This is an updated draft of a possible statement growing out of the Wharton - business - church - community dialogue on business ethics. This draft has been prepared with input from a five-person team: Robert Holland, Thomas Dunfee and Robbin Derry of the Wharton faculty; Eric Tomlinson of the Cathedral Church of the Saviour; and Robert Cardie of the Newman Center at Penn. This work has been supported by the SEI Center and grants from CoreStates and ARCO Chemical. 

Comments on this draft are welcome at any stage, and may be conveyed most expeditiously by communicating with Bob Holland (tel. 301-320-4957; fax 301-229-5205; P.O. Box 238, Glen Echo, Maryland 20812.) 

Revised -1/29/96

First posted on the Web in 1996.  Last posted 22 April 1999.
 

Preamble
Generalized Principles of Business Ethics:

1. Work Is Valuable
2. Act in Good Faith
3. Foster a Healthy Marketplace
4. Treat Workers with Dignity
5. Foster Constructive Worker Careers
6. Provide a Safe and Healthy Workplace Environment
7. Protect the Physical Environment
8. Cooperate with Host Communities
9. Helping the Disadvantaged
10. Obey Applicable Laws
11. Recognize Reciprocal Responsibilities

PREAMBLE

In our society, we rely upon business enterprise to create jobs, provide incomes, assemble resources, and produce, sell and service most of the products and services that consumers need or want and are willing to pay for. 

In these circumstances, there is a great deal of interest in the standards businesses employ in these activities. Some standards are regarded as important enough to the public interest to be written into law. Other standards are set by the competitive forces at work in our market system. In the gaps and spaces within this combined legal market network of standards, however, there is much room for business discretion, at least in the short run, in deciding what ethical standards it will follow in its dealings with its stakeholders, i.e., its customers, employees, owners and investors, suppliers and host communities. 

These stakeholders understandably have a keen interest in what ethical standards business decides to set. Also, some of the wellsprings of ethical thought in America, particularly the religious and academic communities, take a strong interest in the ethical standards that business should or does observe. It is not surprising, therefore, to find thoughtful voices from within the academic and religious communities as well as the business community speaking out on the standards they believe business should be following. 

Among such voices speaking out today, there is widespread agreement that the ethics employed in business dealings ought to be better than they are in many cases. There are many disagreements, however, over what and how much should be done to improve the ethical aspects of business behavior. Such disagreements vary--some are over goals, some over priorities, some over shares, and some over differences in understanding, cultural emphasis, and language. In combination, disagreements have slowed progress in this field, since the adoption and implementation of viable ethical standards (over and above those enacted as laws) require voluntary action by businesses and voluntary acceptance by those with whom businesses deal. 

This statement endeavors to improve business ethics by taking a different approach, building on areas of agreement rather than arguing over disagreements. Drawing upon years of academic research and a long series of meetings and conversations with numerous leaders of broad sectors of society in the Greater Philadelphia area, it identifies a strong core of shared ethical values-a "common ground" of basic values upon which a mutually acceptable set of ethical principles for business could be built. 

A draft of such ethical principles is presented on the following pages for review and discussion. As best can be judged by the participants thus far in this process, these principles, if appropriately designed, accepted and implemented, could improve the ethical aspects of business operations, to the mutual benefit of all concerned. That is this project's goal, and its intended contribution to the common good. 

This "common ground" list of principles is not intended to be all inclusive. Businesses are likely to have some added ethical guidelines suitable for their specific industries and firms. A number of the individuals who provided input to this project undoubtedly have additional ethical standards they would like to see businesses and their stakeholders pursue, and those individuals are free to advocate such added standards. But the core principles included in this "common ground" listing appear to have the great advantage of being acceptable in major sectors of society throughout the Greater Philadelphia area. 
 

REVISED LISTING OF GENERALIZED PRINCIPLES OF BUSINESS ETHICS 

1. Work Is Valuable. Responsible and productive work makes important contributions to our economic system and to our individual lives. To be productive, work needs to be worthwhile at four levels--to the worker, the customer, the employer and its owners, and society as a whole. Achieving this goal is a primary responsibility of business. 

