What is ‘Business Ethics’?

The differing interests between business and its stakeholders create many ethical conflicts. The conflict that arises as managers make determinations on what is best for business and what is best for stakeholders can also result in more than just a moral dilemma. Managers also face many legal and regulatory mandates as well. In resolving these conflicts, managers must often balance the ideal solution with a practical one. The cost of making the wrong decision can have a disastrous effect on business as managers weigh the need to make a profit against the need for honesty in business practices. How the manager makes decisions in light of this conflict is a question of business goals and ethical conduct.

According to Dr. Elaine Sternberg, in her book, Just Business: Business Ethics in Action, the purpose of business is to “maximize long-term owner value by selling goods and services.” She explains that long-term owner value represents the one distinguishing characteristic of business. All other goals or purposes are “incidental insofar as they contribute to achievement of the definitive goal.” Therefore, a business that isn’t dedicated to the pursuit of long-term owner value cannot truly be considered a business. After all, a business that does not pursue long-term owner value will not remain a business very long. So, what is ethics?

The American Heritage Dictionary defines the word “ethic” as “a set of principles of right conduct.” Therefore to be ethical, one must adhere to a set of principles of right conduct. Boston University Professor Bordon Parker Bowne, stated,

The greatest need in ethics is the impartial and unselfish will to do right. With this will, most questions would settle themselves; and, without it, all theory is worthless. The selfish will is the greatest source not only of wars and fightings, but also of dishonest casuistry and tampering with truth and righteousness. One bent on doing wrong never lacks an excuse; and one seeking to do right can commonly find the way.

So ethical behavior is a choice: the will to do right. This suggests a conscious decision and conviction to focus on the rightness of decisions. This also implies the context in which decisions are made must be considered. In business, decisions are made in the context of maximizing long-term owner value. Therefore, the focus of business ethics is the determination of what is right in relation to maximizing long-term owner value.

The business has a responsibility to maximize long-term owner value. In this respect, the business is only concerned with its own self-interest. This “rules be damned” approach may actually have the opposite effect on long-term owner value. A business with the attitude of “profit at any cost” may ultimately fail because stakeholders will probably not have the same attitude toward the business. So, it’s important for the business to consider the repercussions of its decisions on stakeholders. The tenets of business ethics are to deal fairly and honestly with others and to treat equals as equals. The adherence to these tenets will assure the business attains its ultimate goal of maximizing long-term owner value while making the right decisions.