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For Love or Money: Business as a Formative Community

We often fail to see that business is a morally formative mode of solidarity even as it also serves as a means to prosperity. Aristotle might describe it as a “friendship of utility.” Respecting the communal form of the business firm, which is essential to its productivity, demands a deeper vision of the proper goals and just governance of businesses.

Business should serve the common good, but how? The thorniest puzzle is about money. We usually see business as a vehicle for pursuing prosperity (whether for owners, workers, or society as a whole). This seems so obvious that it is almost not worth saying. Ignoring money in business would be like ignoring the ball in soccer.

But focusing on profit as the defining goal of a firm has troubling implications for the question of what a business is. It suggests that a business firm is basically akin to impersonal market exchange—a merely instrumental affair. This contradicts our best economic theories as well as the common experience of working in a business. In reality, a business firm is a morally formative mode of solidarity, even as it serves as a means to further ends. Aristotle would call it a “friendship of utility.”

To treat business as a mere instrument is to overlook, and likely mishandle, the richer human concerns at stake alongside profit, which are a key part of any firm’s actual contribution. Aristotle’s approach is not only more admirable, it is also more realistic, for shared goals and character-forming collaboration in business are not a moralizing add-on. They are essential to the productive, profitable firm. Every business flourishes or fails on two related levels: as a tool for producing wealth, and also as an end in itself, a moral community in its own right. Rather than ignoring this fact, we should embrace it and build it into our public discussion of good work and flourishing business.

 

Means and Ends

The main contribution of any civil association to a flourishing society is to excel as whatever kind of association it is: a fine school, a great stock exchange, a terrific restaurant. We should ask two key questions about any common project: “What is it?”  and “How can it flourish?” The answers are closely related, or should be, if we are thinking clearly. Whoever regards a school as a souped-up sports camp is thereby committed to a particular approach to its flourishing. If instead you take virtuous graduates as the measure of an excellent school, this implies a rather different judgment of the nature and purpose of schools. Similarly, judgments about the proper goals of business are bound up with the question of what kind of thing it is.

What are we implying about the nature of business when we focus on profit or productivity as its defining goal? Broadly speaking, we are implying that a business is only an instrument for achieving some other intrinsically valued goods or goals, like the hammer and chisel you use to fashion a beautiful chair. But here is a crucial point: a means does not shape or define what your ends are, or else it would cease to be a mere means.

Suppose that in a class on woodworking, your eye were caught by a lovely new style of furniture, and you changed plans entirely and made a totally different chair from what you set out to make. Unlike your hammer and chisel, the class turned out to be more than a mere tool. It became part of you and your activity in some way. By shaping your conception of what it is good to do and to be, the class turned out to be an end in itself, or at least inseparable from your intrinsically valued ends. In this sense, the good of any formative activity is more than an instrument. Conversely, a merely instrumental activity will not shape who you are. The primacy of profit implies, therefore, a rather strong claim about the nature of business: that it does not, or should not, form human character.

What kinds of collaboration are instrumental in this more precise sense? The purest examples are public utilities and market exchange. A power grid is all about providing all-purpose means that allow various persons to achieve their private goals, whatever these may be. Likewise, market exchange allows for mutually beneficial coordination between strangers, without requiring either to know, assent, or conform to the other’s purposes. Both competitive markets and public utilities are nigh irreplaceable in a healthy society—witness February’s disastrous power outages in Texas—but their value is overwhelmingly instrumental. We appraise their service to society by how well they enable the pursuit of further goods, and rightly so.

Business as Formative Community

We often think of business as a variation on the same instrumental theme, to the point of modeling the firm as itself a kind of market. We shouldn’t. This is at best a distortion, and at worst a serious injustice. The firm is in the market, but not of the market.

Obviously, the main reason that any person engages with a business is to get something out of it, usually money. No one is there only to savor relationships with colleagues or clients. It would be absurd to deny that business has a prominent instrumental aspect. But it would be equally wrong to say that business is nothing more than a neutral vehicle for obtaining further goods. As Pope John Paul II put it, a business firm is a “a society of persons.”  It is therefore a locus of morally formative solidarity in its own right, an end in itself.

This is not just a bit of bootless moralizing, the sort of thing that high-minded clerics or academic scolds would say. Creating community is how productive firms actually run.

Institutional economists and other social scientists recognize that flourishing as a community of work is essential to a firm’s profitability. In economics jargon, solidarity within a firm “reduces transaction costs.” Any successful business will rely to a large degree on informal bonds of trust and loyalty, rather than cumbersome bureaucratic structures. It will coordinate much of its work through the authority of a boss, not through time-consuming market exchange. Overall, the success of a business depends on a shared moral culture. To borrow an apt phrase from J. N. Figgis, a successful business must “alter not only what you do, but what you want to do.”

