Can the law ensure business morality?

The emphasis on accountability that is now occurring in the business world is an understandable response to some sickening bookkeeping-based scandals. But the notion would never have evolved from a buzzword into the focus of voluminous legislation if the governments have not also been lured by the myth of precision: Because accountability suggests that there is a right and a wrong answer to every question, it flourishes where authorities can measure results exactly.

It is currently fashionable to impose very strict standards for employee conduct, so much so that it may threaten the very objective of the process. This stricter process, being referred to as “accountabalism”, assumes perfection, is blind to human nature and bureaucratizes and atomizes responsibility.

Indeed, bureaucratizing morality or mechanizing a complex organization gives society the false sense that society can exert close control.

Why do corporations often fail to behave well? What, if anything, can be done to improve their behaviour? Even if all the accountability problems could be solved, a corporation, just like a person, could be fully accountable but accountable to the wrong standards. Even if all of a corporation’s bureaucratic problems could be eliminated, the corporation might continue to behave badly.

Can the law ensure corporate morality?
Certainly, many existing laws have eliminated or reduced corrupt corporate practices.

In their present form, are our laws and regulations adequate to ensure an acceptable level of corporate morality?
Opinions differ. One corporate attorney describes the present collection of legal weaponry as “blunt and clumsy” and suggests that it will never promote the level of morality the public demands. Others see law as the only answer.

Whatever one’s opinion, it must be admitted that a gap exists between the expectations for law and its capacity to deliver. One reason for this lies in the lack of congruence between legal threats and the interests of corporate executives. The legal machinery is often designed to punish the agent who performs the illegal act, which in this case means the corporation. It is the corporation which is fined, or is required to compensate, or is restricted in its business dealings, not the corporate executives who make the decisions.

Executives will often take calculated risks on behalf of the company, gambling against fines and citizens’ suits, for the sake of greater profits. The interests of these individual executives are often not directly at stake – typically they are not risking personal fines or jail sentences and thus the law may fail to correct the problem through failing to reach its source.

Although the present law is meant to encourage corporate morality, one of its assumptions is at partial odds with that goal. Present corporate law regulating the relationship between the corporation and its stockholders assumes that the primary interest of the stockholders is maximum financial return and that the obligation of the corporation is to pursue that interest with single-minded diligence. In short, the law assumes that corporate investment decisions shall be based solely on a presumed preference among stockholders for higher market value regardless of what moral issue is at stake.

So, is establishing appropriate guidelines for good corporate behaviour not the easy exercise as first thought?
Can responsible corporate behaviour even be defined as behaviour that both achieves certain goals and adheres to certain principles?

Any internal corporate change that hopes to introduce a general concern for morality must specify how that concern relates to concrete issues. Merely talking about ethical concepts is inadequate. Issuing reports to stockholders saying “Our Company is concerned about morality,” or delivering speeches about the depth of corporate moral concern, is often worse than nothing.

There must be a means of saying “Responsible corporate behaviour means removing this misleading label from the aspirin bottles, beginning next month,” or “Responsible corporate behaviour means lowering the noise level on these stamping machines from 120 to 80 decibels.”

Closely connected to the need to apply moral concepts concretely is the need to develop evaluation systems which have a moral dimension. For example, if employees responsible for falsifying the safety tests on a company product were rewarded shortly after with promotions, where is the moral connection?

BY: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage firm based in Toronto. You can reach Mark or team at