- BUSINESS ETHICS
- -The Role of Wealth Any discussion of business ethics, within any cultural or religious framework, requires at the very outset a definition of the role of material wealth, financial assets, and other forms of economic possessions. Furthermore, there is a limit to what legislation can achieve and therefore, as important as is having legislation which caters to ethical principles, it is essential for a society to have a moral code within which its members are educated and to which they aspire beyond the discipline of the courts. As often as not, it is their attitude towards these material goods which will determine in no small measure the behavior of people in the market place. In those societies in which the possession of material goods is the be-all and end-all of man's life, or where simply ownership is the main thrust of the culture, it is very difficult, perhaps impossible, to maintain any form of ethical behavior since the norms of that society, both legal and cultural, will crumble before the onslaught of unbridled wealth. A concept of unlimited private property will destroy the social obligations which go together with the possession of wealth. The needs of the weak and the inefficient members of society will be neglected as will the protection given to other people's property against damage to the environment or to the natural resources by possessors of such unlimited private property rights. On the other hand, a society which rejects possession of material goods or which does away with concepts of private property or one which insists on poverty as a desirable social goal, creates its own moral problems since this runs contrary to the normal instincts of man. In such societies there soon grows a separate real underground economic reality of vast inequalities alongside the official egalitarian one. So too a discussion of Jewish business ethics has to begin with an examination of the Jewish attitude to wealth and the moral attitudes created by its religious teachings, literature, and role models. By and large, apart from a number of isolated ascetic trends in the days of the Second Temple and later in the 14th century pietistic movements of European Jewry, Judaism sees nothing wrong per se with the pursuit of wealth and with its acquisition. Basically this human need to provide for the material needs of the individual, the family, and society, is viewed in Judaism merely as one of many needs or urges possessed by the individual, which are considered to be essential for the propagation and continuation of the human race. The attitude of Judaism towards economic activity is exactly the same as its treatment of other human needs such as food, clothing, shelter, sex, and social organization. These needs or urges are legitimate provided they operate within the framework laid down by Jewish law and tradition. The aim of Judaism in this respect is not to destroy or to uproot these urges, which is considered both impossible and undesirable, but to educate them so that man will become sanctified in the way he satisfies these needs. All wealth originates from the Deity who in His unlimited benevolence, grants it to His creatures in order to satisfy their legitimate needs. This promise of the Divine provider frees man from the unremitting pressure to provide through his own efforts, not just for himself but also for his children, grandchildren, and even for the unborn generations. This lesson was taught in its simplest form in the daily gift of manna to the children of Israel coming out of Egypt. It continues, however, to be part of the Jewish business fabric even though the miraculous manna was substituted in the Land of Israel and down to our own times, by the normal economic cycle of human endeavor in all its forms. The first fruits of the Jewish farmer were brought to the Temple in a confession which stressed that the source of that wealth was not man's luck, wisdom, or prowess but God; the blessings and grace over food, the institution of the sabbatical and jubilee years, and the prayers for prosperity on the Days of Awe, all contribute to the awareness of this source. The Divine origin of wealth, however, brings with it an obligation to a pattern of business conduct in accordance with the Divine will. Over and above the parameters for the conduct of business activity lies the injunction to study Torah. This is an injunction which is unlimited in time, being unrelated to one's intellectual ability, age, economic welfare, or political status. Since time is an economic good and severely limited, such learning reduces the amount of time available for the acquiring and spending of wealth and is an important limitation on the business activity of the Jew. Furthermore, the use of wealth for conspicuous consumption and as a means of power becomes limited since the time devoted to this form of economic endeavor is being taken away from Torah study. So a concept of modesty in lifestyle and the pursuit of wealth becomes a basic tenet of Jewish business education. Wealth therefore is legitimate provided it is earned and used within the parameters of Jewish religious teaching. These parameters insure the highest moral and ethical form of living since they owe their existence to a Divine code of absolute truth and morality. By and large, Jewish economic life, both that of individuals and that of society, has operated for thousands of years according to this framework within which the satisfaction of material wants is limited by the demands of morality, the rights of the individual are protected and provision is made for the needs of society, both at the individual and communal levels. Since Judaism is an action-oriented religion rather than one which emphasizes faith, these parameters are expressed in detailed and clearly defined legal constraints and obligations. Furthermore, the fact that it aims to create a holy national group as distinct from religious individuals gives communal welfare and needs a proprietary interest which has to be recognized within the parameters of economic activity of the individual. -Sources It may be argued that the moral and ethical framework for Jewish business behavior represents an idealistic society which never existed in reality. There is however sufficient empirical evidence to show that this argument is not valid. The three major codes of law – Maimonides' Mishneh Torah (12th century, North Africa), Jacob ben Asher's Arba Turim (14th century, Spain) and Joseph Karo's Shulḥan Arukh (16th century, Ereẓ Israel) – include sections related to business activity alongside sections regarding marital relations, religious ritual, and the dietary laws. It is illogical to admit that all the latter have always been an integral part of Jewish living and at the same time to argue that only the halakhic rulings regarding business are different. Furthermore, the extant enactments of the Jewish communities, which in effect represented mini-states rather than associations of co-religionists, included market regulations and punishment for economic misdeeds as well as curbs on patterns of consumption. The autonomous communities existed in all the countries of the Jewish Diaspora from the beginning of the exile after the destruction of the First Temple (586 B.C.E.) down to the Napoleonic period and