Chapter 1 Law and Ethics Law and ethics are interconnected Fundamental ethical principles reflected in law what is consider ethical often find expression in governmental law Law may influence the value of individual and companies affecting the way business is practiced a Maintain Fiduciary Standards Fiduciary someone who occupies a position of power trust and confidence regarding the property of another Fiduciary rule act solely in the interest of that other person s property and interests b avoid the appearance of a conflict on interest exist when personal interest or duty conflicts with professional interest or duty Cannot be fair and impartial The agent owes a duty of undivided loyalty to the principal employer Agent cannot allow his her personal interest to conflict with that of principle cannot deal with the principle as an adverse party 2 options 1 Disqualification have the conflicts avoids the conflict by disqualifying him from the opportunity presented 2 Disclosure and consent disclose the conflict to both the seller and buyer and obtain their consent to continue with this transaction get a third party to provide an opinion on the fairness of the transaction Deal with conflicts of interest company s code of ethics c Respect confidential relations in confidence confidential relation maintain confidentiality keep information secret Federal securities laws Another federal law The Gramm Leach Bliley Act or GLB safeguard customer information Reduce the risk of identity theft d Exercise due care and diligence Derives from the law of agency employee is required to exercise skill and due care people and companies must be careful no to injure others If not can lead to liability for negligence care in performing the agent s obligation on behalf of the principal Due care requires action and inaction at times Due diligence e Act in good faith and deal fairly with others Uniform Commercial Code UCC Good faith honesty in fact in the conduct or transaction concerned Telling the truth Withholding the truth by silence may also be considered lying Disclosure Yet most would agree that not every lie is wrong Lying under oath 1 full disclosure of the details of a stock offering It is fraud to make a material misstatement or omission 2 seller of a house fully disclose an hidden defects which are known to the seller 3 The federal food and drug administration mandates labeling disclosure 4 The federal trade commission used care rule car dealers disclose whether there is a warranty or no warranty Only applies to those who sell at least 5 cars in the previous 12 month period Rule doesn t apply to the causal seller of cars generally arises in the setting of contractual dealings Contract is essential to a functioning economic system Law enforces contracts doesn t enforce every promise Way Businesses address ethics develop corporate ethics codes and compliance programs is to receive favorable treatment under the Federal Sentencing Guidelines sentencing guidelines make companies responsible when their employees are convicted of federal crimes It also permit dramatic reductions in penalties for companies that have in place an effective compliance and ethics program to prevent detect violation of the law Sarbanes Oxley Act requires a public company to have a code of ethics for financial officers and protect whistleblowers Shows that they are dealing in a systematic way Both provided an incentive for companies to create ethic codes and compliance program Securities and exchange commission SEC set requirement of a code of ethics Wriiten standards designed to deter wrongdoings and promote read text pg Ethic code 12 Compliance Programs the sentencing guidelines set out 7 requirements refer text pg12 Ethics Officers another level of protection against unethical business practices Experts in assessing conflict of interest instituting and monitoring compliance programs and provide educational programs for various labels of employees Ethics Compliance Officer Association responsible for assuring ethical best practices BEP Global Ethics Cultural relativism Negotiate with their international trading partners regarding concerns about unethical practices Try to establish international standards through organization like international chamber of commerce Case Chapter Problem 10 Q