Learning to recognise juncture where law and ethics diverge

ALWAYS tell the truth. That way you don't have to remember anything, declared Mark Twain.

The often contradictory memories of events recounted to the different tribunals and inquiries in Ireland suggests some witnesses have failed to take Mark Twain's advice.

An interesting example is the inquiry by the Dail Committee of Public Accounts Committee into DIRT. Did or did not AIB Bank have a tacit agreement with the Revenue to ignore a tax liability of up to £100 million (€127.1 million)? As the cat-and-mouse game between politicians, bankers, Revenue and barristers is played out, it is obvious the issue is being treated primarily as one of legal compliance, rather than of value systems and integrity.

Even if AIB had an amnesty from the Revenue, does that excuse its behaviour and attitude? The crux is that AIB, indeed all the banks with bogus foreign accounts, aided and abetted tax evaders. With or without Revenue agreement, their behaviour could be deemed unethical. This is the core issue, even if there is room for argument about the personal responsibilities of those involved.

The explanations - indeed justifications - of the behaviour of the banks and their bogus account holders typify the rationalisations often heard when unethical choices have been made: for example, "everybody else does it" or "if we don't do it, someone else will". Defence of unethical behaviour on the basis of its frequent occurrence or that you will lose out to a competitor is not acceptable ethical reasoning.

"It doesn't really hurt anyone" is another rationalisation. Tax evasion, social welfare fraud and false compensation claims fall into this category. This is because the victims of these transgressions are usually faceless, for example Dublin Corporation or insurance companies.

"The system is unfair" - tax evasion in the 1980s has been justified by way of the "crucifying" tax rates prevailing at the time. Moreover, those who facilitated bogus foreign accounts to evade taxes have actually defended this practice on the basis that there would have been a flight of capital out of the State had they not acted as they did.

"We'll wait until the lawyers tell us it's wrong" - the philosophy of those appearing before the different inquiries with their teams of legal advisers. This attempts to equate law with ethics, not always a perfect match. There are many situations where behaviour is perfectly legal, but totally unethical, for example when banks forgive large debts or influential debtors under political pressure, but relentlessly pursue smaller less powerful debtors, the moral reasoning used is at a low level.

In fact, an element considered to influence ethical judgment and action is the maturity in moral reasoning attained by the individual. Lawrence Kohlberg, an American psychologist, has devised a theoretical framework that describes development in moral reasoning.

Kohlberg's theory consists of six stages of moral reasoning. The stages are sequential and invariable in their order.

At the first two stages, the person accepts good/bad or right/wrong as being externally imposed by some authority figure. In childhood, it is the parents, in adulthood, it may be the boss. At the first stage, the person has a "punishment and obedience orientation" and does what is expected by the authority figure to avoid punishment. In business life, this childish orientation is paralleled by the mentality that nothing is wrong if you can get away with it and avoid punishment.

At the second stage , "instrumental purpose and exchange", the individual has stepped outside him/ herself to an awareness that others too, have needs. In fact, the person realises that s/he can trade in the satisfaction of these needs. For instance, an employee might be encouraged to sell high margin but unsuitable products to a vulnerable class of customers. The seller might make a high rate of commission. At this developmental stage, the incentive of the remuneration is the main consideration of employee and employer.

At the third and fourth stages, the individual takes up group expectations as standards of moral behaviour. Conformity to the norms of one's family, or social, professional or ethnic/national groups are given as reasons for choosing one behaviour over another.

AT STAGE three, "good" behaviour is used to gain approval from those to whom one has an emotional or social dependency relationship. This involves the mutual maintenance of trust, loyalty, respect and gratitude to consolidate such relationships. At stage three reasoning, an employee may mis-sell products under the direction of a manager in order to retain good working relationships with the superior, and with peers engaged in the same practices for the same reasons. Of course, these practices might be disapproved of by those outside the workplace, creating a conflict of moral judgment.

In stage four, the basis of approved behaviour moves to obligations to society and the common good. The rationale for moral behaviour is to keep the institution going, to avoid the breakdown in the system "if everyone did it". Those who have reached this stage might refuse to mis-sell products because it could harm consumers and thereby, society.

The fifth and sixth stages involve "principled thinking", when people see beyond law for the sake of law-and-order, or social norms. Instead, principles guide moral behaviour. At stage five, the emphasis is still on rules and laws, but these should protect people's rights. So, an employee refusing to mis-sell products at this point would justify the refusal on the grounds that it violates the rights of customers to know the full truth.

Stage six thinking appeals to universal ethical principles. These tend to be abstract, dealing with justice, equality of human rights, respect for the dignity of human beings and the concept that human beings are ends in themselves, not instruments. At this stage, the person will have the insight to grasp complexity, the existence of conflicting principles, and the difficulty of resolving them.

For example, companies setting up in countries where child labour and corruption are rampant, have a conflict between providing indirect support for regimes which violate human rights and freedoms, and providing a livelihood, food and shelter, for the citizens of these regimes.

According to Kohlberg's research, fewer than 20 per cent of the population achieve principled thinking: most stop at stage five.

Kohlberg considers the higher stages morally preferable to the lower ones. Of course, a high moral reasoning level does nor guarantee moral conduct, since other factors, such as personality and organisational culture, influence behaviour. But research studies have found a moderate relationship between lower moral reasoning stages and behaviour, ranging from delinquency and fraud, to cheating at exams.

Moral reasoning stages are measurable through psychometric tests, although they are rarely used as an assessment instrument in management selection in Ireland. Had they been used, who knows? The Irish taxpayer might have been deprived of the hours of riveting entertainment showing at all the tribunals and inquiries.

Dr Eleanor O'Higgins is a lecturer in strategic management and in busi- ness ethics at the UCD Graduate Business School.