Who needs business ethics when you've got the law on your side?

Jim Nortz
BridgeTower Media Newswires

Corporations of all shapes and sizes are subject to millions, if not billions, of statutes, regulations, rules, directives, guidelines, decrees and executive orders. Given the pervasive and encyclopedic nature of legal mandates on corporations, one question business professionals may rightly ask is: “What good is the field of business ethics when there’s already a law for everything?”

Adopting a “let the law be our only guide” approach to corporate governance appears at first blush to be a very attractive, alternative to the murky and comparatively ill-defined world of business ethics. Under such a framework all that need be done is to consult the corporate Law Department or outside counsel on those occasions when moral questions arise, ask them where the lines are drawn and proceed accordingly. Such an approach has a certain simple, minimalistic, free-market appeal. It avoids messy questions regarding whose sense of right and wrong will prevail and also ensures the business doesn’t put itself at a competitive disadvantage by accepting constraints beyond those of governmental mandates.

As tempting as it may be to adopt such a framework, there are at least three reasons why the law alone does not now and never has sufficed to effectively provide business professionals the ethical guidance they need to both avoid trouble and optimize performance.

There really isn’t a law for everything.

Although even a cursory glance inside a well-stocked law library may provide an impression to the contrary, the law really does not provide a rule for everything.

Generally speaking, the laws governing corporate behavior draw very wide and, many times, vague boundaries between what is and is not permissible. Moreover, the law is silent on how to proceed inside of those boundaries. For example, it is lawful to pay employee bonuses, improve product safety, improve workplace safety, develop new products, provide customer discounts and otherwise deploy the corporation’s resources in myriad different ways. But the law does not provide guidance as to which of the many lawful options should be pursued at a given point in time let alone which one is the most ethical in the circumstances.

The “let the law be our only guide” approach to business ethics also fails because it implies that in the absence of a definitive rule, “anything goes.” Such an approach to defining ethical conduct could justify demonstrably unethical results as in the case of a company choosing to deliberately operate a manufacturing facility in a manner that permanently poisons a community’s only drinking water source in circumstances where there is no law preventing them from doing so.

A dogmatic commitment to legal compliance can lead to absurd and unethical results.

With every business there is always a risk of non-compliance with the law and occasional violations are common. This means that an inflexible commitment by business professionals to “abide by 100% of the laws 100% of the time” can only be achieved in reality by choosing to never operate a business at all. But even if business professionals were to amend such a strict rule to accept some level of non-compliance risks, establishing a rule that “to be ethical, we will always abide by the law regardless of the consequences to our company” can lead to clearly unethical behavior. Suppose, for example, the internal audit department at a hospital with thousands of patients determined that the hospital was operating in violation of legally mandated infection control procedures. Suppose further that the hospital does not actually have an infection problem and that it will take several months to develop and implement corrective actions to bring the facility into full compliance with the law. A blind commitment to “comply at all costs” in these circumstances would require an immediate evacuation and closure of the hospital until corrective actions are completed – regardless of the negative impact on patients’ health and well-being and regardless of what other approaches regulators may agree are reasonable. In addition to being unreasonable, such a decision could be condemned as grossly unethical if it would likely result in significant human suffering and death.

It is impossible to run a successful business using the law as the only guide in making business decisions.

Any corporation that chooses to ignore extra-legal moral obligations is doomed to repeated and crippling operational and reputational difficulties. For example, it may be legal to treat employees and customers with open contempt, but such behavior is likely to adversely affect productivity as well as employee and customer loyalty to the firm. It also virtually guarantees that the firm will garner a reputation in the business community that will have a negative impact on its ability to recruit top talent or be a trusted business partner. Business professionals today, as in the past, must as a practical matter take into consideration moral obligations not mandated by law whether they like it or not in order to meet the many extra-legal expectations of their key stakeholders.

Legal compliance is, of course, an important consideration in discerning an ethical course. But as illustrated above, it is insufficient by itself to guide business professionals in making sound, ethical business judgments. To do that, business professionals must embrace and master that messy, ill-defined field of business ethics to help them run their business well.

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Jim Nortz is founder and president of Axiom Compliance & Ethics Solutions. He serves on the Conscious Capitalism Rochester Board of Directors, is a member of the International Association of Independent Corporate Monitors and is a National Association of Corporate Directors Fellow. Jim also is a former Board member of the Rochester Area Business Ethics Foundation (“RABEF”) and the Ethics and Compliance Officer Association (“ECOA”). Nortz can be reached at jim nortz@AxiomCES.com.