Business and Professional Ethics - Assignment Example

Assignment 2. The Legal Context of Business & Professional Ethics

Part 1. The legal context framing business and professional ethics

Business and professional ethics play an important role in business environments and industries in the world today. They significantly enhance a brand’s visibility and recognition, and customer acquisition efficiency by compelling businesses to incorporate integrity into their processes. Ethics enhances development and harmony in any industry. Although many firms in any industry will always strive to practice ethical behaviors in their dealings with each other, governments have instituted laws and regulations to enhance credibility and accountability in different industries (Butterfield, Trevin, and Weaver, 2000). Government intervention is further aimed at ensuring consumer protection and healthy competition amongst firms. Governments intervene in businesses and industries by creating laws and agencies to provide oversight and regulatory functions. Oversight and regulation also enhance inter and intra-industry competition-enhancing overall economic growth. Although laws and ethics have some points where they intersect, they are also fundamentally different from each other. Legal contexts have significantly influenced business and professional ethics since the times of Plato. He extensively studied the professional ethics of the political class, literary artists, scholars and military experts and these studies formed the basis for the later development of policies in business and professional affairs. His studies focused on determining whether those in power to subjugate the masses created out of the need to ensure harmony or as ploy societal laws.

Laws are based loosely on the basic human values of life, all forms of freedom, justice and fairness. Plato, however, observed that laws were only able to have as much reach and power as those in power wanted them to. Corporate cronyism is based on these observations since although all ethics are lawful, not all laws are ethical. A good example of an unethical law is that which permitted and even encouraged slavery. Equality can only be truly achieved through the separation of political and economic power. A situation where individuals have managed to concentrate both these powers is known as a Thrasymachus situation or world. The founding fathers of the great nation of America understood this fact and set checks to guard against it in the declaration of independence and in the constitution. They abolished royalty, empowered the masses with power over the economy and bestowed the political power to the government. Historically, people could either have power from the acquisition of significant stockpiles of weapons and fighters. Expert power gained from knowledge from education and practice, political power from a person’s innate ability to rally followers behind him and his causes. Economic power that comes from holding significant quantities of factors of production like land, stocks and liquidity and finally military power which constitutes having a significant amount of all of the aforementioned (Menkel-Meadow, 2000).

History has taught us that there will always be people that will strive to concentrate both their political and economic powers both in governments and in business. While those in government do it by promoting socialism that allows the government to effectively control the economy, business people employ corporate cronyism tactics to realize their ends. The latter works to compel people in a market to make a purchase of a commodity that is wholly controlled or produced by a company that is affiliated with the ruling authority at the risk of a heavier financial penalty. Businesses have formed associations in their industries that have significantly reduced the predatory practices of some individuals. Some firms have however found loopholes where through public-private partnerships, corporations are able to force individuals to sell off their land to them. Private enterprises are able to significantly increase their clout by forging partnerships and alliances with political and regulatory agencies while the latter gains from an increase in the economic power. Although laws are made to enhance professionalism and ethicality in industries and markets, progressive and thorough analysis and research can provide corporations and individuals with significant insights into how to enhance their power and influence in their societies. The loose definitions and wording in legislations that makes it easier to for the identification of such loopholes also play an important role in ensuring that they remain flexible and adaptable to different environments and circumstances.

Part 2. The role played by ethical considerations in domestic law

Domestic laws borrow a lot of their structure and premise on ethical considerations that strive to ensure peace, tolerance, and harmony amongst individuals living in a community or society (Meulenbergs, Verpeet, Schotsmans and Gastmans, 2004). These dynamics are better demonstrated in organizational setups where firms are subjected to laws by the government of their operating jurisdiction while they themselves impose their own rules on their employees. Many domestic laws are based on established cultures and customs practiced by a group of people while their international counterparts mainly borrow from the commonalities found in different domestic laws (Carroll and Buchholtz, 2014). Business leaders encounter legal issues every day in the commission of their roles and responsibilities. Rules and laws in a closed community like an organization range from unwritten to well written and defined kinds. Unwritten rules include conformity expectations and office decorum that mainly guide employee-to-employee relations. Decorum is however also guided and partly controlled by an organization’s external and internal cultures which include visible artifacts like symbols, ceremonies, and stories. It also includes the organization’s values, which act as the guiding philosophies for the operations and attainment organizational objectives and goals. These factors play together to influence the ways, in which different aspects of the firm come together to ensure the successful attainment of long-term goals and objectives which establish the organization’s culture.

Conventions however often result in significant challenges and problems for the organization and its employees. First, they face significant cognitive limitations from employees and leadership’s inability to consider a wide range of options and solutions for problems and challenges. Second, acceptance dependency makes people more susceptible to caving to peer pressure even when the alternative is against their nature. Last, individuals might face constant conflicts of interest where their actions might have the potential of interfering with the attainment of organizational goals and vice versa. The first can be successfully overcome by taking more time to deliberate over problems in order to come up with a comprehensive list of feasible and practical solutions. The second can be remedied by looking at the big picture of things effectively enhancing perspectives and problem-solving ability. The last can be addressed sustainably if employees ensure that they join organizations whose values are in line with their personal values or if they learn how to focus on the tasks. Contract laws enhance the ability of organizations to make informed predictions of people’s behaviors and trends and how to effectively respond to them. It establishes common rules of interaction between two or more parties that enjoy equal rights and liberties under law.

