LW 311 Business Law Chap5

Business Law Oxford Fajar Sdn. Bhd.
(008974-T) 2010
All Rights Reserved Ch5: 1
CHAPTER
Ethics and Business Practice
Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010
OBJECTIVES
This chapter: describes the connection between ethics and business explains the relationship between law and morality explains morals and ethics outlines the main theories of ethics relates how ethics operate in the business context outlines some of the issues concerning ethics in corporations
Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010 All Rights Reserved Ch5: 3
PREVIEW
Ethics and Business Law and Morality Morals and Ethics Theories of Ethics Ethics in the Business Context Corporations and Ethics Ethical Investing Ethical Professional Advice
ETHICS AND BUSINESS
acting ethically involves acting in a morally correct and honourable way the belief that making profits is all that matters and as long as it is legal it is all right are gradually being forced aside ethical business conduct may impose a cost on business, that cost may be offset by an increase in public confidence
ETHICS AND BUSINESS (cont.)
the community is now well aware of business matters and their consequences, especially those consequences which have an impact on individual members of the community e.g. American subprime mortgage crisis in September 2008 has now resulted in a global financial crisis if businesses do not adopt acceptable ethical standards then Parliament will need to step in to impose standards
LAW AND MORALITY
laws are relative to their time and their society what is perceived as appropriate in one time period may not be appropriate to another likewise, the law reflects the attitudes of the society in which it exists and, therefore, what is deemed acceptable in one society may not be acceptable in another moreover, social attitudes may change over time resulting in a corresponding change in the law
LAW AND MORALITY (cont.)

What is Law? a set of rules, developed over a long period of time to regulate interactions between people; it sets standards of conduct between one group of individuals and another as well as between individuals and the government, which are enforceable through sanction law sets standards of conduct ethics cannot be enforced though sanction unless the ethical standards have become part of the law or the rules of an organization such as a professional body

Justice and the Law
justice that which is right or fair
The Rule of Law

every person and organization, including the government, is subject to the same laws its most basic principle no one is above the law governmental authority is legitimately exercised only in accordance with written, publicly disclosed laws adopted and enforced in accordance with established procedural steps that are referred to as due process
according to Dicey, 3 principles which together establish the rule of law are:
1. The absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power 2. Equality before the law or the equal subjection of all classes to the ordinary law of the land administered by the ordinary courts 3. The law of the constitution is a consequence of the rights of individuals as defined and enforced by the courts
the legal basis of government gives rise to the principle of legality, with the rule of law being expressed as follows:
1. Existence or non-existence of a power or duty is a matter of law and not of fact, and so must be determined by reference either to the nature of the legal personality of the body in question and the capacities that go with it, or to some enactment or reported case
2. The argument of state necessity is not sufficient to establish the existence of a power or duty which would entitle a public body to act in a way that interferes with the rights or liberties of individuals

3. If effect is to be given to the doctrine that the existence or non-existence of a power or duty is a matter of law, it should be possible for the courts to determine whether or not a particular power or duty exists, to define its ambit and provide an effective remedy for unlawful action
4. Since the principal elements of the structure of the machinery of government, and the powers and duties which belong to its several parts, are defined by law, its form and course can be altered only by a change of law
the concept rule of law is associated with other concepts:

Nullum crimen, nulla poena sine praevia lege poenali There should be no ex post facto laws. Presumption of innocence All individuals are presumed innocent until proven otherwise. Legal equality All individuals are given the same rights without distinction to their social stature, religion, political opinions, etc. Habeas corpus ad subjiciendum You must have the body to be subjected (to examination).
in examining the concept of the rule of law, one should consider:

whether judges are entitled to make law whether that is the exclusive prerogative of parliament
for the rule of law to thrive, the legal system needs the following characteristics:
1. Laws are relatively clear, accessible and prospective in their operation 2. Laws are seen to be legitimate and enjoy a broad measure of community support

3. This legitimacy and support usually derives from the laws being considered to be generally just 4. Laws are interpreted and applied openly by an independent judiciary which itself enjoys a broad measure of community acceptance
Professor A.V. Dicey rule of law comprised 3 inter-linked ideas:

