Business Ethics and Business Law - Research Paper Example

Business Ethics and Business Law Introduction The concept of business ethics is not straightforward. It is an amalgamation of a host of subjects including philosophy, psychology, organizational dynamics and economics to name a few. The dilemma that often challenges a business is whether its activities are ethical or not. Why businesses are concerned with ethics is because they operate within the realms of society, and therefore are answerable to the community. They need to distinguish what is right and what is wrong. While it is easy to theoretically distinguish what is right and what is wrong, in real life business activities are obscured by shades of gray which make it difficult to resolve problems relating to ethics. This is why there are legal frameworks to guide businesses. The law, especially business law, has been established to govern and guide businesses to operate within the acceptable ethical and moral framework. However, this framework does not always address all aspects of business activities, leaving managers and executives to find their own perception of the right path. It is because of gray areas that organizations find it difficult to decide whether its activities are compatible with the moral standards set by the law or ethics. In the following sections the researcher shall explore a case law, Rule v. Fort Dodge Animal Health, to demonstrate that often business ethics and business law counteract each other, making it challenging for the organization (and even the law) to determine which path to follow. Case Synopsis: Rule v. Fort Dodge Animal Health, Inc., and Wyeth Corp. In 2002-03, Jessica Rule, a resident of Massachusetts purchased doses of ProHeart 6, a drug for preventing heartworm in dogs, and administered them to her dog, Luke. ProHeart 6 was considered to be a better improvement from its earlier version ProHeart because it remained effective for six months instead of one. However, it needed to be administered by a veterinarian rather than orally by the owner. Both the ProHeart and ProHeart 6 are manufactured by Fort Dodge Animal Health, a division of Wyeth. The improved version was alleged to generate more profits for Wyeth because it was not easily discounted as it had to be administered by vets. Nevertheless, this fact did not impact its effective use against heartworm in dogs (Excerpt from Rule v. Fort Dodge Animal Health). In 2004, Wyeth recalled ProHeart 6 upon the request of FDA (Food and Drugs Administration) due to the concerns regarding the initial test results of the product. The results indicated ProHeart 6 was actually harmful to dogs, caused reactions and even deaths upon repeat usage. This fact Wyeth did not disclose to its consumers but did recall the product for safety measures (Rule v. Fort Dodge Animal Health). In 2006, Rule filed a putative class action against Fort Dodge Animal Health and Wyeth claiming that the company sold ProHeart 6 without disclosing these initial test results. In doing so Fort Dodge Animal Health has violated the law on the following counts: i. Product defect and failure to warn of the defect; ii. Breach of implied warranty of fitness for a particular purpose; iii. Breach of implied warranty of merchantability; iv. Breach of contract; and v. Violation of Mass. Gen. Laws Ch. 93A. (Rule v. Fort Dodge Animal Health) Rule however, conceded that despite two dosages of ProHeart 6, her dog Luke did not suffer any injury or developed heartworm. Nevertheless, she was concerned with the fact, if she had known ProHeart 6 had these defects, she would not have bought it or administered it to her dog. Also, by using ProHeart 6, she inadvertently increased the risks of injury to her dog. Her motion was denied (Rule v. Fort Dodge Animal Health). On appeal, however she pursued only two counts - breach of implied warranty of merchantability and Mass. Gen. Laws ch. 93A. Rule claimed that like others she was entitled to the difference between price actually paid for ProHeart 6 and what would have been the worth of the product had its safety risks been disclosed. Furthermore, she sought statutory damages. Her calculation was greater than the actual damages, treble the initial cost of the product, but she did not gain much in the process because according to the judgment passed the violations were not willful and knowing (Rule v. Fort Dodge Animal Health). Discussion When choices involve ethics, organizations and its constituents need to recognize and understand their decisions for ethical and legal consequences. In business ethics this can be gauged by a moral continuum. According to Wines (2006, p. 44), the business of determining what is moral and what is not, is not so simple. It starts with the immoral to the moral inert to morality and to supererogatory morality at the opposite end (see figure 1 below). Figure 1 Moral Continuum Source: Wines, 2006 The determination of a situation whether it is immoral, morally inert, simple moral or supererogatory depends on the value and intelligent application of the moral continuum for reasoning. When applied to the above case, one observes that the moral continuum is merely an indicative scale and does not provide a complete framework for analyzing an ethical or moral situation. Instances