Law and Ethics

In all societies, ethics and law go hand in hand. Law can never operate in a vacuum. The law must reflect society's customs and values and reinforce principles of behavior that society deems right and just.

As the law reflects and codifies a society's ethical values, many of our ethical decisions are made for us by our laws. Nevertheless, simply obeying the law does not fulfill all ethical obligations. In the interest of preserving personal freedom, as well as for practical reasons, the law does not codify all ethical requirements. In the business world numerous actions might be unethical but not necessarily illegal: for example, failing to fulfill a promise that is not legally binding; exporting products banned in the USA to third world countries, where they are not prohibited; manufacturing and selling tobacco or alcohol products. The mere fact that these business practices are legal does not prevent them from being challenged on moral grounds.

Therefore, although legality is often a reliable guide to moral behavior, it cannot be relied upon blindly as an infallible standard for action. The individual must engage in independent determination of both the legal requirements and the moral requirements of a course of action.

Why ethical problems occur in business

Ethics problems in business appear in many different forms. While not common or universal, they occur frequently. Finding out just what is responsible for causing them is one step that can be taken toward minimizing their impact on business operations and on the people affected.

Personal Gain and Selfish Interest

Personal gain, or even greed, causes some ethical problems. Business sometimes employs people whose personal values are less than desirable. They will put their own welfare ahead of all others, regardless of the harm done to other employees, the company, or society. In the process of hiring employees there is an effort to weed out ethically undesirable applicants, but ethical qualities are difficult to anticipate and measure. The embezzler, the bribe taker, and other unethical persons can slip through. Lacking a perfect screening system, business is not likely to eliminate this kind of unethical behavior entirely.

A manager or an employee who puts his or her own self-interest above all other considerations is called an ethical egoist. Self-promotion, a focus on self-interest to the point of selfishness, and greed are traits commonly observed in an ethical egoist. Such a person tends to ignore ethical principles accepted by others. "Looking out for Number One" is the ethical egoist's motto.

Competitive Pressures on Profits

When companies are squeezed by tough competition, they sometimes engage in unethical activities in order to protect their profits. Research has shown that companies with lower profits, as compared with those with higher profits, are more prone to commit illegal and unethical acts. However, an unstable financial position is only one reason for illegal and unethical business behavior, because profitable companies also can act contrary to ethical principles. In fact, it may be simply a single-minded drive for profits, regardless of the company's financial condition, that creates a climate for unethical activity.

Price-fixing is a practice that often occurs when companies compete vigorously in a limited market. Besides being illegal, price-fixing is unethical behavior toward customers, who pay higher prices than they would if free competition set the prices. Companies fix prices to avoid fair competition and to protect their profits.

Price-fixing is not the only kind of unethical behavior that can occur. MiniScribe, a producer of computer disk drives, can be drawn as an example. Competitive pressures caused the company to falsify sales figures, accumulate defective drives that had been returned and then sell them again as new products, package bricks and ship them to distributors as disk drives, secretly break into auditors' files to change inventory figures on the auditor's reports, and file misleading and inaccurate financial reports. MiniScribe's top managers allegedly resorted to these tactics from 1985 to 1988 when the computer industry was suffering a general decline and after MiniScribe had lost IBM, one of its biggest customers.