Topic Managerial

Ethics and the Rule of Law

LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. 2. 3. 4. Discuss how law can be used as a guide for managerial decisions and actions when faced with an ethical dilemma; Describe the five characteristics in the definition of law; Explain the relationship between law and moral standards; and Describe the four processes involved in the formation of the law.

INTRODUCTION

What is an ethical dilemma? Have you ever encountered a situation where you need to make choice between two most difficult options? Figure 4.1 shows a person having a moral dilemma or an ethical dilemma. On one hand, he sees it appropriate for his patient to have a well-deserved rest. However, he is afraid that the longer his patient sleeps, the higher the amount that the patient will need to pay for his counselling session.

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Figure 4.1: Ethical dilemma Source: http://www.cartoonstock.com/newscartoons/cartoonists/ rma/lowres/rman2812l.jpg

This topic focuses on issues related to the law as a guide to managerial decisions and actions when one is confronted with an ethical dilemma. Let us examine the following in this topic: (a) (b) (c) (d) (e) (f) The rule of law Law as a guide to moral choice Characteristics of law Legal requirements and moral standards Formation of the law The rule of law for moral choice

4.1

THE RULE OF LAW

We will look at the law as a possible basis for making managerial decisions when one is confronted with an ethical dilemma. The law is a set of rules established by a society to govern behaviour within that society.

We would fall back on these rules (law) when faced with a conflict between an organisations economic performance and social performance. We should let the law decide, particularly in a democratic society, where the argument can easily be made that the rules within the law represent the collective judgements made by members of the society. We should follow these collective judgements, instead

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of trying to establish our own moral opinions. There are numerous examples of laws that reflect collective moral judgements.

4.2

LAW AS A GUIDE TO MORAL CHOICE

We cannot rely upon the market as a guide for managerial decisions and actions when faced with an ethical dilemma, but what about the law? The legal argument is very different. Now let us look at the meaning of legal argument. What is meant by the term legal argument? Legal argument refers to an established set of rules in a society. These rules reflect the collective choices of members of the society regarding any decisions and actions that affect its welfare.

This argument can be applied, for example, to a bank officer who has to decide whether to: (a) (b) Make a high-risk loan to a small, local company with the return interest rate limited by law; or Provide an equivalent loan to a large, distant corporation at much lower risk but equal return, doubtless a higher return if the lower administrative costs of loaning to large, well-financed corporations are included in the calculation.

ACTIVITY 4.1
If you were the bank officer mentioned in the above example, how would you decide which way to proceed if you really want to adopt the legal argument?

Let us say that, in this case, society has determined that excessive interest charges are more harmful than limited local support, and that consequently the loan should be given to the larger, distant firm. Should we object to this? Suppose we believe it is necessary, for the good of our society, that the formation of small, entrepreneurial companies be encouraged. It is often said that: (a) If we do not like a given action of a corporation, we should attempt to pass a law either prohibs that action or encourages an alternative action; and

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(b)

If we cannot get that law approved through democratic processes, then we should accept the situation as it is.

The assumption here is that we should rely on the law in making decisions and agree that a given act is right if legal, and wrong if illegal, with the understanding that these determination of right and wrong can be changed to reflect the view of the majority. In the example given above (of the bank which refuses to advance funds to a high-risk company in the local community), it would be fairly easy to design corrective legislation. Each bank within the state, or within the nation, may be forced by law to invest a certain percentage of its funds within the communities from which it draws those funds from depositors.

4.3

AN EXAMPLE OF MORAL CHOICE

Now, let us return to the banker in the previous example. The bank officer has to decide whether he should invest in a high-risk local company that will provide employment opportunities and other benefits to the community. Let us agree that: (a) The local community is in an area of high unemployment where new jobs are badly needed, and the proposed company is in a labour-intensive, highgrowth industry which requires a large workforce; The alternative investment, the large corporation is in a distant city, capitalintensive and capable of creating few jobs; The product of the proposed local company is a much needed health-care item which would reduce the pain and suffering of elderly patients throughout the country. While the product of the alternative investment is a line of high-calorie packaged foods with low nutritional value. The usual funds available through the Small Business Administration for small companies have been sharply reduced in recent years. In addition, no governmental guarantee or interest subsidy is available to the smaller company.

