LW 311 Business Law Chap5

8/12/2019 LW 311 Business Law Chap5

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Business Law Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch5: 1

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CHAPTER5

Ethics and Business

Practice


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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


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ETHICS AND BUSINESS

acting ethically involves acting in a morallycorrect and honourable way

the belief that making profits is all that mattersand as long as it is legal it is all right aregradually being forced aside

ethical business conduct may impose a cost on

business, that cost may be offset by anincrease in public confidence


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ETHICS AND BUSINESS (cont.)

the community is now well aware of businessmatters and their consequences, especiallythose consequences which have an impact onindividual members of the communitye.g.

American subprime mortgage crisis inSeptember 2008 has now resulted in a globalfinancial crisis

if businesses do not adopt acceptable ethicalstandards then Parliament will need to step in toimpose standards


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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 isdeemed acceptable in one society may not be

acceptable in another moreover, social attitudes may change over

time resulting in a corresponding change in thelaw


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LAW AND MORALITY (cont.)

What is Law?

a set of rules, developed over a long period of timeto regulate interactions between people; it sets

standards of conduct between one group ofindividuals and another as well as betweenindividuals and the government, which areenforceable through sanction

law sets standards of conduct

ethics cannot be enforced though sanction unlessthe ethical standards have become part of the lawor the rules of an organization such as aprofessional body


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Justice and the Law

justicethat 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 principleno one is above the law

governmental authority is legitimately exercised onlyin accordance with written, publicly disclosed lawsadopted and enforced in accordance with establishedprocedural steps that are referred to as due process


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according to Dicey, 3 principles which togetherestablish the rule of law are:

1. The absolute supremacy or predominance of

regular lawas opposed to theinfluence ofarbitrary power

2. Equality before the law or the equal subjection ofall classes to the ordinary law of the land

administered by the ordinary courts3. The law of the constitution is a consequence of

the rights of individualsas definedand enforcedby the courts


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the legal basis of government gives rise to theprinciple of legality, with the rule of law beingexpressed as follows:

1. Existence or non-existence of a power or duty is amatter of law and not of fact, andso must bedetermined by reference either to the nature of the legalpersonality of the body in question and the capacitiesthat go with it, or to some enactment or reported case

2. The argument of state necessity is not sufficient toestablish the existence of a power or duty which wouldentitle a public body to act in a way that interferes withthe rights or liberties of individuals


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3. If effect is to be given to the doctrine that theexistence or non-existence of apower or duty is amatter of law, it should be possible for the courts to

determine whether or not a particular power or dutyexists, to define its ambit and provide an effectiveremedy for unlawful action

4. Since the principal elements of the structure of themachinery of government,and the powers andduties which belong to its several parts, are definedby law, its form and course can be altered only by achange of law


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the concept rule of law is associated with otherconcepts: 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 provenotherwise.

Legal equality

All individuals are given the same rights without distinctionto their social stature, religion, political opinions, etc.

Habeas corpus ad subjiciendumYou must havethe body to be subjected (to examination).


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in examining the concept of the rule of law, oneshould 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 systemneeds the following characteristics:

1. Laws are relatively clear, accessible and prospective intheir operation

2. Laws are seen to be legitimate and enjoy a broadmeasure of community support


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3. This legitimacy and support usually derives from thelaws being considered to be generally just

4. Laws are interpreted and applied openly by anindependent judiciary which itself enjoys a broadmeasure of community acceptance

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

1. The supremacy of regular law rather than arbitrarypower

2. Government under the law and equality before the law

3. The protection of individual liberties by the commonlaw


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our efforts to strengthen legal systems should fallunder 3 inter-connected priority areas:

1. Supporting legal reform

2. Improving the administration of justice3. Increasing citizens access to justice

The Development of Equity

concept of equity arose as a result of the growinginflexibility and rigidity of the common law

strict rules of common law be modified inappropriate circumstances


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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 dosomething which is not really inaccordance with the intentions (spirit) ofthe law

the distinction between the letter and thespirit of the law is largely a moral or ethicalproblem


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MORALS AND ETHICS

moralsto deal with the distinction between

right and wrong

ethicsrelate to morals, the treatment ofmoral questions and acting in a morally

correct and honourable way

ethical considerations involve going beyondself-interest in reaching a decision


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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 thancould be achieved by any other action


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THEORIES OF ETHICS

(cont.)