Viewpoints differ, however, on how to decide whether work is worthwhile. Business and conservative academic thinkers tend to favor leaving such judgments to the individual participants. For example, if customer buys a product at a store, presumably that is worthwhile to both buyer and seller. In contrast, religious leaders and liberal academic thinkers tend to be concerned that some participants may be ignorant, overmatched, under funded, or otherwise disadvantaged in their judgments, and thus need supplemental help. This is particularly true if the business they are dealing with has an advantage not conferred by a free market. 

2. Act in Good Faith. A business should exercise due care to perform work competently and responsibly. Business should also act in good faith in other ways, including honoring its promises, avoiding deceit, acting fairly, and living up to the reasonable expectations of other parties. In effect, treat others as you would like to be treated yourself. These principles apply to all phases of business activity, including hiring, firing, buying, selling, competing, servicing, and investing. 

3. Foster a Healthy Marketplace. Businesses should strive to maintain a healthy marketplace, i.e., one that is open, competitive and well functioning. In such a market, prices should be at levels that give customers their money's worth for the goods and services they buy. Those prices also need to generate enough business earnings in excess of expenses to supply incentive for continuing production and provide enough surplus to fund worthwhile benefits (in terms of compensation, good products, community services and/or other benefits) to the firm's employees, managers, investors, suppliers, and host communities--i.e., to the various stakeholders of the firm. In open markets that are working efficiently, competitive forces should work to allocate a firm's earnings among these stakeholders in proportions that will encourage continued good production, sales, employment and net earnings. If and when circumstances create closed markets or otherwise distorted profit opportunities, businesses should avoid charging prices far in excess of their costs (including research and development costs), in the long-term interest of themselves and their stakeholders. 

4. Treat Workers with Dignity. Enlightened business, academic and religious leaders agree that workers should be treated as more than simple units of production. Employers need to respect the dignity and well-being of their workers and other stakeholders. Discrimination based upon race, sex, or religion should be avoided. 
 

5. Foster Constructive Worker Careers. Workers should be empowered to become productive and fulfilled. Business executives see the need to empower workers to deal with problems arising in the workplace. Religious and civic leaders see the need also for broader empowerment of individuals, in their communities and as citizens of the nation. All three types of leaders agree that such empowerment also involves corresponding responsibilities for the individual to utilize such authority responsibly. Leaders should set appropriate ethical boundaries for such empowered activities. 

Businesses should help their employees develop and employ their skills in worthwhile ways. If, because of personal or professional circumstances, good workers need greater flexibility in their job assignments, employers should try to be accommodating. If adverse business circumstances compel a firm to lay off employees and/or close plants, the firm should do its best to give timely and informative notice to its employees, help them find new jobs elsewhere in the firm or with other employers, and assist them in adapting their skills to new job opportunities. 

6. Provide a Safe and Healthy Work Environment. Business should provide a safe and healthful working environment for its employees. Preventive measures should be taken to minimize worker injuries or sickness. If and when workers suffer work-related injuries or diseases, the employing firm should be sure that health benefits are available to absorb the attendant medical expenses and cushion the income loss. It should also promptly take whatever steps are feasible to reduce or eliminate the chances for more of such injuries and diseases in the workplace. 

7. Protect the Physical Environment. Business needs to respect the physical environment in which it operates. It should accept responsibility for the environmental impact of its own operations. This includes taking preventive measures to eliminate or reduce the environmental impact from its operations to levels generally acceptable to society, taking into account the costs as well as the benefits of such reduction. It should also do its best to repair any environmental damage caused by its operations. In judging environmental impact, attention should be given to the full life cycle of the firm's products, from the acquisition of raw materials through production and distribution to customer use and eventual disposal. 

8. Cooperate with Host Communities. Businesses should cooperate with the local communities in which they operate. Such cooperation should be extended not only at corporate headquarters but also at any branch facilities in other localities. The amount of financial help a firm can ordinarily give in cooperation with a community effort is prudently limited to a small fraction of its earnings, but businesses have other resources--such as physical facilities, technological and organizational know-how, leadership, and interested and caring employees--that can often be of significant assistance in meeting specific community needs. 
 

