Regulation of Business -- Self or Government?

Leo J. Rain, M.D.
CSUN Center for Ethics and Values
May, 1999

In the December and February issues of The Northridge Business News a Code of Ethics for Business was published.  Most of us sort of sneer when we see something like that as meaningless, high falutin' window dressing to make someone think that we are honest and ethical and that the public is being protected.  Why is this so and why have a code of ethics in the first place?

Everyone knows the right thing to do but in the stress of competition and the desire to be successful, rules sometimes get bent and temptation gets the upper hand.  It became apparent in the early part of this century that some regulation of business was required and the government had to step in to protect the public from the robber barons of those days.  We have come a long way since then but we still need reminders once in a while.  The reminder can come from our customers, from ourselves or from the government.  Developing a code of ethics and talking about it is a good way to start.  Otherwise big daddy will come into your business and tell you what to do.

Besides acting as reminders, codes can provide guidance in ethically ambiguous situations like the ubiquitous conflict-of-interest cases.  Insider information, favors, tips, gifts, meals and entertainment are in reality bribes of various degrees.  They are part of business practice.  A code can define the boundaries.  It will also give the means to do the right thing. When a shady deal is offered one can readily respond with " I am sorry but company policy does not allow that" and that is sufficient to close the offer.

A code specifies the social responsibility of business when no one seems to know what the rules are.  This applies to relationships between managers and employees as well as between the organization and its stakeholders.  Problems involving affirmative action and sexual harassment are lessened.  Codes have been shown to improve behavior and to increase public trust.   It is true that codes by their nature must be broad and amorphous.  They cannot cover every situation.  But they will improve with use as we learn from interpreting them and adapting them to situations just as we do with language and with laws.  Recognizing ethical problems is made easier with a well understood code.  The most serious criticism is that they are difficult to enforce.   The law does that and that is precisely what we want to keep to a minimum.   Organizations or associations can enforce them by peer pressure, fines or bad publicity.

In dealing with ethical dilemmas one must harmonize protection of the business with protection of the individuals so that the chain of command and authority of the supervisors are not compromised and others are protected from hurt.  Consider all options and pick the least harmful to the most people.

Government regulation is necessary to enforce the rules of the market and to protect the public from anticompetitive practices like monopolies, fraud in advertising, dishonesty and deception.  This kind of regulation should be supported by business.  Deregulation can go too far and lead to unfair competition.  When government and business cooperate in planning and financing there is enhancement of social efficiency and competition, reduction of  monopoly, improvement in research and stimulation of ailing industries.  Government also looks after environmental and ethical problems that industry alone cannot handle.  Fear of government interference revolves around the worry that government is biased against business and that it takes away power from business and arrogates it to itself.  It is too susceptible to special interest groups.  It may also be seen as too paternalistic, knowing better what is good for us than we do for ourselves, such as the requirement for seat belts and baby seats in cars.

Governmental regulation, then, is neither a complete blessing nor a complete curse.  Properly formulated regulations applied in the appropriate situations can help assure proper corporate behavior. But the complete job of business ethics cannot be done by regulatory action any more than by case law in the courts. 

__________

Bibliography

Ethical Theory and Business, T. L. Beauchamp and N. E. Bowie, fourth edition, 1993.