Ethics Article Reviews

J Bus Ethics (2011) 99:39–48

DOI 10.1007/s10551-011-1165-6

Substantive Ethics: Integrating Law and Ethics in Corporate Ethics Programs

Mark S. Blodgett

Published online: 24 January 2012

� Springer Science+Business Media B.V. 2012

Abstract Continual corporate malfeasance signals the

need for obeying the law and for enhancing business ethics

perspectives. Yet, the relationship between law and ethics

and its integrative role in defining values are often unclear.

While integrity-based ethics programs emphasize ethics

values more than law or compliance, viewing ethics as

being integrated with law may enhance understanding of an

organization’s core values. The author refers to this inte-

gration of law and ethics as ‘‘substantive ethics,’’ analo-

gous to the substantive law that evolves over time, which is

applied to ethical breaches and carries sanctions for non-

compliance. This article describes the integration of law

and ethics as a mid-point between two polar views that

define law and ethics either as having no relation or as

being one and the same. Since corporations expressly state

which laws they follow, a sample of corporate compliance

statements is used to demonstrate this integrative mid-

point. The sample also reveals that corporate ethics codes

rarely express ethics and law as being integrated per se.

Therefore, the author creates an example of a securities law

compliance statement that is introduced with an integrative

perspective of law and ethics. Perhaps such revised cor-

porate codes will encourage corporate respect for both law

and ethics and enhance ethical sustainability.

Keywords Business ethics and law � Core values � Corporate ethics codes � Ethical sustainability � Integrity-based corporate ethics programs � Substantive ethics

M. S. Blodgett (&)

Business Law & Ethics, Sawyer Business School,

Suffolk University, Boston, MA 02108-2770, USA

e-mail: [email protected]

‘‘Obeying the law, both in letter and in spirit, is the

foundation on which this Company’s ethical stan-

dards are built’’ (Avery 2009).

Introduction

Business ethics controversies continue to arise in an era of

global economic crisis, egregious corporate malfeasance,

exorbitant CEO compensation, fraudulent investment

schemes, proliferation of tort suits, and global human rights

abuses. While protection of the economy, investors, and

other stakeholders is of major concern, calls for tort caps

may reduce the parameters of responsibility. Despite the

need for greater understanding of these matters, the role of

law as it relates to these business ethics issues is not well

understood. The law is often discounted as ‘‘mere rules’’

without acknowledgment of its ethical content. Yet,

responses to crises in business ethics often include new

regulation in addition to pleas for more ethical business

behavior. The connection between law and business ethics

compels us to more fully explore its role in the current

global business environment that increasingly demands

ethical sustainability. ‘‘For globalization to succeed, it must

be ethical’’ (Hoffman and Driscoll 2000, p. 222) and

generate new business ethics perspectives.

Perhaps this role and challenge are the most prominent

within the context of corporate behavior. Thus, this article

explores the inter-relationship of law and ethics as applied

to managerial decision-making and corporate governance

by (1) explaining a current, applied approach to the inter-

relationship between law and ethics; (2) proposing that a

new way of thinking about this inter-relationship is by

‘‘re-imaging’’ the ethics content of the law as ‘‘substantive

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40 M. S. Blodgett

ethics,’’ analogous to the substantive law; and by (3) pro-

posing that corporate codes of ethics be revised to

expressly encompass this inter-relationship as consistent

with values or integrity-based corporate ethics programs.

An Applied Approach to Law and Ethics

Over the centuries, numerous philosophers and legal

scholars have debated the relationship between law and

ethics. However, it is not the intent of this author to review

either ancient philosophy or the more recent exchanges of

Hart (1958) and Fuller’s (1958) debate on their relation-

ship, or to revive the past philosophical discourse of

luminaries as enumerated without elaboration in Dunfee

and Paine’s similar approaches to this topic (1996; 1994a,

b). Each accepts such a connection and applies it to busi-

ness ethics issues. Nor does the author address unethical or

ethically neutral law. As Herrera tells us, an exhaustive

answer to the relationship between law and ethics is

complicated and leads only to further inquiry. He points

out that ‘‘entire books will continue to be written on the

philosophical linkage between law and ethics from the

utilitarian perspective, the Kantian perspective, or the

Natural-law perspective’’ (Herrera 2000, p. 2).

Rather, this article draws upon the scholarly tradition

that recognizes a connection between law and ethics, an

enduring philosophical interest (Dunfee 1996) that is

foundational to contemporary business and legal issues.

