Analysis of Ethical Issues in Chapter 2
In Chapter 2, we take an in-depth look at a variety of key ethical issues that come into play in the business world and are relevant to all forms of business structure. For example, ethical issues abound when we talk about exclusive forum clauses. In a situation where a business has an exclusive forum clause, the question that arises is whether or not shareholders have a right to litigate anywhere else. Do we want changes in governance structure to be open to litigation or not? Some shareholders do. So should exclusive forum clauses be enforced or invalidated? This is one of many examples of an ethical dilemma that arise for business leaders and practitioners that can go either way.
Another example in Chapter 2 is how businesses can incentivize activities and what ethical concerns might arise from that. It’s common in the world of finance these days to see a lot of compensation programs, incentive plans, cash bonuses and the like that are not directly tied to earnings, but instead use three-year medians or some other kind of arbitrary valuation to avoid impact on shareholder value . There is a concern that these types of incentives can be gamed in a way that isn’t really in the best interest of shareholders or the company itself. This is something that needs to be clearly laid out in incentive plans.
An even more nuanced example is the difference between lobbying and a campaign contribution. How does one define lobbying in today’s climate? What if you have a third-party that engages in some kind of advocacy on behalf of a business? Is that lobbying or a campaign contribution? Those might sound like one in the same to some, but in a legal context they are very different, and the line between the two is inevitably going to be difficult to draw. Still, it’s important to make a reasonable effort to complete the distinction.
Ethical issues like the ones I just discussed are ever-present in law firms as well. They touch on issues like professional responsibility which is a fiduciary duty of the firm, personal accountability, and ethical decision making as well. At the end of the day, all of these ethical dilemmas come back to that one thread I discussed in my prior chapter, the fiduciary duty of the firm to the shareholders.
Legal Issues in Chapter 2
In the law, licensure is a privilege granted to us by the state. In exchange for granting that privilege, we have a duty to maintain our license and comply with the rules set forth by the state Supreme Court Justices. As you read through Chapter 2, you will see additional ethical and legal issues raised, for example: confidentiality issues, client autonomy, and falsification of documents. These issues are a subset of the greater issue of maintaining your law license and compliance with the Rules of Professional Conduct set forth by the state Supreme Court Justices. As such these secondary issues are governed primarily by the Colorado Rules of Professional Conduct (Colo. RPC) and comments to the rules. In Chapter 2 the greatest legal fear that is realized is the potential for the loss of licensure as a result of a disciplinary proceeding. While a disciplinary proceeding generally cannot result in jail time, loss of your license, or civil liability, it can jeopardize your entire career and reputation. [Caveat: if your conduct violates the criminal statutes and constitutes a felony, you may also be prosecuted criminally.]
The Convergence of Ethics and Law
As established and discussed in Section 2, the relationship between ethical and legal issues is not always clear. It is certainly helpful to have a basis for understanding this area of law; however, it is never a complete picture. A good example of this is the concept of a fiduciary duty. Wills, estates, and trusts practitioners often encounter and must navigate the fiduciary duty framework in which they are operating. A fiduciary is essentially a trustee, agent, or other party who has a duty of loyalty to a second party with respect to the property or funds held by the fiduciary.
With that said, a fiduciary duty is an ethical obligation. A breach of a fiduciary duty is an ethical violation. In some states, a breach of a fiduciary duty is also a breach of law under the criminal code. The reason it is a crime is grounded in the idea that loyalty is demanded by law. In other words, in addition to being statutorily required, loyalty is also an ethical obligation in this specific context. The breach of one obligation, such as the duty of loyalty, may result in the violation of several different legally binding obligations, such as state code and case law.
Case Studies of Ethical and Legal Issues
The Sam P. case (State of Oregon ex rel. Gottfried v. Jackson et al., case no. 9209-03499, Circuit Court of the State of Oregon for Marion County, Oct. 27, 1993) illustrates the range of ethical and legal challenges faced by attorneys who represent individuals with disabilities or their families through guardianships and conservatorships. The Jackson case concerned protections afforded under Oregon law to individuals deemed incompetent or disabled. The 55-year-old Mr. Jackson had been under the care of a guardian since 1981 and was substantially disabled as a result of a cerebral hemorrhage and meningitis. He filed a petition to terminate the guardian’s responsibility for Mr. Jackson’s financial affairs. His attorney , who had been appointed to represent him, persuaded a Marion County Circuit Court judge to find that another judge made a mistake when he allowed the guardian to sell Mr. Jackson’s home. That judge ordered all of the proceeds of the sale to be distributed to the county treasurer for the benefit of Mr. Jackson upon his death. Later, the current judge ruled that neither he nor the former judge had the authority to redirect the fruits of the sale, which were already held by the county treasurer to be delivered upon Mr. Jackson’s death, to Mr. Jackson’s estate upon his death. Mr. Jackson’s attorney appealed the case to the Oregon Court of Appeals (see case no. A64366).
