Business Ethics Beyond Legal Compliance
Legal compliance is a necessary but not a sufficient component of ethical standards. Firms which operate within the boundaries of the law can still be challenged about practices which are unethical.
The financial crisis of 2008/09 caused many to question the ethical behaviours of banks, especially whether reward structures were incentivising unethical behaviour, but only a few suggested that banks were operating illegally.
Western businesses increasingly need to outsource manufacturing to lower cost developing countries in order to remain competitive in international markets. The manufacturers selected are often reputable local businesses adhering to their local laws. However, legal standards of employee welfare in developing countries tend to be lower than the standards expected in developed countries. When these differences between ethical expectations and actual legal practices have been highlighted by western media the damage to corporate reputations and sales has been significant.
Where national security forces are used to guard business assets and acted against international human rights standards, the business is seen to be irresponsible, even though it may be complying with local law, sometimes at the direction of host governments.
Corporate values should define the boundaries of acceptable and unacceptable behaviour. This depends on the organisation deciding, driven by its leadership, how it wants to conduct its business and what it stands for. These values not only help the business effectively manage operational and reputational risk, but also build corporate identity and engagement with stakeholders.
