Many believe the concept of business ethics has become an oxymoron. Do a Google search and you’ll find reams and reams of explanations of what ethical business practices are, or should be. Every major corporation has a place on its web site that outlines the company’s ethical principles. Some companies test all employees annually to insure that they clearly understand the company’s ethical policies and procedures.
Often these principles seem to boil down to two over riding rules.
1 – Maximize Shareholder and Manager Wealth
2 – Do What Is Legal
On the surface the primary purpose of business is to earn profits for the owners. Therefore, the first rule makes sense. No one is in business to lose money. And if all the actions of a business are legal, isn’t this all that is really expected?
But maximizing short term profit can be accomplished by (a) exploiting others, (b) continually squeezing suppliers, (c) cutting operational costs to the point that customer expectations are no longer being met, (d) under paying employees for services rendered, (e) decreasing quality, (f) ignoring safety concerns, (g) ignoring environmental concerns, (h) minimizing taxes to the point of not paying a fair share of the costs of providing the services society need and (i) doing anything necessary to “stay competitive.”
Thomas Horton, President and CEO, American Management Association made the following observation in the January 1987 issue of Management Review. "Whenever decisions are made strictly on the basis of bottom-line arithmetic, human beings get crunched along with the numbers."
Then we get to the point of how “legal” is defined. In some cases it seems that what is considered legal is any action that a judge or jury will not severely punish the individual or corporation for doing. This opens a wide door for profit maximization strategies.
It is considered proper business practice to seek to change laws in order to obtain a business advantage, even if such changes may be detrimental to the interests of society as a whole. Large businesses and organizations tend to have a greater ability than small businesses and individuals to effect such changes in laws. In one sense this is democracy, but more often than not the beneficiaries of such changes are a small group, not the majority.
Oral agreements are meaningless. Either party can and will deny that such an agreement existed. When writing contracts, the party with the most power will endeavor to keep the language obscure enough so it can be interpreted to the party’s advantage in the future.
When the agreement is clear and simple, but not to the profit advantage of one party, the lawyers representing that party will present arguments as to why the agreement does not mean what it says. The stronger party with deeper pockets will drag out discussions and legal maneuvers to delay a decision. If the stronger party is at fault it will drag out settlement negotiations in the hopes that the weaker party will give up and accept a lesser settlement. Being found to have acted in an illegal manner is not considered a great sin so long as the punishment meted out for the illegal act is less than the profit received from the actions.
If the above seems a harsh interpretation of the way the law is being applied, then consider how major publishers have been dealing with their suppliers in recent years.
Publishing Example
Publishers need photographs to illustrate their books. It is reasonable for publishers to want to pay as little as possible for the pictures they need. Image creators, on the other hand, need to earn enough from the images they produce to cover their costs and make a profit. Some books do not sell as well as others. Thus, the publishers are unable to determine upfront the total revenue they will receive from a given title. Thus, they want to keep their upfront costs as low as possible.
Creators have been willing to work with the publishers and initially supply images at prices less than cost with the understanding that they will be paid more for those images that are used in titles that become successful and earn more revenue. A system was developed and generally agreed to by all parties that publishers would pay based on how the image was used in a book. Initially they would pay a minimum fee for a limited print run, but if the book became successful and sold more copies than anticipated the publisher would pay an additional fee.
These terms have been an industry standard practice for many years and spelled out in detail in all invoices. It is understood, and invoices reflect this fact, that the publisher must notify the creator when it intends to print more than the agreed number of copies of a book. Creators have no way to independently determine how many copies of a title have been published. Thus, they must rely on the good faith of the publisher to notify
them when more copies of the book are to be printed.
Publishers abided by these agreements for many years, but when it became inconvenient or unprofitable to continue honoring the agreements they began printing many more copies of some titles than invoices allowed without informing the creators. Soon they began printing many more copies of most of their titles than they had agreed to by contract. In some cases researchers who negotiate rights with the creators were told to obtain licenses for under 40,000 print run even when the publisher knew before the first book was made available for sale that it would print many more than 40,000 copies.
When a few creators discovered that publishers had printed more than 40,000 copies of the book in which their photographs appeared, publishers at first refused to admit that was the case. Then publishers refused to settle for the unauthorized use according to the terms of the agreements. Next, publishers did everything possible to make sure that creators would not tell other creators with images in the same title about the unauthorized use. Creators were forced to get lawyers involved in settling the case despite the fact that the publisher’s lawyers had approved the language used in the original invoice. The lawyers then argued about the meaning of the language in the agreements. Negotiations to settle such matters drag on for years. Once publishers have admitted to at least one creator that they acted in violation of their written agreements they make no attempt whatsoever to inform other creators with work in the same title of the violation.
Publishers then attempt to get creators to sign new licenses that would retroactively cover the publisher’s unauthorized and unlicensed use of the images without fully informing the creators of the meaning and implications of the new license.
Such actions are not unique to the publishing industry. Similar business dealing between corporations and suppliers, or corporations and employees can be found in many other industries which claim to be operating ethically.
Ethics for Small Businessmen and Businesswomen
Every individual in business needs some ethical principles to live by. Here are a few principles to consider. Operating on these principles may be more important to your long range well being than immediate profits and attempting to manipulate laws to your advantage.
1 – Be honest. Don’t lie or deceive. Don’t withhold important information or intentionally misrepresent. Tell the whole truth.
2 – Always endeavor to do your best. Give a full day’s work for a day’s pay.
3 - Be coureious and dependable in all dealings.
4 – Honor contracts. Keep commitments.
5 –Be fair in all dealings with suppliers, employees and customers. Don’t exploit others.
6 - Admit mistakes and attempt to make equitable restitution. Everyone makes mistakes. When your actions fall short, do what you can to make restitution. Make every reasonable effort to negotiate an equitable and mutually agreeable settlement in a timely manner.
7 – Pay a fair price for services rendered. There is nothing wrong with paying less for a service than you think it is worth if that is all the supplier asks, but don’t expect everything to be free.
8 – Look for opportunities to be generous and serve suppliers, employees, associates and customers.
9 – Consider the effects your actions may have on others and society as a whole. Find a proper balance between self-interest and the interests of society. Avoid doing things for a personal short term advantage that might damage the long range well being of others.
If you discover that some of those with whom you engage in commerce are not willing to live by these principals carefully consider whether you can afford to continue to engage in commerce or business with them.
Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility says, “Ethical values, consistently applied, are the cornerstones in building a commercially successful and socially responsible business.”