of argument in Rule v. Fort Dodge Animal Health, Inc. demonstrate that the plaintiff has used simple moral category to allege the defendant whereas the defendant's position has been that of moral inert. There is not much difference between the two on the moral continuum to determine whether each is wrong or right. This is why the law has to intervene and establish what is right and what is wrong. The law, according to Miller & Jentz (2010) represents the moral minimum. A moral minimum is an ideal situation in which business situations can be judged as having fulfilled its ethical and legal requirements (see figure 2). However, this situation does not necessarily mean that the business decision is ethically correct. This is because the law cannot control all business behaviors, thereby offers a bare minimum set of guidelines (laws) to govern business activities that does not proliferate the boundaries of individual rights or the community's rights. Figure 2 Moral Minimum Source: Miller & Jentz, 2010 In the case of Rule v. Fort Dodge Animal Health, Inc. the FDA only found out the negative impact of ProHeart 6 after it has been distributed in the market. After its discovery, it has forced the company to recall the product from the market. All this while, Fort Dodge Animal Health has remained silent on the issue. The company has remained out of the bounds of the law because firstly no injury has been caused, and secondly because nobody reported of its wrongdoing. Nevertheless, the fact remained company has acted against ethically correct behaviors due to its failure to disclose potential harmful effects of its product ProHeart 6 on users (dogs). This is also a gray area in the law which the company has capitalized on and remained out of its bounds. It is because of such actions that the law has maintained that companies adopt certain framework of ethical values and if they violate them, became answerable to the law (Sarbanes-Oxley Act 2002). The minimum standards should include the following: i. Honest and ethical conduct ii. Full, fair, accurate, timely and understandable public disclosures; and iii. Compliance with applicable government rules and regulations (Nelson 2006, p.9). This means that business executives have to make sure their decisions and activities comply with the law as well as with the ethics of doing it. This has been the position which Rule had taken to argue her case. According to her allegation, had the company been honest and disclosed its product defect, its value would have been lesser or even zero. As a consumer she had the right to this knowledge which the company concealed at the time of her purchase of ProHeart 6. Even though her dog did not suffer any injury through the use of ProHeart 6, unlike the reports of tests conducted on the product, as an individual she had the right to know of the consequences of using ProHeart 6. Her allegations however were negated by the court. This was because where business conduct and the law were concerned, the court was the authority to judge whether the business has been miscreant or honest in the past, and based on its history decide in favor (or against it) of its current behaviors (Nelson, 2006). The problem with this type of interference by the government is that though they are laws, they are based on the categorical imperatives interpreted by the government. A categorical imperative refers to behaviors which may negatively serve the purpose of the individual but does not cause injury or damage to other persons (Kant, 1993). Similarly, business ethics follow the same formula for distinguishing moral and immoral behaviors. In such a situation, Svensson & Wood (2008) suggest that business conduct be judged by its ongoing operations and business code of conduct. These should be governed by ethical practices and standards to determine whether it is within the legal bounds or not (see figure 3). Figure 3 Standards of Business Conduct Framework Source: Svensson & Wood, 2008 From the figure it is clear that according to business conduct standards, Fort Dodge Animal Health had been obliged to disclose the harmful effects of ProHeart 6 to its consumers. This was not only the legally correct procedure but also ethically and morally correct for the organization. It was based on this rationale that Rule has established that the company has violated the law of Mass. Gen. Laws Ch. 93A. In its ruling however, it can be observed that the Court was uncertain whether the rule of injury caused by unfair or deceptive acts or practice id.ch. 93A 2(a) can be applied to the situation because Rule's dog was not injured. The allegation was based on a hypothetical situation (even though other purchasers of ProHeart 6 might have suffered injury, she did not). This ruling against Rule was no doubt unfair and clearly demonstrated that the law was limited in its judgment of what was correct and what was not correct behavior by the company despite an implementation of code of conduct at the organization (Fort Dodge Animal Health, para 10). That is not all. Business law is limited in its application and practice too. According to the Uniform Commercial Code, warranty is an implied contract which product manufacturers are bound to when they produce and sell their goods. Thus a seller when distributes