The law only recognizes written or recorded agreements for use in formal contracts due to their innate feature that allows future reference in the case of disagreements and breach. There are however several circumstances where although both parties to an agreement have equal rights, one party usually has an upper hand. These include relations between employers and employees, contracts between salespersons and senior citizens and contracts between salesmen and minors. The upper hand circumstance is a result of the ability of the parties to agree and consent to the terms of the contract and the fact that the parties to the agreement are never actually equal to each other. Organizations also encounter implicit contracts that are defined by conformity expectations and an organization’s culture. Conflicts of interest arise when one party is contractually obligated to more than one contract either explicitly or implicitly. Parties to a contract need sufficient material in order to make informed decisions and contracts that provide full disclosure of all materials are referred to as fair contracts. There are however some circumstances where parties can waive their rights to full disclosure of materials through the issuance of devices known as “big boy letters”. These devices are however mostly used when the contract content covers a variety of complexities that are familiar to both parties.

All parties to a contract are responsible for conducting their own due diligence, which is the process through which a party goes through the details of a contract to prevent or mitigate any harm that can come to them as a result. Ethics dictate that all individuals look out for their wellbeing and that in their efforts to ensure this they do not infringe on the rights of others. Dunning is a good example of a situation where one party’s efforts to ensure their rights unwittingly disrupts the rights of the other party. It is considered unethical when efforts to remind clients to honor their payments become harassment. Parties can further protect themselves through anticipatory repudiation clauses that absolve them of any liability in case of any unforeseen eventualities in the execution of the contract. Parties can also consciously choose to breach the terms of their contract when they determine that they stand to make significant savings in that way. Aggrieved parties can, however, seek legal reprieve by suing for damages or tort on actionable offenses to the terms of their contracts.

Part 3. The role played by ethical considerations in international law

Globalization has increased the ease of transfer of skills and knowledge that has encouraged many individuals and corporations to venture into other regions and countries in search for more markets or cheaper labor. Increasing competition has made it necessary for companies to improve their systems in a move to increase their good governance practices and reduce wastages while effectively increasing their profits. Due to the free movement of labor, knowledge, and goods across borders, there was an increased need to create a new set of rules and laws to ensure that foreign corporations can comply with both the laws of their new home and those of their home country. International laws are therefore a collection of rules and regulations between governments and governments and between governments and governments. This increased ease of movement also increases the rate of transfer of other cultures that might conflict with those of the new land. Differences in systems and structures between an organization’s home country and their country of operations can create significant challenges and problems in effectiveness and efficiencies. Many foreign companies have therefore many times resorted to corrupt practices in order to speed up processes and to ensure that they secure contracts and payments (Everett, Neu, and Rahaman, 2006).

International laws are meant to ensure that multinational and foreign companies do not break the laws of the countries where they set up shop. The Foreign Corrupt Practices Act (FCPA) is an example of an international law that was put in place to reduce the rampant corruption that had broken out involving American countries abroad. Before its enactment, secondary legislations were used to punish individuals and companies charged with bribery offenses. Some of these legislations include the Securities and Exchange Commission (SEC) that could impose punitive fines for failure to disclose such payments. The Banking Secrecy Act made it a requirement for companies to declare any amounts of monies that left or came into their coffers. The Mail Fraud Act made it expressly illegal for individuals or companies to use mailing services and other electronic communications to make illegal transactions. Corruption and bribery have also undergone significant changes in recent years that have necessitated a clearer definition of terms and circumstances that constitute corruption and bribery. Many companies have however continued to pay out bribes through a loophole in the Act that provides for an unlimited amount of funds payable for facilitations. The Act loosely uses the term “facilitation payments” to cover contributions and considerations made to foreign politicians and lobbyists to influence the award of contracts and the passing of legislations.

Corruption is categorized into two main categories; first, passive corruption is where one party creates circumstances where another part, usually in a position to influence decisions and policies, receives unsolicited gifts in order to influence decisions in the favor of the former. Second, active corruption is where one party gives another party solicited or unsolicited gifts with the express intent of influencing their decisions. In the US, the Department of Justice is the agency responsible for enforcing these laws and uses the U.S Federal Sentencing Guidelines for Organizations (FSGO) of 1991 in its decision-making process. Under FSGO, companies are held liable for offenses committed by their employees and agents. It also has provisions for punitive measures including monetary fines, organizational suspensions and sanctions and being put under statutory receivership until such a time as the agency sees that the organization has made significant changes towards compliance. In 2004, the FSGO received three significant revisions that included; companies are mandated to conduct periodic evaluation of their compliance programs effectiveness due to their high associated risk of failure, companies expected to show evidence of an active approach to ensuring their practices and processes are ethical and it provided a clearer and more definite definition of accountability.