Law and ethics do not conflict, nor are they mutually

exclusive (Schwartz et al. 2005). As Rawls tells us, the law

has exerted considerable influence upon philosophical

thought through its evolution, principles, and precedent

(Dunfee 1996). Therefore, the author addresses this inte-

grated or ‘‘coinciding’’ view of law and ethics (Paine

1994a, b, p. 165) in the section below to further enhance

understanding of the role of law within the application of

business ethics today.

Coinciding View

Where there is integration of law and ethics, the ethical

purpose of the law should be evident; for example, laws

prohibiting fraud enhance the ethics of disclosure and

fairness and in this example, law and ethics can be said to

coincide. Yet, perhaps it is more helpful elaborating on this

coinciding view of law and ethics by thinking of it as a

middle ground existing between two polar extremes: (1)

where law and ethics are considered to be totally separate,

and (2) where law and ethics are considered to be identical.

Although at times law and ethics are inter-related, many

continue to differentiate sharply between law and ethics,

and statements relegating law to a threshold status are

common. This ‘‘clear-line’’ approach appears in statements

that distinguish ethics from law as not only different but

also superior, such as ‘‘ethics consists of standards and

norms for behavior that are beyond laws and legal rights’’

and ‘‘ethical standards are not the standards of the law. In

fact, they are a higher standard’’ (Jennings 2006, p. 3).

While these statements contribute significantly to our

understanding of ethics and law, they may appear to

embrace the ‘‘separate realms view’’ (Paine 1994a, b,

p. 154), where law constitutes a normative minimum to

which neither ethical values attach nor from which do they

derive or evolve. Such a sharp distinction between law and

business ethics may lead to the conclusion that there is little

if any relationship between them. This supposition may

obfuscate their ‘‘coinciding’’ relationship, what Nesteruk

describes as a conduit for the law’s ‘‘morally creative role’’

that ‘‘rich interplay between law and ethics in the contem-

porary business environment’’ (Nesteruk 1999a, b, p. 604).

It is this rich inter-relationship that the American Law

Institute emphasizes as the ethical viewpoint or purpose of

the law that must be complied with rather than a narrow,

literal interpretation (Di Lorenzo 2007). As Hartman

reminds us, these rules or laws of compliance also provide

clarity to the new culture of integrity-based corporate ethics

programs (Hartman 2000). However, such lofty perceptions

do not often prevail when laws are looked upon as man-

datory compliance or as ‘‘mere rules to be followed.’’

To further enhance our perspective on this inter-rela-

tionship between law and ethics, it is necessary to identify

another viewpoint, namely, that law and ethics are in

complete harmony (the ‘‘correspondence view’’) (Paine

1994a, b, p. 156). However, this view precludes much

ethical responsibility and discretion. Each viewpoint of

separate realms and correspondence has its adherents;

however, there is a middle ground as Dunfee tells us, ‘‘the

two domains [law and ethics] are synergistically and inti-

mately related’’ and ‘‘neither can be fully meaningful or

realized without the other’’ (1996, p. 319). Hosmer and

Ehrlich deduce that, although not complete, there is con-

siderable overlap between law and ethics (2008; 2005).

This deduction leads Shaw (1996) to conclude that,

although insufficient to establish an organization’s values,

law evolves with society’s view of morals which it codifies

along with ideals. Perhaps a closer examination of these

codified morals and ideals will reveal some values suitable

for a corporation’s core values.

This considerable overlap forms an intersecting point

between the ‘‘separate realms view’’ and the ‘‘correspon-

dence view.’’ Identifying and exploring this coinciding or

integrative aspect of law and business ethics is important to

understanding a business environment that is often guided

by corporate compliance-based programs, but frequently

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41 Substantive Ethics

engulfed in egregious breaches of both law and business

ethics. Let not the ‘‘incompleteness’’ distract us from the

mutuality of law and ethics. Separating law from business

ethics does not enhance our understanding of ethical

behavior or corporate malfeasance. Corporate compliance

statements of law carry tangible civil and/or criminal

sanctions for violations, and when sanctions are imposed,

there occurs enforcement of any coinciding business ethics

values. An emphasis on aspiration ethics may assume,

imply, and even demand another layer of responsible and

ethical business behavior, and when this occurs, it is

laudable; however, experience tells us more, and perhaps

this is the compelling reason for re-aligning and enhancing

perspectives on the coinciding view where law and ethics

are at times ‘‘synergistically and intimately related.’’