Sharing a fraction of those resources in appropriate instances for public-spirited purposes can be good business as well as good ethics. Those host communities contain current and potential future employees, customers, sometimes suppliers and significant investors, and always citizens and their elected officials whose decisions can affect the future social environment in which a firm operates. In addition, if the firm has a sincere and well-run community assistance program in which its employees are involved, that can produce a valuable dividend in uplifted employee morale. Finally, the value of community assistance projects introduced by one firm can be multiplied if it also invites other firms to become involved and mentors them in project know-how. Big firm-small firm cooperation in such mentoring can be especially productive. 

9. Helping the Disadvantaged. Helping disadvantaged citizens is a special concern in our society. Business should be willing to assist in work-related education and training to help could-be workers reach their full productive potential. 

Religious and community leaders point also to the need for compassionate help to those who cannot become productive and self-supporting. Business leaders, however, look upon providing such life-cycle support services as primarily a function for governments and volunteer service groups, both religious and secular, with business responsibility limited to paying appropriate taxes and making charitable contributions. 

10. Obey Applicable Laws. In part, laws and attendant regulations adopted by governments express ethical standards that citizens want to be sure are observed by all businesses subject to those rules. Complying with these and other applicable laws fairly enforced, however, does not fulfill all the ethical responsibilities of business firms. The ethical standards set forth in this statement also need to be addressed. On the other hand, if any government should issue a rule that violates the ethical standards herein described, firms with such ethical standards should not simply comply passively with the offending rule, but use the firms' channels as corporate citizens to point out the unethical effects of that rule and encourage appropriate action to modify or repeal it. 

11. Recognize Reciprocal Responsibilities. The ethical standards set forth thus far in this statement have been expressed primarily in terms of how a business should treat its stakeholders, i.e., its customers, investors, suppliers, host communities and employees. However, most of those standards also embody implicit reciprocal ethical responsibilities for those stakeholders. 
 

To be more specific: 

a. Customers of such a firm need to be reasonable in their requests and fair in any complaints they are making. Customers also have a serious responsibility for judging the ethics of the firms they deal with, and deciding which ones to continue to patronize, because shifts in customer loyalty from one firm to another can be the most powerful market tool for altering business behavior. 

b. Investors have a responsibility to understand and appreciate the merits of good ethical goals and behavior on the part of the firms in which they invest. Investors should take a long-term view of these matters, because sometimes ethical actions by a firm can involve costs in the short run but yield benefits that take a longer time to be realized. 

c. Suppliers should aspire to ethical standards that are as high as those of the firms they are supplying. Moreover, suppliers ought to be trustworthy in this respect, for mutual trust facilitates ethical behavior. 

d. Host communities (including both governments and citizens) ought to be cooperative, encouraging local business efforts to cooperate in community improvement. They should provide regular city services to business at reasonable rates, and be fair in the tax and regulatory burdens they impose on business. 

e. Employees should strive to perform their work responsibly and productively. They should respectfully observe the firm's ethical standards, at least as long as those are consistent with the standards set forth in this statement. However, in setting its own standards, the firm should also give consideration to the personal ethical standards of its employees. The more congruent are the firm's ethical standards and the personal ethical standards of its employees, the more effective its ethics program will be and the higher will be employee morale. Employees like to work for firms they can regard as ethical. 

To enable these constructive stakeholder responses to a firm's ethics program, that firm needs to communicate relevant information honestly, clearly and in timely fashion to its stakeholders, in a spirit of accountability to them. 

Stakeholders, in turn, ought to encourage the businesses they deal with to aspire to good ethical standards. Given the imperfections of the human condition, there are bound to be slips and shortfalls in introducing and measuring up to ethical standards as high as those proposed in this statement. Accordingly, firms would be well advised to design and implement their ethics programs so as to be reflexive, i.e., self-correcting. Knowledgeable stakeholders can and should appreciate this process and foster its progress. 

Pursued over the years, good ethics programs can lead to business performance that is efficient and beneficial to all concerned. 
 

Introduction:

Early signals:

They have warned me that corporate actions like these take time to bear fruit, and they aren't always powerful enough to overcome other weaknesses that might lurk within a firm. Nonetheless, more often than not well-managed steps in these directions can gradually add an increment of positive value to a company's rate of return on investment--this despite the fact that there may be a net drain on the bottom line for the first year or two. Happily for such companies, perceptive buyers often bid up a bit the value of the firm's stock in advance, based upon the discounted value of a conservative estimate of the future gain in profitability from these sources. 