Every business puts a stamp of character on its workers. J.P. Morgan & Co. ruled fin-de-siècle Wall Street largely because everyone knew the shared tenor and high quality of its partners. The “Morgan man” was a recognized and admired type, astute and public-spirited. Alas, the investment banker is no longer cast from that mold. But the financialization of banking does not imply that today’s Wall Street has no formative elements: its guiding moral culture is different, not absent. Even in 2021, whoever joins J.P. Morgan should ask what sort of person she is apt to become, as well as how much money she will take home. Because business involves character formation in the course of productive work, its value should be reckoned as both instrumental and intrinsic.

 

A Friendship of Utility

We still want to ask, which aspect of business is primary and definitive, which is subordinate and incidental? Is a business firm ultimately like a market or like a family?

Neither shoe fits. Either would require us to deny something essential about business as a community of work. We need a less black-and-white category to capture both aspects. This we can find in Aristotle’s surprising notion, “friendship of utility.” It sounds like an oxymoron. We usually suppose that friends are entirely concerned with their relationship, as an intrinsic good. But Aristotle recognizes a lower tier of friends who “deal with each other in the expectation of receiving benefits.” We all have acquaintances like this, perhaps a tradesman or a financial planner. Our relationships with them blend the freely-given courtesies of friendship with a concern for our own gain. Like a marriage with a pre-nuptial agreement, such relationships tend to be fragile and contentious. Still, they are markedly different from bargaining with strangers.

A tense mix of generosity and wary concern is characteristic of business. Any firm asks the moral allegiance of its members, asks them to be “friends” in some sense. A good employee willingly takes on additional tasks (within reason) for the good of the group, as a friend would, without putting a price tag on the extra effort. Insisting on an explicit tit-for-tat, as in the “work-to-rule” strike when workers refuse to do anything beyond what is contractually stipulated, is a surefire way to hamper a business. Furthermore, bosses can and do appeal to the “corporate family” or “taking one for the team.” Such community-talk is often no more than manipulative claptrap, but it does not have to be.

As in any “friendship of utility,” the firm deserves workers’ moral allegiance only so long as they are getting a fair slice of the pie and also being formed into an overall moral project that is worthy and right. But in that case, the firm really does deserve their commitment, for it is living up to the moral promise implied in its communal form.

 

Toward a Better Formation

Acknowledging the solidarities of the firm should enrich our moral imagination concerning business “performance.” Obviously, a firm will fold if it does not prosper in material terms. But the business can also fail if it is dramatically corrupt or unjust as a formative community.

Because every firm molds its workers in accord with some vision of human flourishing, it must be regarded as an end in itself, at least in part. These two dimensions of “friendship” and “utility,” though separate, are closely entangled. The scheme by which instrumental goods are distributed is itself a crucial part of any socially embodied moral vision. In a bank, for instance, paying bond traders much more or much less than relational bankers sends an effective message about who employees should strive to become. The good firm cannot avoid the profound human questions, which I explore in my upcoming book, arising from productive work together.

Consider, in this light, the disputed question of shareholder primacy. As things stand today, stockholders wield control in the publicly traded firm. This arrangement is often defended in terms of ownership, as though any other scheme would violate basic property rights. It is true and right that if I own a thing, I get to use it for my purposes. But the firm is not a thing, and stockholders do not own it.  Rather, the firm is a moral community (lawyers would call it a legal person). Stockholders do not legally own the corporation itself any more than they own the natural persons who work there. What stockholders do own is a claim on distributed earnings, and a portion of control over the firm. We should call them rulers, not owners.

Since stockholders rule the firm, rather than owning it, they should serve its interests, and not the reverse. A good ruler serves the community first. When stockholders exercise their right to rule, e.g. by voting for a board of directors, they should subordinate their own (largely financial) interests to the overall flourishing of the firm as a community of work. As a practical matter, it may be the case that empowering shareholders is the wisest method to keep large corporations on track, given the available alternatives. What is certainly not true is that financial metrics, or any instrumental goods, actually define the flourishing business in any full sense.

Re-envisioning the firm as a formative community does not diminish the importance of economic productivity, nor does it settle pressing policy questions. But it does give a more adequate sense of the moral stakes of business, which are not just technical matters to be settled by a spreadsheet. The firm is a formative community, and it should be evaluated as such.

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