It is clear that corporations have a duty to obey the law,

yet unfortunately there are business executives who may

ignore this duty, be unaware of it, not understand it, or be

apprehensive of it. Hence, the need for compliance state-

ments, training, and broad-based communication and edu-

cation regarding the law. Ethically integrated compliance

statements imbued with express ethical perspectives may

more effectively guide behavior than narrow statements of

rules and obligations that are juxtaposed with corporate

values. For example, compliance statements prohibiting

fraud reveal the ethical perspective that intentional mis-

representation obviates good faith and honesty. This results

in a lack of trust, which should be avoided when doing

business, whether regulated or not. Integrating such ethics

values into compliance statements will unambiguously

allow the law’s ‘‘morally creative role’’ to more fully

participate in fashioning corporate ethics codes.

Corporate Ethics Codes

Analyzing corporate ethics codes is worthwhile in a global

business environment where ethical issues demand inves-

tigation (Donaldson and Werhane 1993) and where orga-

nizational culture is reflected in these formal statements

(Trevino et al. 1999). As part of corporate culture, ethics

codes contain statements of law and ethics that are self-

selected expressions or values of the corporation that are

also an identified source of business ethics (Schwartz 2005).

Ethics codes are common among large firms (Donaldson

and Werhane 1993), and more than 90% currently use them

(Murphy 2005). They aid in identifying expectations

(Davies, ed. 1977) and provide guidance to managerial

decision-making by establishing ethical standards (Peppas

2002). According to Webley (Davies, ed. 1977), Cavanaugh

(1998) and Boatright (2003) they often include the business

ethics values of integrity, honesty, fairness, trust, and

responsibility. The last three of these values are also iden-

tified as among ‘‘six universal values’’ (Schwartz 2005).

One portion of today’s business ethics environment

centers upon corporate behavior and two approaches to

influencing this behavior through corporate ethics codes are

commonly identified as compliance-based and values or

integrity-based ethics programs. Compliance programs

focus on law and emphasize prevention and punishment. In

contrast, integrity-based programs acknowledge the law,

but are dominated by commitment to organizational values

(Trevino et al. 1999; Paine 1994a, b). Despite their differing

emphases, these two approaches are not mutually exclusive.

Approaches to corporate ethics programs have various

names and content (Weaver and Trevino 1999) spanning the

two poles of the ethics codes continuum from compliance to

integrity. Regardless of the corporate codes nomenclature,

‘‘an integrity-based program recognizes the complex rela-

tionship between law and ethics and is far more likely to

achieve the objective of responsible and effective organi-

zational conduct’’ (Paine 1994a, b, p. 169). Thus, the

identifiable and evolving inter-relationship of law and eth-

ics may reveal a new understanding and application of

business ethics that re-enforces the values or integrity-based

approach where the maximum emphasis is placed not upon

legal compliance but upon ethical decision-making.

In a 2005 comprehensive review, Schwartz compiled

and analyzed past studies of corporate ethics codes as part

of an extensive search for ‘‘universal values.’’ He also

included global codes and the writings of business ethicists,

all identified by him as sources of business ethics (Sch-

wartz 2005). His thorough review and analysis confirmed

the Aspen Declaration’s identification of six universal

values as follows: ‘‘(1) trustworthiness, (2) respect, (3)

responsibility, (4) fairness, (5) caring and (6) citizenship’’

(Schwartz 2005, p. 36). It is therefore reasonable to con-

clude that corporate ethics codes generally share in a rich

deposit of universal ethics values.

Just as corporate codes contain expressions of universal

values, they also contain legal compliance statements that

address many areas of current business concern. Many

codes blend law and ethics by varying degrees; they do not

merely juxtapose them. These ethics codes often include

expansive and global expressions of law. Because of this

expansive blend, the composition of corporate ethics codes

is worth investigating.

Methodology

Although the major or dominant types of legal compliance

statements are generally well known, commonly refer-

enced, (Post et al. 2002; Pagnatarro and Peirce 2007), and

static, the author studied a sample of 2008 Fortune 500

corporate ethics codes to further identify and substantiate

them and to glean additional data relevant to this study.

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42 M. S. Blodgett

It should be, however, noted that the primary purpose of

studying this sample was not to establish the most fre-

quently occurring compliance statements per se but rather

to identify coinciding ethics values in some commonly

occurring corporate statements of legal compliance.

