Three Instruments to Foster Global Business Ethics by Josef Klee, Ph.D.

Three Instruments to Foster Global Business Ethics
The Rotary Four-Way Test, the UN Global Compact,
& the Global Economic Ethic Manifesto

By Josef Klee, Ph.D.

Doctor Klee is a former UN Deputy-Director and adviser to the Holy See Mission to the UN. He has published 4 books and more than 60 articles about management topics. Presently, he is Adjunct-Professor at the St, Thomas University in Miami.

The Need for Global Business Ethics

The latest global financial and economic crisis has intensified discussions about business ethics which have become a topic of widespread interest. Today, politicians, business leaders, clergy, scholars, etc. all participate in the debate about ethical issues related to the economy and the conduct of business operations.

Business ethics are not a new or recent matter of concern. Throughout history, there have always been merchants and business owners who, in their business dealings, have applied certain values or virtues and moral principles often rooted in their religious beliefs.

At the beginning of the last century, however, business leaders and scholars recognized the need for a common ethical framework for operating a business and began to address business ethics in a more systemic fashion.

Rotary International, founded in 1905, was among the first global organizations to adopt a set of ethical principles to be observed by its members with respect to their professional and business responsibilities. From the outset, practicing high ethical standards in business and professions is one of Rotary’s guiding principles for its membership.

In the academic world, Catholic universities took the lead in establishing chairs for business ethics.

Since the Second World War and in particular after the corporate scandals
in the 1980’s, the interest in the issue of business ethics exploded; and most of the leading business schools invested heavily in business ethics programs.

Considering these efforts to promote and to teach business ethics, one must ask the question, how to explain the many scandals and serious ethical management offenses in recent years. Serious doubts remain whether one can successfully teach values, virtues and good ethical behavior with the objective to ensure proper, just and fair business operations.

This also raises the question concerning the wisdom of constructively teaching ethics in business schools. How can a graduate of a business school reconcile the dilemma to be expected to act as an aggressive and smart manager geared towards maximizing profits or shareholder value as taught in classes of marketing or finance, and at the same time, to practice social responsibility as taught in the ethics course?

Since the fall of the Soviet Empire, we have witnessed a rapid pace of economic globalization. Both political and business leaders have recognized that the world needs a new approach to dealing with the challenges of globalization, in particular regarding its negative effects in developing countries as well as concerning the state of business in industrialized nations. There is a consensus in the international community that the global economy can only function effectively if it operates within a framework of ground rules for a fair and sustainable commercial exchange and for cooperation. Such a framework must include ethical principles which are accepted in all cultures and traditions.

In my understanding, there are three important public examples of ethical principles which enjoy universal acceptance and can serve as guidance for participants in the global economy. These three instruments are:
the Rotary Four-Way Test
the United Nations Global Compact
the Global Economic Ethic Manifesto

These three instruments share similar values and ideals and pursue the same objective, namely to encourage and foster the application of high ethical standards in business. All three instruments rely on voluntary observance and are not legally binding. They serve as a moral/ethical code or guide for proper attitudes and behavior in conducting business decisions and operations.

At some level, these instruments are connected and complement each other. For example, Rotary International and the United Nations Global Compact Office have specifically recognized and acknowledged that they share the same values implied in their work. They have established a formal agreement of cooperation in a joint letter “to encourage a set of joint activities to advance the shared ideals of high ethical business practices, sustainable humanitarian action, and world peace and understanding”.

In a similar way, the Global Economic Ethic Manifesto and the United Nations Global Compact are linked by mutual understanding and support. Both instruments share core values which are universally accepted; and Hans Kung, the initiator of the Manifesto, has expressly stated that the Manifesto intends to support the Global Compact from the angle of ethics.(1)

The Rotary Four-Way Test

Rotary International, the world’s first service-club organization, is truly a universal and global organization. More than 1.2 million members live and serve in 200 countries. Rotary enjoys all over the world a unique reputation for its high ideals of service and its
hands-on approach to assist people in need. The former United Nations Secretary-General, Kofi Annan, has described Rotary’s highly successful signature program to eradicate polio “a shining example of private/public partnership”.

From its inception, Rotary’s mission, besides the ideal of service, included the obligation of its members to achieve high ethical standards in business and profession. Thus, as mentioned above, Rotary is considered as one of the pioneers in fostering business ethics.

In 1932, Herbert J. Taylor, a successful businessman and prominent Rotarian who also served as President of Rotary International, developed the Rotary Four-Way Test. In designing the test as an instrument to encourage and foster ethical behavior in business, Taylor had studied existing ethics codes and concluded that they were too long and difficult to memorize, rendering them impractical. His aim was to develop a simple guide in form of a checklist because he believed one should not tell a person what he/she can or cannot do. Instead, a person should ask questions concerning his/her behavior, decisions and actions in conducting business.

Finally, he formulated the so-called Four-Way Test consisting of four questions which now constitutes the hallmark of Rotary International. The four questions of the Test are:
1. Is it the Truth? 2. Is it Fair to All Concerned? 3. Will it Build Goodwill and Better Friendships? 4. Will it Be Beneficial to All Concerned?Taylor and his managers themselves tested the new guide and applied it in their daily business dealings. With the application of the Four-Way Test, Taylor was able to make his company profitable and very successful.

In 1943, Rotary International officially adopted the Four-Way Test as an ethical guide for its members. The Test has been translated in more than hundred languages, and in many Rotary Clubs worldwide, the Test is recited and reconfirmed regularly at the meetings.

In addition, many Rotary Clubs and Rotary Districts have developed special projects, such as essay and speech competitions regarding the meaning of the Test, as well as awards for outstanding applications of the Test to promote its dissemination.

The Rotary Four-Way Test as an instrument for business ethics has the distinctions that it is simple to apply and has proven its acceptance in all cultures; thus the Test has made a unique difference in the lives of Rotary members and the people they serve.
The United Nations Global Compact
The former United Nations Secretary-General , Kofi Annan, initiated the Global Compact. At the 1999 World Economic Forum in Davos, the Secretary-General had
expressed his concern that the growing opposition to globalization in many parts of the world could impede free trade and free flow of investment, hinder sustainable economic growth and ultimately threaten social, economic and political stability worldwide.

He asked the business leaders not to wait for governments to impose new laws but to demonstrate responsibility and take the initiative for constructive change by embracing a set of nine principles for the practice of their global operations. These principles are derived from universally accepted international agreements on human rights, labor standards and environment protection, and they relate to the following issues:

In the area of human rights, business enterprises should:
1. Support and respect the protection of human rights; and
2. Ensure that they are not complicit in human rights abuses.Regarding labor standards, business enterprises should:

3. Uphold the freedom of association and the right to collective bargaining;
4. Eliminate all forms of forced and compulsory labor;
5. Abolish child labor; and
6. Eliminate discrimination in respect of employment and occupation.

Concerning the protection of the environment, business enterprises should:
7. Support a precautionary approach to environmental challenges;
8. Undertake initiatives to promote greater environmental responsibility;
9. Encourage the development and the diffusion of environmentally friendly technology.

In 2004, a tenth principle, derived from the United Nations Convention against Corruption, was included in the Global Compact. This principle against corruption reads as follows:

10. Business should work against corruption in all its forms, including extortion and bribery.
Companies wishing to engage in the Global Compact have to declare in writing to the United Nations Secretary-General that they support the principles of the Global Compact and are committed to take concrete actions such as:
Issuance of a statement of support for the Global Compact addressed to the company’s stakeholders, employees, customers, suppliers and shareholders;
Application of the ten principles of the Global Compact in all corporate activities, submission to the Office of Global Compact of reports on concrete examples of progress made or lessons learned from implementing the principles; and
Partnering with United Nations organizations and non-governmental organizations (NGO’s) to assist in solving global problems.

The Global Compact is a voluntary instrument. It is not a legally binding and enforceable code of conduct. Rather, the Global Compact is meant to foster constructive cooperation among the participants in dealing with the impact of globalization, and it is designed as a forum to share information and expertise for finding global solutions to remedy negative effects from globalization.

In July 2000, the Global Compact was formally launched at a meeting at the United Nations Headquarters in New York attended by about fifty leaders from business, labor and civil society. Today, more than 7700 corporate participants and stakeholders from different industries and from every continent have joined the Global Compact.

Governments, trade associations, universities and other institutions have organized events and meetings to present and to promote the Global Compact. Participating companies have organized national and regional networks to share their experience in applying the principles in their business strategies and operations. Also, companies cooperate with United Nations agencies and NGOs to provide humanitarian assistance or development aid in various parts of the world. In addition, universities have started to teach and conduct research on the Global Compact and related global issues.