(b)

(c)

(d)

Now, we have a classic ethical dilemma: the choice between economic performance and social obligation, complicated by extended consequences, uncertain outcomes and career implications.

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How would the banker decide when faced with this kind of dilemma? If he replies to the owners of the small company that he would very much like to help, he will face the following: The law prevents an adequate return to compensate for the risk; No government guarantees or interest subsidies are presently available; and Bank officers are required by the legal system to minimise risks for their depositors.

Of course, the usual response of most bankers to socially desirable but financially risky loans is to reject the loan without giving any explanation. They would usually suggest to potential borrowers that they seek funds elsewhere. The question in this case, however, is not whether banks should make socially desirable but economically unfeasible loans. No bank can give out loans to everybody and remain in business. By the same token, a bank cannot be too rigid in giving loans at the expense of the society in which it operates. There has to be a limit on both sides and a balance. The question is,: how does one achieve this balance? Enhance your understanding by attempting the exercise below.

EXERCISE 4.1
1. The law can be used as a guide for managerial decisions and actions when faced with an ethical dilemma. Discuss this statement with your coursemates. Using your own example, how would you attempt to strike a balance between the economic and social performances of an organisation?

2.

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4.4

LAW AS COMBINED MORAL JUDGEMENT

Before we move further, let us read the statement below. If we want to go beyond the basic rules of law in our own decisions and actions, we can do so. However, we cannot go beyond the law, for then we are adhering to moral standards which are not complying with the majority of the population. We live in a democratic society. Hence, if we do not like something that we are doing, we need to get the majority of voters to pass a law restricting these actions. However, until then we have to comply with majority of the population. How do we respond to the above statement? If it is not possible to respond logically and convincingly, are we then forced to accept the rule of law as final determinant in most moral dilemmas? To answer these questions, it is necessary to: (a) (b) First, define the law to ensure that we are discussing the same set of concepts; and Second, examine the processes involved in the formulation of the law.

4.5

DEFINITION OF LAW

Before we move on, let us look at the definition of law. The law can be defined as a consistent set of universal rules that are widely published, generally accepted and usually enforced.

There are certain ways in which people are required to act in their relationships with others within a society. They are required to act in a certain way, not just expected, suggested or petitioned to act in that way. There is an element of persistency about the law, which defines what we must do. Figure 4.1 shows the five characteristics in the definition of law.

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Figure 4.2: Characteristics in the definition of law

Let us look at the characteristics in greater detail as shown in Table 4.1.

Table 4.1: Characteristics of Law Characteristics Consistent Explanation The requirements to act or not to act have to be consistent to be considered as part of the law. For example, if two requirements contradict each other, both cannot be termed as a law, because obviously people cannot obey both. The requirements to act or not to act also have to be universal, or applicable to everyone with similar characteristics and who are facing the same set of circumstances. The requirements to act or not to act have to be published and put in print so that they are accessible to everyone within the society. No doubt that not everyone has the time to read up or understand everything that is published. However, trained professionals such as attorneys are available to interpret and explain the law. Hence, ignorance of the law is not a valid excuse. The requirements to act or not to act in a given way have to be obeyed. If most members of the society do not voluntarily follow the law, they would have to be compelled to do so. The requirements to act or not to act in a given way have to be enforced. Members of the society have to understand that they will be compelled to obey the law, if they do not choose to do so voluntarily. People have to recognise that, if they disobeyed the law, and if it is noted and can be proven, they will suffer from loss of convenience, time, money, freedom or life. There is an element of persistency about the law. There is also or should be an element of certainty as it defines what will happen if we do not follow the rules.

