Why Law is Not a Good Source of Business Ethics

One of the ways we swing and miss when we discuss business ethics is simply repeating the need to obey the law. This is a mistake

Last week I wrote about the way I approach teaching business ethics to Wharton MBAs. The key, I argued, is to resist the idea of finding answers that are universally applicable to all people in all places. We need to make the questions we ask “hard” in the sense that good people in good faith will come to diametrically opposed conclusions as to the right answer.

In today’s business-school post, I want to continue to argue in the negative. Business ethics requires an epistemological commitment, but the most natural temptation—my own discipline of “law”—is both the most commonly invoked source of ethics and the least appropriate for effective classroom teaching.

Law = Ethics?

Here’s another Venn diagram.

It’s not a very good one. The idea comes from a simple observation: when people enter into a seminar room at most corporations to have a lunch meeting about “business ethics,” they are met instead with a recitation of the five ways you can commit insider trading or what is required under the Foreign Corrupt Practices Act.¹ On this view, what we need to make sure employees are “ethical” is that they are (1) aware of what the law requires and (2) committed to honoring it.

Uh…no

The problem with the Venn diagram above is that few if any people actually think this way. Consider three examples. First, what is your reaction when you are in the left lane of the interstate stuck behind a Toyota Prius going precisely the speed limit? Whatever it is, it probably isn’t very polite. You don’t see their behavior, although perfectly legal, as honoring the highest call of good behavior. You probably go screeching on the right and may or may not flash deliberately-chosen hand gestures their way.

Second, and more nobly, consider the examples of the great moralists of the 20th century, people like Mohandas Gandhi or Martin Luther King, Jr. In both cases—and not by accident, since King was an intellectual protégé so to speak of Gandhi—they did not protest the behavior of the British in India or the police (and others) in the American South because they were breaking the law. They were protesting the very law itself.

Finally, and perhaps most relevant to people in their workaday lives, the most important questions thinking people will face will not be between legal and illegal options, but among perfectly legal options that split their sense of personal, business, and social responsibilities differently. The answer to these employees to “follow the law” when they wonder which legal option to pursue is worse than useless. They already want to follow the law. The question is: what do you do after that?

The pathology of just-follow-the-law business ethics

Besides the fact that “just follow the law” is decidedly unhelpful in places where law and ethics are pointing in different directions, there are some other pathologies that this approach in business can develop.

First is the idea that the question of what we should do is governed only by whether it is legal. Imagine one of my Wharton MBAs three years into her career. She has developed a profitable strategy within her domain that is a bit edgy, with some risk of going sideways but great probability of making the firm an awful lot of money. She goes to her boss, makes the pitch, but then asks: “Part of this gives me pause. If we pursue this strategy, we could create some harms that make me uncomfortable. Should we proceed?”

The boss, well-versed in the law-as-ethics epistemology, simply responds: “what did the lawyers say? If they approve, then let’s follow the profits.”

That is clearly the wrong answer, but not because the profitable strategy is wrong. We don’t have enough information to reach that conclusion. It’s the wrong answer because the work on identifying the right solution has not yet been done. It has barely gotten started at all.

Let me be clear about my own disciplinary commitments here. Despite being a business professor, I have kept my law license active after all these years. I am an officer of the court and encourage all my readers (and students) to obey the law. Let’s leave aside the harder edge cases of civil disobedience for now and just say this: when in doubt, call a lawyer and make sure your legal commitments are clearly identified and clearly met.

But let me be clear about where my disciplinary commitments come up short. Ask a lawyer for advice on a legal question, and they will give you seven answers with many caveats. Ask them for advice on a non-legal ethical question and many lawyers will speak with crystal clarity about what should be done.

And here’s the secret truth: the lawyer’s advice about ethics is completely outside their expertise and should be fully dismissed as such. To paraphrase Shakespeare, less grimly than Dick the Butcher, when it comes to questions of ethics, the first thing we do is fire the lawyers.

There’s a second reason I disfavor the “law as ethics” approach to business ethics. The authors of laws are not professionally lawyers. They are politicians. And politicians write lawyers for all kinds of reasons. It is no libel against their professional identity to note that the proverbial sausage-making of the law does not always or even necessarily reflect efforts to resolve policy questions by an appeal to expressions of discretionary morality.

In other words, when we fall into the trap of the boss in my example above, we have outsourced our decisions about what is good and just and true to our politicians. Does anyone think that that is their job?

Focus on the green box

The better approach to the relationship between ethics and law is the following (real) Venn diagram.

Each of us will have differing levels of over- or underlap between these spheres. The point is that there will be areas of law that have nothing to do with ethics and areas of ethics that have nothing to do with law. To put the diagram differently:

What we should be doing when we come together in our organizations is to talk about what goes on inside the green box. Those hard problems where good people will disagree between two or three or countless legal options that reflect different commitments between and among our personal, business, and social responsibilities. In those scenarios, let’s not call the lawyers. We don’t need them. We need something else.

1. Note that I am here referring to businesses that teach their employees about business ethics. Academic seminars about business ethics follow their own separate logic, most of which is not relevant to these pedagogical discussions.