International laws are based strongly on ethics policies to ensure high compatibility across different jurisdictions. Framing them as ethical policies makes them more practical and gives different governments the required amount of flexibility to adapt them in ways that will enhance their effectiveness. This format further enhances their efficiency by making them self-regulatory and cutting down on administration costs. The Organization for Economic Cooperation and Development (OECD) of 1976 and the UN Global Contact of 1999 are the two major international codes of conduct available today. These codes are aimed at ensuring the promotion of the application of business ethics criteria to international commerce. International laws are structured in 10 different parts. The first part contains the concepts and principles and their clear definitions and nature. Second contains the general policies that propose specific recommendations to enhance good governance as well as compliance with sovereign laws of the company’s jurisdiction of operation. Third part compels companies to be transparent in the material description regarding the enterprise. Fourth, defines the guidelines for employment and industrial relations and stipulates ethical labor practices and policies and safeguards employee rights and freedoms. Fifth stipulates the need for companies to be mindful of their operating environment with the view to actively enhancing practices that ensure its preservation and continuity. Sixth defines and prohibits bribery of any form, nature or kind. Seventh ensures the safety of consumers from unfair and illegal exploitation by corporations. Eighth ensures that operations of foreign companies leave their host countries better through diffusion of knowledge through research and development. Ninth, they enhance healthy competition by encouraging open and fair practices and climate. Last, they urge corporations to respect tax laws and corporate with enforcement agencies.

Part 4. Why formal laws are not enough to ensure a fair marketplace

Businesses and firms strive to come up with competitive advantages against their competition every other day. Many leaders have dedicated themselves to understanding their industries and the laws that regulate them to enable them to reduce their overhead costs while maximizing their production and ultimately ensuring they maximize their profits. Innovation and creativity are the key driving blocks of industry and business. Many businesses have been able to find loopholes in laws allowing them to operate on the fringes of the law without necessary breaking any of them. The dynamism of business and industry environments further makes it hard for laws to keep up with the developments and advancements (Heath, 2006). There are seven reasons why formal laws are not enough to ensure a fair marketplace. First, business environments are very volatile and dynamic resulting in progressive changes in very short intervals. These changes make laws become obsolete very quickly leaving gaps that can be exploited by unscrupulous businesspersons to gain unfair market advantages over their competition. Second, legal processes and procedures are too intricate, complex and expensive to carry out making them inefficient in many financial issues. Third, laws are very subjective and dependent on the political atmosphere of a country or region making them sometimes erratic and biased depending on the special interests and contributions supporting it.

Fourth, the subjectivity of laws is further compounded by the vagueness of the language used in their development and the often ambiguity of their terminologies that makes them subject to interpretation. Fifth, since different countries and regions have their own laws and regulations, businesses and individuals operating in a regional and international level have too often times operate under conflicting legal systems. Sixth, many countries are still lagging in terms of regulations and laws with regard to advanced financial activities leaving organizations largely to self-regulation. Last, the term professional inherently implies that a person has to work with his or her peers with standards usually much higher than those proposed by law do. These elements of law in business and industry create loopholes that can and have been exploited time and again resulting in consumer exploitation. These loopholes and grey areas in the law are termed as the penumbra of the law and are those areas although an activity carried out is legal and lawful in the eyes of the legal system, they are unfair and damaging to consumers and other players in that market or industry. Scam artists and conmen have perfected identifying and exploiting these fringes to dupe unsuspecting consumers and members of the public making a lot of money in the process while giving no value in return.

Pyramid schemes are a good example of business enterprises that operate within the rule and confines of the rule of law but harm the consumer. Frauds are designed so that their promise of reward is so big that it beats human logic. They also offer sizeable rewards to the first investors in order to attract more investors and to significantly increase their investment amounts. Since the size of the reward is directly proportional to the size of the investment, the initial investors usually start out with small sums of money then gradually increase the amounts as their trust in the model increases. However, pyramid schemes usually benefit the first wave of investors while late subscribers usually lose the bulk of their investments. There are two common types of scams; first, is the pyramid scheme discussed above. Second, are the equally infamous Ponzi schemes? While the former involves the creation and selling of the shares of a foreign franchise that promises good returns, the latter invites consumers to invest their money in an investment pool with a returns portfolio that has been enhanced to look too good for investors to not want to buy in. The profits, however, come from subsequent investors’ funds in the scheme in the same way that pyramid schemes do.

Ponzi schemes rely on four factors for their success; first, the face of the enterprise is usually a cynosure with good people skills. Second, they usually promise significant returns on investment for investors. Third, the model is designed in such a way that the first wave of investors realizes the promised rates of return resulting in an increase in the enterprise’s credibility to consumers and encouraging more investment. Last, the healthy returns paid out to early investors come from the subsequent investment from later investors. Consumers have also fallen prey to phone and computer scams. They get questionnaire type of calls or emails where they are required to answer a few questions then be billed at the end of the month for advertising and other premium services and charges. In such cases, consumers can only get a reprieve from civil courts since most of these companies operate from within the confines of the law. Their victims can therefore only sue in courts of tort on the precipice of their rights to consent being invalidated by the activities of such enterprises.