BUS – 115 (Business Law I) Study Guide

Ethics and the Law and Source of the law

Learning Objectives

After reading this chapter, students should be able to accomplish the following objectives:

Define law, morality, and ethics.
Distinguish among natural law and positive law.
Explain the effects of non-judgmentalism.
Describe social contract ethics.
Outline the steps in applying utilitarianism.
Define rational ethics.
Explain the dyadic nature of ethics in government.
Explore the need for ethical responsibility in business.
Describe the need for law in our society.
Clarify how the law and ethics can often benefit from anarchy.

Major Concepts

Defining the Law, Morality, and Ethics

The law consists of rules of conduct established by the government of a society to maintain harmony, stability, and justice. Morals involve the values that govern a society’s attitude toward right and wrong. Ethics, in contrast, attempts to develop a means for determining what those values ought to be and for formulating and applying rules in line with those values.

Ethical Theories

Social contract ethics holds that right and wrong are measured by the obligations imposed on each individual by an implied agreement among all the people within a particular social system. Utilitarianism is an ethical theory that says that the morality of an action is determined by its ultimate effects. The more good that results, the more ethical is the action. Conversely, the more bad that results, the less ethical is the action. Rational ethics is a philosophical theory that says ethical values can be determined by a proper application of human reason. The theory assumes, and rightfully so, that because all human beings are rational, all human beings ought to have the same ethical values.

Ethics and the Government

The government of a nation-state has two objectives that simultaneously justify its power and enable the proper exercise of that power: (1) to protect its own existence and (2) to protect the lives, health, safety, and well-being of its own citizens. To meet those two objectives, national leaders must recognize the conflict that emerges from within a dyad or two-level system of morality: (1) the exercise of individual morality, represented by the ethic of ultimate ends, and (2) the exercise of national morality, represented by the ethic of responsibility.

Ethics and Business

Corporations owe society a level of responsibility because the government has granted certain legal advantages to corporations. Another reason for expecting ethically responsible decisions from corporate executives is that corporations have a great deal of power in the economic structure, and with power comes responsibility. Finally, corporations should act ethically because it is in their own best interest to do so.

The Relationship between Law and Ethics

In a perfect society, ethics and the law would always coincide. Our society is not perfect and is not likely to become so in the foreseeable future. Therefore, our society needs the law and the legal system to give it structure, harmony, predictability, and justice.

Chapter Outline

I. Defining the Law, Morality, and Ethics

A. The Law and Morality

The law consists of rules of conduct established by the government of a society to maintain harmony, stability, and justice.
Morals are values that govern the difference between right and wrong and good and evil.

B. Values and Ethics

Values come from ethics.
Ethics is the attempt to develop a means of determining what these values really are and for formulating and applying rules that enforce those values.

C. Natural Law

Morality and the law are united in a common bond based on their intrinsic nature.
Natural law sees law as originating from some objective, superior force that stands outside the everyday experience of most people.
A law with an immoral purpose is not a law at all.

D. Positive Law

Positive law says that Law comes from social institutions.
It is legal theory that says law originates from an outside source that has emerged from within society.
Some people say that human decency will ultimately triumph over human cruelty, giving rise to a just and moral society that will eventually abolish the worst sins of humanity.
This brand of positive law is sometimes called the Law of Peoples.

E. Ethical Decision Making

Ethical decisions are made in a variety of ways:
Some people act on instinct.
Some people try to do what they “believe” is right.
Some people act within set guidelines.
Some professions, businesses, and organizations develop guidelines usually called rules of conduct or canons of professional responsibility.
Although such rules are admirable, they are often so long and complex that they end up covering pages of text that require an in-depth study just to understand the basics.

II. Ethical Theories

A. Social Contract Ethics

Social contract ethics holds that right and wrong are measured by the obligations imposed on each individual by an implied agreement among all the people within a particular social system.
English philosopher Thomas Hobbes is generally credited with formulating the modern version of the theory in his book Leviathan.
At the most fundamental level, Hobbes says that human beings have two core rights that cannot be sacrificed, traded, or relinquished in any way:
The right to live
The right to live in peace and security
The existence of the social contract permits people to live together in peace and harmony, but it does not permit anyone, not even the leader, to violate the core rights of life and security.
Social contract ethics is descriptive rather than prescriptive.
A descriptive theory simply describes the values at work within a social system, rather than explaining how the values originated in the first place.
A prescriptive theory explains how to come up with the values that permit a society to run smoothly.

B. Utilitarianism

Utilitarianism is an ethical theory that says that the morality of an action is determined by its ultimate effects.
The more good that results, the more ethical is the action. Conversely, the more bad that results, the less ethical is the action.
The main problem with utilitarianism is developing a commonly understood definition of good.

