Business Ethics And The Law: Navigating The Complex Landscape

Business ethics laws and regulations dictate a standard of conduct that goes beyond simply doing the legally right thing, instead, they require companies to act morally right. The law usually sets the tone for business ethics, but doing the bare minimum is generally frowned upon. Business ethics are often the subject of discussion and debate, especially in the wake of high-profile cases of ethical breaches. Some ethical principles, or standards of moral behaviour, have been codified into laws, such as the Fair Labour Standards Act and truth in advertising laws. However, unethical behaviour is not always illegal. Ethical principles go beyond just obeying the law to comprise a code of conduct that governs all business dealings.

Corporate governance

Good corporate governance is essential for growing profits and a positive reputation. It entails establishing long-term strategic objectives and plans, implementing the proper management structure, and maintaining transparent decision-making processes. At its core, corporate governance represents the moral, ethical, and value frameworks that guide an enterprise's decisions.

The concept of corporate governance requires analysis of two levels: internal corporate agency concerns and the emergent effects on social welfare. Corporate agency is based on the idea that employees, managers, and directors should act in the best interests of owners or shareholders. However, conflicts of interest and a lack of specific knowledge or skills can lead to decisions that ultimately harm the company and its shareholders. To mitigate these issues, various oversight, transparency, and incentive mechanisms have been developed.

Social welfare, on the other hand, emphasizes fair dealing with all stakeholders, including customers, employees, suppliers, communities, and shareholders. This reflects the ongoing debate about the purpose of corporations in society. Even shareholder-centric models acknowledge the importance of nurturing reputations and minimizing negative externalities to maintain their freedom to operate.

The history of corporate governance is relatively new. While businesses in the past likely followed some "code of honour", it wasn't until the 21st century that greater attention was paid to how companies operate and their impact on employees and communities. The development of ethics and compliance programs has been influenced by external factors such as economic turmoil and the increasing scrutiny of private citizens.

To promote good corporate governance, companies should establish a clear set of values that promote ethical practices and social responsibility. This includes developing and distributing a code of conduct that addresses legal considerations, value-based ethics, regulatory ethics, and professional behaviours. Additionally, companies should implement whistleblower policies to address ethics violations and maintain confidentiality and sensitivity.

Insider trading

Arguments Against Insider Trading

There are several reasons why insider trading is considered unethical and illegal. Firstly, it creates an unfair market by giving certain individuals an advantage over others. This can discourage ordinary people from participating in the market and make it harder for companies to raise capital. It also prevents investors without non-public information from receiving the full value for their securities. If non-public information was disclosed, the markets could integrate this knowledge, resulting in accurately priced securities.

Arguments for Insider Trading

Proponents of insider trading argue that it is not inherently harmful and can even be beneficial to markets. They claim that it allows non-public information to be reflected in a security's price, making markets more efficient. By allowing insiders to trade based on their knowledge, price movements can convey information to other investors, who can then make more informed decisions.

Banning insider trading, they argue, only delays the inevitable and can lead to investor errors. If insiders are prevented from acting on their knowledge, other investors may miss out on opportunities or make uninformed decisions.

Additionally, critics of insider trading laws argue that they can result in false accusations and innocent people being punished. As the laws become more complex, it can be challenging for individuals to know what is and isn't legal, potentially leading to accidental violations.

Legal Perspective

The definition of "insider" is broad and can include not only company directors and employees but also temporary insiders such as attorneys, accountants, consultants, and bank lending officers who have access to confidential information.

Penalties for insider trading can be severe and include fines, disgorgement of profits, and even imprisonment.

Bribery

To combat bribery, organisations should adopt a zero-tolerance policy and commit to conducting business ethically. This involves establishing and upholding a strong culture of integrity, encouraging ethical behaviour, and discouraging and penalising unethical practices. Additionally, companies should implement adequate procedures to prevent bribery, as mandated by laws such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977, which have extraterritorial reach.

A critical aspect of preventing bribery is recognising that it often occurs in high-risk regions where it is deeply ingrained in the business culture. To navigate such environments, organisations should prepare their employees with resistance strategies, factor the cost of avoiding bribery into their estimates, and consider exiting markets where bribery is pervasive. Performance incentives can also be adjusted to acknowledge the challenges of operating in high-risk regions without resorting to unethical practices.

Furthermore, it is essential to address the issue of facilitation payments, which are small sums paid to expedite routine actions that the payer is legally entitled to. While these may seem harmless, they contribute to corruption and abuse of power, ultimately diverting public funds from those who need them the most. Organisations must refuse to engage in such practices and ensure that their third-party partners also comply with anti-bribery policies.

By prioritising ethical conduct, implementing robust procedures, and empowering employees to speak up about breaches, organisations can effectively combat bribery and contribute to a more transparent and equitable business environment.

Discrimination

In the United States, federal and state laws, such as Title VII of the Civil Rights Act, strictly prohibit discrimination based on race, colour, religion, sex, national origin, disability, and age. The Equal Pay Act of 1963 ensures equal pay for equal work, regardless of gender or race. The Age Discrimination in Employment Act (ADEA) protects individuals over 40 years of age from age-based discrimination. Additionally, the Rehabilitation Act safeguards individuals with disabilities from discrimination in the workplace, mandating reasonable accommodations. These laws are enforced by the Equal Employment Opportunity Commission (EEOC), which investigates and resolves discrimination claims.

To prevent discrimination, companies should implement comprehensive business ethics training programs. These programs help employees understand appropriate behaviour and recognise what may be considered offensive or discriminatory. Additionally, businesses should foster a culture of integrity, honesty, fairness, and respect, with managers leading by example and encouraging open communication.

By prioritising ethical practices and compliance with anti-discrimination laws, businesses can create a positive work environment, enhance their reputation, and avoid legal repercussions.

Social responsibility

The importance of social responsibility for businesses is twofold. Firstly, it is the right thing to do, and it is essential for building trust and credibility with stakeholders. Secondly, it can have practical benefits for a company, such as improved recruitment and retention of top talent, better employee engagement, and a stronger brand and reputation.

In today's business climate, companies are under increasing scrutiny by the public, and social responsibility is no longer optional. Consumers, governments, and cultures now expect businesses to prioritise social and environmental concerns alongside profitability. This shift in expectations has led to the emergence of the triple bottom line: the idea that businesses have a responsibility to balance profits, people, and the planet.

Businesses can demonstrate social responsibility in various ways, such as by initiating volunteer programs for their employees, contributing to community charities, or focusing on ethical sourcing and manufacturing. Additionally, social responsibility starts from within, and businesses should cultivate a culture committed to social change and ensure their core values align with social responsibility.

By prioritising social responsibility, businesses can not only do the right thing but also build a stronger, more successful, and more resilient organisation.

Frequently asked questions