Business Law The Relationship Between Ethics & Law in Business

Business is a generic term that refers to enterprise relationships between a provider of either a good or service and the client/customer or to another business. Business transactions throughout the course of history have involved a level of discretion between ethical and fair behaviour and the due process of law and litigation of various kinds. The relationship between Ethics and Law ostensibly is that of intent and accountability of intent. Ethically, the agents of a contractual obligation have a responsibility to honour the contract and each tenet stated in the contract.

Dunfee (1996) defines the relationship between business ethics and law as having attracted the attention of leading academics in the legal and philosophy profession over many decades. (e.g., Atiyah" 1981; Coleman, 1988; Dworkin, 1978; Greenawalt, 1989; Hart, 1963; Posner, 1983). Dunfee draws into question the synonym of morality to ethics and the research literature in business ethics and law. According to Dunfee (1996), "The overall view of these texts concerning the relationship between the legal and moral domains is summarized in the following quotes: "Law is the public's agency for translating morality into explicit social guidelines and practices and for stipulating punishments for offenses." (Beuchamp & Bowie, p.g4.) (Dunfee, 1996)

A more specific area of business is that of management, or transformational leadership. Odom (2003) considers law and ethics relevant to the process of transformational leadership within the organization and across industry. Odom draws an inference of a connection between law and ethical leadership as a function of the concern to the well-being of members of society. Odom provides a clear reason for a relationship to exist between law and ethics.

The notion of ethics as a component facilitating the paradigm shift in business attention to society, separate from the profit generating motivation of the business, including all acts of Goodwill, Social Entrepreneurship, Social Sustainability, and Social Responsibility. Transformational Leaders espouse the belief of a holistic environment where ethics and corporate governance...

This fact is documented, for example, in the textbooks by Milgrom and Roberts (1992), Lazear (1998), Baron and Kreps (1999), and Brickley, Smith, and Zimmerman (2001) that appear on many syllabi of organizational economics courses. These authors devote considerable space to the issue of contracting and the principal-agent paradigm." (Gachter, Konigstein, 2009)
According to Kern (2006), corporate governance, which is the supposed nexus of ethics and law, is accountable for the oversight of all financial institutions and matters concerning the fiscal regulation of these entities. The Enron debacle was central to the relationship between ethics and law. The ethical violations were egregious and certainly indicative of the type of actions inherent under the principal/agent theory. The response to the ethics violation was an increase in law, ostensibly, with the inception of the Sarbanes-Oxley Act of 2002.

According to Alexander (2006), "The design 'principal-agent problem' was first used by Ross (Stephen Ross, 1973) 'The economic theory of agency: The principal's problem' American Economic Review, Vol. 53, No. 2, pp. 134-39) to refer to the general problem of devising a contract to ensure that the agent pursues the principal's goals as efficiently as possible." (Alexander, 2006)

The relationship between ethics and the law in business is essentially a question of whether there is a potential principal-agent problem where the possibility of an ethical breach may not be prosecuted even when regulation and other…