What is Ethicality?

Ethicality is like morality. Just like morality is the broader concept associated with being moral, ethicality is the broader concept associated with being ethical. In other words, someone making lots of ethical choices may be trying to live up to the ideals of ethicality.

Defining Ethicality

People have different ideas of what it means to be ethical, and what actions people need to take to comply with the highest principles of ethicality. Religions and cultural philosophies have traditionally provided answers for these questions. Buddhism, Hinduism, Judaism, Christianity, and Islam provide just some of the definitions for ethicality in the context of a religion or tradition. There are also more modern humanistic approaches as well. These can have widely varying rules and thought processes. However, there is a common thread that cuts across religions and philosophies known as the “Golden Rule” – treat others as you want to be treated. Be kind to your fellow human beings. Don’t hurt them. At its core, ethicality is about being nice to others.

Bounded Ethicality

Bounded ethicality is the theory that people’s capacity for making morally correct choices is constrained by limitations – whether personal or environmental. This concept stems from psychological research, which shows that people often suffer from motivated reasoning that can limit their ability to think clearly about questions of ethicality when they can immediately benefit from behaving unethically. It stands to reason that as the difficulty of doing something ethical increases, the less likely people are to do it. People’s ethical behavior can therefore be thought of as “bounded” or limited.

Ethicality and Enlightened Self-Interest

On the other side of the coin, the theory of enlightened self-interest claims that by behaving ethically, people ultimately help themselves. This is kind of like believing in karma, and that “what goes around comes around.” The idea is that if you help other people, they will want to help you too and you in turn will therefore be more successful. This means that ultimately there is no conflict between what people want for themselves and others – by being kind to others, the individual can create a better environment for themselves.

Examples of Individual and Organizational Ethicality

Individuals can behave ethically by performing simple acts of kindness for those around them and by refraining from hurting anyone. The same holds true for organizations like for-profit companies. A company is essentially a group of people working together to achieve a common goal. Companies’ behavior can therefore be thought of in terms of ethicality, as they are run by human beings who can make decisions that can be evaluated using the rules of ethicality.

Individual people can volunteer their time to help the homeless, or alternatively, they can try to steal from others to enrich themselves. Similarly, companies can create a product that improves the quality of life of their customers, or they can sell them something toxic. They can pay their employees well, or they can engage in wage theft. Companies can work diligently to make profits for their investors, or they can defraud them. They can also provide a free service to society, or spew pollution into the atmosphere that harms society. At every turn, people and companies make choices about how they impact other people. When they choose to help rather than hurt those that they interact with, they are behaving ethically.

Investing Ethically as Enlightened Self-Interest

Individual investors pursuing the highest ideals of ethicality can try to put together an ethical investment portfolio with exposure to only ethical companies – those that treat investors, customers, employees, and society well. Financial firms can invest in companies that are behaving ethically, or they can finance companies that behave unethically. Individual investors can choose whether to partner with an ethical financial firm to help them build their investment portfolio.

The debate between people who believe our ethicality is bounded and those who believe that it is in our own self-interest to behave ethically extends into the investing world. Much like in life, the idea hinges on whether we believe in karma, or that what goes around comes around.

There is a simple example that helps to illustrate how the idea of what goes around comes around can apply to the investing world. Consider an investor who invests in an oil company. Let’s say they make $1000 from their investment in their portfolio – so far so good. But this investor lives in a beach house, and the oil company that they invested in contributed to rising sea levels resulting in that investor’s house getting flooded more often, costing them tens of thousands of dollars in repairs…so was this a good investment? Investing in a profitable, but unethical, company can create value inside your investment portfolio while destroying value for you in other areas of your life.

As more people choose to invest only in ethical companies, this has the potential to shift how companies behave – managers may try to change their company’s behavior so that they can earn the investment of ethical investors. Additionally, ethical investors can use the voting power associated with their stock ownership to vote on company policy to try and push companies in a socially responsible direction. Because, legally speaking, a company exists for the benefit of its investors, it is the investors themselves that have the power to make these changes – who have the power to make our society more ethical.

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Under no circumstances should any information presented in this article be used or construed as an offer to sell, or a solicitation of an offer to buy, any securities, financial instruments, investments or other services by any person or organization, including without limitation, Humankind Investments LLC. Furthermore, no information presented in this article should be construed or relied upon as investment, legal, accounting, tax or other professional advice or in connection with any offer or sale of securities, by any person or organization, including without limitation, Humankind Investments LLC.