Deontological Ethics

requires a person to do the right thingregardless of the consequences

at odds with consequentialism ethics in that itconsiders that the consequences can neverbe an appropriate justification for the act

the end does not in itself justify the means


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ETHICS IN THE BUSINESS

CONTEXT

Insider Trading

an example of a white-collar crime

part V, Division 1 subdivision 2 (sections 183 to198), Capital Markets & Services Act 2007prohibits insider trading

Giving and Receiving Gifts

unethical and illegal if the nature of the gift is notnominal in value and where the gift is given as aninducement or in return for a favour, or if it isgiven under illegal circumstances


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CONTEXT

see: section 115, Banking and Financial InstitutionsAct 1989; sections 1018, Anti-Corruption Act 1997;section 118, Development Financial Institutions Act2002; section 49, Islamic Banking Act 1983; sections

161165, Penal Code

Conflict between Commercial Interests andSocial Utility banks, telecommunications suppliers, private

hospitals and other health service providers and themedia are business organizations which are not onlyprofit-oriented but also provide a social utility andmust bear in mind the communitys needs


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CONTEXT (cont.)

Conflict of Interest

arises when an individual is in a position where theycannot act fairly and properly in the interests of one

party without prejudicing the rights and interests ofanother party for whom they also act

Unconscionable Contracts

relative bargaining power may be very unequalone

party may be virtually helpless and unable to negotiateanything, and the extent of their negotiating positionmay be a take it or leave it situation, as is often thecase where standard form contracts are involved


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CONTEXT (cont.)

Misuse of Limited Liability of a Company

under the doctrine of separate legal entity, a

company is regarded as a legal person, separateand distinct from its shareholders and directors

the doctrine has often been abused with theresult that creditors and employees have lost

considerable amounts of money while theprincipals of the company have effectively lostnothing


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CONTEXT (cont.)

Tax Evasion and Tax Havens

try to eliminate tax totally by using certain tax-

avoidance 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 thelaw


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CORPORATIONS AND ETHICS

companies are required to be ethical in their dealings

company directors have a fiduciary duty to act in theinterests 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 andproper persons to act as directors

Institutionalized Wrongdoing social forces within an organization may result in

unethical behaviour or even illegal actions by anindividualfraud


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(cont.)

Organizational Integrity

organizational integrity is based on self-regulationin accordance with a formal set of guiding principles

ethical values will be involved in the establishmentof organizational systems, the decision-makingprocess 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


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(cont.)

systems for the reporting and investigation of possiblebreaches

a system of controls and audits to ensure that theintegrity programme is being complied with

Corporate Codes of Conduct to fight corporate fraud and abuse by:

a) exposing and punishing acts of corruption

b) holding corporate officers and directors accountable

c) protecting small investors, pension holders and workersd) moving corporate accounting out of the shadows

e) developing a stronger, more independent corporate auditsystem

f) providing better information to investors


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Business Law


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ETHICAL INVESTING

means investing in companies that operateethically, provide social benefits and are sensitiveto the environment

a socially-responsible investor considers whetheror not the investment is ethical aside fromadequate returns and security

this means judging or analysing a company orinstitution primarily on its products and/or servicesas well as socially responsible governancepractices


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ETHICAL INVESTING(cont.)

to determine which company to invest in, or notinvest in, investors must consider whether thecompany 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 thecommunity

e) Ethical employment policies


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Business Law


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ETHICAL PROFESSIONAL

ADVICE

professional advisers sometimes stretch the legalsystem to the limit to avoid culpability for theirunethical activitiessee McCabe vBritish

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 becomingaccepted


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ETHICAL PROFESSIONAL

ADVICE

there has been a global recognition of theneed for reforms. Through multilateral co-operation, standards can be raised

throughout our markets, and investorseverywhere have the protections they needand deserve


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Business Law

Oxford Fajar Sdn Bhd (008974 T) 2010 Ch 3

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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

Documents

LW 311 Business Law Chap5