1. The supremacy of regular law rather than arbitrary power 2. Government under the law and equality before the law 3. The protection of individual liberties by the common law
our efforts to strengthen legal systems should fall under 3 inter-connected priority areas:
1. Supporting legal reform 2. Improving the administration of justice 3. Increasing citizens access to justice
The Development of Equity concept of equity arose as a result of the growing inflexibility and rigidity of the common law strict rules of common law be modified in appropriate circumstances

Letter of the Law and Spirit of the Law the strict wording of a law (the letter of the law) may allow an individual to do something which is not really in accordance with the intentions (spirit) of the law the distinction between the letter and the spirit of the law is largely a moral or ethical problem
MORALS AND ETHICS
morals to deal with the distinction between right and wrong

ethics relate to morals, the treatment of moral questions and acting in a morally correct and honourable way ethical considerations involve going beyond self-interest in reaching a decision
THEORIES OF ETHICS
Consequentialism and Utilitarianism Consequentialism

concerned with the consequences an approach to morals which evaluates behaviour according to the consequences of that behaviour
Utilitarianism
a form of consequentialism ethically right behaviour is to perform the action which results in a greater number of utilities than could be achieved by any other action
THEORIES OF ETHICS (cont.)

Deontological Ethics requires a person to do the right thing regardless of the consequences at odds with consequentialism ethics in that it considers that the consequences can never be an appropriate justification for the act the end does not in itself justify the means
THEORIES OF ETHICS (cont.)

Virtue Ethics

personal qualities that provide the basis for an individual to lead a good and noble life stresses on the type of moral qualities that put us in a position to act morally moral values are relative to a particular environment moral values can differ from one culture to another, from one society to another, from one time to another, and even from one individual to another
Relativism

ETHICS IN THE BUSINESS CONTEXT

Insider Trading

an example of a white-collar crime part V, Division 1 subdivision 2 (sections 183 to 198), Capital Markets & Services Act 2007 prohibits insider trading unethical and illegal if the nature of the gift is not nominal in value and where the gift is given as an inducement or in return for a favour, or if it is given under illegal circumstances
Giving and Receiving Gifts
ETHICS IN THE BUSINESS CONTEXT
see: section 115, Banking and Financial Institutions Act 1989; sections 1018, Anti-Corruption Act 1997; section 118, Development Financial Institutions Act 2002; section 49, Islamic Banking Act 1983; sections 161165, Penal Code
Conflict between Commercial Interests and Social Utility
banks, telecommunications suppliers, private hospitals and other health service providers and the media are business organizations which are not only profit-oriented but also provide a social utility and must bear in mind the communitys needs
ETHICS IN THE BUSINESS CONTEXT (cont.)

Conflict of Interest
arises when an individual is in a position where they cannot act fairly and properly in the interests of one party without prejudicing the rights and interests of another party for whom they also act relative bargaining power may be very unequal one party may be virtually helpless and unable to negotiate anything, and the extent of their negotiating position may be a take it or leave it situation, as is often the case where standard form contracts are involved
Unconscionable Contracts

Misuse of Limited Liability of a Company
under the doctrine of separate legal entity, a company is regarded as a legal person, separate and distinct from its shareholders and directors the doctrine has often been abused with the result that creditors and employees have lost considerable amounts of money while the principals of the company have effectively lost nothing

Tax Evasion and Tax Havens try to eliminate tax totally by using certain taxavoidance schemes and overseas tax havens many methods of tax avoidance are both ethically wrong and even illegal certain ways employed to minimize tax is legal when done so in compliance with the law
CORPORATIONS AND ETHICS
companies are required to be ethical in their dealings company directors have a fiduciary duty to act in the interests of their company and the best interests of the companys shareholders businesses require good corporate governance by their directors and generally, directors must be fit and proper persons to act as directors
Institutionalized Wrongdoing
social forces within an organization may result in unethical behaviour or even illegal actions by an individual fraud
CORPORATIONS AND ETHICS (cont.)