even later in parts of Eastern Europe and North Africa. Alongside the codes and communal enactments there exists an extensive responsa literature (halakhic answers to problems covering all aspects of Jewish civil, commercial, and ritual law) which shows that Jews had recourse to the rabbinic courts on business practices and litigation both at the individual and communal levels. This literature serves not only as evidence of the practical implementation of the Jewish ethical parameters for business activity but also as a refutation of the common assumption that Jewish law applies to an archaic, primarily agrarian economy. Change in business techniques consistently requires reexamination of previous halakhic rulings to ascertain which of them are applicable and which are not. The responses to questions addressed to rabbinic authorities in all the centuries and countries of the Diaspora are a reflection of the applicability of the halakhah to changes in business techniques. In our day questions of advertising, full disclosure, insurance, labor unions, ecology, etc., form part of the ongoing responsa literature. At the same time, the basic human responses to having or not having wealth remain the same in all economic systems and therefore the moral guidelines of Judaism apply irrespective of the sophistication or lack of it in a particular stage of economic development. -Individual or Corporate Moral Responsibility It would seem that many of the problems in modern business ethics flow from the separation of identity which exists in almost all legal systems between the corporation and the individual share holders who make up that corporation. This creates moral problems since the same person who in his private life would not think of stealing or robbing or breaking the law sees nothing wrong with doing exactly those things in his role as a director or an official of a corporation. It is as though the individual is divorced from the machinery and mechanism which goes to create wealth in our modern society by viewing the corporation as a separate legal personality. Jewish law has a provision for such business forms as the corporation in which the liability to the creditor is limited to the share capital of that corporation with no recourse to the private assets of the individual shareholders. This is something which is public knowledge and therefore it can be assumed that all involved in the transaction are aware of it so that there is no moral problem involved. Judaism, however, cannot accept the separation between the corporation and the individual when it comes to abrogate the responsibilities of the latter as seen in Jewish business law. Two examples may suffice to demonstrate this (Minḥat Yizḥak, Part 3, section 1; Part 4, sections 16 and 18). Jews are not allowed to own leavened bread during Passover, so a corporation which has a majority of Jewish shareholders would likewise be forbidden from possessing such leavened bread. In the same way, the view that since the corporation is not a human being, the biblical injunction against interest does not apply to loans between two corporations or between an individual and a corporation has been rejected by most rabbinic authorities. So, a corporation whose shareholders are Jewish would suffer the same restriction on lending money at interest as do individual Jews. This means that the limitations on business activities imposed by Jewish moral teachings and rabbinic law, and the social obligations flowing from the possession of wealth, which apply to the individual, are binding on the corporation as well. Jewish executive officers cannot claim that their sole responsibility is to maximize the profits of their shareholders even in those cases where this can only be done contrary to Jewish ethical principles. In the same way, shareholders would be required to dismiss their corporate officers if these would perform actions on their behalf considered to be immoral or non-permissible in Judaism; otherwise, the responsibility, moral and legal, devolves on them. Furthermore, awards for damages granted by a bet din (rabbinic law court) against the corporation could be made against the private assets of the shareholders and not just against those of the corporation, since they are morally responsible for the actions of the corporation. -Truth in Trading The basis of any business ethic is the protection of the property rights of all those involved in the market; buyer and seller, employer and employee, developer and community. So it is easy to follow Maimonides in regarding the Mosaic laws against dishonest dealings which in effect deprive one of the parties of their property, simply as rational and logical sanctions, essential to the existence of the market place. Most biblical commentators, however, did not accept this attitude but saw the injunction against theft as revealed Divine wisdom and therefore extending beyond human wisdom (Malbim on Exodus 20). Furthermore, business dishonesty thus becomes a transgression against God's will, a religious crime, over and beyond the legal aspects of the crime involved. This aspect becomes clear when we read the comment of the Talmudical sages that the fate of the generation of the Flood was only sealed because of ḥamas, robbery or theft even of something of no intrinsic value. The ḥasidic rabbi of Sochaczew queried why this should have been the cause of the Flood, since we know that that generation actually committed all three of the gravest sins – idolatry, adultery and murder – for which the penalty is death. He explained that ḥamas is the beginning of the unraveling of the whole fabric which culminates in the three cardinal sins, so that it was the robbery which sealed their fate. This viewpoint is categorically at odds with the cost-benefit analysis common to much present-day teaching of business ethics which seeks to calculate the cost (imprisonment, shame, etc.) of committing a crime against the benefit (increased profits, status, etc.). Basically this argues that crime does not pay and therefore it should not be committed. However, when crime does not pay, no moral dilemma exists and therefore this type of analysis does not contribute much to an ethical framework. The Jewish value structure, in contrast, provides a framework of permissible and non-permissible actions irrespective of the gain or loss involved. Halakhically, dishonesty in business falls into two categories – theft and robbery – both extended far beyond the idea of the cat burglar and highwayman. Theft is understood as all those acts whereby one takes illegal possession of another's property without him being cognizant of it, while robbery refers to the forcible taking of that property, exploiting the other's inability to protect himself. An example of the former is the case of a hired buying agent who accepts bribes or payments under the table in order to prefer a certain supplier so that his employer receives either inferior goods or pays a higher price; in those cases, where the goods are identical in every way to that of the other suppliers the bribe has to be shared with the employer since one is not allowed to make a profit from the use of somebody else's property. Robbery includes all those cases where a person uses his legal or financial position in order to withhold from