The difference between Compliance and Ethics

Posted: July 31, 2011 in Responsible business
Tags: , , , , , , ,

(5/11/12:) This is one of my most-read posts, so I’ve decided to re-present it in video form. If you want the text version, just scroll down.

Often ‘unethical’ and ‘illegal’ are used as if they were interchangeable. I have heard of people being called to task for ‘ethical breaches’, too. However ethics, properly understood, is not something that can be legislated or codified. Ethics is personal – it means the process of discerning what is the correct action. Law is impersonal and requires no discernment, just compliance.

People should be more careful about this, particularly activists, because it is critically different whether a company is being criticised for being unethical or for actually acting outside the law.

A company can be unethical without breaking laws. The remedy to this is either to lobby to expand the reach of the law (as frequently happens) or to call the wrongdoer to account, directly and/or indirectly via public embarassment.

The first option does come at a cost, which is to remove the discretion of the executives concerned. The counter-intuitive result, it seems, is that they become less concerned with the effect of their actions on people and more concerned with legal compliance. This seems to be the direction things have headed in the last few decades.

In the 2007 Warrane Lecture, The Place of Ethics in a Life of Business, UNSW Chancellor David Gonski described the situation as follows:

I do not believe that legislation, or for that matter codification of ethics or other standards, will assist […]

The essence of my concept of ethics is, as Simon Longstaff [director of the St James Ethics Centre] suggests, a thinking/questioning one. To codify or legislate risks locking that into a particular time zone and risks a fall out way beyond where the legislation is designed to go.

Take, for example, the legislation in the UK directing directors of companies to have regard to the interests of all shareholders. A worthy goal but in legislating the government has, I think, removed part of the ‘Director’s Compass’ […]

In directing them to have regard to rights of suppliers they have for example embodied part of my concept of ethics (what you ought to do in dealing with people) but at the same time prevented the directors from freely considering say cancelling a contract of supply to assist other stakeholders. The fact is that legislation and codes are useful to ensure that safety standards etc are met but they are dramatically in the opposite direction to the concept of true ethical thought which requires a questioning and a concern based on humanity and relationships inherent in the individual.

He would not recommend, it seems, purely legal remedies to ethical deficiencies. The law is a blunt instrument.

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