CH1 LAW AND ETHICS LAW AND ETHICS ARE INTERCONNECTED Law is societies way of providing for the safety security and happiness of its members It does this by sanctioning rational rules of behavior and devising fair ways for resolving disputes Law works most effectively and efficiently when it is supported by the moral opinion of the members of the community FUNDAMENTAL ETHICAL PRINCIPLES REFLECTED IN LAW What s considered ethical if often found as an expression in governmental law Law may influence the value of individuals and companies affecting the way business is practiced 1 Maintain Fiduciary Standards a Fiduciary someone who occupies a position of power trust and confidence regarding the property of another b Fiduciary rule act solely in the interest of that other person s property and interests 2 Avoid the Appearance of a Conflict of Interest a Exists when personal interest or duty conflicts with professional interest or duty fair and impartial b Create the impression that the person in the conflict situation cannot be c The agent owes a duty of undivided loyalty to the principal employer d Agent cannot allow his her personal interest conflict with that of principle cannot deal with the principle as an adverse party e Two options i Disqualification have the conflicts avoids the conflict by ii disqualifying him from the opportunity presented 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 f Deal with conflicts of interest company s code of ethics 3 Respect Confidential Relations a in confidence confidential relation maintain confidentiality keep information secret b Federal securities laws make it a crime for those possessing material non public information concerning a company to disclose such information c Another federal law The Gramm Leach Bliley Act or GLB requires companies to safeguard customer information i Reduce the risk of identity theft 4 Exercise due care and diligence a Due care people and companies must be careful no to injure others If not can lead to liability for negligence i ii Derives from the law of agency employee is required to exercise skill and care in performing the agent s obligation on behalf of the principal iii Due care requires action and inaction at times b Due diligence i Due care defined in corporate law and securities law 5 Act in Good Faith and Deal Fairly with Others a Uniform Commercial Code UCC every contract or duty within this act imposes an obligation of good faith and its enforcement i Good faith honesty in fact in the conduct or transaction concerned Included in honesty is telling the truth 1 2 Most people would agree that not every lie is wrong white lies are acting in good faith b Lying under oath is punishable as the offense of perjury c Withholding the truth by silence may also be considered lying half truths i Four instructive examples of disclosure 1 Full disclosure of the details of a stock offering 2 It is fraud to make a material misstatement or omission ii Seller of a house should fully disclose any hidden defects which iii The federal food and drug administration mandates labeling are known to the seller disclosure iv The federal trade commission used care rule car dealers disclose whether there is a warranty or no warranty 1 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 2 d Generally arises in the setting of contractual dealings e Contract is essential to a functioning economic system f Law enforces contracts doesn t enforce every promises WAY BUSINESSES ADDRESS ETHICS One motivation that companies have for developing corporate ethics codes and compliance programs is to receive favorable treatment under the Federal Sentencing Guidelines o Sentencing guidelines make companies responsible when their employees are convicted of federal crimes It also permits dramatic reductions in penalties for companies that have in place an effective compliance and ethics program to prevent detect violations of the law Sarbanes Oxley Act requires a public company to have a code of ethics for financial officers and protect whistleblowers Ethics codes and compliance programs shows that companies are dealing with ethics in a systematic way e Both Sentencing Guideline and Sarbanes Oxley Act provide an incentive for companies to create ethic codes and compliance program 1 Ethic Code ethics a Securities and exchange commission SEC set requirement of a code of b Written standards designed to deter wrongdoings and promote i Honest and ethical conduct ii Full fair accurate timely and understandable disclosure iii Compliance with governmental laws and regulations iv Prompt internal reporting of violations of code v Accountability for adherence to code 2 Compliance Programs The sentencing guidelines set out 7 requirements pg 12 a Prevent and detect criminal conduct b Governing authority must be knowledgeable c Keep any one who engaged in criminal acts from serving a high level position d Monitor program and give employees a way to report violations e Reasonable steps to respond to and prevent criminal conduct 3 Ethics Officers Business Ethicists Compliance Officers a Another level of protection against unethical business practices b Ethics officers experts in assessing conflict of interest instituting and monitoring compliance programs and provide educational programs for various labels of employees c Ethics Compliance Officer Association responsible for assuring ethical best practices BEP 4 Global Ethics a Cultural relativism the concept that no culture has better ethics than b Negotiate with their international trading partners regarding concerns any other about unethical practices c Try to establish international standards through organization like International Chamber of Commerce