C. Rational Ethics

Rational ethics is a philosophical theory that says ethical values can be determined by a proper application of human reason. It assumes that because all human beings are rational, all human beings ought to have the same ethical values.
Rational ethics is often referred to as objective ethics.
Premised on the belief that it is logical to establish rules that support the continued existence of society.
Even though rational ethics appears to be almost foolproof on the surface, a difficulty lies within what are referred to as penumbra rights. Penumbra rights are those that are found in those indeterminate or indistinct shadow areas associated with more uniformly accepted rights, such as the right to a safe and secure life.

III. Ethics and the Government

A. A Governmental and Ethical Dyad

Weber argues, instead, that a dyad or a two-level system of morality exists, represented by the ethic of ultimate ends for individuals and an ethic of responsibility for national leaders.
Ethic of responsibility demands that the moral actor—in this case, a national leader—must consider his or her responsibilities to those people who depend on that leader for safety and security.

B. Shortcomings of the Ethical Dyad

The primary shortcoming of the ethical dyad not the ethic itself, but the difficulty that leaders have executing one level of that ethic—the ethic of responsibility.
Bromfield argues that American leaders have mishandled their basic responsibilities by focusing on what Bromfield calls “world responsibility” rather than national responsibility. He argues that the United States, Europe, Russia, China, Japan, and India must develop economic alliances with those nations closest to them, geographically and culturally.

C. The Threat of Failed States

Bromfield suggests that international decision making be based on economic motivations.
The success of Bromfield’s plan depends upon the benevolence of the rich nations; however, the basic rule of Weber’s ethical dyad is that leaders must not think benevolently but must, instead, think in terms of national responsibility.
Failed states are those in which the government has completely collapsed or has become so ineffective that it can no longer provide sustenance or security for its own people.
Unstable states are those in which the government suppresses its own people thus inviting a future revolt that might destabilized a region.

D. The Responsibility to Protect

Responsibility to Protect (R2P), declares that the leadership of every nation has a definitive duty to protect its own people from four major threats, genocide, war crimes, ethnic cleansing and crimes against humanity. Crimes against humanity include such things as slavery, torture, rape, sexual slavery, mass murder, hostage taking, terrorism, kidnapping, and apartheid, among several others.

IV. Ethics and Business

A. The Traditional Corporate Culture

Although all businesses affect the economy and the community, the greatest force in the American industrial state is the corporation, in general, and the multinational corporation, in particular.
Corporations are legal persons created under the authority of federal and state statutes. This status as a “legal person” gives the corporation certain rights and abilities that other business entities do not always have.
The traditional view says that privately owned corporations are created solely to make a profit for their shareholders.
Using utility thinking or cost–benefit thinking, a corporate manager simply looks at the action he or she is about to take and asks whether the benefit to the shareholders will outweigh the cost to the corporation.

B. Reasons for Ethical Responsibility

The first argument supporting corporate social responsibility is based on the premise that corporations are granted certain rights as a result of the incorporation process.
A second reason for demanding ethical behavior from corporations is that corporate decision making clearly has an impact on more people than just the shareholders and corporate managers.
Accepting social responsibility is actually in the long-term best interests of a corporation.

C. Efforts to Promote Ethical Behavior

The traditional view of a corporation says that its primary role is to make a profit for its shareholders.
Some statutes now permit managers to consider factors beyond profit in making corporate decisions.

IV. The Relationship between Law and Ethics

A. The Need for Law in our Society

Laws are needed because people do not always follow ethical principles.
The law consists of rules of conduct established by the government of a society to maintain harmony, stability, and justice in that society. It does so by defining the legal rights and duties of the people.

B. Ethical and Legal Anarchy

As is true of all institutions, the law is flawed.
Sometimes having an imperfect but functioning legal system is always preferable to anarchy.
A question is whether having an imperfect but functioning legal system is preferable to anarchy.
Kropotkin Jean Jacques Rousseau believes that a little anarchy now and again is useful, despite the horrors that often result in such a state, but only when what emerges from that period of anarchy is a system blessed by legal and ethical harmony. To explain this further, Kropotkin introduces two human forces: energy and justice.
Energy is found in a society that manages to redirect the collective human will toward the welfare of the entire species instead of toward individual or corporate survival measured only by monetary gain. Justice is present when all people are treated equally based on some intangible quality that has nothing to do with money.
Doing one’s duty in a cooperative and nonselfish way, creates harmony in the society, evokes thanks and appreciation from other members of that society, and gives each person a feeling of self-worth that goes way beyond anything that mere money can do. Kropotkin called this measure of value appretiare.
Kropotkin’s socioeconomic theory suffers from an inadequate, or at least unsatisfying, explanation of the mechanism by which the human race promotes cooperation over competition and establishes appretiare.

Chapter 1 Download Chapter 1 PPT