A Halakhic Corporate Code of Ethics

Dr. Mark Schwartz and Dr. Meir Tamari

“He who acts because be is commanded is more commendable than one who acts without being commanded.” (Talmud Bavli, Kiddushin31a)

Although many have argued that a corporate code of ethics should be written with particular provisions, few have attempted to identify the standards upon which they justify such provisions. Failure to do so is probably the major reason why corporate codes of ethics have been less successful than envisaged. The following is an attempt to apply one set of normative standards, that of halakhah (Jewish law), in constructing a corporate code of ethics.

The development of a corporate code is of itself an acknowledgement of a basic Jewish teaching that faith, piety, or ethical sensitivity are only one essential factor in creating a moral society. An enforceable legal framework has always been Judaism’s parallel means by which to achieve this goal.

In a sense, this is an attempt to go full circle in the development of codes of ethics. The Bible. which furnished the normative foundation for the Jewish, Christian, and Moslem faiths, provided humankind with one of its first code of ethics. What many fail to realize, however, is that the Bible does not consist merely of the Ten Commandments, nor does it address life only as it existed thousand of years ago. The entire system of Jewish law addresses not only aspects of daily life, but also how one should conduct one’s business. It applies not merely to buying and selling cows and chickens in the local market, but to highly technological transactions and international business considerations as well.

Although the application of a halakhic code may be more appropriate for those of the Jewish faith, it may also be of use or interest to others as well. It is an attempt to underpin the secular world’s current concept of appropriate provisions for a corporate code of ethics, with the halakhic basis upon which to construct such provisions.

It is not meant to replace the importance of consulting a Rabbinic authority to resolve halakhic issues, but rather to provide possible halakhic guideposts for conducting one’s business.

General Provisions

Wealth: Each of us, as human beings and as managers and employees, have a natural desire for wealth and profits, similar to our need for sex, food, and clothing. Although such needs are legitimate, they must operate within a certain moral framework. The goal is not to deprive one of the pursuit of wealth, nor of its fruits. The goal is to channel this yetzer (natural desire) into permitted and moral parameters so that this wealth may be kosher. The following code is an attempt to provide such a framework.

Tsedek and Chessed: Two central principles provide the foundation for all of our business activities: tsedek (fairness and justice), and chessed (goodness). In other words, one should follow not only the letter of the law, but the spirit of the law (lifnim mishurat hadin). God is, after all, not only King, but also Father.

Kiddush HaShem: Each time we deal with regulatory authorities, or with our customers, our suppliers, and our competitors, we have a great opportunity and a tremendous challenge. We either act in such a manner so as to sanctify G-d’s name (Kiddush HaShem), or act in a manner which desecrates G-d’s name (Chillul HaShem).

Compliance with the Law: We are governed by the principle of dina d’malchuta dina (the law of the land must be followed, provided it does not contradict with Jewish law). We therefore must always ensure that our business activities are in. compliance with the laws of whichever country we are operating in.

Abiding by Contracts: Although we may be legally entitled to sometimes default on some contractual agreements, we must always abide by any and all commitments, verbal or written, which we enter into. This should be the case even in situations where there appears to be no monetary loss to the other party or will cause financial loss to our firm.

Shareholders and Executive Officers

Lack of Corporate Veil: There does not seem to be a corporate veil in Judaism, so that shareholders and directors are bound by all the moral restraints imposed by halakhic and spiritual teachings on the owners of wealth and their agents. Major shareholders are required to see that directors follow the code and dismiss them if they do not. Shareholders who because of their marginal holdings are unable to influence corporate policy would seem to be called upon to sell their stock in corporations that violated these teachings. Directors as agents of the shareholders are accountable for conducting the corporation according to its code of ethics. It is not humanly possible for managers and employees to adhere to the corporate code of ethics unless this code is made manifest by the behavior of the executive officer and supported by the shareholders.

Employees

Wages: This firm will pay its wages to its employees on the date set for such payment, without delay, otherwise we would be in breach ofoshek (extortion). So, too, we will refrain from non-monetary wages (perks, deferred remuneration, etc.) where these are to the detriment of the employee.

