorstandsvorsitz bei Arcandor räumt? Wird das im Verhältnis zu seinen Versprechungen bei Amtsantritt stehen? Damals sagte er unter anderem, das Unternehmen, das zu diesem Zeitpunkt noch Karstadt hieß, würde bald wieder in der Champions League spielen.

    Unterstellen wir rein theoretisch H. Middelhoff einmal fachliche Fehler, die seine Ablösung nach sich ziehen.
    Stellen wir einen durchschnittlichen Angestellten daneben, der durch Minderleistung auffällt und deswegen gekündigt wird. Erhält er eine (durchaus im Verhältnis zu seinem Gehalt stehende) Abfindung?

    Diese starken Vereinfachungen gilt es auszudifferenzieren, was der Beitrag meiner Ansicht nach gut leistet. Grundsätzlich stimme ich den Kernaussagen und -forderungen daher zu. Persönlich finde ich ihn wohltuend fundiert, auch wenn ich die genannten Zahlenbeispiele mit Vorsicht genießen würde. Traue keiner Statistik, die Du nicht selbst gefälscht hast 😉

    Eine Frage muß aber erlaubt sein: ein heutiger Solzialhilfeempfänger habe einen deutlich höheren Lebensstandard, als eine gutverdienender Facharbeiter der 1950er Jahre. Worauf basiert diese Aussage?
    Den Facharbeiter habe ich in einem VW-Käfer vor Augen. Den Sozialhilfeempfänger bringe mit dem New Beetle nur schwer zusammen. Und ob ein LCD-Fernseher dem Sozialhilfeempfänger tatsächlich mehr Lebensqualiät bietet? 😉

  3. 2,000+ Free iPhone Wallpapers! (Sunday March 14th, 2010)

    Another Title…

    I saw this really good post today….

  4. Phpdug (Monday March 29th, 2010)

    Grear…

    I saw this really good post today….

  5. Martin Bartonitz (Saturday December 21st, 2013)

    Irgendwo las ich, dass Völker um so weniger glücklich sind, je größer der soziale Unterschied (=Einkommensdifferenz) ist.

    Warum verdienen z.B. Banker so viel, obwohl sie nur Geld vermehren, das im Grund nicht wert ist, weil nicht gedeckt, und nur so lange etwas wert scheint, wie die Menschen es noch glauben. U.a. weil B52 Bomber dafür sorgen (las ich heute an anderer Stelle einen Insider sprechen)?

    Dagegen bekommen Menschen, die anderen Menschen beim Leben helfen einen Hungerlohn. Da ist die Frage nach einer gerechten Entlohnung schon eine spannede.

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