Business Ethics: The Law of Rules

Despite the recent rash of corporate scandals and the resulting rush to address the problem by adding more laws and regulations, seemingly little attention has been paid to how the nature (not the substance) of rules may or may not affect ethical decision-making. Drawing on work in law, ethics, management, psychology, and other social sciences, this article explores how several characteristics of rules may interfere with the process of reaching and implementing ethical decisions. Such a relationship would have practical implications for regulatory policy and managers of organizations, and the article concludes by suggesting how regulations and corporate ethics programs should be able to improve the ethical culture of business and enhance the ethical decision-making skills of employees. One might suppose that where law is largely absent, behavior is pretty bad. Yet it turns out to be nearly the other way around. The two areas where law is arguably the largest presence in ordinary life—driving cars and paying taxes—are probably the two areas where there is the largest amount of self-conscious cheating. NASA’s culture of bureaucratic accountability emphasized chain of command, procedure, following the rules, and going by the book. While rules and procedures were essential for coordination, they had an unintended but negative effect. Allegiance to hierarchy and procedure had replaced deference to NASA engineers’ technical expertise.