The Single Principle of Business Ethics

Mentor Graphics (where I used to work) states “Win, Ethically” as one of its core values. Of course, winning is a desire of most businesses; it is the “ethically” part of the statement that is notable. During my time at Mentor, I was impressed with the ethics of the people with whom I worked. As an employee, I was fairly treated. And, as an executive, I was always encouraged to “do the right thing” for employees, customers, and suppliers — even when that lead to additional expense, or inconvenience for the corporation. “Win, Ethically” wasn’t just an empty slogan.

But, to say that ethics implies doing the right thing is of course circular; how does one know if one is doing the right thing?

During my tenure, Mentor administered an annual ethics training course to all of its employees. That course reminded employees that revealing confidential information was unethical — with significant legal consequences. We were advised that making a promise to a customer that went beyond our contractual obligations was a “side letter” — which might prevent revenue recognition. And that bribing a public official in a foreign country, no matter how customary such payments might be, was a violation of the Foreign Corrupt Practices Act — possibly resulting in criminal sanctions.

Certainly, all of these actions are unethical — but why? What is the unifying principle that makes all of these actions unethical?

Corporations often have goals that go well beyond “increasing shareholder value.” For example, some companies make commitments to the ethnic diversity of employees, to delivering environmentally sustainable products, or to providing assistance to impoverished regions of the world. Employees, customers, and even shareholders often find these goals attractive. (Of course, if employees are more productive, or customers more willing to buy, even shareholders with a purely financial motive should rationally support such initiatives.)

It is, however, ethical for a corporation to pursue profit, without substantial concern for social or environmental goals. Hiring employees in a low-cost region (at the expense of jobs in a higher-cost region) or using cheaper, but harder-to-recycle, packaging is not inherently unethical. (Of course, I’m not in any way condoning slavery, dumping of heavy metals, or other such abuses!)

If you are my customer, I have no expectation that you will continue to do business with me if you find a better supplier, no matter how amicable our relationship. If you are my employee, I will not consider you dishonorable if you take a better job elsewhere. And if you work for a competing enterprise, I will not hesitate to call on your clients, even if I know that my victory might result in harm to your career. I never expect favors from a business partner, even if we have a personal friendship.The business world is competitive, and, in some respects, brutal.

The one foundational principle of business ethics is very simple: an ethical businessperson keeps his or her word.

If I tell you that I will deliver a particular product on a particular date, I must do everything I can to honor that promise. If I tell you that I will purchase your product if it has Feature X, and you demonstrate Feature X, I should purchase your product. If I sign an employment agreement to work for you, it’s unethical for me to accept a competing offer the next day. If I tell you that I am committed to hiring more minority employees, I should have a substantive program to recruit such people.

This principle explains why side letters are unethical; the person promising delivery of the new feature (the salesperson) cannot guarantee that the people responsible for implementing the feature (the engineering team) will in fact make delivery. Resulting financial restatements are an important practical problem for the corporation, but they are not the inherent reason that the side letter is unethical. Likewise, it is unethical to share confidential information because such sharing violates a promise, not because of the legal consequences. It makes no difference whether the promise was made via a signed NDA, a handshake, or a mere nod. Bribing a foreign official is unethical because the transaction must be concealed (a form of lying), because the official is violating a commitment not to accept a bribe, and because the offeror is almost certainly violating her promises to her employer. The fact that the offeror may go to jail is a consequence, not a cause, of the fact that bribery is unethical.

This foundational principle of business ethics explains why many businesspeople routinely use linguistic hedges. Phrases like “I expect that” or “we have no current intentions to” are common because they convey intent, but avoid making a promise the speaker is not in position to keep. To some, these sounds like “weasel words,” but to me they reflect that the speaker is honest. I’d much rather a business partner tell me “I am confident we can close the deal” than tell me “It’s a done deal” — only to tell me later that the CEO didn’t approve.

Can you think of an unethical business action that does not somehow involve a failure to honor a commitment?


8 thoughts on “The Single Principle of Business Ethics

  1. The examples of slavery and dumping heavy metals would seem, on the face of it, to be unethical actions that don’t involve failure to honor a commitment, especially if a clever corporation can find places to do these things where they aren’t actually illegal (given that we all have an implicit commitment to abide by the law). But on the other hand it could be argued that a commitment of some kind underlies any ethical principle – perhaps for those two examples the commitment in question would be “strive to leave the world in a better place than we find it”.

    • Nobody should engage in slavery because it’s immoral, which I think of as different from “unethical”. My use of the words may be imprecise, but I think of “morals” as standards of personal behavior. Different people have different standards of morality; for example, some people consider consumption of alcohol immoral while others do not. Businesspeople should not certainly not commit immoral acts, at least according to their own standards of morality. But, business ethics is something more general than morality, and independent of legality. I don’t mind doing business with someone whose morals are quite different from my own, but I do stop doing business with someone who I feel does not honor their commitments.

  2. Suppose you had business with a company, and its HR starts cold-calling your employees the next day. Is that an ethical behavior, assuming the contracts did not contain an explicit clause about that? Is that ethical if they start calling after a month? Would you do business with a company known to routinely do it?

    I’d say the most basic and most useful definition of an ethical business behavior would be behavior that, in addition to short-term personal gain, considers long-term benefit for all parties with significant weight. If so, trying to keep commitments is the base level of ethical business – if everybody break promises at the least opportunity, all business will halt. But it’s hardly the only level. Say, not hiring any women for a particular job might be legal in some countries, and might be even reasonable, but is detrimental for society. Firing an employee overnight might be within contract commitments, but if everybody do it, job market will collapse.

    Possibly, it’s not about ethical or not, but rather some ethics weight, defined as relative weight between personal good and society good when making decisions?

    • I don’t think that the examples you give (attempting to poach contractors, or even discrimination) are unethical behaviors. They are both, however, stupid business practices. If you poach contractors, the price of contractors will go up significantly. If you discriminate, you deny yourself talented people, your competitors will hire the people you are too foolish to hire, your own workforce is likely to disapprove of you, you’re likely to find yourself targeted for protests, and, of course, you may well be violating the law. I am not in any way excusing or justifying the sorts of business practices you mention, but my feeling is that “business ethics” is about something different. Similarly, I don’t think that murder is a demonstration of bad business ethics; it’s a demonstration of immorality.

      • I’m a bit loss about distinction between business ethics and morality. Your earlier comments suggested the former pertains to business relationship, while the latter pertains to personal behavior. However, both breaking commitments and poaching contractors are business behaviors, and both are behaviors nobody will be happy about in business partners. So why one of them is about ethics and another is about morals?

  3. I don’t think poaching contractors is either unethical or immoral, provided there is no agreement to the contrary. It’s “hardball”, and generally unproductive; in other words, I think it’s bad business, not bad business ethics.

  4. How about patently false advertising, perhaps in claiming that some trade show exhibit has features that are not in fact available? Or making false claims about a rival company? I’d say that most forms of lying about products are unethical without being a commitment, but perhaps they’re immoral!

    • I certainly agree that both false advertising and false claims about a competitor are bad business ethics. (And issues of ethics, not issues of morality. Lying isn’t always immoral!) I think that false advertising is a form of a broken commitment; the advertisement made a promise which the product doesn’t keep. False statements about a rival are a bit different, but I think they are in the same general category.

      Your specific question about trade show exhibits is interesting. It’s routine for companies to demonstrate features that aren’t yet released, or to show mock-ups. I don’t think it’s unethical to show a mock-up, so long as no claim is made that the feature is available today. What do you think?

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