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Establishing an Ethical Foundation for Business
By Chris Banescu - November 9, 2002

Today's business managers are encountering an increasingly complex and advanced regulatory and ethical landscape that can affect operations and management decisions. In order to understand the implications and ramifications of this landscape, you must first examine the relationship between law and ethics.

Law consists of a set of enforceable rules governing relationships among individuals and between individuals and their society. These rules describe all of the different ways in which individuals are expected to act in their dealings with others. Laws describe in detail parameters and requirements of behavior that apply to both persons and businesses. These requirements of conduct are universal, published, and enforced by federal and state legislatures and different regulatory and administrative agencies. Individuals and businesses must abide by these rules and regulations. The law has limits since it cannot advise on the appropriate answers to all ethical questions. When it cannot, ethical standards must guide every manager's decision-making process.

Ethics on the other hand, is the study of what constitutes right or wrong behavior. Ethics has to do with questions relating to the fairness, justice, rightness, or wrongness of different types of actions. Ethical decisions in a business context are complicated by conflicting responsibilities that an organization might have toward different individuals and groups.

Ethics and legal principles are closely related and there is significant overlap between the two. Ethical obligations however, tend to exceed legal duties. Individuals may choose to ignore ethical rules without worrying about consequences, except in instances where professionals such as physicians and lawyers, bound by ethical rules as part of their professions, are required to comply.

In some instances, the law can mandate ethical behavior the way it has done in certain federal regulations, discrimination laws, employment laws, and various codes of business and professional ethics. Nevertheless, outside those clear situations, what is "ethical" is usually up to each business, manager, or employee.

Business ethics encompasses ethical behaviors of individuals in the sphere of business. In theory, the same ethical standards that would normally guide your behavior should also apply to business activities. Managers, however, often may encounter much more complex ethical issues in the workplace than in their personal lives since in a business setting, they are likely to come across many more situations, people, and organizations.

Furthermore, ethical decision-making can be complicated in business by the number of persons who provide input into those decisions. Few businesspersons have complete control over the decision-making process. In this sense, a decision that represents an amalgam of interests and views may seem to be less a matter of "right" or "wrong" and more of what is "appropriate."

For example, to reduce labor costs, an employer may decide to get rid of older, more highly paid employees. In order to avoid liability for age-discrimination, the employer may offer these employees early retirement benefits and other incentives in exchange for the employees' waivers of their rights to sue. From an ethical point of view, the employer may believe that discharging those workers helps the company be more cost-efficient and profitable and helps satisfy other company constituencies such as managers, shareholders, and customers.

Most of us would agree that it is quite unfair for a company to terminate an employee solely because of his or her age. Nevertheless, an employer may find it tempting, especially during tough economic times, to reduce its payroll and allow the company to stay in business. Since older workers are often highly paid, they become vulnerable to layoffs when managers decide to replace them with younger, lower-paid employees. The Equal Employment Opportunity Commission (EEOC) receives up to 17,000 age discrimination complaints each year, even though it prosecutes comparatively few of these cases itself.

Whether layoffs (or firings) are discriminatory or legitimate legal business decisions is not always clear. Normally, companies will justify the decision to discharge a worker because the particular position is no longer needed or because he or she could no longer carry out his or her duties. To be able to show that layoffs were motivated by age bias, an employee must establish that only older and qualified employees were fired and those positions were subsequently filled by younger workers, or that the fired employee was the subject of unflattering age-related comments and harassment.

Since a society's legal system reflects and codifies its ethical values, our laws make many of our ethical decisions for us. However, the law has its limits and it cannot guide or assist us in all our ethical decisions. Legal statutes and regulations fall short when dealing with unanticipated nebulous or unique situations. When such situations occur, only ethical standards are left to guide the decision-making process. That is why it is critical for businesses to establish a solid ethical foundation for their organizations and surround themselves with employees of the highest ethical and moral caliber. Anything else is a formula for failure and problems.