Government intervention & regulation in business ethics

Written by judy brown
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Government intervention & regulation in business ethics
Rural development raises ethical concerns for governments, businesses and communities (Getty Thinkstock)

Business ethics are moral principles that direct the way a firm works. They may be expressed in legislation, international agreements and company codes of practice. The government’s role is to frame the laws, agree global standards and represent the public interest where this is affected by the company’s operations. However, governments always have to strike a balance. Global financial collapse throws conflicting priorities into relief. For example, could intervention end in protectionism, which restricts growth? Could it stifle entrepreneurship, which drives growth in free-market economies?

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Legal perspectives

Government imposes ethical standards on business through laws such as the Companies Act 2006, which sets rules for directors on conflicts of interest; the Bribery Act 2010; and the UK Corporate Governance Code 2011 on standards of good practice for boards. Law-making is a multifaceted process, and business representatives help shape legislation through consultation groups such as the Institute of Business Ethics (IBE). However, according to the IBE, ethical behaviour goes beyond compliance: a culture of integrity reduces risk, attracts shareholders and leads to better performance. The government's approach to regulation aims to foster this climate of corporate social responsibility (CSR).

Social and economic perspectives

Governments face social and economic challenges and see businesses as part of the solution, as they generate economic growth, keep people usefully employed, and contribute to government revenue. So it is essential for government and business to pull together – business must avoid alienating stakeholders; government must attract and keep businesses in the country to provide employment, trade and revenue. Where a business is likely to have a major impact on a local community and its environment, as in proposals for building a new airport, government provides the machinery of consultation and planning, as well as the legal framework, which ensures all interests are taken into account.

Government intervention in takeovers and mergers

The Competition Commission and Office of Fair Trading control mergers and takeovers in the UK on behalf of the government. The OFT reviews mergers and can refer them to the Competition Commission for investigation. They work on the principle that abuse of monopoly power can lead to the failure of smaller businesses and may be against public interest, so government can intervene to protect consumer interests by preventing one firm gaining undue control of the market. However, the government tries to maintain a light touch, because over-regulation may deter inward investment and complicate the legal position of international shareholders. Factors to consider include the risk of job losses, the need to protect strategic assets such as energy supply and transport facilities, and whether European regulations also apply.

Environmental considerations

Faced with global problems such as climate change, over-population and dwindling resources, governments are focusing more laws and policy initiatives on green issues. Besides helping the planet survive, “green” policies make economic sense in terms of resource efficiency, sustainability and attractiveness to investors. However, companies with multi-national interests need to be aware of the different laws in other countries, and the political tensions arising from scarcity of resources such as water and oil. Such concerns call for forward-planning on a national and international scale, with governments and industry working together.

Government and corporate social responsibility

CSR is an ethical approach to business, combining concerns for employee welfare, the local community and the environment with sound business practices. It adds a new dimension: interdependence and reciprocity between businesses and with government, based on shared interests and values. CSR involves organisations and government working together to support business and encourage consensus on codes of practice. The government has a strong interest in keeping business ethical through CSR, as this encourages a sense of purpose and progress, and opens doors to national and international partnerships.
Government agencies are well placed to act as models of ethical behaviour for business. For example, the FSA’s Ethical Framework states its basic principles as: “Open, honest, responsive and accountable; committed to acting competently, responsibly and reliably; relating to colleagues and customers fairly and with respect.”

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