The Universal Principles of Business Ethics

Introduction

            Sternberg (1999) believes that in contrast to popular belief, there are actually universally valid principles in business ethics. These principles are said to operate everywhere in the world, as well as apply to international trade and to local business. However, there is great speculation as to the existence of the universal principles of business ethics which has largely contributed to confusions about the nature of business, ethics and business ethics in general. The main purpose of the author in writing the article, “The Universal Principles of Business Ethics” is to make us understand its basic concepts. From there, we can see that the variety and complication of actual business circumstances along with the various tastes, values and cultures all over the world are perfectly attuned with the universal principles of business ethics.

            As people will understand business and business ethics this way, the universality of the principles of business ethics will be more reasonable. In addition, the universal principles of the business ethics as presented by Sternberg (1999) will help to overcome one of the most basic challenges to business acceptance of business ethics which is the mistaken conception that business ethics is basically unfavorable and contrary to business.

This will be achieved in three ways. First, as business ethics are properly understood, it will be clarified that business ethics has nothing to do with “do-gooding”. On the contrary, business ethics necessitates that owner value be maximized, subject only to respecting distributive justice and ordinary decency. Second, these values are not unsuited with business operations as they are fundamentally necessary in the existence of the business as an activity. And finally, what business has to maximize is not current-period accounting profits but rather long-term owner value. Contrasting short-term profits, owner value significantly reflects indirect, distant and measurable effects of the actions of the business. Therefore, when the business has been understood as maximizing long-term owner value, it becomes entirely conceivable that business performance should be enhanced by ethical conduct.

 

The Ethical Decision Model

            The proposed universal principles of Sternberg (1999) has been integrated into an Ethical Decision Model which identifies the problems that businessmen need to address in their business capacities, as well as offers ways to resolve these problems. The model identifies which information is important to ethical decision-making and organizes this information in order to bring out more productivity in decision-making. The model also indicates the ethical principles to be employed upon deciding which decision is right and introduces conceptual clarity and structure to issues that are sometimes blurred by emotion and moral fervor. In general, the Ethical Decision Model offers a way of managing and determining and solving the ethical issues and problems raised in the business.

            The Ethical Decision Model constitutes of four straightforward steps namely: (1) clarify the question; (2) determine the relevance for this business; (3) identify the circumstantial constraints; and (4) assess the available options.

            Upon tackling all the issues of business ethics, it is first important to clarify the issue at hand. This is said to be considerably important because ethical questions sometimes seem confusing, either trivial or intractable in the forms in which they are usually posed such as the media, demanding interest groups or disgruntled stakeholders. According to Sternberg (1999), the failure to give a clear distinction to the different matters at issue has usually brought about confusion in the resolution of the ethical questions which may be in the business or elsewhere.

            Once the ethical issues has been analyzed and clarified, the next step is to determine the relevance of the ethical issue in the business. This means that the business has to determine as to whether the question that stays actually poses a problem for the business. If it is not, therefore, there is no ethical business issue for the business to resolve. This step includes three specific questions. Firstly, is the issue relevant to business, in general? Secondly, is the issue relevant in this particular business? And finally, is the issue a problem for this specific business?

            After determining the relevance of the question, the third step is to identify the circumstantial constraints - constraints that may limit solutions. Business decisions are continuously constrained by laws and regulations from the government. However, aside from these, they are also constrained by contractual, cultural, economic, physical and technical considerations. Although the principles of ethical conduct are consistent over time, place an industry, it must be noted that the actions of the business are affected by their individual circumstances.

            The next and last step is to assess or evaluate their available options in addressing the ethical issues that were raised. This means that the business is to see how the alternative solutions quantify against maximizing long-term owner value and respecting distributive justice and ordinary decency. Evaluating the potential of one proposal on long-term owner value is a straightforward business calculation as all important potential costs and consequences such as those that are distant and delayed and indirect must be weighed against all its potential benefits. On the other hand, the judgments of distributive justice and ordinary decency which the business must make are considerably simple, in contrast to the assessment of the proposal’s long term effect on long term owner value. In addition, unlike assessments of owner value, the judgments of distributive justice and ordinary decency are not normally ones of degree or extent. The alternatives either do or do not meet up with the conditions for the assessment. Those that do not are considered not ethical for the business.

            Once the four steps of the Ethical Decision Model are achieved – clarifying the ethical questions, determining the relevance for this business, identifying the circumstantial constraints and assessing the available options – the business is to choose the best alternative which has a high probability of contributing most to long-term owner value, as long as it satisfies distributive justice and ordinary decency. However, it must be noted that either of these conditions must be met; otherwise, the said proposal must not be adopted even though the proposals seems to maximize long-term owner value.

            Nevertheless, in the same way, satisfying distributive justice and ordinary decency is definitely not enough. Businesses should bear in mind that the morally right course of action for the business must identify all three of the following requirements which is: the proposal must aim at maximizing ownership value at the same time respecting distributive justice and ordinary decency.

            According to Sternberg (1999), the hardest part of the ethical decision making is not the application of the principles of distributive justice and ordinary decency but rather the determination of the action which will maximize long-term value.

Application

            There are several applications involved in the article regarding the universal principles of business ethics. They are: (1) bribery, (2) exploiting lower standards abroad, (3) international investment, (4) the ethical infrastructure of the business, and (5) dealing with disorderly jurisdictions.

            In terms of the issue of bribery, the Ethical Decision Model will be able to illuminate the issue of bribery. However, the issue over bribery is very clear that it is simply wrong since it violates distributive justice.

            Next is the issue of exploiting lower standards abroad with the question: is it ethical for a manufacturer to sell in another place that fails to meet the standards of its sophisticated home market? According to Sternberg (1999), the answer is very simple. According to the author, it is ethical only if it maximizes owner value while respecting distributive justice and ordinary decency.

            The third issue that the Ethical Decision Model illuminates is the ethical status of international investment. However, Sternberg (1999) notes that international investment is not unethical because it has no necessary violations of either distributive justice or ordinary decency. In addition, international investment fails to remove tyrannical regimes or raise the standard of living of the poorest groups.

            The fourth issue is the ethical infrastructure of business - the institutional framework of the business that must be obtained for business to be possible. The key features of the ethical infrastructure are property rights and the rule of law.

            Lastly, the fifth ethical issue is dealing with disorderly jurisdictions wherein the ethical infrastructure is weak and inconsistent. Thus, the question would be: should the business be operating there at all? However, the Ethical Decision Model should still be kept in mind. This means that it is still a matter of determining whether there is possibility of maximizing owner value in the jurisdiction at the same time respecting distributive justice and ordinary decency.

 

Conclusion

In conclusion, the key to business ethics is very simple – business can only be ethical once it maximizes long-term owner value subject to distributive justice and ordinary decency. The researcher has evaluated that the universal principles of business ethics are very useful and must be used in all businesses regardless of what industry. The researcher believes that the universal principles of business ethics are substantially a useful tool in businesses to make the right ethical decision. The way for businesses to achieve its moral responsibilities is to make sure that its own conduct is ethical. These responsibilities, as well as the principles of business ethics, are applicable to all businesses regardless of its location and time. In addition, the responsibility of the business to maximize owner value and respecting distributive justice and ordinary decency is universal.

Bibliography

Sternberg, E. (1999). The Universal Principles of Business Ethics. In Machan, T. (Ed.). Business Ethics in the Global Markey, Stanford: Hoover Institution Press.