The sample was selected through an on-line random

number generator, and then the frequency of compliance

statements by topic was recorded, for example, ‘‘securities

laws’’ (See Exhibits 1A, 1B, 1C, 2A, and 2B). Also, state-

ments indicating the three different views—separate, cor-

responding, and coinciding, were gleaned (See Exhibit 3).

Some of the possible business ethics values coinciding with

the legal compliance areas were then identified as examples

of ‘‘substantive ethics,’’ a concept to be explained later in the

article. These examples of ‘‘substantive ethics’’ were then

corroborated with the ‘‘six universal values’’ (See Exhibit 4).

Results

The sample yielded 21 areas of corporate compliance rang-

ing in frequency from 19.35% to .81% as displayed in

Exhibit 1A 2008 Fortune 500 companies compliance data (30-

company sample)

Compliance area Term Term

frequency frequency

percentage

1 Securities 24 19.35

2 ‘‘All laws’’ 16 12.90

3 Anti-trust/competition 13 10.48

4 FCPA 9 7.26

5 Environment 9 7.26

6 Health and safety 9 7.26

7 Information/data 7 5.65

8 Anti-boycott 6 4.84

9 Corporate opportunity 5 4.03

10 Employment/EO/non- 5 4.03

discrimination

11 Fraud 4 3.23

12 Export law 4 3.23

13 Intellectual property 3 2.42

14 Money laundering 2 1.61

15 Bribes/Anti-Kickback Act of 1986 2 1.61

16 Immigration 1 0.81

17 Terrorism 1 0.81

18 Unfair dealing 1 0.81

19 Fair dealing 1 0.81

20 Child & forced labor 1 0.81

21 U.S. Embargo 1 0.81

Total compliance terms 124

Exhibits 1A, 1B 1C. Among the most prevalent areas of law

expressed in these compliance statements are as follows:

securities (30%), anti-trust (16.25%), Foreign Corrupt

Practices Act or FCPA (11.25%), environment (11.25%),

and health and safety (11.25%) (See 2A, 2B with percentages

based on a sample of 6). Four of these areas, securities

including securities fraud, FCPA, and anti-trust, track the

Federal Organizational Sentencing Guidelines for compli-

ance programs (Pagnatarro and Peirce 2007). Also prevalent

within the top 6 was ‘‘compliance with all laws’’ (20%). This

compliance statement has significance since it conceivably

includes all laws, not merely the ones specifically stated,

including U.S. law, ‘‘host countries’ laws’’ and in some

cases, ‘‘all other countries’ laws.’’ International law, a body

or system of law that exists beyond the legal system of any

particular country (Schaffer et al. 2009) may reasonably be

included in this expansive language. International law is rich

in ethics content such as the peremptory norm of jus cogens

that embodies high ideals of civilization ‘‘from which no

derogation is permitted’’ (August et al. 2009, pp. 8–9). It may

be interesting to note that no company’s ‘‘Integrity Policy’’

goes so far as to generally embrace ‘‘due care’’ (duty of care),

a legal element, and ethical value. This is consistent with past

studies of corporate ethics codes (Blodgett and Carlson

1997) unless relegated to the Board of Directors or to a

specific ‘‘professional area’’ within or tangential to the code

for accountants, lawyers, or brokers, for example.

In addition, statements among the different views—

separate, corresponding, and coinciding—yielded a variety

of ethics and law expressions along this total spectrum. The

following are representative of these expressions: ‘‘3M is

recognized worldwide as an ethical and law-abiding

company’’ and Altria’s ‘‘Our Compliance and Integrity

program is focused on doing the right thing, and reflects

our family of companies’ culture and values,’’ and Pacific

Life’s ‘‘Ethics and compliance are two closely related and

intertwining concepts that work together to help us do the

right thing’’ (2009). In general, such statements reveal

aspects of the three views—separate, corresponding, and

coinciding, but may often appear mixed and possibly

ambiguous when interpreted alone or together as in the

ethics code of one company presented below.

Since law and ethics at times coincide, it is helpful

assigning ethics values to the areas of law found in the

sample. The chart given here shows common examples of

legal compliance areas and possible coinciding ethics val-

ues that are corroborated with the ‘‘six universal values.’’

While not intended as exhaustive or complete, Exhibit 4

shows examples of numerous ethical values encompassed

by legal compliance. Many of these values are often found

in the ethics sections of corporate ethics codes—a potential

reciprocity of express ethical values with compliance

statements that may lend even more meaning to the

123

43

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Substantive Ethics

24

16 13

9 9 9 7 6 5 5 4 4 3 2 2 1 1 1 1 1 1

0

5

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Compliance Term

Exhibit 1B 2008 Fortune 500 companies’ compliance areas (30-company sample)

25.00%

19.35%

12.90%

10.48%

7.26% 7.26% 7.26%

5.65% 4.84%

4.03% 4.03% 3.23% 3.23%

2.42% 1.61% 1.61%

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Exhibit 1C 2008 Fortune 500 companies’ compliance areas percentages (30-company sample)

24

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Exhibit 2A 2008 Fortune 500 companies’ most frequent compliance areas

statement that ‘‘obeying the law, both in letter and in spirit, representative of many corporations’ stated core values, the

is the foundation on which this Company’s ethical stan- identification of which Hartman recognizes as an important

dards are built’’ (Avery 2009). Surely, these values are part of the ‘‘process of ethics integration’’ (2000, p. 157)

123

44 M. S. Blodgett

Health and Safety, 11.25%

Environment, Securities, 30.00% 11.25%

FCPA, 11.25%

Anti- All Laws , 20.00% trust/Competition,

16.25%

Exhibit 2B 2008 Fortune 500 companies’ most frequent compliance

areas percentages

adding even more impetus to the inter-relationship of law

and ethics as an emerging perspective in ethical decision-

making and corporate governance.

Analysis: Emerging Perspectives

Many compliance areas identified in the sample are also

commonly identified in the literature (Post et al. 2002;

Pagnatarro and Peirce 2007). They refer to substantive law

Exhibit 3 Excerpts from Pacific Life, Inc. code of business conduct

that defines rights and duties (Reed et al. 2009) and they

tell much about what should be among the current ethical

concerns of business. After all, the statements were self-

selected; albeit, selected with the encouragement of the

Federal Organizational Sentencing Guidelines. Perhaps

ironically, many of the dominant legal compliance areas

are also identified as the most frequently violated laws

within firms (Post et al. 2002) and as such, their coinciding

ethics values are also violated. According to Tucker, the

federal guidelines expressly communicate that ‘‘bad ethics

is bad business’’ (Cohen 1993, p. 355). Perhaps this ethical

perspective is even more acute when viewed within a

global context since the statement ‘‘we obey all laws’’

conceivably encompasses universal ethical content and

purpose, and some areas of compliance such as ‘‘corrup-

tion’’ exist as presumed ‘‘hyper-norms’’ or fundamental

universal principles that embrace deeply held values of

humanity (Donaldson and Dunfee 1999).

Clearly, business needs a fresh outlook in managing law

and ethics. From the discussion and data presented above,

it is evident that both legal compliance and ethics are key

components of corporate governance and that reliance

Separate Coinciding Corresponding

‘‘While [ethics and compliance] serve similar ‘‘Ethics and compliance are two closely ‘‘We are committed to following laws and

functions, they are distinct enough to justify related and intertwining concepts that regulations, just as we are committed to

separate principles in our Code of Business work together to help us do the right providing excellent products and services’’

Conduct’’ thing’’

‘‘Just as there are many laws and regulations that

guide us in our compliance efforts, there are

many ethical standards that guide us in doing the

right thing’’

Exhibit 4 Compliance areas

and coinciding ethics values Compliance area Law governing Substantive ethics values Universal values

Securities Fraud Fairness Fairness

Disclosure Responsibility Responsibility

Insider trading Trustworthiness Trustworthiness

Fiduciary duty

FCPA Bribes Fairness Fairness

Accounting

Anti-trust Competition Fairness Fairness

Employment Equal opportunity Caring Caring

Discrimination Fairness Fairness

Responsibility Responsibility

Trustworthiness Trustworthiness

Environment Environmental protection Caring Caring

Responsibility Responsibility

Trustworthiness Trustworthiness

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45 Substantive Ethics

upon one may detract from the other. The currently all too

common juxtaposition of law and ethics does not serve the

best interests of ethical sustainability. Perhaps what is

necessary is a more unified view of the substantive law and

ethics.

Substantive Ethics

The argument for ethics without regard for law to guide

business behavior may be analogous to arguing for the

abolition of law and for religious teachings, philosophy,

etiquette and civility to guide our citizenry in correct

societal behavior. While this non-legal background is

necessary, highly desirable, and profound, it is also of great

importance to have laws that prohibit deceit, fraud, theft,

murder, and discrimination and that dole out substantial

penalties for violations. It is also important that society and

business respect these laws, recognizing that they embrace

fundamental ethics values.

After all, if one were to decide between laws that

‘‘coincide’’ or aspiration ethics, which would be then the

better choice: laws that embrace business ethics that are

enforced with tangible penalties, or discretionary ethical

practice that may not be intrinsically valued or acted upon

and that carries no formal incentive for doing so? If laws

carrying sanctions did not exist, how much influence would

their coinciding ethics values have in guiding managerial

decision-making?

Fortunately, there is no need to decide between law and

ethics. But this duality has been the challenge at hand

because law and ethics are more appropriately viewed as

integrative, and if not so viewed contributes to dysfunction

in corporate governance. By the late nineteenth century,

our nation’s history showed us that ‘‘[i]n a lawless world,

the exigencies of competition tended to drive commercial

practices toward the level of the most unscrupulous’’ (Hilts

2003, pp. 45–46). Hence, followed the decades of evolving

regulatory response amidst concerns for the fundamental

undermining of ‘‘faith in commercial integrity and the very

foundation of trade’’ (Hilts 2003, pp. 45–46). Conse-

quently, in our current era, substantive law makes a major

impact on ethical behavior. For example, the design,

manufacture, and distribution of products and services is a

function of the law’s standards of ‘‘duty of care.’’

Not to recognize ethics in the substantive law is to miss a

significant coinciding perspective, for our products and

services are governed as much by the ethics and law of

the ‘‘duty of care’’ as are decisions of corporate boards.

Hoffman and Driscoll (2000) and Schwartz et al. (2005)

recognize that corporate board decision-making is central to

ethics integration within corporations and decisions of

corporate boards carry expectations of trust, a reciprocal

value to responsibility (Fritzsche 1997). As Ehrlich reminds

us, even many routine questions posed to corporate ethics

officers deal with conflicts of interest that encompass both

the legal and ethical concept of ‘‘duty of loyalty’’ (2005,

p. 4). Thus, values are less ambiguous when perceived as

part of the rules themselves (Hartman 2000) that also reveal

currently perceived ethical demands in today’s business and

regulatory environment (Nesteruk 1999a, b).

Codes that take a coinciding view of legal compliance

and ethics have much more to offer our understanding of

the role of law than those taking a separated view. The

ethical content of law is of such great magnitude that

Nesteruk calls for a new way to view the images of law

(1999a, b). It is so inter-twined with ethics that Salbu

concludes that ethics permeates the law through its

emphasis on equity or fairness, constitutional concepts

such as ‘‘due process’’ and modern statutory law (2001).

His specific examples include the Civil Rights Act of 1964,

cyber law and environmental law (Salbu 2001), each

exemplifying an ‘‘applied ethics’’ (Dunfee 1996, p. 318)

within the substantive law or perhaps a ‘‘substantive eth-

ics.’’ This author therefore suggests that the concept of

‘‘substantive ethics’’ aptly and accurately conveys the

coinciding view of law and business ethics as (1) ethics that

is part of the rights and duties of the substantive law, and

(2) ethics that therefore evolves as the substantive law

evolves. The following employment law example, one area

of ‘‘ethics-permeated’’ laws shown above in Exhibit 4,

illustrates these two aspects of ‘‘substantive ethics.’’

It has been said that education is the answer to guar-

anteeing equal opportunity to all and that the Civil Rights

Acts, and other similar laws are unnecessary. In such a

society, equal employment opportunity would be bestowed

upon the deserving by noble minded, ethical, and moral

people. Unfortunately, much of this ‘‘equal opportunity’’

would be dependent upon the ethical and moral largesse of

many who are the least likely to possess it. Here, as in other

business ethics challenges, substantive law imbued with

ethics values has been the necessary response. It also

reveals the concurrent unfolding of coinciding ethics val-

ues that is analogous to the evolution of the substantive

law. Following is an example as seen in the history of the

common law doctrine of ‘‘employment-at-will.’’

Common law doctrines trace their origin to medieval

England, the source of our legal system that is based upon

stari decisis or the reliance upon case precedent as a guide

to deciding current controversies. The common law system

spans the globe and many of its doctrines are imbued with

ethics, in particular, the ethic of ‘‘individual responsibil-

ity;’’ however, our society has gradually eroded this stark

aspect of the common law by favoring a more societal

viewpoint or sharing of responsibility. According to the

common law doctrine of ‘‘employment at will,’’ either

party can terminate employment at whim without liability

123

46 M. S. Blodgett

(Ballam 2000). This doctrine has been fundamentally

altered over time to produce a more just and responsible

employment environment given the changes that have

evolved with the industrial revolution and our nation’s

commitment to equal opportunity. Among the current

restrictions on this doctrine are ‘‘wrongful discharge’’ and

the protections against some forms of discrimination

offered by the Civil Rights Acts. Evolving societal ethics

have thus transformed this common law doctrine and oth-

ers such as caveat emptor or ‘‘buyer beware.’’

As ethics evolves, so does the legislative response or what

some have called ‘‘legislating ethics’’ (Jennings 2006). This

dynamic of regulatory response to ethical breach is highly

predictable as the demand for business ethics increases.

Hosmer also recognizes this ‘‘complex response’’ where

changing moral standards become institutionalized by social

and political processes (2008, p. 71). Thus, law and ethics

evolve over time as legislation responds to ethical demands.

Perhaps another way of expressing the complexities of

‘‘legislating ethics’’ is through the role of social responsi-

bility, or duty. Just as Ostas recognizes that legal duty is

encompassed by a more expansive social duty, one that

‘‘could be entrusted to the goodwill and ethics of the

business community’’ (2004, p. 563), as a Kantian ‘‘self-

regulator’’ (Herrera 2000, p. 2), he also concludes that if

this duty were not met then regulation would follow. The

Sarbannes-Oxley Act is one of our most recent and dra-

matic examples of this inter-relation of law and ethics—a

breach of business ethics and a legislative response that

demands more ethical behavior.

Other business ethics issues continue to arise, and in

reciprocal fashion, regulations and corporate ethics codes

respond. This should not be surprising because the under-

pinnings of many legal compliance statements such as anti-

trust, securities, employment and intellectual property are

based upon tort law. The business ethics of tort law is

profound. It defines the contours of responsibility, or duty,

and greatly impacts our society’s essential value system

and culture (France 2005). Unfortunately, the ethical and

legal underpinnings and relationships of these compliance

areas are generally not well communicated nor well

understood although ‘‘exemplary conduct usually reflects

an organizational culture and philosophy that is infused

with a sense of responsibility’’ (Paine 1994a, b, p. 109).

Ethical and legal inter-relationships are pervasive, pre-

dictable and continuously evolving. They have an ethical

impact on business and society as people learn about the

law, apply it, and eventually embrace it. Our jurispruden-

tial and legislative processes institutionalize this evolving

ethical impact. As coinciding business ethics evolves, so

does substantive, coinciding law to such an extent that

Hoffman recommends that ethics codes stay abreast of the

latest legal developments (Boatright 2003). The law is not

always a threshold. It is at times an evolving and vast array

of business ethics.

Hence, we arrive at an emerging perspective of law and

business ethics as part of values- or integrity-based ethics

programs—a ‘‘substantive ethics’’ that more descriptively

reflects the evolving and coinciding, inter-relationship of

law and ethics. But how can the image of law be transformed

from the often pervasively narrow view of ‘‘rules to be fol-

lowed’’ to an image that encourages the best applications in

ethical decision-making and corporate governance?

Re-Imaged Corporate Compliance

Emerging perspectives on the relationship between law and

ethics are prompted by Nesteruk’s call for ‘‘re-imagining’’

law (1999a, b) and Paine’s and Trevino’s passionate views

on integrity-based ethics programs where both legal com-

pliance and ethics are recognized as vital, integrative parts

of the whole (1994a, b; Trevino et al. 1999). The inter-

relationship of law and ethics also conforms to Hartman’s

‘‘process of ethics integration’’ (2000, p. 157) where law

and ethics coincide in corporate codes beyond narrow

notions of ‘‘rules to be obeyed’’ and where ethical values

are clarified by law (Hartman 2000). This clarity of values

is consistent with an expanded view of ‘‘shared values,’’

the norms that create organizational expectations (Weaver

and Trevino 1999), as they imbue legal compliance and the

corporation’s total ethical culture. As the values or integ-

rity approach advances, corporate ethics programs may

more distinctively transform beyond a juxtaposition of the

polar realms of compliance and ethical values.

There is now an opportunity for re-imaging the law by

enhancing the compliance parts of corporate codes with

ethics. By re-writing codes to explain and elaborate on the

business ethics context of the law, business can demon-

strate the reasons why laws should be followed and clarify

that although law is not an ethical totality—neither is it

devoid of ethics. Such revised expressions should explain

unambiguously that ethics and law at times coincide, and

they should also make use of identified global values.

For example, the legal compliance statement ‘‘we abide

by securities regulation’’ can be prefaced with the historical

objective of the Securities Acts which is to protect inves-

tors by upholding business ethics through fair dealing (Cox

et al. 2004) or as our courts have stated, by substituting ‘‘a

philosophy of full disclosure for the philosophy of caveat

emptor and thus to achieve a high standard of business

ethics in the securities industry’’ (Di Lorenzo 2007, p. 280).

The author developed an example of such a values or

integrity-based statement set forth in Exhibit 5.

Enhancing compliance statements with their ethical

dimensions will not only communicate that there is ethics

in compliance but enhance the ethical context of business

123

47 Substantive Ethics

Exhibit 5 Integrity-based statement

‘‘Securities regulation’’

Introduction

Our company’s commitment to comply with the securities laws is

consistent with the business ethics objectives of the Securities

Acts. Much of securities law today is concerned with ensuring

‘‘fairness’’ for both consumers and business by balancing the

interests of these two parties. Among the ways it is achieved is

through appropriate transparency and disclosure of material

information. Investors must be adequately informed before they

purchase equities and we must ensure that employees are not

trading on inside-information nor engaging in fraudulent

activities

We believe in treating all of our stakeholders, both internal and

external, in a fair manner. Fairness is highly valued by our

company in any context across all of our business practices,

relationships and commitments

As such, fairness is one of our core and inter-related ethics and

legal compliance values that we use to guide our decision-

making on a daily basis. This integration of ethics and law is part

of our company’s commitment to our shared core values—a

vibrant part of our organizational culture and strength

generally—a perceived ‘‘coming together’’ of ethics and

law that confronts current and anticipated business issues.

The extended context of the value of fairness as indicated

above, is an example of this ethical enhancement and a way

to deepen ethical culture, (Trevino et al. 1998; Paine

1994a, b) invigorate managerial decision-making and cor-

porate governance, and reach for the ‘‘goal to achieving

global and universal standards of fundamental ethical val-

ues’’ (Hoffman and Driscoll 2000, p. 230). Presently, what

may appear as a faint glimmer in corporate ethics codes

that may mention ‘‘integrity’’ and refer to the law and

ethics as ‘‘intertwining concepts,’’ may in reality be a

beacon of change. This enhanced ethics content is consis-

tent with the preferred values or integrity-based ethics

program and as this article asserts, an emerging perspective

on the substantive law and ethics, a ‘‘substantive ethics.’’

Conclusion

This article analyzes coinciding aspects of law and busi-

ness ethics as an emerging perspective in managerial

decision-making and corporate governance. It does so with

the hope of enhancing understanding of the significance of

the law so that it is perceived not as mere rules to be

obeyed, but rather as integral to ethical decision-making.

After all, corporate ethics codes that contain statements of

legal compliance have been identified as a source of

business ethics (Schwartz 2005).

The author reviewed legal compliance statements in

corporate codes of ethics, measured their frequency of

occurrence and explored their ethical content. This article

makes recommendations to revise statements of corporate

compliance to more fully express their ethical content. This

enhanced process of ethics integration is consistent with

the call to transition from legal-compliance-based ethics

programs to values or integrity-based programs rooted in

the idea that the individual internalizes the shared core

values of the firm as a personal commitment to self-gov-

ernance (Trevino et al. 1999; Paine 1994a, b) where law is

well acknowledged and ethics is emphasized.

This recommended approach will help business not only

to reach beyond the legal compliance-based notion that

whatever is legal is the ethical extent of corporate respon-

sibility, yet also help business to see the ethical value in

obeying laws. With this knowledge, business is better able to

apply ethical reasoning to even non-regulated areas as part of

its ethical identity of shared core values and its commitment

to ethical sustainability. Greater compliance as a function of

ethics is an appropriate approach and goal for corporate

governance today where the substantive law is re-imaged as

a vital part of business ethics, a ‘‘substantive ethics.’’

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