PAUL: Actually, yes, there is a progression of contracts.

Here is a simple outline: At ground level it is simply two people making eye contact and saying and meaning “I agree.” Sort of like a covenant — “I don’t know for sure what lies ahead, but whatever it is we are in this together.” Emphasis is perhaps given by an emphatic nod of the head. A firm handshake follows and acts as a confirmation of their intent, desires, and expectations. Then a piece of paper with a few simple facts such as cost and time are exchanged.

As distance between the parties becomes greater and they begin to represent companies, it becomes necessary for mutual protection to spell out in ever-greater detail the terms of the agreement. Then we can reach the stage where government contracts, for instance, fill multiple volumes and require experts to write and interpret. It all becomes pretty complicated. It’s time to wrap this up with a few points to consider:

First, contracts are basically morally neutral, though they can be written with unethical elements in them. Notice, I said unethical rather than illegal. Morality and legality are not always the same. Legality is the floor beneath which you cannot go; morality is the way you operate or move things around on that floor or above it.

Second, contracts are essential from a strategic business perspective to anticipate revenue, project products and services, and assure a minimum level of acceptable relationships. Keeping them, by both parties, is a moral obligation.

JIM: Paul, I would contend that keeping or meeting contractual obligations is not only a moral (and legal!) obligation, but, a very real tool for long-term success. I agree that there is a real moral obligation to meet the letter of the contract (unless circumstances arise making it impossible to do so, but more on that later), but I contend that failure to do your absolute best to live up to your obligations to vendor as well as customer, in spirit as well as by specific “letter of the law” detail, harms your company every bit as much as it harms your customers and vendors.

PAUL: Indeed. My third point would be that contracts are indispensable in the highly mobile (or transient), often impersonal, litigious, and automated context of contemporary business. A single business matter may take us several phone conversations to locales around the country or abroad where we rarely speak with the same person a second time. Add to this the frequently ineffective influence of a community including its basic institutions such as family, schools, and religious bodies, in establishing or concurring on, much less forming and maintaining high personal and social moral values.

Fourth, contracts allow us to “get what we pay for” and “deliver what we promise” to the benefit of both consumers and companies and that is a moral matter of justice and fairness.

Finally, contracts encourage a high level of moral responsibility such as keeping one’s promises and accepting responsibility for one’s actions so that when these moral elements break down there is recourse for either party to take legitimate steps to rectify the situation. There is so much more to be said on the moral elements of contracts, but at least this provides something to consider when it comes to morality and contracts.

JIM: I would say that what it all seems to boil down to is that “it is a jungle out there” and personal integrity still has a role to play in day to day business. Everything from software licensing to observing a copyright (a form of contract), to mandatory labeling on a variety of products to simple handshake agreements; we deal with contracts every day of our lives. How well we do that has a very real impact on health and happiness. Which brings us to our next part of this discussion: some examples of the type of “contractual disconnects” that happen, and a discussion of how to deal with them. Call it “defining the business ethics toolbox”.