goods in the market it is implied that the seller is responsible and warrant for its merchantability (Halbert & Ingulli, 2009). The consumer likewise expects the product purchased is fit for consumption and it is free of any harm or has the potential to cause injury or damage to property. Any breach to this implied contract of warranty is against the law. When Rule purchased ProHeart 6 she expected the product to be fit for consumption; she did not anticipate any defects, which the seller should have disclosed. This argument she pursued further by alleging that the company knew of the risks of using ProHeart 6 in dogs yet it continued to distribute in the market until the FDA forced it to recall its product. Regardless of the fact whether her dog Luke suffered injury or not, ProHeart 6 was defective and the seller breached its implied contract of warranty. It can be argued here that though the law gave businesses freedom to choose to enter into the implied contract of warranty, it did not allow for breach once entered into it. Since the consequential damage was not property but life (of dogs), it was ethically and legally mandatory for Fort Dodge Animal Health to disclose of its product defects. Yet, the company was able to defeat the purpose of this law because of the fact that Rule's dog Luke did not suffer any injury or death as she had claimed (Halbert & Ingulli, 2009). Given the rationale adopted by the Court to judge in favor of Fort Dodge Animal Health, Inc. and against Rule's appeal demonstrate that the law is weak where determining the ethical and the non-ethical conduct of businesses are concerned. What concerns the researcher is the fact that if the law tends to protect the interests of the businesses then why bother with business ethics and code of conduct in the first place? An article in Strategic Direction ("Strange Bedfellows", 2006) answers this question adequately by pointing out that the issue of business ethics and business law concerns citizenry, corporations, and the government alike because it impact on profitability, sustainability, credibility, consumer loyalty, and inevitably the economy. This gives rise to the importance of business law and ethics even though to date their practices and usefulness remain debatable. Conclusion The above discussion on Rule v. Fort Dodge Animal Health, Inc., and Wyeth Corp. indicates that business ethics and the law have remained elusive to practitioners because of its malleability. Due the ease with which practitioners (businesses and consumers) can manipulate the law to serve their interests, the purpose and objective of it serving the deserving party have remained elusive. Despite its history of striving to keep a balance between economic interests and social expectations (Knouse, Hill & Hamilton, 2007) its current situation, as seen in the above case, demonstrate the struggle has a long way to go before business law and ethics can achieve its desired effects. In ruling against Rule, the Court demonstrates this fact. Yet on the other hand, one cannot take the side of the consumer as well because they too in their turn try to exploit the law and ethics to achieve economic gain. Rule's objective was not to seek compensation for her dog, which has been injured but to gain financial damage from the company concerned. This is why even though her dog was well, and in fact benefitted from ProHeart 6 administration, she still filed suit against Fort Dodge Animal Health with the single motive to seek financial compensation. It is because of these instances that the law concerning business activities and behavior continue to dodge in and out of the "ideal" situation of the moral minimum leaving the Court to determine whether they have done right or wrong. The Court in turn limited by the legal framework and out of bounds of ethics merely recapitulates previous cases to decide current ones (as observed in Rule v. Fort Dodge Animal Health, Inc.) which defeat the purpose of business ethics. References Author not available (2006). Strange bedfellows: the uneasy relationship between big business and ethical principles. Strategic Direction, Vol. 22, No. 10. Fort Dodge Animal Health, Inc. Official Website [Online] http://www.fortdodge.eu/aboutus.asp#corp Halbert, T. & Ingulli, E. (2009). Law and ethics in the business environment. Cengage Learning. Kant, I. (1993). Grounding for the metaphysics of morals, tr. by James W. Ellington. Hackett. Knouse, S.B., Hill, V.D., & Hamilton III, J.B. (2007). Curves in the high road: a historical analysis of the development of American business codes of ethics. Journal of Management History, Vol. 13 No. 1, pp. 94-107 Miller, R.L. & Jentz, G.A. (2010). Fundamentals of business law: excerpted cases. Cengage Learning. Nelson, B.L. (2006). Law and ethics in global business: how to integrate law and ethics into corporate governance around the world. Taylor & Francis. Rule v. Fort Dodge Animal Health, Inc., and Wyeth Corp. No. 09-1364, June 2, 2010 [Online] http://laws.findlaw.com/1st/091364.html Sarbanes Oxley Act of 2002, Pub. L. No. 107-204, Svensson, G. & Wood, G. (2008). International standards of business conduct: framework and illustration. European Business Review. Vol. 20 No. 3, pp. 260-274 Wines, W.A. (2006). Ethics, law, and business. Routledge. Read More