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Objectives
LECTURE 3 • To define ethical issues in the context of organizational ethics
• To examine ethical issues as they relate to the basic values of honesty,
fairness, and integrity
Emerging Business Ethics • To delineate abusive and intimidating behavior, lying, conflicts of interest,
Issues bribery, corporate intelligence, discrimination, sexual harassment,
environmental issues, fraud, insider trading, intellectual property rights, and
privacy as business ethics issues
• To examine the challenge of determining an ethical issue in business

OVERVIEW • The business environment presents many potential ethical conflicts.

• People make ethical decisions only after they recognize that a particular issue or
situation has an ethical component; thus, a first step toward understanding business  For example, a company’s efforts to achieve its organizational objectives may
ethics is to develop ethical issue awareness. collide with its employees’ endeavors to fulfill their own personal goals.

• Ethical issues typically arise because of conflicts among individuals’ personal  Similarly, consumers’ desires for safe and quality products may conflict with a
moral philosophies and values, the values and culture of the organizations in which manufacturer’s need to earn adequate profits.
they work, and those of the society in which they live.

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Recognizing an Ethical Issue

• Gaining familiarity with the ethical issues that frequently arise in the business world will • In practice it is difficult to recognize specific ethical issues.
help us identify and resolve them when they occur.

• Failure to acknowledge such ethical issues is a great danger in any organization,

• We will consider some of the ethical issues that are emerging in business today, particularly if business is treated as a “game” in which ordinary rules of fairness
do not apply
including how these issues arise

• An ethical issue is a situation or a problem that requires thought, discussion, or

investigation to make a decision

• And because the business world is dynamic, new ethical issues are emerging all
the time.

• There are many types of ethical issues that exist in organizations and it is Ethical issues (we now look at some universal ethical values )
impossible to list every conceivable ethical issue.
Honesty
• Any type of manipulation, deceit, or even just the absence of transparency in • Honesty refers to: Truthfulness or trustworthiness
decision making can create harm to others.

• For example, collusion is a secret agreement between two or more parties for • To be honest is to tell the truth to the best of your knowledge without hiding anything
a fraudulent, illegal, or deceitful purpose
• Dishonesty: A lack of integrity, incomplete disclosure, or an unwillingness to tell the
• “Deceitful purpose” suggests trickery, misrepresentation, or a strategy designed truth
to lead others to believe one truth but not the entire truth.

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• Confucius defined several levels of honesty. • Issues related to honesty also arise because business is sometimes regarded as a
“game” governed by its own rules rather than by those of society.
• The shallowest is called Li, and relates to all actions performed by a person in
• ( