Guidelines for Corporate Ethics Codes

Dr. Meir Tamari

Corporate Ethics Codes

It has become common practice in many countries for corporations to prepare an ethics code for the guidance of their officers and employees. One corporate C.E.O. has argued that this is simply an empty gesture since, “those corporations with a sound moral base do not need it and for the others it is just a fig leaf. ” Support for this opinion may be found in the fact that the introduction of corporate codes did not prevent the recent white collar scandals.

However, the very introduction of such codes is of itself of great educational and ethical importance. It translates into reality the principle that moral behaviour is not simply something to be left up to the conscience of the individual. This recognizes a Jewish teaching that while conscience and moral knowledge are essential, they are not sufficient, of themselves, to create an ethical system. This requires a legislative framework which is essentially what ethical codes are. All concerned have a clear perception of what may or may not be done and this, even if it does not eradicate immorality, at least reduces it.

The results of an international research project regarding unethical practices abroad demonstrates this clearly. Managers in the U.S.A. disclosed that they refrained from paying commissions or bribes in countries where this was normative. In contrast, European managers openly admitted to an acceptance of local custom – “business is business”. When asked for the reason for their behaviour, the American managers simply said, “it’s against corporate policy. ”

Despite this, there is a tendency in many corporate codes not to make the same clear cut demands of the directors as are made of employees. It is difficult for employees to refrain from full disclosure of shortcomings in goods and services offered, when managerial pressure is constantly brought upon them to make a sale at any price. Codes which promote whistle blowing, must in all fairness provide protection (financial, moral and job security) for the whistle blower. No corporate ethical code can operate when management policy seeks to find legal loopholes in the requirements of the fiscal or regulatory authorities. Just as the codes require individual conscience and morality so do they require corporate management understanding that to be law abiding is not enough.

National Ethical Consensus

Business is not conducted in a spiritual vacuum. The ethical and moral behaviour of employees and entrepreneurs alike are heavily influenced by the cultural, religious and political life style which surrounds them. This atmosphere dictates behavior more than does moralizing or corporate guidelines and cannot be ignored in any attempt to create a better moral climate for business.

In socialist and communist countries, policies were implemented, which ran counter to human nature and economic logic. These policies created an environment in which fraud and corruption became a way of life. Unrealistic quotas placed on factories in the U.S.S.R. by central planners as a substitute for the market mechanism resulted in false reporting or fraudulent quality control, in order to achieve them. Egalitarian wage policies in Israel have created a wage structure which, by substituting benefits and perks supposedly work related for a supply demand determined one, depends on widespread false declarations of expenses etc. Subsidies and tariffs and other protective measures lead to waste but also to immoral business practices geared to obtain the benefits offered, for example to agriculture in E.U. countries.

Social obligations of the corporation too, are a function of the moral environment. Japan and the U.S.A. stand in stark contrast to each other in this respect and offer good examples of the economic effect of different moral environments. The emphasis on the merits of competition in all fields, on individualism and the fear of central government in the U.S.A. has led to a constant minimizing of economic safety nets, job insecurity and a lack of employee loyalty. Japan with a feudal industrial structure, a homogeneous ethnic population and a consensus orientated society, has placed great stress on job security, economic protection and employee identification with the welfare of the corporation. Economists have attributed both efficiencies and costs involved in both these countries as a result of these cultural differences. Irrespective of this, it is quite clear that corporate ethical behavior regarding decisions to lay off workers, and the firm’s responsibility for its aging or redundant, workers will be highly colored by this socio-cultural moral environment .

The Jewish Experience

Since Judaism has a wide-ranging moral educational system and a ramified legislated moral framework which is different from other religious-social entities, it is to be expected that its ethical guidelines have produced specifically Jewish patterns of behavior.

In the Middle Ages, amidst the political chaos and physical insecurity of Europe, Jews were able to be involved in trade and finance on a scale exceeding that of their Christian neighbors. This did not only flow from a persecuted minority status but primarily from a common moral structure which superseded political and geographical boundaries. A common legal system, a common language and a communal structure flowing from Judaism made this possible.

Multi-national traders between Europe, the Middle East and the Far East could rely on rabbinic courts enforcing a common halacha in their relations with other Jews in all these areas. Jews could travel with “passports” issued by their communities showing that they were citizens in good standing and therefore entitled to hospitality, information and trading facilities. Funds could be safely transferred easily despite the physical danger involved in movement through the chaos of medieval Europe, by means of financial instruments which could be relied upon even between traders living in different countries and continents in the various centres of trade. The modem world has only recently established a cultural ethical pattern that existed in Jewish life from earliest times.

The modern State of Israel has adopted social and economic policies which despite their secular, socialist overlay, can be shown to have deep Jewish moral roots. It is of course, almost impossible to determine to what extent these policies are a product of specifically Jewish values and what has been borrowed from Tolstoy or Marx. Nevertheless, it can be shown that policies of full employment, taxation to finance social needs of the poor, and concepts of job security reflect the social justice and mutual responsibility inherent in Judaism. Absorption of immigrants on an unprecedented scale relative to the host population, has always been a plank in Israeli economic policy, despite the heavy burden of taxation involved in providing infrastructure, education and welfare. The moral cost of unemployment led to the rejection of massive unemployment as a means of reducing inflation in 1985 in contrast to its acceptance in the U.S.A., UK and Western Europe. Subsidized credit, despite all its economic distortions, has been a major factor in monetary and banking policy. All of these are implementations of Jewish concepts of charity which emphasize communal responsibility, taxation and providing a job and interest free loans for entrepreneurial activity. At the same time, a lack of symmetry with other aspects of Jewish morality has led to a repetition in Israel, of many of the unethical aspects of other socialist societies.