Another signal?

I have been studying business ethics for a number of years. I have met a lot of CEO's in my varied activities, and I have often made a point of asking them what value they think the market places on the ethics program of their firm, or of any Fortune 500 firm. The standard response I hear is that the stock market is quick to punish any listed firm that is caught engaging in an egregiously unethical activity, but there does not seem to be much reward in the form of an enhanced stock price for firms who introduce a first-class ethics program. There may be exceptions--firms like Johnson and Johnson with a long history of ethical behavior, even in crises like the Tylenol scandal--but firms I have talked with that have introduced major improvements in their ethics programs typically do not see much timely appreciation of that improvement in their stock price. 

On the other hand, every CEO I have talked with who has made such a major step-up in the firm's ethics program is convinced that the firm will be better in the long run because of its improved ethical environment. Of course, such CEO's are not unbiased witnesses; but I have usually found them quite realistic in their approach to judgment in these matters. When I press them to be more specific, they cite such changes as improved employee morale, better trust within the company, higher quality output, fewer mistakes, a greater degree of responsible teamwork, better relations with suppliers, more courteous treatment of customers, and happier customers who come back more often. 

What's wrong?

Does that make me a heretic? I don't think so. The saving word in the preceding sentence is "available". Let's conduct a test right here: Among the companies you analyze, how many of them regularly provide you with timely, objective and results-oriented information on the efficacy or lack of efficacy of their ethics programs and any major changes therein? Please raise your hands if your answer is more than "five." If any of them do. 

The stock market cannot take into account valuable information it does not have. As I see it, the lack of availability of that kind of trustworthy information is the major barrier to analysts' ability to judge how much a first-class ethics program is worth in corporate value. 

When I look in a company's annual reports for information on their ethics program, what I typically find is a few paragraphs, or pages on their social responsibility, describing projects to help a community, or a school, or a symphony, accompanied by some appealing pictures. Those are laudable efforts, but they are hard to relate to either their employees' ethical behavior or the firm's bottom line. 

I have heard top-notch CEO's give rousing speeches about their firms' ethics programs, but typically those have been given to audiences made up primarily of human resource or ethics officers, not financial analysts. 

Why are companies with good ethics programs "hiding their light under a bushel", so to speak? Why aren't they cranking out objective information that can help financial analysts give appropriate weight to the future value inherent in those programs? 

The answer, I believe, hits close to home: because neither their in-house experts nor the academic experts in business ethics have come forth with measurement tools and techniques that can efficiently, objectively and reliably measure the chain of effects that run from the parts of an ethics program to the profit-making parts of the company. 

In defense:

Good managers who have to deal with human beings and their ethics often develop their own ways of finding out how well an ethics program is doing. They blend such process data with what they pick up in person-to-person contacts, and reach a subjective judgment on what's working and what isn't. Oftentimes that is good enough for operational purposes, but it is hardly information a financial analyst has access to or can make good use of. 

What financial analysts can do about this:

You can speak and write to the companies you analyze, urging them to put more and better information about their ethics program and the year-to-year changes in its workings into their annual reports. You can encourage them to have their auditors regularly assess their ethics program. You can occasionally invite their CEO's and ethics officers to your meetings to talk about the ethics side of their business. You can press them for their own subjective judgments on what difference their ethics programs are making for their companies. 

You can also turn to the colleges and research institutes interested in business ethics, and urge them to work hard on improving measurement tools and techniques that could be used to more objectively measure the efficacy of ethics programs in terms of company results. This is not a wild goose chase. Marketing analysts, consumer survey experts and even political pollsters have made major progress in measuring people's attitudes and responses, and the changes therein over time. The time is ripe to bring such expertise to bear on the arena of business ethics. 

Conscience compels me to admit that such research can be expensive to do. Accordingly, financial analysts will probably also have to push on the funding sources for such research groups to encourage some rejiggling in their priorities. 

But if I am right, the end results in the long run ought to be good--

• for financial analysts (especially those who get on the bandwagon early)
• for responsive companies and their shareholders
• for everyone else those ethical companies deal with
• and for our society at large.