Universal

Published

Accepted

Enforced

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This set of rules that are consistent, universal, published, accepted and enforced is supported by a framework of highly specialised social institutions, as shown in Table 4.2 below.
Table 4.2: Social Institutions and their Responsibilities Social Institutions Legislatures and councils Attorneys and paralegal personnel Courts and agencies Police Responsibilities Law formation Law explanation Law interpretation Law enforcement

The adversary relationships of the trial court often seem to ignore the provisions of consistency and universality, and focus instead on winning rather than justice. The enforcement actions of the police also often seem arbitrary and to concentrate on keeping the peace rather than maintaining equity. Let us admit that: (a) (b) Enforcing the law is a difficult and occasionally dangerous task. Interpreting the law, as in court cases, often involves the award of large amounts of money. The potential gain or loss of these funds has distorted the concept of the law as a set of published and accepted regulations.

However, we are looking at the law as an ideal concept of consistent and universal rules to guide managerial decisions, not as a flawed reality.

SELF-CHECK 4.1
List down the five characteristics in the definition of law. Describe briefly on each characteristic.

4.6

RELATIONSHIP BETWEEN THE LAW AND MORAL STANDARDS

The law, as we mentioned earlier, may be viewed in ideal terms as a set of universal and consistent rules that govern human conduct within a society. The question is whether we can accept these rules as representing the collective moral judgement of members of our society.

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If we can, then we have the standards to guide managerial decisions and actions, even if these standards may be at a minimal level. If we cannot, then we will have to look elsewhere for our standards.

In considering the possible relationship between moral judgements and legal requirements, three conclusions could be reached fairly quickly as shown below: Conclusion 1 The requirements of the law overlap to a considerable extent. However, they do not duplicate the probable moral standards of a society. Clearly, a person who violates the federal law against bank robbery also violates the moral standard against theft. As well, it is easy to show that the laws governing sexual conduct, narcotics usage, product liability and contract adherence are similar to the moral beliefs that probably are held by the majority of people in our society. We can agree that in a democratic society, the legal requirements do reflect many of the basic values of the citizens. Thus, we can say that legal requirements overlap with moral standards. There is also an area of overlapping between the law and morality as shown in Figure 4.3.

Moral Standards

Legal Requirements

Figure 4.3: Overlapping between moral standards and legal requirements

However, the area of overlapping is not complete. There are some laws that are morally unresponsive, with no ethical content whatsoever. For example, the requirement that we drive on the left-hand side of the road is neither right nor wrong; it is just important that we all agree on which side to drive. Finally, there are some moral standards that have no legal standing at all. We all object to lying as it goes against our moral standards. However, truthfulness is not required by law except in court and under oath, and in a few other specific instances, such as employment contracts and property sales.

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Conclusion 2 The requirements of the law tend to be negative, while the standards of morality are more often positive. According to the law, we are forbidden to assault, rob or defame each other. However, we are not required to help people, even in extreme situations. For example, there is no law insisting that we must aid a drowning child. Here, we do have a situation where the moral standards of the majority can be inferred as most of the adult population in any country would go to the aid of a drowning child, to the limit of their ability.

Conclusion 3 The requirements of the law tend to lag behind the apparent moral standards of society. Slavery, of course, is the most unpleasant example. However, sexual and racial discrimination, environmental pollution and bribery in foreign countries can all be cited as moral problems that were slowly remedied by legislation. Advocates of the rule of law would say, however, that the evidence of a delay between apparent moral consensus and enacted legal sanctions does not necessarily indicate a lack of relationship between legal requirements and moral standards. It only serves to confirm that relationship, they would claim, for laws controlling discrimination, pollution and bribery were eventually passed.

SELF-CHECK 4.2
Base on your understanding of the relationship between law and moral standard, provide examples of: (a) (b) Legally and morally accepted behaviour; and Legally and morally unaccepted behaviour.

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To test your understanding, try the following exercise.

EXERCISE 4.2
1. 2. 3. Define the term law. Discuss the basic characteristics of law. What problems do you anticipate in the transfer from individual moral standards to universal legal requirements?

4.7

FORMATION OF THE LAW

The law is formed through several processes as outlined in Figure 4.4.

Figure 4.4: Formation of the law

We will look into each process in the following sections.

