In my earlier posting "The Rational and the Reasonable: A Useful Distinction for Understanding CSR", I discussed how the navigation of social expectations and obligations requires an understanding of two distinct forms of logic - the "rational" and the "reasonable". In order to maximize "rational" self-interest in a social context, I proposed that business actors must be able to justify their rational interests within a framework of "reasonableness". Unlike rationality, "reasonableness" necessitates justifying behaviour in relation to the shared norms, values and rules of a broader set of relevant societal stakeholders, rather than simply on arguments derived from rational self-interest.
A recent and stark example of the importance of keeping this distinction clear came up this month in the banker pay debate. Responding to the United Kingdom's 50% tax on bank bonuses, and President Obama's proposed "Financial Crisis Responsibility Fee", some leading figures in the US and UK banking industry have chosen to voice displeasure by stating their view that such taxes are "unfair", particularly since many financial organizations affected by the taxes did not receive payments or have paid back received funds.
Implicit in this argument is the premise that no one should be required to pay for something that they are not directly responsible for. If one were to consider such a position from a Sustainability/CSR strategic standpoint, it would be necessary to evaluate whether or not this rhetorical position sufficiently reflects shared principles amongst a relevant stakeholder group, so as to be persuasive in promoting the rational interest of banks in avoiding punitive taxation. If the position is unpersuasive, the strategic interest of the banks will be jeopardized, and the likelihood of punitive consequences may be enhanced.
In this case, the relevant stakeholder group includes (most importantly) the governments of the UK and US that have expressed an interest in imposing a punitive tax and imposing other forms of intrusive regulation. By corollary, the general public, as taxpayer and political overlord of government, is also an imputed stakeholder. Other stakeholders include bank employees, other industry players, and financial regulatory bureaucracies that advise and take direction from political arms of government.
As has been noted in my previous blog on bank compensation, the fundamental interest of government in this debate is to reduce or eliminate systemic risk in the financial sector. Compensation practices that promote risk taking behaviour have been seen to contribute to systemic risk, and are therefore the target of regulatory attention. Regulatory officials and bureaucrats wish to address these legitimate concerns in a way that still protects the "free market" and does not "micro-manage" compensation practices in the financial industry. The general public is concerned with the fact that large amounts of public funds have been expended to address the failures that resulted due to risk taking behaviour. This in turn applies pressure on politicians to take actions that are seen to address this concern.
In light of these background facts and norms, the weak persuasive capacity of the "unfairness" argument of banks [with its implied premise that one should not pay for what one did not contribute to] is revealed. Both governments and the general public, the two most significant stakeholders, have already made payments to the financial industry for a problem that they believe they did not contribute to, and don't feel responsibility for. As such, accepting the "unfairness" argument and its implied premise would necessitate an admission on the part of the government and public (or more particularly their political representatives) that it was irrational to have provided TARP funds to banks in the first place. This will not happen because it would be highly embarrassing for the political leaders that implemented the program to make such an admission. By consequence, these major stakeholder do not, and in fact cannot, share the fundamental premise upon which an "unfairness" argument is based.
Almost inevitably then, such an argument will be viewed as unreasonable. It may be rational, in the sense that banks and their leadership do not want punitive taxes, but their justification for why there should not be any punitive taxes is not "reasonable", and will therefore fail to be persuasive.
Such rhetorical oversight is not inconsequential. President Obama, a well noted masterful rhetorician, prayed upon the illogic of the position in a recent public address when he stated:
And we’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair -- that by some twisted logic it is more appropriate for the American people to bear the costs of the bailout, rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.
What I’d say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.
This argument by President Obama is, when one understands the distinction between "rationality" and "reasonableness", a rhetorical master stroke. He at once (and correctly) points out the illogic of the "unfairness" argument, then turns that conclusion into an indictment of any attempt to resist his political objectives (something which is more contestable, but persuasive in light of his indictment of the logic of those he considers opponents).
This rhetorical exchange shows the serious risks presented by a failure on the part of business representatives to choose an engagement strategy that gives sufficient consideration to the concept of "reasonableness" in the normative arena. When the competition gets stiff, logical slips and over-emphasis on rational self-interest (as opposed to reasonable shared interests) can ultimately be fatal to self-interest and rational strategic objectives.
The moral of the story is this: However counter-intuitive it may seem, the pursuit of rational interests in a social context ALWAYS necessitates:
- Identification of relevant stakeholders;
- Comprehension of the overlapping consensus between stakeholders;
- Employment of a strategy that pursues rational interests in a manner that is justifiable in light of the overlapping consensus of "reasonableness" and not simply personally held conceptions of rationality.