More than two years ago, I did a blog entry on the difference between ethics and morality. Moral decisions, around issues like theft and corruption, are absolutes regardless of time or culture. They are just wrong, wherever they happen. Ethical decisions on the other hand are underpinned by rules and codes of behavior.

This might explain why there is a mismatch between the law and corporate ethics. According to Boston College Law School's Kent Greenfield it can only be addressed by changing the law itself, and aligning it better with ethics.

In his paper Corporate Ethics in a Devilish System, Greenfield talks about what we see happening all the time: companies behaving unethically but perfectly within the bounds of the law. "In essence, a corporation should consider the cost of illegality as the penalty, fine or other costs discounted by the chance of the exposure of the corporation's illegality. The law, in other words, merely imposes a price for illegal behavior. If the corporation is willing to pay, then no problem with illegality."

So to claim that ethics merely means complying with the rules is limited. Indeed, limited liability which is the cornerstone of corporate law and which is the reason why businesses choose to incorporate is inconsistent with the ethical norm of taking responsibility for one's own actions.

He argues that this means changing the law and rules of governance where companies would be required to give stakeholders who don't own stock - like for example employees and communities - to make their views heard and part of the firm's governance. "Bringing the views of non-shareholder stakeholders into the governance of the firm would not only make it more likely that the corporation will consider broadly the impacts of its decisions, it also will - because shareholders tend to have a very short time horizon - necessarily cause the firm to take a longer term view of its decisions and strategies. Such inclusion will also cause corporations to internalize more the costs of their decisions. In addition, the law should require corporations to tell the truth not only to shareholders and consumers, but employees as well."