The Relation between Law and Ethics in the Realm of the Business - Term Paper Example

The Relation between Law and Ethics in the Realm of the Business Table of Contents 1.0.INTRODUCTION 5 1.1. OBJECTIVE OF THE STUDY 5 1.2. RESEARCH METHODOLOGY 6 2.0.LITERATURE REVIEW 6 3.0. ANALYSIS AND DISCUSSION 10 As law provide the basic parameters and standards with which human action and interaction may be based, ethics provide the rationale why laws ought to be obeyed and at the same time it becomes the beacon when laws end. In light of this, the intricate connection between law and ethics in the businessworld is such that in the spectrum of all business transactions that may transpire, there is a guide for the corporation on what it ought to do. This means, that although ethics is on the gray area of business (Crane & Matten, 2007), this does not mean that businesspersons are totally lost in the dark when dealing with difficult business situations which is beyond the overage of law. 10 Fig. 3 10 LAW LAW AND ETHICS ETHICS 10 Figure 3 presents the idea that law and ethics supports the business realm in such a way that nobody can be indecisive about a course of action. However, this scenario is ideal. In reality, as both laws and ethics interact with the corporation, the context, the paradox between shareholder and stakeholders, individual values and behaviour, leadership and other similar elements and concerns that may influence the interaction of ethics and law, ethics continue to be the grey area of business while the laws are the clear-cut guide. 10 In this regard, it has been observed that as ethics upholds why laws should be obeyed, laws do not make the corporation ethical (Hess, 2006; Hess & Ford, 2008). The case of ENRON attests to this reality. ENRON has one of the best ethical codes; however, non-compliance to the code has made ENRON case one of the most sensational corporate scandals in the twenty first century (Thomas et al, 2004). 10 Furthermore, the literature review presents one contradiction in the application of ethics in business – ethics becomes self-interested (Jones, 2003). This view becomes clear in the saying ‘good ethics is good business’ (Hackworth, 1999). This is a contradiction in ethics since in ethics part of the deconstruction of the self is the limiting of the fulfilment of self-interest as the self recognises the presence of others (Jones, 2003). However, in ‘good ethics is good business’, it boils down to the fact that corporations choose to become ethical not because they are ethical but because it is good for the business. 11 Finally, in the literature review it has been mentioned that law and ethics do not work in a vacuum. In this regard, the other factors, which influence it, especially the human factor, make or break law and ethics in the business world. 11 4.0.PERSONAL VIEW 11 In this part of the paper, the author will be presenting his/her own position regarding law, ethics and the claim ‘good ethics is good business’. 11 The author agrees with Hackworth in ascertaining the claim that good ethics is good business. This is maintained for the following reasons: first, there are high costs of being unethical in the contemporary business world since 1. It creates a bad image. 2. It dissuades ethical buyers, which is a huge segment of the contemporary market (Memery et al, 2005). 3. It encourages customer defection (Thomas et al, 2004) 4. It can destroy the company in terms of litigation and bad publicity (Hackworth, 1999). However, people must be on guard regarding the tendency of reducing the value of ethics into the beneficial consequences that can be derived from practising ethics in the business community. 11 Second, the author believes that law and ethics in business are two powerful pillars that can transform business into a more humane and responsible human enterprise. However, as individual differences in character, values and behaviour sets in, no amount of laws can make a firm ethical in practise. As such, there is a need to transform human leadership in organizations in such a way that the human leaders become ethically minded in words and in actions, so that they can set an example for their employees to follow. Moreover, as the human factor is pivotal in law and ethics in business (Thomas et al, 2004; Hess, 2006; Hess & Ford, 2008; Anonymous, 2003; Hackworth, 1999; Laverty, 1996), management should provide an arena for the employees in practising ethical behaviour without fear of repercussions. 12 Finally, as law and ethics combine in business, it becomes one of the many positive responses to the challenges of the contemporary human condition, of the global society. As such, good ethics is not only good for business but is also good for the entire human society. 12 5.0. CONCLUSION 12 As law and ethics become essential in the contemporary business world, it should be borne in mind that law and ethics are insignificant and inconsequential if there is no authentic support for the human players to be ethical in their business transactions. As mentioned several times, no amount of laws can turn a firm ethical. Being such, the challenge of transforming an organization into an ethical one moves beyond the benefits that can be gained from being branded as ethical. It is in the heart of ethics it self – I and the Other authentically encountering each other in business transactions perform in a more humane global society. 12 BIBLIOGRAPHY 13 LIST OF FIGURES Figure One P 5 Figure Two P 7 Figure Three P 8 LAW AND ETHICS ABSTRACT Contemporary corporations have to change their nature from being primarily profit oriented towards a more ethically and socially responsible business entities. However, despite the seeming change in the nature of contemporary organizations, corporation fraud and scandals abound affecting even some of the largest corporations in the world. In lieu with this, the paper will be looking into the relation of law and ethics as it continues to become an integral part of contemporary organizations. Documentary research analysis is used in the conduct of the study. It has been found out that 1. There is an intricate relation between law and ethics in the business community, 2. That ethics in business opens a contradiction and 3. Law and ethics do not work in a vacuum. 1.0. INTRODUCTION The fast phase changes brought about by globalisation, which is a contemporary phenomenon (Soros, 2002), have influenced almost all facets of human interactions. Under this framework, economic and trade boundaries among and between nations have been minimised or totally removed allowing for a freer and more robust movements and exchanges of goods, people, services, culture, knowledge and technology (Balakrishnan, 2003; Fischer, 2003; Suarez- Orozco & Qin- Hilliard, 2004). In this regard, one of the most important sectors of the society that has been affected by the changes brought about by globalisation is no other than the business world. It is maintained that due to the dynamic and tougher global market, contemporary corporations have to change their nature from being primarily profit oriented towards a more ethically and socially responsible business entities (Zolsnia, 2006; Hemingway, 2002). However, despite the seeming change in the nature of contemporary organizations, corporation fraud and scandals abound affecting even some of the largest corporations in the world like ENRON, WorldCom. In lieu with this, the paper will be looking into the relation of law and ethics as it continues to become an integral part of contemporary organizations. 1.1. OBJECTIVE OF THE STUDY This study intends to understand the intricate relation between law and ethics in the realm of the business. Moreover, it seeks to identify some of the factors that may influence the connection between law and ethics in the life of contemporary corporations. Finally, it is also the aim of the paper to single out some of the concerns that are currently affecting law and ethics in the business world. 1.2. RESEARCH METHODOLOGY In order to attain the objectives set in this study, documentary research analysis is utilised. Documentary research analysis is the collection of secondary sources pertinent to the subject matter and written by scholars in the field. In this line with this, Academic Source Premiere, Jstor, GoogleSchoolar, Eric and Business Source Complete had been searched using the combination of the following key terms: law, ethics, business ethics, corporations, globalisation and corporate scandals. Articles published in peer-reviewed journals from the period of 2001 to 2009 and written only in English were included in the selection. Excluded in the searched were monographs, opinions, editorials, position papers and pamphlets. The reference list of the articles was searched to identify additional relevant publications. 2.0. LITERATURE REVIEW As the nature of contemporary corporations have shifted from being solely profit oriented towards becoming more integrated in the socio-political, ethical and environmental concerns of the society where they have become actors and agents (Hemingway, 2002; Zolsnia, 2006), corporations are confounded by the stakeholder paradox – the paradox between the shareholders/stockholders and the stakeholders (Goodpaster, 1991; Hemingway, 2002). Stockholders are those whose primary interest in the organization is the return of investments or profit. While on the other hand, the stakeholders are those people or group of people whose interest in the corporation goes beyond profit and “who can affect or is affected by the achievement of the organisation’s goals” (Goodpaster, 1991, p 54) and examples of stakeholders are employees, customers, suppliers, government and communities. The diverging interest between the shareholders and the stakeholders put the management of the organization right at the heart of the paradox. Hackworth (1999) claims that the only way for an organization to survive and compete in the global market is for it to be ethical. However, for an organization to be ethical it is not enough that there is an existing ethical code of conduct that the employees and management must follow. Rather, being ethical refers to the idea and actuality that the leadership of the organization is willing to make business decisions not only within the bounds of law and profit but is prepared to include the ethical dimension of their decisions and actions (Hackworth, 1999). An ethical management is “is management that includes careful attention not only to stockholders but to stakeholders generally in the decision-making process” (Goodpaster, 1991, p53). As such, the question between profit and abuse of trust of the customers, inhumane treatment of workers, sub-quality products, loss of trust by the employees to the management and other similar scenarios necessitate that decisions undertaken move beyond rule of law towards the ethical. However, where do laws end, and ethics begin? Fig. 1 SOURCE: Crane & Matten, 2007 The law provides the minimum standards of behaviour with which the corporation will conduct itself (Crane & Matten, 2007). Laws applicable to the corporation come from governmental laws and regulations as well as the laws of the corporation itself. In this sense, law is the “the public’s agency for translating morality into explicit social guidelines and practices” (Beauchamp & Bowie, 2004, p 4). In this regard, as long as the law does not promote any unjust behaviour, it is deemed to be a moral obligation to follow the tenets of law (Velasquez, 2006). In the other way around, it is immoral and unethical to break the law (Velasquez, 2006). The gray area in figure one shows the concern of business ethics. The case of Kathy Lee Gifford who obtained her products from offshore manufacturers who paid sub-living wages (Hackworth, 1999), the case of MiniScribe who duped the customers just to increase sales (Hackworth, 1999) and other similar cases where the boundary between law and ethics is blurred. However, what is ethics, especially in the realm of business? Ethics is generally understood as the principles of conduct governing an individual or a group of persons. It is the study of morality. In business, ethics is also understood as a strategy that corporations adopt in order to minimise risks, create a positive perception or image for the company, limit the firm’s legal responsibility and encourage moral behaviour among its employees (Jones, 2003). Being such, corporations gain direct or indirect financial gain out from being ethical (Jones, 2003). Fig 2 SOURCE: Thomas et al, 2004 Figure 2 presents why the option of being ethical for a firm is more beneficial financially. Since, it helps the company to avoid fines and penalties impose by laws and prevent the happening of situations found in level 3. However, it should be noted that there are other factors that influence the relation of law and ethics in the business world. These includes the individual values of the members of the organization, the support of the leadership, the example set by the leadership, the organizational culture, the ethical culture of the organization and the commitment to ethics (Hackworth, 1999; Jones, 2003; Thomas et al, 2004; Anonymous, 2003; Borrie, 1996). In this regard, it can be claimed that the intricate relation between law and ethics in business stem from providing guidance and principles in attaining a more humane and holistic interaction among human persons in the business world. Nevertheless, it should be kept in mind that the relation is not in a vacuum but it is affected by several elements that may hamper or impede lawful and ethical corporate governance. 3.0. ANALYSIS AND DISCUSSION As law provide the basic parameters and standards with which human action and interaction may be based, ethics provide the rationale why laws ought to be obeyed and at the same time it becomes the beacon when laws end. In light of this, the intricate connection between law and ethics in the businessworld is such that in the spectrum of all business transactions that may transpire, there is a guide for the corporation on what it ought to do. This means, that although ethics is on the gray area of business (Crane & Matten, 2007), this does not mean that businesspersons are totally lost in the dark when dealing with difficult business situations which is beyond the overage of law. Fig. 3 LAW LAW AND ETHICS ETHICS Figure 3 presents the idea that law and ethics supports the business realm in such a way that nobody can be indecisive about a course of action. However, this scenario is ideal. In reality, as both laws and ethics interact with the corporation, the context, the paradox between shareholder and stakeholders, individual values and behaviour, leadership and other similar elements and concerns that may influence the interaction of ethics and law, ethics continue to be the grey area of business while the laws are the clear-cut guide. In this regard, it has been observed that as ethics upholds why laws should be obeyed, laws do not make the corporation ethical (Hess, 2006; Hess & Ford, 2008). The case of ENRON attests to this reality. ENRON has one of the best ethical codes; however, non-compliance to the code has made ENRON case one of the most sensational corporate scandals in the twenty first century (Thomas et al, 2004). Furthermore, the literature review presents one contradiction in the application of ethics in business – ethics becomes self-interested (Jones, 2003). This view becomes clear in the saying ‘good ethics is good business’ (Hackworth, 1999). This is a contradiction in ethics since in ethics part of the deconstruction of the self is the limiting of the fulfilment of self-interest as the self recognises the presence of others (Jones, 2003). However, in ‘good ethics is good business’, it boils down to the fact that corporations choose to become ethical not because they are ethical but because it is good for the business. Finally, in the literature review it has been mentioned that law and ethics do not work in a vacuum. In this regard, the other factors, which influence it, especially the human factor, make or break law and ethics in the business world. 