Business law needs to encourage ethical behaviour in order to build a sustainable recovery from the pandemic, according to a recent ACCA report, Tenets of business law: A framework for the future.
The fundamental requirement needed to build better economies and societies, it argues, is trust. Society depends on business, and business depends on trust. Buyers and sellers need to trust each other, owners need to trust managers, and people affected by decisions need to trust those making them.
A sustainable recovery requires people and businesses to collaborate and cooperate
Tenets of business law, first published by ACCA in 2017, sets out the four key business law principles (see panel) that ACCA believes underpin a good environment for doing business – allowing business partners to trust one another, resolve disputes when they arise, and create value for the wider good – along with five mechanisms that put meaning into practice.
The latest report update emphasises that in order to have real meaning in practice, the law must:
- provide dispute resolution mechanisms that are fair and transparent, reasonably fast, cost-effective and confidential
- provide encouragement for business enterprises, such as allowing for a corporate structure (for example, limited liability) that encourages sensible risk-taking by entrepreneurs
- support an ethical approach to business, perhaps through legal as well as voluntary codes
- maintain stability and confidence, including confidence in the market and financial system, and an environment in which businesses have confidence in dealing with each other
- enable business to drive society’s prosperity, by formulating a framework in which business success makes a net positive contribution to society’s prosperity.
- Tenets of business law argues that ‘the application of clear and effective business laws to underpin a sustainable economy for the future is more important than ever’ as the world recovers from the pandemic.
The impact of mega trends such as digitisation, demographic and social change, and climate change and resource scarcity in recent years has caused many businesses to rethink their business models. Covid-19 has ushered in more disruption and has highlighted the importance of resilient business models and cooperative action.
Key principles of business law
Simplicity – the laws that govern business should be stringent but not complex. Simpler laws are more difficult to break undetected, and less onerous and expensive to implement.
Openness and transparency – lawmakers should be open and transparent with business when designing and implementing business law. Businesses need a predictable environment, which means being forewarned of government’s intentions and having transparent consultation.
Fairness – business law must be applied consistently and equally among business enterprises. The legitimacy of business law depends on businesses adopting it and following it voluntarily, and in the belief and expectation that it has been designed and is operated for the wider public good.
Accountability – business law should facilitate the accountability of business, fostering trust in business. Business should be prepared to explain its actions and strategies to stakeholders, and the legal framework should give stakeholders confidence that disclosures are complete and comparable.
Framework for prosperity
A legal framework that helps business to drive the prosperity of society will be critical. ‘A sustainable organisation is one committed to minimising the environmental impact while putting social justice and social responsibility at the heart of strategy,’ says the report. But these commitments must be measured reliably and communicated clearly.
The report also points out that if we are to build better economies and societies during the recovery, we cannot rely on punitive laws to make people do the right thing. Business has always been built on trust, but this does not necessarily mean the same in today’s context as it has in the past.
The existing mechanisms of business law were built to enable person-to-person trade, with records kept on paper. How can trustworthiness be measured in a world of digital transactions, for example?
A sustainable recovery requires people and businesses to collaborate and cooperate. The integrity of partners and decision-makers will be a key element in driving sustainable economic activity. The report points out that accountants, who work to strict ethical standards, are ideally placed to provide assurance of integrity and facilitate the trust essential to rebuilding our economies and societies.