4.7.1

Individual Processes

Do you know that the law is obviously a dynamic entity, for the rules change over time? Think of the changes that have occurred in the laws governing employment. This is essentially the same point made previously, that there seems to be a time lag between changes in moral standards and changes in legal requirements. Nevertheless, actions that were considered legal 20 years ago (such as racial and sexual discrimination in hiring of employees, or the discharge of chemical wastes into lakes and streams) have now become illegal. The question is whether these changes in the law can be attributed to the changes in the moral standards of the majority of our population through social and political processes, and consequently, whether the law represents the collective moral standards of our society. The social and political processes by which the changing moral standards of individual human beings are alleged to become

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institutionalised into the formal legal framework of society is lengthy and complex, but a simplified version is shown in Figure 4.5.

Figure 4.5: Processes by which individual norms, beliefs and values are institutionalised into law

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Each individual has a set of norms, beliefs and values which collectively forms his or her moral standards as shown in Table 4.4.
Table 4.4: Individual Moral Standards Moral Standards Norms Beliefs Explanation Norms are criteria of behaviour. They are the ways in which an individual expects everyone to act when faced with a given situation. Beliefs are criteria of thought. Beliefs are different from norms in that they involve no action (no apparent behaviour towards others), but an abstract way of thinking that tends to support an individuals norms. They are the ways an individual expects people to think about given concepts. For example, if you believe in participatory democracy, then you expect others to recognise the worth of that concept and accept it as a form of government. Values Values are the rankings or priorities that a person gives to his or her norms and beliefs. Most people do not consider all their norms and beliefs are of equal importance. Generally, some are more important than the others. The important norms and beliefs are the ones that a person values or holds in high esteem.

Do you know that values are often controversial? Do you know why? It is because a norm or belief that one person holds in high esteem can conflict with a different norm or belief that another person holds in equally high esteem. Generally, there will be little tolerance or compromise, as each person attaches great importance to his criteria of: Behaviour (ways in which people ought to act); and Beliefs (ways in which people ought to think).

We live in a pluralistic society with numerous cultural traditions and in a secular nation, with no accepted or endorsed religious heritage. Consequently, we have to live with the fact that norms, beliefs and values will differ among individuals. These differences can eventually lead to conflicts.

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SELF-CHECK 4.3 Explain briefly on the following terms: (a) (b) (c) Norms; Beliefs; and Values.

4.7.2

Group Processes

Context, which means the general background or surrounding environment of a situation, plays a significant role in the norm, belief and values of an individual. Each individual develops his or her set of norms, beliefs and values through exposure to these contexts: Cultural or religious Social or political Economic or technological

Each society has a context that consists of inter-related factors as shown in Figure 4.6.

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Figure 4.6: Inter-related factors of context

The interwoven nature of the context, within which individual choices of norms, beliefs and values are made, ensures that all of the mentioned factors are able to interact among one another. As can be seen in Figure 4.7, technological changes in communication bring political changes in governance. The political changes cause economic changes in spending and taxation patterns, which eventually result in cultural changes in personal lifestyle.

Figure 4.7: Interaction of the inter-related factors of the context

The exact relationships among economic, technological, social, political, cultural and religious factors are not known, nor can their combined influences upon an individuals norms, beliefs and values be predicted with accuracy. However, the relationships and influences can easily be observed as shown in the example:

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The changing status of women which resulted from: (a) (b) (c) The economic shift from heavy manufacturing and mining to knowledge-based and service industries; The technological development of better birth-control methods; and The social expansion of educational opportunities.

4.7.3

Social Processes

All individuals within a society do not have the same exposures to economic, technological, social, political, cultural and religious factors. Such exposures come from: Individual positions; Family units; Peer groups; and Formal organisations.

In a democratic society, the changing norms, beliefs and values of individuals within society do have an apparent, although delayed, impact upon the law. This impact would appear to be the result of both social and political processes. Basically, the social process involves an accumulation of power. People with similar norms, beliefs and values tend to become associated in small groups. It is just natural to join others who have parallel views. These small groups generally are part of much larger organisations such as: Business firms; Labour unions; Political parties; Charitable agencies; Religious institutions; and Veterans associations.

These larger organisations over time either achieve an acceptable compromise on norms, beliefs and values or split into smaller organisations that can achieve such a compromise. There are alternative theories on the means by which this compromise is formed such as:

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Autocratic decision; Bureaucratic adjustment; and Coalition bargaining or collective choice.