another property which rightly belongs to him. So a debtor who falsely takes an oath that he has repaid a debt, a squatter living in somebody else's property without paying rent, or one who finds an article which he is obligated to return to the owner by Jewish law but does not do so are all considered robbers. The personal use of trust money, one who receives an asset as security for a debt and then claims to have bought it, and the withholding of a worker's wages are all seen in rabbinic language as cases of robbery. Halakhically there are, however, other forms of business dishonesty, such as "geneivat da'at," literally "stealing another's knowledge," defective weights and measures, "li-fenei ivver" – a stumbling block in the path of the blind (Lev. 19:14), and ona'ah , the act of wronging another by selling him an article for more than its real worth. The mixing of good and inferior apples is classified by all the codes as geneivat da 'at but the ruling goes far beyond this simple example. Judaism in essence rejects the concept of "let the buyer beware" and places the full onus for disclosing defects and other shortcomings on the seller, even in the absence of a written guarantee. So geneivat da'at applies to the sale of a used car when the seller hides the fact that it has been involved in a serious accident, as it applies to the supply of goods or services which are not in accordance with the specifications regarding weight, size, color, etc. Advertising properties of goods which they do not really possess, false statements regarding the comparative efficiency of the articles sold, and even decorative packaging or wrapping so as to create a false impression are all examples of geneivat da'at. When a corporation does not make full disclosure of any items in its financial reporting which are relevant to its creditors or its shareholders or the governmental agencies, it could quite easily be guilty of geneivat da'at since the trading conditions under which it is operating are not what they are made out to be. This lack of full disclosure of the corporate financial reporting would also seem to be an infringement of the law of ona'ah, which provides for redress for overcharging. Maimonides rules that in all those cases where important information regarding price is withheld, the injured party could claim the protection of the rabbinic court against the infringement of his rights under the law of ona'ah (Yad. Hilkhot Mekhirah, chapter 13, halakhah 4). Since the financial reporting has an effect on the price of a corporate share, the withholding of such information could also constitute an infringement of ona'ah. The biblical injunction against putting a stumbling block in the path of the blind comes within the framework of truth in trading beyond its meaning of a physical obstacle in the path of a blind person (Rashi on Lev. 19:14). The rabbis considered as blind one who does not have access to unbiased information relevant to his business dealings, or one who is unaware of the physical and moral damage done to him by the consumption of certain goods. Halakhically, one may not give a person business advice in which the interest of the giver is not made clear, so any professional who advises his clients to purchase certain goods or certain stock in which he has an undisclosed interest or which he intends to sell, would be guilty in rabbinic terms of li-fenei ivver and could be forced to make redress in a rabbinic court. The same would apply to the giver of bribes to a purchasing officer in order to make a sale or to the use of insider information in trading on a stock exchange. This concept also poses a problem when we are selling goods which are harmful to somebody, such as cigarettes, liquor, drugs, pornography, and weapons which are used for aggression. In each case where a person is ignorant of the physical or moral damage done to him the seller would be guilty of li-fenei ivver. Naturally, the same would apply to the advertising of such goods. The injunction regarding just weights and measures is repeatedly ordered in the Bible and so forms another facet of Jewish business morality. The fact that in all Western countries there exist laws protecting the public against defective weights and short measures does not detract from the importance of this Jewish injunction. Halakhah places responsibility on the rabbinical courts for the supervision of scales, measures, etc., so that infringement of them becomes a religious transgression irrespective of whether pertinent legislation exists outside the Jewish framework or not. Some rabbinic insights into these laws have a special contribution to business ethics since they create an ideological framework for our actions in the market place. Most economic crimes are carried out in great secret, the fear of discovery often being a major constraint on business immorality. Tampering with weights and measures, "short changing" clients, and "cutting corners" are especially conducive to the secret defrauding of others and are often not considered to be serious crimes. The sages saw them in a different perspective. In the book of Deuteronomy, the verses regarding weights and measures precede the commandment to wipe out the memory of the arch enemy of God and Israel, Amalek. Rashi questions this linkage and answers that it was because the Jews were negligent of honesty in their weights and measures that God sent enemies upon them. Furthermore, infringements of these market rules were considered not only immoral but also illegal even if they were almost valueless, unlike other forms of theft which had to be of at least some value before they could be dealt with in a court of law. In Exodus the laws of weights and measures are linked to the deliverance of the Jews from Egypt. The Sifri explains the connection between the two seemingly unrelated matters by saying that "He who distinguished between the seed of the first born and that of the other sons will surely search out one who soaks his weights in salt (in secret and to distort them)." Once, Israel Ba'al Shem Tov, the founder of Ḥasidism, was traveling by coach. The coachman halted the horses in order to reap some barley from one of the fields adjacent to the road. He asked the Ba'al Shem Tov to keep guard and to call him when he saw anyone watching him. As soon as the coachman put the sickle to the barley, the rabbi called out, "They see, they see." Quickly the coachman dashed to the coach, got up on his seat, looked around and saw nobody. He turned angrily to the Ba'al Shem Tov to complain about his needless intervention since nobody was there to witness the theft. "But there really is," answered the Ba'al Shem Tov, pointing heavenward, "there really is." -Social Responsibility The purpose of all business is to earn profits for the entrepreneur, and the sages of the Talmud, recognizing this, held that a trader who bought and sold without profit was not a trader. The question, however, is whether the managing directors of a corporation have only an obligation to earn maximum profits for their shareholders or do they also have social obligations and objectives. This question goes beyond the requirement of truth in trading and also beyond the demands of legality. After all, laws of human society are the result of the consensus of the members