Resolving Ethical and Legal Issues
A proactive approach is the best defense against the ethical and legal issues discussed in Chapter 2. This means surrounding yourself with capable advisors or trusted colleagues who can help identify and address potential problems before they arise. We’ve already discussed some parameters for selecting outside counsel, but that’s only one piece of the puzzle. Consider putting a team together of at least one employment law attorney, one immigration attorney, one ethics attorney, and if your institution participates in government healthcare programs, a healthcare counsel as well. Or, go a step further and hire a compliance consultant to minimize the risk for corporate liability. There are important reasons for these roles. The employment law attorney will be most familiar with state and local right-to-work laws and defense of such laws if another institution attacks your retention policy; she will also know about state whistleblower laws, secession laws (if you are based in California), and waivers of compliance with such laws. And we could go on.
The ethical and legal decisions often fall into a gray area where there is no clear "right" or "wrong" answer. No attorney worth her salt, however, would advise her client to return to dangerous, habitual, or unethical behaviors just because it’s legal or the client "feels great" about it. The "lawful" behavior may not be consistent with the highest ethical principles, best practices, or your guiding values, or may be short-sighted, disingenuous, or dependent upon a temporary political or social mood that will inevitably change. The attorney’s job is to advise you of the alternative paths you can take when you are facing that gray area. A more principled approach is not always best, but the rationale behind the decision should at least be openly discussed. And while the attorney is not a coach on the ethical side, her advice can help guide you more clearly to the decision that best satisfies your ethical outlook. For example, if your previous employment policies discriminate against females, an attorney might recommend that you immediately change them, instead of keeping them in place until absolutely required, or "legal" under state or federal law. If it seems wrong or unethical to fire employees because of their religion or sexual orientation, and you have legal grounds (such as elimination of duplicate positions or workplace downsizing), then keep it in mind. A little patience on your part may help you avoid legal problems later, or at least allow you to dismiss any claims that you acted solely for illegitimate economic reasons.
You may determine that "we’ve been doing it this way for years," that "no one has complained," or that "everyone else is doing it" but frankly this is no defense if a protracted battle ensues. Meanwhile, your employees may have become soured on your institution, even if they would never speak out. Circumstances change almost daily: new generations, new (potential) donors, even new technologies that make once-acceptable practices appear undeniably outdated. All of these things have an impact on your public image, and influence prospective donors, board members, and other decision-makers. What, then, should you do? Keep reading.
Effects of Ethical and Legal Issues on Practice
In the earlier parts of Chapter 2, we explored the ethical codes or standards applicable to certified public accountants as well as the legal requirements in connection with the practice of that profession; we also briefly discussed the regulatory or licensing bodies under which accountants must operate. As with many professions, a professional’s reputation is directly tied to the manner in which he or she practices in those conditions, as well as with the requirements of the ethics and the law. There are consequences for failing to meet those standards.
Professors N. Craig Smith and Jay C. Thomas, in their article The Economics of Professional Ethics, published in the Journal of Business Ethics in 1998, conclude that the financial cost of noncompliance with ethical and legal standards is significant to the "bottom line." The professors say the following: In a broad sense the professional expects to obtain his livelihood by fulfilling the obligations he has undertaken and to be paid fairly. If these economic expectations are violated, it will have immediate negative consequences. It may have consequences for the profitability of someone else, but that is in the future. And, in most cases, the professional knows that more business is waiting just outside his door. This means that the professional is not the first in the chain , but the actions of lower-ranking professionals can be felt immediately in his pocketbook. Because of the cyclical nature of this process, the only type of professional misconduct that directly affects the professional is one that occurs at or after payment is due.
This is certainly true in the profession of accounting. In that field, if an accountant fails to fulfill his or her obligations under the relevant code of ethics or legal requirements, and that breach of standard is subsequently found out by the regulatory body, the result of noncompliance may be sanctions against that individual. Where applicable, those sanctions could include payment of fines, suspension from practice, or revocation of licensing. Where the violation is considered sufficiently serious, it may be found out by clients. They may then refuse to continue to work with that accountant, leaving him or her with decreased business. Unless the individual is guilty of a criminal act which deems him or her unfit to practice, there may not be imprisonment resulting from noncompliance, but there are still severe consequences.
The bottom line here is that whatever the profession, the professional must comply with the code of ethics and legal requirements under which they are required to operate.