Organizational Integrity

organizational integrity is based on self-regulation in accordance with a formal set of guiding principles ethical values will be involved in the establishment of organizational systems, the decision-making process and the search for business opportunities integrity programmes often comprise:
a code of conduct training in compliance with legal and regulatory obligations of the organization
CORPORATIONS AND ETHICS (cont.)

systems for the reporting and investigation of possible breaches a system of controls and audits to ensure that the integrity programme is being complied with
Corporate Codes of Conduct

a) b) c) d) e)
to fight corporate fraud and abuse by:

exposing and punishing acts of corruption holding corporate officers and directors accountable protecting small investors, pension holders and workers moving corporate accounting out of the shadows developing a stronger, more independent corporate audit system f) providing better information to investors
ETHICAL INVESTING
means investing in companies that operate ethically, provide social benefits and are sensitive to the environment
a socially-responsible investor considers whether or not the investment is ethical aside from adequate returns and security this means judging or analysing a company or institution primarily on its products and/or services as well as socially responsible governance practices
ETHICAL INVESTING (cont.)
to determine which company to invest in, or not invest in, investors must consider whether the company is associated with, or linked to:
Positive factors:
a) Environment protection
b) Pollution control c) Conservation of resources
d) Health and safety of the workplace and the community

e) Ethical employment policies
ETHICAL INVESTING (cont.)

Negative factors:
a) b) c) d) e) f) g) h) i) j) Armaments Terrorism Money laundering Oppressive regimes Environmentally damaging practices Unethical employment practices Animal exploitation Tobacco or alcohol Gambling Pornography and other vices
ETHICAL PROFESSIONAL ADVICE
professional advisers sometimes stretch the legal system to the limit to avoid culpability for their unethical activities see McCabe v British American Tobacco Australia Services Ltd just because it is legal does not make it right during the global financial crisis of 2008:
many investors and employees have suffered the consequences of numerous financial scandals a more widespread erosion of standards throughout our markets, with questionable practices becoming accepted
ETHICAL PROFESSIONAL ADVICE
there has been a global recognition of the need for reforms. Through multilateral cooperation, standards can be raised throughout our markets, and investors everywhere have the protections they need and deserve
REVIEW
Ethics and Business Law and Morality Morals and Ethics Theories of Ethics Ethics in the Business Corporations and Ethics Ethical Investing Ethical Professional Advice

LW 311 Business Law Chap5

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Business Law Oxford Fajar Sdn. Bhd.

All Rights Reserved Ch5: 1

Ethics and Business Practice

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 2

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS AND BUSINESS

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 5

ETHICS AND BUSINESS (cont.)

LAW AND MORALITY

LAW AND MORALITY (cont.)

LAW AND MORALITY (cont.)

justice that which is right or fair

The Rule of Law

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

LAW AND MORALITY (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 10

LAW AND MORALITY (cont.)

LAW AND MORALITY (cont.)

LAW AND MORALITY (cont.)

the concept rule of law is associated with other concepts:

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 13

LAW AND MORALITY (cont.)

in examining the concept of the rule of law, one should consider:

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 14

LAW AND MORALITY (cont.)

Professor A.V. Dicey rule of law comprised 3 inter-linked ideas:

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 15

LAW AND MORALITY (cont.)

LAW AND MORALITY (cont.)

MORALS AND ETHICS

morals to deal with the distinction between right and wrong

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 18

Consequentialism and Utilitarianism Consequentialism

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

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THEORIES OF ETHICS (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

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THEORIES OF ETHICS (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS IN THE BUSINESS CONTEXT

Giving and Receiving Gifts

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS IN THE BUSINESS CONTEXT

Conflict between Commercial Interests and Social Utility

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS IN THE BUSINESS CONTEXT (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS IN THE BUSINESS CONTEXT (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

ETHICS IN THE BUSINESS CONTEXT (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

All Rights Reserved Ch5: 26

CORPORATIONS AND ETHICS

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010

CORPORATIONS AND ETHICS (cont.)

Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010