of that society so that it is quite easy to imagine one which negates the social responsibilities of the individual and refuses to pass legislation providing for the communal needs. From what has been said above, it should be obvious that the corporation has the same social obligations as individual shareholders and therefore, just as they may not conduct their business without respect to these obligations, so too their representatives, the directors of the corporation, may not shirk them. The full discussion of these obligations is an extensive topic and here we will look at only two aspects of the social responsibility of business; the issue of ecological damage and the field of communal costs. ECOLOGICAL DAMAGE In Jewish law a man may not cause damage either with his body or property to another man's body or property, and, whenever such damage is done, monetary compensation has to be paid (Yad, Hilkhot Nizkei Mamon, ch. 5; Sh. Ar., ḤM, sections 153–156). It is immoral, however, to plan or conduct one's economic activity which will cause damage on the assumption that it is cheaper to pay for the damage concerned than to introduce technological devices to prevent that damage. Businesses, therefore, which pollute the environment or which destroy the quality of living, either physical or aesthetic, have to be placed in such areas as to prevent any damage from occurring to others; alternatively, where the siting of the firm or plant of itself does not cause ecological damage then safeguards must be introduced to prevent any damage. Jewish teaching, in this respect, does not differentiate between ecological problems relating to individual neighbors and those problems which arise from the clash of interests between individuals and the community. Halakhically, the community has economic needs which have to be met and this often means acquiring rights in the private property of the individual through taxation not only of money, but also of assets. So, a Jewish community can force corporations or individuals to pay taxes in order to provide for the costs of communal living and to appropriate land for roads and other facilities. In the same way, Jewish law requires zoning of industrial and commercial premises in a way which prevents damage or enhances the aesthetic pleasure of the community. There may, however, be cases where the economic advantage to the community far outweighs the damage caused by the industry, as for instance where ecological restraints on development mean unemployment and poverty. There are rabbinic responsa which ruled in favor of an industry as against the ecological damage where the livelihood of the entire community depended on that industry (Teshuvot Maharashakh, part 2, subsection 98, and Shemesh Ẓedakah, ḤM, section 34, subsection 11). However, the same sources held that this was only a result of Jews living in exile where they did not have authority to introduce zoning rules, but in their own country they would be able to plan so as to ensure economic development without suffering ecological damage. Where the damage caused is one to life or to the human body, there can be no compromise and no monetary compensation is sufficient. If an industry is shown to be detrimental to the health of its workers, then the owners would have to introduce safeguards to protect them. If there are no technological possibilities for removing the danger to health then it might well be that in Jewish law such industries would not be possible at all. Furthermore, since Judaism does not see a man as being the master of his own body, one is not allowed to place oneself in danger. Workers therefore cannot agree to accept employment which is hazardous to their health, even if the employer is willing to increase their wages. The conflict between individuals or between individuals and the community regarding scarce resources may take the form of nuisance issues or minor discomfort rather than actual damages. In these cases, Judaism argues that one should do another person a favor and forego one's rights. In a 14th-century responsa, for example, the case was ruled against a plaintiff who argued that the smoke from his neighbor's kitchen bothered him. Even though smoke constitutes a major ecological damage, nevertheless the rabbi held that people could not cook without using their stoves and this outweighed the irritation caused (Teshuvot ha-Rashba, part 2, section 65). Judaism teaches that man has the right to use the wealth of the world since that is the purpose for which God created that wealth. At the same time, he does not have the right to willfully mismanage it or waste it, even if it is legally his property. This means that the wasteful use of natural resources by the corporation or by society in general would be frowned upon. Steps have to be taken to insure that future generations have the ability to enjoy these resources just as the present one does. At the same time, however, if there is a conflict between destroying a certain species in order to provide a livelihood for human beings, the needs of man take precedence since the whole creation was meant for the enjoyment and profit of mankind. COMMUNAL COSTS Man's wealth is given to him by God in trust to be used inter alia to assist the weaker and inefficient members of society and to fulfill his communal responsibilities. This applies also to the wealth of the corporation. This wealth sharing is not left up to the conscience or generosity of the individual, but is a religious obligation, enforceable by a rabbinic court. So the community has the right to tax its members, corporate or otherwise, in order to provide for these costs. The evasion of such taxes is considered tantamount to theft, either from the recipients of the communal services or from other taxpayers who are required to pay more. This applies not only to the taxes levied by the Jewish community but also to those of the general society in which Jews live (Yad, Hilkhot Gezeilah ve-Aveidah, ch. 5, halakhot 11–12; Tur, Sh. Ar., ḤM, section 369. A.I. Ha-Kohen Kook. Mishpat Kohen, section 148, who extended this to include Jewish state authority even where there is no longer a king). This is in keeping with the principle that in money matters "dina de-malkhuta dina" – "the law of the land applies" except where it contradicts Torah law. It is only where the government is illegal, having usurped its powers, or where the laws are discriminatory, immoral, or erratic, that some authorities have ruled that it is permissible to disobey the law and this too only on condition that others are not harmed thereby. Today, many corporations have their headquarters in a country or area which has a lower tax rate rather than the area in which they conduct their business, thus escaping their obligation to share in the latter's social costs. Jewish law would require taxes to be paid where the money is earned thus insuring the social and physical infrastructure (Teshuvot ha-Rashba, part 1, nos. 664, 788). There are even precedents in Jewish law where the community has prevented wealthy citizens from leaving, on the grounds that this would damage or destroy their tax base (Takkanot Va'ad Arba Araẓot – enactments of 1661). There is a halakhic consensus that competition between entrepreneurs is permissible where the community benefits