4.7.4

Political Processes

The political processes by which the norms, beliefs and values held by organisations, groups and individuals are institutionalised into law can be seen as a means of resolving conflict. Organisations, groups and individuals obviously have different opinions on norms (what should be done now) and beliefs (what should be accomplished in the future). These different views have to be accustomed to consistent and universal rules to be effective. Again, there are alternative theories on the ways in which this is done: Presidential leadership Institutional compromise Congressional bargaining Constituent pressure

Elected representatives are formally assigned the responsibility of the formulation of laws in a representative system. However, issues differ by sections of the country, segments of the population and sectors of the economy. Consequently, coalitions have to be formed to pass most legislation. The public, of course, can express opinions on potential laws by voting for some administrators and all legislators, and indirectly through public surveys, letters and the media.

4.8

CONCLUSIONS ON THE RULE OF LAW AS THE BASIS FOR MORAL CHOICE

The question now is whether these social and political processes, lengthy and complex though they may be, truly serve to combine the personal moral standards of the majority of the population into universal legal requirements. The view that the law does represent collective moral judgement is certainly appealing. However, there seem to be problems in the transfer from individual moral standards to universal legal requirements at each stage of the social and political processes. Let us look in detail on moral standards as shown in Table 4.5 to better understand this aspect.

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Table 4.5: Moral Standards and Its Explanations Moral Standards The moral standards of members of society may be based upon a lack of information relative to issues of corporate conduct. Explanation Most people were apparently unaware of the payments of large foreign bribes until the revelations of the Lockheed case. Many people may be unaware of the magnitude of the toxic waste disposal problem, with 231 million metric tonnes being produced annually. It is difficult for personal moral standards to influence the law if relevant information is missing. The moral standards of an individual may be diluted in the formation of small groups. People with similar norms, beliefs and values tend to become associated in small groups. However, their standards are not always precisely similar; compromises have to be made. Further, many small groups act from motives other than morality, economic benefits and professional prestige which often play a big role. It is difficult for personal moral standards to influence the law if they are not conveyed accurately. The moral standards of members of society may be misrepresented in the consensus of large organisations. Many organisations do share norms, beliefs and values. However, there is no evidence to suggest that each individual and each group within the organisation has equal influence in determining that consensus. This can be seen in the norms, beliefs and values of many non-profit organisations such as hospitals and universities, where the standards of the professional personnel (the physicians and the faculty) often prevail. The moral standards of members of society may be misrepresented in the formulation of laws. This is the same point that was made above in shaping the consensus of an organisation, though on a larger scale. There is no guarantee that all organisations have equal influence, or even equal influence weighted by size, in determining the law. This can be seen in the provisions of tax legislation, in which certain organisations always seem to be favoured.

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The legal requirements formed through the political process are often incomplete or imprecise and have to be supplemented by judicial court decisions or administrative agencies actions.

This can be seen in both product liability cases and equal employment review. The meaning and application of the law have to be clarified outside of the legislative process. It is difficult for personal moral standards to influence the law, if they are considered only indirectly, if at all, in two of the means of formulating that law.

Now, let us try the exercise below.

EXERCISE 4.3
1. 2. What is law and how is it formulated? The law can be defined as a consistent set of universal rules that are widely published, generally accepted and usually enforced. Discuss this statement with your coursemates. The formulation of law involves very complex and inconvenient processes. What are the processes that the formation of law has to go through?

3.

The law is a consistent set of universal rules established to govern societal behaviour. These rules are widely published, generally accepted and usually enforced. There are five characteristics in the definition of law: consistent, universal, published, accepted and enforced. Society-established rules reflect the collective choices of members of that society regarding any decisions and actions that affect its welfare. There is an overlap between moral standards and legal requirements of society, such as the federal law against bank robbery and the moral standards against stealing. There are four chain processes of formation of the law: individual process, group process, social process and political process.

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Some changes in the norms, beliefs and values of individual members of society are eventually reflected by changes in the law.

Beliefs Context Law Legal argument Legal requirements

Moral choice Moral standards Norms Values