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

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