Has your business ever buried the details of how customer data is used in the legal fine print? Or charged higher interest rates for people with bad credit while charging lower rates for people with good credit? Or used loopholes to be technically compliant with the law?
Depending on where your business operates, these actions could be in a legal gray area. However, the ethics of these actions aren’t so gray.
Being ethical is not the same thing as obeying the law. Your business strategy can be legally compliant while still being ethically wrong.
As a business leader, talent agency executive, attorney, and law professor, I’m passionate about business ethics. I advise companies and teach college classes and LinkedIn courses on how to govern a business with stronger ethical standards—plus build a stronger ethical culture.
Whenever your business stops being transparent and accountable to its stakeholders, it is likely doing something unethical. So, when facing legal gray areas, how should you make decisions?
I always say that when there are no clear guidelines, “there is no right way to do the wrong thing.”
And with that in mind, this is what I advise companies to do for their ethics strategies.
1. Obey the law.
Consult legal counsel. Look at the current laws on the issue. Make sure you’re following all the provisions.
Think of the law as the floor to your decision-making, not a ceiling. Federal and state laws set only minimum standards for corporate practices such as safety, fair treatment, financial reporting, and environmental responsibility.
Remember, you can always do better for your stakeholders than what the law requires—when it comes to transparency and accountability.
2. Consider your company’s values.
Refer to the ethical principles your organization stands for. Then, evaluate how each decision fits into these principles.
Business ethics encompass a broader range of values than the law requires, such as honesty, transparency, and fairness. Let these values guide you in situations where the law might be silent.
Of course, even companies like Enron had principles they stood for and didn’t follow. The key is for your leaders to agree on ethical guidelines—and then follow them.
3. Identify your stakeholders.
Finally, write down each group of people who will be impacted by your decision and how. These are your stakeholders. Stakeholders are everyone who has a stake in the outcome of the ethical decision.
Describe the best- and worst-case scenarios and rank the impacts on each group. For example, you might have data about your company testing a new product that could affect the stock price and your bonus. You may not be legally obligated to report this data. However, that doesn’t mean you should be able to disguise the poor results in the fine print or by omission.
While possibly being a legal exception, this action may negatively affect your stakeholders in the long term. Think about how burying the data might have a long-term effect on your investors, your employees, and your consumers—or the community where your company resides.
On this impact list, write down the worst-case scenarios: Investors may sell the stock, and the price goes down.
Also, write down the best-case scenarios: Your investors may respect your company’s transparency and stick with your company in the long term. Your employees might have more respect for the company, and there could be less turnover. Your leadership might work harder to improve the company’s outcomes, increasing profit down the road.
Remember, being ethical and being legal aren’t always the same thing. Legal standards are the minimum consideration. When encountering legal gray areas in your business, always consider the law, your company’s values, and its stakeholders to make the best decision for all concerned.
It’s best if you can strive to be legal and ethical. You will soon see the benefits, as your company can “do well by doing good.”
This article was initially published by Inc Magazine Dec 9, 2024.