Investment always has moral, as well as economic, significance

When new investors tried to take over BCE, a major Canadian company, some bondholders tried to stop the deal. The bondholders said that a business has to be considered as being more than just an engine for the enrichment of its owners.

The bondholders argued that a business needs to be looked at from the long term and all the stakeholders, the employees, the managers, the shareholders and perhaps even the customers, ought to be considered in deciding the business' future.

The Quebec Court of Appeal thought the argument had merit and the takeover was delayed until the Supreme Court of Canada could consider the case.

I remember thinking the bondholders' argument seemed legally unsound and was not overly surprised to see it ultimately rejected by the Supreme Court of Canada.

But the deal itself fell apart and never closed. And perhaps that's a good metaphor for the problem facing Canada today -- the unbridled profit motive has failed us. In fact, the market, if left un guided, leads to collapse and chaos.

Speaking at the end of June the Pope dealt with this collapse and said:

"What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development"

And so a careful analysis of the issue, and a sensible solution, comes from what might seem to be an unexpected quarter -- the Vatican.

Papal letters are seldom seen as having much "real world" application. Most people see the Pope's encyclicals as being merely religious documents. But the encyclical released last month is far more than just theology.

The Pope sees that justice requires a consideration of more than just selfish interest:

"[The Common Good]... is a good that is sought not for its own sake, but for the people who belong to the social community and who can only really and effectively pursue their good within it. To desire the common good and strive towards it is a requirement of justice and charity. To take a stand for the common good is on the one hand to be solicitous for, and on the other hand to avail oneself of, that complex of institutions that give structure to the life of society, juridically, civilly, politically and culturally, making it the pólis, or "city". The more we strive to secure a common good corresponding to the real needs of our neighbours, the more effectively we love them."

The Pope goes on to say that looking at businesses and the economy as being amoral leads to calamity:

"Then, the conviction that the economy must be autonomous, that it must be shielded from "influences" of a moral character, has led man to abuse the economic process in a thoroughly destructive way. In the long term, these convictions have led to economic, social and political systems that trample upon personal and social freedom, and are therefore unable to deliver the justice that they promise."

The key then is to see that the marketplace must be put into a context that recognizes all human aspects and potentials. Thus, businesses like BCE have to be seen not in the short term for their shareholders but in the long term for their stakeholders. The Pope says:

"there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference."

Therein lies the answer. Businesses ought to be responsive, in the long term, to the market. The market is a tremendous mechanism for production of goods people want and will use. But such market responsiveness ought not to blind businesses to their duty to more than just owners -- businesses have a duty to their stakeholders and society as a whole. The ability to use financial markets to make a quick profit at the expense of employees and society more generally is wrong. Business decisions must be informed by more than just the ability to turn a quick profit -- they must be seen in light of the broader implications of that decision. Investment always has moral, as well as economic, significance