from it or where the competition in no way involves any aspect of theft or coercion. As often as not, however, competition brings with it not only communal economic benefits but also social dislocation. This occurs when it results in the dismissal of workers or in the destruction of the inefficient competitor. In these cases, society has to decide whether or not there is any moral responsibility for the unemployed or for the displaced entrepreneur. If so, the question remains as to who is obligated to bear that responsibility, the corporation or society itself. In Judaism there is undoubtedly a clear-cut moral problem created by the unemployed worker and by the displaced entrepreneur since obligations are owed both to the people who are poor as well as to those who become so. The question as to whether it is their fault or not is irrelevant. Nor is there a concept of "the deserving poor." Nevertheless, the issue of placing the responsibility for solving the moral problem is less clear. It would seem that, in order to provide a Jewish answer to this question, a distinction has to be made between legal rights which can be enforced by a rabbinic court and what is required by Jewish concepts of charity. Employer-employee relationships are in Jewish law primarily part of the general laws of hiring and these make the fulfillment of contracts binding. The corporation therefore has a responsibility for any compensation provided for in the employees' contracts as well as those provided for by local custom such as severance pay, even where these are not expressly mentioned in the contract. In parenthesis it should be noted that workers who, owing to old age or illness, become unable to work at their usual productivity cannot be fired without compensation, either monetary or through shortened work hours or physically less demanding jobs. Those unable to work at all have to be compensated. Some authorities would link this to the grant given in the Torah to the Hebrew bondsman while others argue that long-term employment assumes that people age or get ill so that, even in the absence of a contractual agreement, the employers express their assumption of this obligation (Ziknei ha-Dayyanim, Torah ve-ha-Medinah, vols. 9–10; see also mordechai , Bava Meẓia 246, who holds that courts can enforce charitable acts on Jews. See also Teshuvot ha-Rosheh, part 1, section 300). It seems, however, that, where the firing is the result of economic factors such as unprofitability or competition, the employer does not have any obligation to provide compensation other than that granted by custom or specified in the labor contract. Similarly, it would seem that the corporation has no legal obligations to the competitor who has been displaced as a result of halakhically permitted competition. There is no doubt however about the halakhic obligation of the community to provide either the financial or spiritual assistance needed or of the corporation (or its shareholders) to participate in funding this assistance through their tax payments. Assistance to the poor and needy is one of the obligations of the communal purse and cannot, for example, be negated by majority vote, in order to lower the communal tax burden as can other communal services. This assistance, nevertheless, is charity, not a redistribution of income or transfer payment. Charity, even though a hallmark of Jewish life throughout the Diaspora and over the centuries, and despite the fact that it shares in Hebrew a common root with justice, is nevertheless charity with all its negative overtones for the recipient. So the rabbis frowned on making a living off charity a profession, insisting that a man should flog a carcass in public (considered one of the lowest menial tasks) rather than be dependent on the community. This is no way lessens the obligations of the giver, community, individual, or corporation but militates against the creation of a welfare mentality. Although the communal obligation is clear, nevertheless, the possessor of wealth also has charitable responsibilities, even if these cannot be enforced in a court, over and above his communal taxation. Maimonides classifies giving a person a job, a loan, or suitable business advice which will prevent him from becoming dependent on the communal purse as the highest form of charity (Yad, Hilkhot Mattanot Aniyyim, ch. 10, halakhot 7, 18, 19). It would seem that in this respect the corporation can be far more effective and varied than the individual. Employees who are laid off, or for that matter displaced competitors, can be retrained, using the corporation's equipment and technology so as to qualify for alternative employment. The corporation can make information regarding job opportunities and economic prospects, either locally or nationally, available, thus overcoming a serious obstacle to re-employment, or to establishing new small enterprises. Part of the corporate profits can be set aside to form a fund for granting interest-free loans to its unemployed workers or those whose firms have ceased to operate as a result of its competitive success. Such interest-free loans, the corollary to the biblical and rabbinical injunctions against taking interest, have been a feature of Jewish communal living since biblical days. These loans are not meant solely for temporary assistance to hard-pressed farmers. Their use for enabling people to start their own business is legitimate and could constitute a major corporate contribution not only to the discharged workers but also to the unemployed, underprivileged, and temporarily financially strapped entrepreneur in general. -Summary There exists a distinctive Jewish ethical framework for the conduct of business within which Jews have always operated. This framework regards wealth as a gift of God, legitimate and useful but operative within the parameters laid down by Jewish law, morality, and custom. These parameters forbid the earning of wealth through dishonest means which include theft but also coercion, misrepresentation, unrevealed conflict of interest and defects, rejecting the concept of "let the buyer beware" but placing the onus for full disclosure on the seller. Corporations share the moral obligations of the shareholders and therefore what is not permissible for the individual is also forbidden to the corporation. As a result of the national orientation of Judaism, the group and society have, as it were, a share in the wealth of the individual. Private property rights are recognized and protected but are never absolute. This means that possessors of wealth, corporate or otherwise, can be taxed to meet the social needs of the community, whether these include charity for the poor and inefficient citizens or the unemployed, or the provision of public services. Furthermore, business may not be conducted in such a way as will damage another's property or health, or for that matter the ecological quality of life of other individuals or of society. The legal nature of Judaism means that its ethical framework is transferred into obligations, permissible or otherwise, and the rabbinical courts are obligated to enforce them. At the same time operating beyond the limits of the law, doing one's fellow man an economic favor and voluntarily relinquishing one's property rights are part of the religious