4.0. PERSONAL VIEW In this part of the paper, the author will be presenting his/her own position regarding law, ethics and the claim ‘good ethics is good business’. The author agrees with Hackworth in ascertaining the claim that good ethics is good business. This is maintained for the following reasons: first, there are high costs of being unethical in the contemporary business world since 1. It creates a bad image. 2. It dissuades ethical buyers, which is a huge segment of the contemporary market (Memery et al, 2005). 3. It encourages customer defection (Thomas et al, 2004) 4. It can destroy the company in terms of litigation and bad publicity (Hackworth, 1999). However, people must be on guard regarding the tendency of reducing the value of ethics into the beneficial consequences that can be derived from practising ethics in the business community. Second, the author believes that law and ethics in business are two powerful pillars that can transform business into a more humane and responsible human enterprise. However, as individual differences in character, values and behaviour sets in, no amount of laws can make a firm ethical in practise. As such, there is a need to transform human leadership in organizations in such a way that the human leaders become ethically minded in words and in actions, so that they can set an example for their employees to follow. Moreover, as the human factor is pivotal in law and ethics in business (Thomas et al, 2004; Hess, 2006; Hess & Ford, 2008; Anonymous, 2003; Hackworth, 1999; Laverty, 1996), management should provide an arena for the employees in practising ethical behaviour without fear of repercussions. Finally, as law and ethics combine in business, it becomes one of the many positive responses to the challenges of the contemporary human condition, of the global society. As such, good ethics is not only good for business but is also good for the entire human society. 5.0. CONCLUSION As law and ethics become essential in the contemporary business world, it should be borne in mind that law and ethics are insignificant and inconsequential if there is no authentic support for the human players to be ethical in their business transactions. As mentioned several times, no amount of laws can turn a firm ethical. Being such, the challenge of transforming an organization into an ethical one moves beyond the benefits that can be gained from being branded as ethical. It is in the heart of ethics it self – I and the Other authentically encountering each other in business transactions perform in a more humane global society. BIBLIOGRAPHY Anonymous, 2003, ‘The good, the bad and their corporate code of ethics: ENRON, Sarbanes-Oxley and the problems of legislating good behaviour’, Harvard Law Review, Vol. Balakrishnan,P, 2003, ‘Globalisation, power and justice’, Economic and Political Weekly, pp 3166 – 3170. Beauchamp, T L & Bowie, N E, 2004, Ethical theory and business, 7th ed,Prentice Hall, Upper Saddle River, NJ. Borrie, G, 1996, ‘Blowing the whistle: Business ethics and accountability’, The Political Quarterly, pp 141 – 150. Crane, A, & Matten, D, 2007, Business Ethics, second Edition, Oxford University Press, New York. Fischer, S, 2003,’Globalisation and its challenges’, The American Economic Review, Vol. 93, No 2, pp 1 – 30. Goodpaster, KE, 1991, ‘Business ethic and stakeholder analysis’, Business Ethics Quarterly, Vol. 1, No 1, pp. 53 – 73. Hackworth, M, 1999, ‘Only the ethical survive: Leadership in fairness and honesty makes good business sense’, Delivered at American Society of Engineering School Deans March 1999. Hemingway, CA, 2002, ‘An exploratory analysis of corporate social responsibility: definitions, motives and values’. Research Memorandum 24, CMOL, Hull University Business School, UK. Hess, D, 2006, ‘A business ethics perspective on Sarbanes Oxley and the organizational sentencing guidelines’, Working Paper Series No. 1053, Ross School of Business Working Paper Series. Hess, D, & Ford, C, 2008, ‘Corporate corruption and reform undertakings: A new approach to an old problem’, Cornell Int’l LJ, Vol. 41 , pp 307 – 346. Jones, C, 2003, ‘As if business ethics were possible, ‘within such limits’…’, Organization, V10(2), pp 223 – 248. Laverty, K.J. (1996). “Economic short termism: the debate, the unresolved issues, the implications for management research”, The Academy of Management Review, Vol. 21, No. 3, pp 825 – 860. Memery, J, Megicks, P, & Williams, J, 2005, ‘Ethical and social responsibility issues in grocery shopping: a preliminary typology’, Qualitative Market Research: An International Journal, Vol. 8, No 4, pp 399 – 412. Soros, G,2002 George Soros on Globalization Open Society Institute, New York. Stevens, B, 1994, ‘An analysis of corporate ethical code studies: “Where do we go from here?”’, Journal of Business Ethics, 13, 63 -69. Suarez-Orozco, MM, & Qin – Hilliard, DB, 2004, Globalization: Culture and Education in the new Millennium, THE ROSS INSTITUTE Berkeley. Thomas, T, Schermerhorn, JR, & Dienhart, JW, 2004, ‘Strategic leadership of ethical behavior in business’, Academy of Management Executive, Vol. 18, No 2, pp 56 -67. Velasquez, MG, 2006, Business Ethics: Concepts and Cases, Sixth Edition, Pearson, New York. Zolsnai, L, 2006, ‘Competitiveness and corporate social responsibility’, CSR Paper, Retrieved at http://www.feem.it/Feem/Pub/Publications/CSRPapers/default.htm. Accessed on 22 October 2010. (414 words) Read More