Labor Policies: With respect to our labor policies, we will abide by any employment agreements entered into, local laws, and local customs. Although we are not obligated to guarantee job security for our employees, we are obligated to provide assistance to those employees who must be laid off, such as setting up an interest free loan fund, or to assist them to establish their own business, or providing retraining. Decisions on lay-off priorities will be left to employees wherever possible. Our firm is obligated to provide severance pay, pensions, and partial employment or assistance to our aged workers who are no longer able to fulfill their job responsibilities. We are obligated to protect our workers against physical injury; this over and beyond the obligation to compensate them for work related illness. However, we, as acts of charity will share non-work related medical costs of long term employees with the employees and the public sector.

Theft: Employees will avoid engaging in all forms of theft including misuse of expense accounts, or the personal use of the firm’s materials or facilities (e.g., long distance telephone, photocopier, fax machine). This applies also to the illegitimate use of computer software.

Insider Trading: Employees will not engage in insider trading. Where such a practice is forbidden by law it is forbidden halakhically because of dina demalkhuta dina. In those countries where it is not legally forbidden, it is usually halakhically forbidden because of geneivat da’at(stealing another’s mind).

Bribes/Kickbacks: We will not receive or give any bribe, kickback or secret payments in our business activities. To do so would either be theft, or a violation of lifnei iver (blinding the eves of the receiver).

Customers

Pricing: We will not charge customers for the goods we are selling or the services we are providing by any amount greater than its market value, unless customers are aware of the additional benefits they are receiving in paying a higher price. Care will be taken not to exploit any short-term difficulties encountered by our customers. To not act in this manner would be in breach of ona’ah (price oppression).

Selling Practices: Our firm does not accept the principle of “buyer beware.” Instead, we will ensure that the buyer has accurate and full information regarding the nature and quality of the goods sold or services provided, without any concealment of defects or deficiencies. All goods sold or services provided will be according to those specified in the contract or as advertised. No products or services will be advertised which refer to instant gratification or unrealistic or exaggerated needs, or based on unsubstantiated claims. To do any of the above would be in violation of lifnei iver (putting a stumbling block in the path of the blind) or geneivat da’at. The firm will not sell goods or services that are harmful either physically or morally even in those cases where such sales are legal or done at the request and knowledge of the buyer.

Conflict of Interest: No advice will be given to customers or clients when the individual manager or employee giving the advice possesses a conflict of interest, without fully disclosing such interests. To do otherwise would be giving misleading advice, an aspect of lifnei iver.

Competitors

Competitive Practices: Although it is acceptable for our firm to enter new markets and compete with existing businesses, we will not do so if existing firms are faced with a total loss of their source of income. Our firm will not actively engage in the practice of luring employees from our competitors but will take rabbinic advice as to the circumstances under which this is permitted.

Suppliers

Obtaining Quotes: We will not obtain quotes from suppliers when we have no intention to buy from such a supplier. This would be in breach of verbal ona’ah (creating an expectation for a sale which when it doesn’t materialize could cause mental anguish or represent a form of exploitation),

Repayment of Debts: We are obligated to fully repay our debts on time. We will take Rabbinic advice as to the proprietv of using debtor protection afforded by bankruptcy laws or provisions such as Chapter Eleven in the U.S.A.

Suppliers

Fraudulent Reporting: We will accurately represent all financial and accounting information. To do otherwise might encourage one to invest or conduct business with our firm based on inaccurate information, and would be in violation of geneivat da’at (stealing another’s mind).

Community

Macro-Economic Policies: As part of our charitable obligations we will lobby for governmental policies that protect the poor, the aged, the sick and the marginal members of our society).

Environment: Our firm will do its utmost to respect the environment in which we operate. We are obligated to avoid polluting the water, air, or soil and to provide compensation for any damage which we may unintentionally cause.

 

Dr. Mark Schwartz lectures in business ethics at the University of Pennsylvania Wharton School of Business. Dr. Tamari is the former chief economist of the Office of the Governor at the Bank of Israel, and the founder of the JCT Center for Business Ethics and Social Responsibility.

*The authors wish to express their thanks to Rabbis Baruch Taub, Aron Hoch, Amram Assayag and Breitowitz, for their comments and insights.