education of the Jew. (Meir Tamari) -Additional Aspects In general, the realm of ethics in trade and business is divisible into three categories: (a) tradesman-customer relations; competition and relations among and between tradesman and craftsmen; and (c) competition among customers. Regarding the first category, see consumer protection ; Deceit; Hafka'at She'arim (Profiteering) ; sale ; and mistake . Concerning the subjects included in the second category, the monopoly rights of professionals and holders of licenses in specific occupations, and intellectual property rights, see Trespass. In the present entry we shall focus on further issues in the second and third categories: the frustration of an emerging transaction between the parties; protection from competing business; price cutting; and advertising. Some of the discussions may be relevant to more than one of the aforementioned subjects. The basic doctrine governing commercial law is the legal principle of trespass. The term and doctrine of "trespass" (hassagat gevul; lit. "moving a landmark") underwent many stages of expansion and development. The Torah, from which the phrase originates, uses it to refer to the unlawful taking of a neighbor's land by physically moving the boundary markers into the neighbor's property so as to annex part of that property to the trespasser's own adjacent land. The Torah deals with this situation in two verses: (a) "You shall not move your neighbor's landmarks, set up by previous generations, in the property that will be allotted to you in the land that the Lord your God is giving you to possess" (Deut. 19:14) and "Cursed be he who moves his neighbor's landmark" (Deut 27:17). Even in the patriarchal period, it was customary to insist on precise landmarks, as evidenced from the description of the field in "Machpelah" (lit., the "double cave") that Abraham bought from Ephron the Hittite (Gen 23:17). The Hebrew prophets and wisdom literature protested against the movers of landmarks (Hos. 5:10; Prov. 22:28; Job: 24:2), and the prohibition of trespassing into another person's land was also discussed in talmudic literature and in the Codes (Maimonides, Yad, Hil. Genevah 7:11; Sh. Ar., ḤM 370.1; cf. at length in Hassagat Gevul (Encroachment) . Already in talmudic times, and particularly in the post-talmudic era, it was necessary to confer legal recognition and protection to rights which had not yet been crystallized in legal formulae. Legal expression and protection was given to such rights by extending the doctrine of "moving a landmark" to include the prohibition against "moving" or "trespassing" upon various economic, commercial, and intellectual boundaries. The meaning of the term "boundary" was likewise extended beyond the physical to include additional areas, so that even those relating to the occupation and livelihood of a competing business owner came to be referred to as a "boundary." Initially this prohibition was of moral standing only, without any legal sanction. However, the steadily increasing development of businesses and commercial life from the talmudic period to modern times was accompanied by an increased development and sophistication of categories and parameters enabling the qualified exercise of judicial coercive power in preventing the violation of the business owner's rights by unfair competition, without unduly restricting free market trade. TRESPASS BY FRUSTRATING THE CRYSTALLIZATION OF A TRANSACTION BETWEEN PARTIES – "THE POOR MAN SIFTING THROUGH LEFTOVER BREAD" According to the talmudic rule, when a poor man is sifting through leftover bread and another one comes and takes it for himself, the latter is called "an evildoer" (Kid. 59a). The Talmud cites this rule in the commercial context of "competition" between two potential purchasers vying for the same item. When a person is about to purchase an item from a seller, and another person precedes him and buys the same item (hereinafter, "an interloper"), the latter is also called "an evildoer." The talmudic commentators and medieval codifiers established the rules governing the application of this principle. The determining stage of the transaction for the application of the rule is the stage at which the two parties – the seller and the would-be purchaser – agreed upon the sale of the item and set its price. From that stage onwards, any third party who attempts to replace the party interested in purchasing is called an "evildoer" (Maharam of Ruttenburg, cited in Mordechai, Bava Batra §651; Rema, on ḤM 237:1). According to the Perisha, even prior to the determination of the price – i.e., during the negotiating stage – an acquisition by the interloper will be regarded as an act of trespass (Tur, ibid.). Where the interloper's potential loss exceeds that of the would-be purchaser, the prevailing opinion among the authorities is that the interloper will not be called an evildoer. The reason is that it resembles the case in which the potential purchaser and the interloper are competing over an abandoned article, in which case it cannot be claimed against the interloper that he could have found an item similar to the one being sold in another place. This view endorsed the opinion of Rabbenu Tam (Tos., Kid. 59a; see also in Asheri, Kid. 3b). According to the authorities, the legal import of the determination that the interloper is called "evildoer" is that, for as long as he has not completed the transaction, he should be prevented from doing so (Resp. Maharshadam, on ḤM 259). On the other hand, if the transaction between the seller and the interloper has already been completed, the would-be purchaser cannot take the item away from the interloper (Ritba, Kid. 59a; Responsa Maharik, 132; Rabbenu Tam's view, cited in Ritba, ibid., is that the item can be taken from the interloper). The only sanction is therefore a public declaration in the synagogue that the interloper is an "evildoer" (Hagahot Maimoniot, Hil. Hovel, 5:1; Perisha, ḤM 237). The Severity of Damage and the Scope of the Right Where the effort invested by the potential purchaser exceeds that of the interloper, or if he stands to incur a pecuniary loss if the transaction is not completed, the sages ruled that the interloper was to be regarded as a robber. The Mishnah provides that: "If a poor man gleans on the top of an olive tree (i.e., beats the tree so that its fruit will fall) that which is beneath him is regarded as having been robbed, in the interests of peace" (Mish. Git. 5:8). In this case, even though the fruit is regarded as having been abandoned (shikheḥah; forgotten fruit), the sages made an enactment that, insofar as the poor man had already invested effort and work to acquire them, their appropriation by an interloper would be regarded as robbery (Maharik §132). Admittedly, an object considered as "robbed" by virtue of rabbinic edict cannot be judicially expropriated; nevertheless, during the medieval period this Mishnah served as the basis for the ruling that where a person sought to rent an apartment in the city for purposes of setting up a shop, and during the course of his negotiations for the shop's rental another person came and preceded him in renting it, then the rights of the former prevail, and the latter is enjoined from entering the shop without the former's consent. (Maharik, ibid.). Consent