Ethics is the study of morality, to understand and justify it through reflection and examination.
By Robert A. Scott, President, 天美传媒
Ethics is in the news. Corporate fraud allegations at Olympus and Satyam,听following the example of Enron, plus new cases of insider trading, have brought renewed听attention to corporate codes of ethics. Colleges and universities are also updating their听codes, following revelations at Penn State and elsewhere. But what do we mean by听ethics? How do we distinguish between and among ethics, morality, and law?
Morality is about knowing right from wrong, good from evil, with standards often听grounded in some religious or theological tradition. By law, we mean legal standards听codified by the public鈥檚 representatives and interpreted by the courts. However, as we听have seen, laws are often honored in the breach, as we note banks paying fines for听disobeying laws they earlier promised to obey.
Ethics is the study of morality, an attempt to understand and justify morality听through reflection and examination.
The terms ethics and morality are often used interchangeably. However, the term听morality refers to behavior, right or wrong, or a person, good or bad. Ethics is about the听examination of morality. Therefore, business ethics or corporate ethics is about听understanding what an enterprise considers to be right and wrong behavior.
One can note in corporate codes of ethics a frequent reference to the terms听鈥渇airness鈥� and 鈥渇air鈥�. Fairness, by most definitions, represents a state, condition, or听quality of being fair; free from bias or injustice; even-handedness; impartial; free from听discrimination and dishonesty; free from favoritism, self-interest, or personal preferences听in judgment.
Some actions may be legal and meet contemporary standards of morality, yet not听withstand ethical analysis. This was the case with slavery. It was legal; most religious听institutions and theologians did not speak out against it as wrong; yet it did not stand up听under ethical inquiry.
While morality is about right and wrong, ethics is often concerned with one听鈥渞ight鈥� or correct action compared to another one. Those who favored slavery argued听that they had a right to personal property and defined certain human beings as property.听Fortunately, this logic was overturned for the most part, although we still see evidence of听its application. In either case, cries for ethical consideration can be a harbinger of听changes in moral and legal standards, because ethics tests the justness of moral standards.听As such, it is neither conservative nor liberal; its lens is that of fairness and equity in its听assessment of what contemporary arbiters call right and wrong, good and bad.
Other examples of rights in tension with other rights might be represented by听animal rights advocates who think that fox hunts, hunting in general, and eating meat are听immoral and do not meet ethical tests. This is a more difficult argument to make, but is听a good example of how customs, culture, and the continuity of traditions can affect the听setting of standards for behavior.
Corporate codes of ethics are applied to actual and apparent conflicts of interest.听Such conflicts are permissible if they pass the 鈥渟mell test鈥� and do not seem to be giving听special advantage to one party. However, potential conflicts are not confined to financial听matters, but may have to do with other forms of relationship. For example, the听interrelatedness of directors is subject to ethical scrutiny. Off-line agreements, or acting听together without the knowledge of other directors, can undermine director obligations for听proper behavior.
Perhaps the area where the role ethics can be highlighted most clearly in the听corporate setting are in the following examples. Take a company with a large amount of听excess cash. It has the opportunity to invest in research and development for new听products; hire additional staff in order to increase productivity and volume or relieve听worker stress; invest in equipment to increase productivity; improve compensation听through enhanced salary and benefits; contribute to the community through charitable听contributions; invest in equipment and systems that will reduce its impact on the听environment; increase the dividend for shareholders of record; use the extra cash to buy听back stock; or award bonuses to senior executives without regard to the achievement of听corporate goals. All choices are legal and moral, but the last two give unequal advantage听to corporate officers who are likely to own more stock options than others, including听employees and other shareholders, and stand to benefit more than others. This is not听necessarily bad, as buying back stock, for example, can have positive effects, but the听choices available should be discussed and the corporate code of ethics referenced in spirit听as well as in word.
Another example is for the executives to seek the sale of the company structured听in a manner that benefits management more than shareholders. Or, consider the product听sales urged by investment executives which required great risk and debt, but which听ultimately were protected by federal policy for all but the buyers.
These are examples of management actions which are legal, or at least not illegal,听and most would say are not immoral; yet they raise questions because they seem to give听unfair advantage to some parties over others without adequate notification or听justification. They may fail the 鈥渇airness鈥� test, the test of 鈥渇air dealing鈥�, which the听corporate code says is paramount.
Boards of directors are under great scrutiny and must develop a culture of听conscience, not just a culture of compliance, if they are to retain the confidence of the听public which grants them their charter.
Based on an invited presentation at a Continuing Legal Education Seminar hosted by听Ruskin Moscou Faltischek, Uniondale, New York, November 9, 2011. This is a revised听version of the essay published in 鈥淕arden City Patch鈥� (the AOL News Service) on听December 19, 2011.
For further information, please contact:
Todd Wilson
Strategic Communications Director听
p 鈥� 516.237.8634
e 鈥� twilson@adelphi.edu