9 January 2013

Zambia: Discussing Business Ethics

column

THE issues of business ethics are so fundamental and require some elucidation in the unchanging nature of business. The definitive concept I will follow on ethics is that of distinguishing good from bad universally-based on the nature of man momentarily aside from religious believes.

Already this broad understanding leads to subjectivity because what is good to one may not necessarily be good to the other. The act of deciding what is good or bad depends on a lot of factors centered on the belief system of someone. Sir Adrian Cadbury said 'The glue which holds a company together is its beliefs and values rather than its structures and systems.'

I am alive to the fact that this is a highly philosophical topic but without delving into that debate of different schools of thought I will focus on a few lessons I have learned hoping they can add some value on this broad and widely debated topic. In this article we will look at the general business ethics before narrowing down to the insurance context next week.

To streamline the understanding of the highly subjective ethics topic we need to understand the purpose of business as Dr Myles Munroe says 'where purpose is not known then abuse is inevitable'. Understanding the purpose of business will help us separate non-business values from those that can be universally applied to the business world regardless of its nature. In other words the starting point is to determine whether an issue affects business and if so then falls within the topic.

The definitive purpose of business according to Elaine Sternberg in her book entitled 'Just Business' is 'maximizing long term owner value through selling goods or services ethically...'

Any other definition departs from the co-existence of a business. As long as this statement is met any decision that is made is a right decision provided it is made by the right people and for the right reasons at the right time.

In other words when required to make a decision one should ask him/herself 'does the decision maximize long term owner value and is it ethical?

The first part of the definitive purpose is easier to understand but it is the second part of 'ethically' that usually has a lot to explicate.

There are two fundamental principles that support ethics namely 'ordinary decency and distributive justice.'

These fundamental principles lead us to the rephrasing of the definitive purpose of business to 'maximizing long term owner value through selling of goods or services while upholding the principle of ordinary decency and distributive justice.'

Ordinary decency is about 'treating equals equally.' As Elaine Sternberg puts it; 'it is not the general 'niceness' but rather it consists of fairness and honesty and refraining from coercion and physical violence, typically within the confines of the law.'

This is the basic necessity of a business and other factors such as courage, responsibility and integrity refer to the way in which more fundamental values are pursued. Sir John Harvey-Jones said 'Business is based on trust and trust is based, in turn, on clarity and understanding.'

Therefore when faced with a situation to make a decision the second thing after considering whether the decision will affect long term owner value is to weigh it against the principle of ordinary decency.

One must ask him/herself whether the decision to be made is fair, or is it an honest one or does it involve any coercion or physical violence, or is it illegal? The positive answers to these questions should enable that person proceed with the decision at hand.

The principle of distributive justice asserts that organizational rewards should be proportional to the contributions made to the organisational ends by employees. Those who contribute more should receive more.

Let me ask a question; 'should a junior employee be paid more than his boss in an organisation?' This question raises an ethical issue and according to the forgoing principles the question should be answered based on the level of contribution of the two towards the organisational ends.

If the junior staff's contribution is more, then it is ethical or rather right for him to earn more than his boss. Organisations with this approach are more objective rather those that reward employees based on seniority. Performance should rather take precedence than position or seniority.

This is why it is ethical to 'poach' someone who will contribute more to the organisation by offering them more pay than currently being offered to employees on the same position.

The same can be said about Executives earning much more money than their juniors; their contribution to the organisation is ideally much more than the rest.

Contribution should also take precedence to qualifications. The later should actually help someone improve their contribution. That why it is said that 'a director who cannot cope with confrontation, who is not prepared to ask hard questions and demand satisfactory answers, is as unqualified for the job as one who cannot understand a profit and loss account..'

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