to Waive an Act of Trespass The nature of the prohibition against trespass precluded a determination of its precise parameters. Any attempt to fix a determining stage for purposes of this prohibition could be circumvented by a merchant encroaching upon his neighbor's borders and interfering with a transaction about to be completed, at a stage not covered by the prohibition. This possibility induced Rabbi Jair Ḥayyim Bacharach (Germany, 17th century) to rule that it was forbidden to make conditions for reciprocal waiver of the prohibition, even within a defined group of merchants (Resp. Ḥavot Yair, 163). PROTECTION FROM A COMPETING BUSINESS – ENCROACHING UPON A NEIGHBOR'S CRAFT In a Midrash cited in the Babylonian Talmud (Mak. 24a) the amoraim construe the verse "nor taketh up a reproach against his neighbor" (Ps. 15:3) as implying a prohibition against "entering the profession of his neighbor." Ezekiel 18:6, "neither has he defiled his neighbor's wife," is interpreted similarly (Sanh. 81a). This midrashic exegesis does not lay down binding law, but rather establishes a moral threshold; the authorities therefore ruled that it was "a degree of piety" not to do so, even though legally it was permitted (Resp. Maharam of Ruttenburg, 4:67; Resp. Ḥavot Yair §42). The beraita (BB 21b) refers to a case in which an artisan prevents his fellow from receiving anticipated profit that he would definitely have received: "Fishing nets must be kept away from (the hiding-place of) a fish (which has been spotted by another fisherman) the full length of the fish's swim" (i.e., where a fisherman discovers a place where fish live and leaves a bait there to capture them, it is forbidden for another fisherman to lay down his own traps). According to Tosafot, this case is restricted to a professional fisherman; hence, the other fisherman may apply for and receive a remedy from the court. This contrasts with our earlier comments regarding the poor man beating an olive tree, which did not concern the protection of a person engaged in his craft, thus precluding the possibility of receiving a judicial remedy. When dealing with craftsmen competing over a group of customers, the issue is not one of absolute denial of profit, but rather of its reduction. Moreover, the profit itself is not certain, being dependent on customers who have complete discretion to decide which craftsman to approach. Consequently, the sages' enactment in this case differed from their enactment in the aforementioned beraita, and considerably less protection is afforded to the owner of an existing business. The Tosefta deals with cases in which the sages made enactments to prevent a craftsman from opening a business in a particular place: "The residents of a passageway can prevent one another from bringing in a tailor or a tanner or any other kind of craftsman, but one resident cannot prevent another resident. R. Simeon b. Gamaliel, however, says that they may prevent one another" (Tosef., ed. Zuckermandel), BM 11:16; a similar formulation is also cited in Bava Batra 21a; cf. Tosef. ki-Feshuta, Lieberman, ad loc.). The aforementioned tannaitic dispute on the question of whether one resident can prevent another one from engaging in a particular occupation is also found among the amoraim – i.e., R. Huna and R. Huna b. Rav Yeshoshua (ibid.) The codifiers and the talmudic commentators disputed the interpretation of this ruling. Who exactly was permitted to prevent another person from engaging in his craft? Who has the authority to prevent him: the craftsman himself or the local residents? And is such prevention justified by the need to protect a person already engaged in that craft in that particular place, or by the need to prevent the environmental disturbance caused by his work? The halakhah is that the damage to his business ("denial of livelihood; posek le-ḥayuto) does not constitute grounds for preventing one craftsman from opening a business in competition with another craftsman in the same town (Maim., Yad, Hil. Shekhenim, 68; Maharam of Ruttenburg §677; Tur, ḤM 156:10; Sh. Ar., ḤM 156:5). Even so, where the opening of a new business is not merely competition, but will actually eliminate the livelihood of the original craftsman (bari hezekah – lit. definite damage), the Rema ruled, following the view of Aviasaf (cited in the Mordechai, BB 21b, 616) that the businessman can prevent the opening of a competing business by the competitor, even if the person wishing to open it comes from the same town (Darkhei Moshe, ḤM 156:4; Resp. Rema 10, The First Principle). When a person comes from another town, the amoraim agreed that the townspeople can prevent him from opening a business in competition with the residents of that town, so as not to harm their businesses, unless he shares in the tax burden of that town (BB 21b; Maim.; Sh. Ar., ibid.). However, according to some authorities, permission to open a competing business on the same street as that of an existing business of one of the town's residents will only be granted if the competitor establishes his residence in the same town (Tos. BB, ibid.; Tur. ibid.; Rema on ḤM 156:6–7). In trade, on the other hand, a distinction is drawn between peddlers who regularly go from town to town – not being restricted in any form – and merchants who regularly bring their specific merchandise to the market day and who are only permitted to come on the market day (BB 22a; Maim., Yad, Hil. Shekhenim 6:9–10; Tur, ḤM 156:9; Sh. Ar. 156:6–7). The Israeli Rabbinical Court of Appeals adjudicated a dispute between a group of ritual circumcisers (mohalim) who had received permission from a particular hospital to offer their services to women who gave birth, and a mohel who had recently joined their number. The group claimed that by joining the group he was encroaching upon their professional domain and damaging their livelihood (File 5730/89, 8 PDR 227). Citing Rema's aforementioned distinction between definite damage caused by the elimination of livelihood and a situation which only leads to increased competition, R. Eliashiv ruled that such a distinction had not been accepted, and that the leading authorities – Alfasi, Maimonides, Semag, Tur, and Shulḥan Arukh – made no mention of the law that "fishing nets must be kept away." Consequently, the Rabbinical Court was unable to prevent the mohel from competing with his colleagues in offering services in the hospital. R. Yisraeli, on the other hand, felt that the Rema's distinction should be adopted and that as a matter of halakhah one must draw a distinction between a competitor who merely reduced the income of the craftsman, regarding whom "it cannot be said that he damages him at all, because the purchasers still have a choice, and it is in the hands of Heaven," and a case in which the competitor "actively attracts customers to him." In the latter case, "even if he only reduces the income of the original party, he is regarded as if he altogether negated income, because he (the original mohel) cannot say, 'Whoever comes to me will come, and whoever goes to you will go to you.' The reason is that the latter invests efforts and stratagems in attracting people to him" (p. 237 of judgment). According to R. Yisraeli, in this particular case, the new mohel was clearly trespassing upon the domain of the