- Classify a company’s action as legal/illegal and ethical/unethical.
- Determine whether a business activity is ethical or unethical, given the host country’s cultural values and norms.
What are ethics, values, laws, and cultural norms? Let’s take a closer look at these important terms, which form the basis for business decision making.
Ethics are principles of right and wrong that influence behavior. They help instruct how people deal with and treat one another. Some ethical standards are nearly universal, such as the belief that killing is never justified, except for the most justifiable of reasons (such as self-defense). Other ethical standards are culturally based, varying according to what a particular culture considers right or wrong.
Values are the relatively permanent and deeply held underlying beliefs and attitudes that help determine people’s behavior. Values are the underpinnings for ethical systems (as in the Hippocratic Oath physicians take to “first do no harm” to a patient) and legal systems (as in lawyers’ pledges to uphold the law). CEOs and financial advisors may also have fiduciary responsibilities (to act in the best interest of their investors and clients).
Laws are rules of conduct or action formally recognized as binding or enforced by controlling authorities, such as police officers and the court system. In our society, laws are based on ethical considerations and values. However, what is ethical may not always be legal, and vice versa.
Cultural norms are the ethics, values, attitudes, and behaviors that are deemed to be normal or typical in a given culture. For example, in the United States, a cultural norm is that we shake hands when formally meeting someone.
Is It Legal? Is It Ethical?
When people are faced with decisions, how can they determine the most ethical action? Four questions help make this determination:
- Is the action legal?
- Is the action ethical?
- Would I want to be treated like this?
- Will the outcome of my decision make me feel guilty?
In addition, as we noted above, what is ethical may not always be legal, and vice versa. Read the examples in each of the boxes below to understand more about the distinction between what is legal and what is ethical. Note that these examples refer to business practices in the United States. Other countries may differ in terms of what they consider legal or ethical.
Legal but Unethical
- Making low-quality products that break easily
- Canceling a company retirement plan
- Avoiding taxes on U.S. revenues by using offshore banks
- Charging a very high price for brand-name drugs when inexpensive generic versions are available
Legal and Ethical
- Boycotts of businesses
- Consumer-friendly policies
- Employee fringe benefits
- Diversity policies (including affirmative action)
Illegal and Unethical
- Consumer fraud
- Sexual harassment
- Cash payments to avoid taxes
Illegal but Ethical
- Paying more despite union contract limits
- Selling raw milk for human consumption across state lines
- Taking usable items from corporate dumpsters and donating them