The conduct of any business venture is supposed to conform to the law. However, recent years have seen businesses increasingly engage in misconduct, and this has prompted questions of whether conformity to law is a prevalent practice among business entities. In the article “Business Ethics: Law as a Determinant of Business Conduct, Vincent Di Lorenzo looks at the influence that law has on business conduct by comparing the purpose and requirements of the law with actual business conduct that currently exists in the market.
The Principles of Corporate Government articulated by the American Law Institute acknowledge that although the primary objective of any business is to maximize corporate profit and enhance shareholder gain, businesses are nevertheless required to act within legal boundaries even if the two mentioned objectives are not met or enhanced. Complying with the law is not just a limited duty to literally comply with the law but also requires putting into consideration the purpose of the said laws (Di Lorenzo 276). Studies seem to show that apart from the penalties put for noncompliance with the law, there are several other factors that influence corporate decisions on legal compliance. Given this, question has been raised regarding the influence or effect that the severity of sanctions or penalties play when it comes to legal compliance. There has also been questions of whether obligation for compliance is the primary factor that determines corporate conduct. One suggestion put forth is that the influence of non-legal factors on business decisions renders law as an unnecessary tool for inducing ethical, legal conduct (Di Lorenzo 276). Case studies conducted on various industries to test this hypothesis reveals several interesting things about business conduct.
First is the securities industry. The analysis of this industry is particularly of key importance as this is an industry that has been plagued by massive misconduct and unethical business practices over the years. Some of the most common forms of misconduct in this industry include illegal share allocations, defrauding of investors, trading abuses, suitability rules violation, inadequate disclosure and so on. The analysis of this industry’s business conduct and the relationship with the law reveals several things. One is that a vague statutory standard is not determinative of the conduct of an analyst in this industry. In addition, this industry totally ignores the purpose behind legal mandates (Di Lorenzo 281). Even worse is the finding that many members of the securities industry violate the legal standard.
The automobile industry also reveals almost similar results where there is evidence of huge avoidance of legal responsibility especially when the legal mandate is vague (286).
The pharmaceutical industry likewise exhibits a similar trend where business conduct is characterized by indifference to the legal mandate. It emerges that in this industry, a vague legal mandate is essentially ineffective when it comes to the generation of a strong commitment by pharmaceutical organizations towards legal compliance.
The mortgage industry exhibits some minor difference mainly because this industry is usually characterized by clear legal mandates. Evidence from the analysis of this industry seems to indicate that clear mandates in the industry lead to high degrees or levels of corporate commitment towards legal compliance.
The case studies on these industries exhibit the influence of legal regimes on corporate conduct by examining actual corporate activity. The major finding associated with the case studies is that vague or ambiguous legal mandate is least effective when it comes to the induction of corporate commitment towards legal commitment. Vague statutory standards are also ineffective.
Therefore, a legal regime that has clear legal standards that stipulate courses of business conduct or required business actions is in fact, the best approach to generating stronger corporate commitment to comply with the law.
The outcomes of compliance and even commitment to compliance are ethical business practices and a generally satisfied public and government. Although the primary objectives of business may be to maximize profits and increase shareholder gains, compliance with legal stipulates ensures that business stays afloat and on course to achieve the two primary objectives (Pimentel et al. 369). Therefore, an indirect outcome of commitment to compliance and subsequent compliance is the achievement of the two primary business objectives; maximization of profit and enactment of shareholders gains.
The achievement of business conduct that is compliant with the law requires the input of several stakeholders. The principal stakeholders are the government, business regulatory bodies, bodies that oversee compliance to legal stipulations and finally the business entities themselves (Tuan 552). The government in association with regulatory bodies must come up with clear legal mandates that are not ambiguous or vague on any element. Bodies that oversee the compliance to legal mandates must work hand in hand with business entities and help them in interpreting the mandates so they can be incorporated into the business operations (Tuan 553). This is because as it has been shown, it is vague mandates that often discourages business from being committed to legal compliance. On their part, businesses must ensure that they are fully committed to compliance with the legal mandate and must make it their duty to learn the purpose of the law rather than just complying literally without full comprehension of the law’s purpose.
Works Cited
Di Lorenzo, Vincent. "Business ethics: law as a determinant of business conduct." Journal of Business Ethics 71.3 (2007): 275-299.
Pimentel, J. R. C., J. R. Kuntz, and Detelin S. Elenkov. "Ethical decision-making: an integrative model for business practice." European Business Review 22.4 (2010): 359-376.
Tuan, Luu Trong. "Corporate social responsibility, ethics, and corporate governance." Social Responsibility Journal 8.4 (2012): 547-560.