other mohalim and would definitely reduce their income. Hence, it should be regarded as if he was altogether negating their livelihood and therefore engaged in outright robbery, the fruits of which may be expropriated by the bet din. Nevertheless, R. Yisraeli agreed to dismiss the appeal and allow the new mohel to be accepted for work. The reason was that the new mohel had originally applied for permission to work in the hospital alongside the other mohalim, and the hospital had denied his request for no justified reason. PRICE CUTTING Price Cutting in Relation to the Market Price. The Mishnah (BM 4:11) cites a dispute as to whether one of the merchants in a city is allowed to reduce the prices of his merchandise below the market price in order to attract customers: "R. Judah said: … Nor may he reduce the price; but the sages say, he is to be remembered for good." The reason cited in the gemara is "because he eases the market" (i.e., reduces the overall market price). In other words, not only will the residents of the town benefit from the price cut, but the suppliers will also reduce their prices accordingly, so that the merchants will not suffer as a result. The halakhah was fixed in accordance with the sages' view; namely, that it is permitted (Maim, Yad, Hil. Mekhirah 18:4; Tur, ḤM 228:17; Sh. Ar., ḤM 228:18). However, beyond this the Rema rules that a substantial price reduction is not permitted, because in such a case one can say that the damage is certain "bari hezeka," similar to the rule concerning the opening of a business in competition with an existing business. (Resp. Rema 10, §1). Some of the authorities restricted the permission given for price reduction, limiting it to the cheapening of basic consumer items only, such as dairy products and fruit, because the consideration of the customers' benefit is only relevant with respect to this kind of item. It is forbidden to reduce the prices of other kinds of produce, such as liquor, because such a reduction would cause a "market failure" and damage the other merchants.(Resp. Mahariaz Amil, §69; Arukh ha-Shulḥan, 228:14). Price Cutting in Relation to the Agreed Price The Tosefta states that the residents of the town are permitted to determine prices and rates that will be binding upon all the residents: "The townspeople are at liberty to fix weights and measures, prices, and wages, and to inflict penalties for the infringement of their rules." (Tosef., ed. Zuckermandel, TB, BM 11:23; a similar formulation also appears in Bava Batra 8a; c.f. Lieberman, Tosef. ki-Feshuta, ibid.). This authority also includes the power to adopt decisions that may cause profits to some and losses to others, such as the fixing of low prices that will harm the sellers and profit the buyers. These decisions need not be supported by all of the townspeople, and the communal leaders can adopt the decisions in a manner that binds the entire community (Resp. Rashba 5:125). Similarly, a particular sector of craftsmen are permitted to enact regulations that bind all members of the same craft (Tos., ed. Zuckermandel, BM 11:24–25; cf. Lieberman ad loc; BB 9a). However, according to talmudic commentaries and authorities, the majority has no power to force its position on the minority, and the regulations only bind those who agreed to their enactment. Consequently, a new member of the same craft who came to the town, and did not agree to the regulation regarding the fixing of prices is not bound thereby and can sell his merchandise at a price lower than that prescribed (Resp. Maharshadam 1:117; Leḥem Rav §216.) MARKETING AND ADVERTISING Both the Mishnah and the Talmud abound with examples of techniques adopted by shopkeepers and craftsmen to advertise their wares in order to attract customers – by presenting their merchandise in an attractive manner (BM 60b; Pes. 37a), and by public proclamation (ibid., Pes. 116a). The Mishnah (BM 4:11) records a dispute between the tannaim as to whether the shopkeeper is permitted to hand out sweets to children in order to accustom them to come to him. R. Judah prohibits it and the sages permit it. The law was fixed according to the view of the sages (Maim., Yad, Hil. Mekhirah 18:4; Sh. Ar., ḤM 228:18) – in other words, the other merchants cannot prevent him from doing so. Regarding the improvement of the merchandise's external appearance in order to promote sales, the rule in the Mishnah is that "men, cattle, and utensils may not be painted (enhancing)" (ibid.). The Talmud explains that the prohibition lies in altering the external appearance of the merchandise in a manner that may mislead the customers as to their real nature (ibid., 60b) The amoraim distinguish between the adornment of old utensils to make them appear new, which is prohibited because of the laws of deception, and the adornment of new utensils, where the merchant's intention is to induce the customers to purchase from him and not from other merchants, which is permitted. Here too the authorities fixed the halakhah in accordance with the position of the sages (Maim., Yad, Hil. Mekhirah, 18:2–4; Sh. Ar., ḤM 228:9, 17). THE LAW IN THE STATE OF ISRAEL The Commercial Wrongs Law, 5759 – 1999, addresses some of the issues dealt with in Jewish Law. Section 3 of the law provides that: "No person who carries on business shall unfairly prevent or impede access by customers, employees, or agents to the business, property or service of another person who carries on business." The law does not specify what kind of action will constitute "prevention" or "impeding" and what manner thereof would be "unfair." In addition, the law prohibits "misleading use" – in other words using the trade name of another so that an asset or service provided by one person will be mistakenly regarded as being the asset or service of another person (§1); false description regarding the occupation or the service of the advertiser or of another person (§2); and theft of trade secrets, defined as the unauthorized receipt, appropriation, or use of commercial information which is not public knowledge, whose secrecy grants its owner an advantage over his competitors (§§5–10). The law permits the court to award damages without proof of actual damage. (Ariel Ehrlich (2nd ed.) -BIBLIOGRAPHY: ADDITIONAL ASPECTS: M. Elon, Ha-Mishpat ha-Ivri, 1 (1988), 27f., 106 n.118, 136f., 329f., 490, 536, 559, 623, 653, 656, 739, 741f.; 766; idem, Jewish Law, 1 (1994), 291; 106 n.120, 153f., 394f; II, 596f., 652, 680, 770, 808, 811, 911, 913f., 943; idem, "Hafka'at She'arim ve-Hassagat Gevul Misḥarit ba-Mishpat ha-Ivri," in: Maḥanaim, 2 (1992), 8–19; A. Hakham, "Misḥar ve-Khalkalah ba-Mikra," in: Maḥanaim, 2 (1992), 20–39; A. Hacohen, "Mishpat ve-Khalkalah be-Sifrut ha-She'elot u-Teshuvot," in: Maḥanaim, 2 (1992), 62–77; S. Warhaftig, Dinei Misḥar ba-Mishpat ha-Ivri (1990); N. Rakover, Ha-Misḥar ba-Mishpat ha-Ivri (1987). ADD. BIBLIOGRAPHY: S. Deutch, "Business Competition and Ethics; Predatory Pricing in Jewish Law," in: Dinei Yisrael (17) (1994), 7–33; Y. Liberman, Taḥarut Iskit be-Halakha (1989); M. Tamari, "Jewish Law and Economic Laws," in: Niv Midrashah (1969), 127–132; A. Levin, Free Enterprise and Jewish Law (1980); E. Zippersten, Business Ethics in Jewish Law (1983).
Encyclopedia Judaica. 1971.
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