Author: Silvija Vig

Laws are standards used to evaluate human behavior, but they are a product of politics, i.e. of the ruling majority in a country, and although they are legitimate, they may not necessarily be just and fair towards everybody. For example, business practice of a company in a developing country can be legal, but at the same time the company may violate fundamental human rights and conduct its business unethically by providing inadequate work conditions or employing minors. Therefore, it can be concluded that obeying the law does not necessarily guarantee ethical conduct.

An ethically acceptable decision is considered to be one that is legally and morally acceptable for a wider community. It is most certainly easier to understand when an activity is legal than ethical. However, in real life we encounter a number of situations in which legal does not necessarily mean ethical and vice versa. According to Henderson[1] the relationship between ethicality and legality of a specific activity is divided into four categories: ethical and legal, ethical and illegal, unethical and legal, unethical and illegal. Decisions which are ethical and legal are probably most easily recognized. However, in real life some decisions can be ethical and illegal, unethical and legal or unethical and illegal. In many countries one of the most common examples of an ethical, but illegal decision is the use of marijuana for medical purposes. Although the majority of people would say that they would never buy marijuana because it is illegal in most countries, if they found themselves in a situation in which a person they love or a family member got sick, and if they knew that only marijuana oil might help them and save their life, the majority of them would probably break the law in order to save the life of their loved one. From the perspective of the person making the decision and his/her family it is ethical because human life is of ultimate worth.

Decisions which are unethical, but legal make the third category. In the world of business we often hear people say the following: “I complied with the law!“, “Everything was according to the law!“. The statements suggest that somebody wants to justify unethical behavior through moral exclusion or rationalization. Ethical issues also need to be taken into account, which is not always the case in the world of business, such as the employment of minors in developing countries, which is legal in some countries, but is certainly unethical, and represents an amoral form of entrepreneurship.

A number of activities, including discrimination towards minorities and women, disposal of chemical waste, etc. are decisions which are illegal and unethical. Such decisions break the law, codes of ethics, fundamental human rights, so here we may be dealing with entrepreneurship which is absolutely immoral. As it can be seen from the above examples, some decisions are easily classified. However, apart from the activity itself, some decisions also require a situational context in which they are made. For instance, some forms of public disclosure of unethical behavior (whistleblowers) can be ethical even though they clearly violate corporate codes of conduct, and therefore are classified as ethical and illegal. If a piece of information poses a threat to the national security of a country, it is classified as unethical and legal or unethical and illegal. This is the reason why some people consider Edward Snowden to be a hero, whereas some consider him a traitor. All that points to the fact that a decision-making process is based on situational factors and judgement according to one’s own values and attitudes[2]. In this context it is necessary to take into consideration the point of view of an individual, based on his/her values, convictions and character, but also the circumstances in which an activity is carried out. Therefore, the answers to these questions should be searched for in behavioral ethics.

If we translate this theory into the organizational context and if we pose the question whether compliance also means ethical entrepreneurship, the answer to this questioncan be provided by explaining the approach to the implementation of a compliance program or to an ethics and compliance program. According to Paine[3] there are two approaches, which are as follows: compliance based and integrity or values-based approach. The approach an enterprise will adopt depends on what it wants to focus on, i.e. what is more appropriate for their business strategy and how the enterprise wants to present itself to the public, which depends on the goals and orientation set by the enterprise.

The objective of the program based on compliance is to prevent, disclose and punish legal violations. Such programs focus on the prevention of illegal behavior, introduction of surveillance, checks and imposing penalties. To foster a climate that encourages ethical behavior, corporations need a more comprehensive approach that goes beyond prevention or the often punitive legal compliance stance. A program based on integrity or values encompasses compliance with the law, but also emphasizes the responsibility of executives and the management towards ethical behavior, i.e. the emphasis is put on ethical organizational values and their taking hold at all levels of entrepreneurship. This approach has a greater impact on employees, and ultimately on the overall business practice, because it is based on the concept of self-governance, or self-regulation as it is also called, in accordance with ethical organizational values[4]. The task of management is to define „and give life to an organization’s guiding values, to create an environment that supports ethically sound behavior, and to instill a sense of shared accountability among employees. The need to obey the law is viewed as a positive aspect of organizational life, rather than an unwelcome constraint imposed by regulatory authorities“[5]. Unlike compliance-based programs implemented by compliance officers, integrity-based or value-based programs require a continuous effort of executives, management, as well as of all employees.

If you are from a Croatian-speaking territory, more information on the topic is available in the book “Business Ethics – How to Develop Authentic Leadership and Build a Culture of Happy and Engaged Employees with Ethics and Compliance Programs?“

[1] Henderson, V. E. (1982) The Ethical Side of Enterprise.Sloan Management Review,23(3), 37.

[2] Ibid.

[3] Paine, L. S. (1994) Managing for Organizational Integrity, Harvard Business Review, pp106-116.

[4] Ibid.

[5] Ibid.