However, the Global Compact has its critics. They claim that participating in the Global Compact allows companies to embellish their reputation, or that participating companies use the Global Compact for public relations purposes only without intending to ever change questionable corporate behavior

In addition, some critics believe that the Global Compact is not effective because it functions on a voluntary basis and therefore lacks monitoring and enforcement authority.
The Global Compact is still evolving. Its success will ultimately be measured by how effectively its member corporations will cope with the challenges of globalization and how they will contribute to improving human rights, alleviating poverty, improving working conditions, protecting the environment and to eradicate corruption.

The Global Economic Ethic Manifesto

The Global Economic Ethic Manifesto was composed by a committee of German and Swiss scholars and senior business executives; and it was launched last year at the headquarters of the United Nations in New York in the presence of ambassadors and United Nations officials.

The Manifesto provides an ethical framework guiding the actions of the global economic and business community. In the words of Hans Kung: ”It provides to everybody in these stormy seas an orientation as a chart to steer by, a map with clear ethical coordinates, … an ethical guideline for the difficult decisions that need to be taken in the harsh reality of everyday life”. (2)

The Manifesto is built on the values and principles expressed in the “Declaration toward a Global Ethic,” issued by the Parliament of World Religions in 1993.

As indicated above, the Manifesto aims at supporting the United Nations Global Compact. Josef Wieland, one of the drafters of the Manifesto, states that “one of the intentions of the authors is for the Manifesto to provide individual and virtue-based ethical foundations to the management principles of the United Nations Global Compact”. (3)

The Manifesto is a rather elaborately worded document. Its text consists of a preamble and two chapters with 13 articles. Its preamble outlines the vision and core-values and principles of the Manifesto.

The first chapter defines the principle of humanity as “Being human must be the ethical yardstick of all economic action” (4), and it consists of four articles:
Article 1: Economic action must fulfill human being’s basic needs so that they can live in dignity.
Article 2: The dignity and self-esteem of all human beings are inviolable.
Article 3: To promote good and to avoid evil is the duty of all human beings.
Article 4: What you do not wish done to yourself do not do to others.
The second Chapter defines different basic values of global economic activity and consists of nine more articles linked to four general headings
Basic Values of Non-Violence and Respect for Human Life
Article 5: All human beings have the duty to respect the right to life and its development.
Article 6: Sustainable treatment of the natural environment is an uppermost value-norm for economic activity.
Basic Values of Justice and Solidarity
Article 7: Justice and the rule of law are fundamental values of economic life.
Article 8: The pursued of profit is necessary for the survival of a business. The prevention of corruption is the duty of all stakeholders.
Article 9: Equal opportunity, distributive justice and solidarity ensure sound economic development.
Basic Values of Honesty and Tolerance
Article 10: Truthfulness, honesty and reliability are essential values to promote general human well-being.
Article 11: Diversity is a source of prosperity and discrimination of human beings violates the principles of ethics.
Basic Values of Mutual Esteem and Partnership
Article 12: Mutual respect, understanding and fairness are indispensable for economic success.
Article 13: Partnership finds its expression in the ability to participate in economic life.
The authors of the Manifesto claim that its ethical principles prescripts and stipulations are universal. It remains to be seen if the Manifesto will find worldwide acceptance. Due to its rather complex structure and particular stylistics concerning the wording of its text, the Manifesto is not an easy guide for daily use in corporations and government offices. However, the Manifesto is an excellent document to study and to teach global values and ethical principles both at universities and in the business world.

The three instruments discussed share the overall objective to foster ethical behavior in business and to provide principles and guidelines for achieving this goal. However, they differ widely concerning the focus and priority of specific targets of ethical behavior and of methods of implementation.

A company or organization interested in promoting ethics could choose one of the instruments and, if necessary, to make modifications to tailor it to its specific needs and corporate culture. It would be most important that the leadership of such a company or organization make a serious commitment to adoption and implementation, and do simply not pay lip-service for image and public relations purposes.

Manifesto Global Economic Ethic, Deutscher Taschenbuchverlag ,2010
(1) page 170
(2) page 175
(3) page 144
(4) page 155

Author: Dr. Josef Klee, New York , is former UN Deputy-Director and adviser to the Holy See Mission to the UN. He has published 4 books and more than 60 articles about management topics. Presently, he is Adjunct-Professor at the St, Thomas University in Miami.
Autor: Dr. Josef Klee, New York, ist ehemaliger Deputy-Director der Vereinten Nationen und Berater der Vertretung des Heiligen Stuhls bei den Vereinten Nationen. Er hat 4 Buecher und mehr als 60 Aufsaetze ueber Managementfragen veroeffentlicht. Zur Zeit ist er Adjunct-Professor an der St. Thomas University in Miami.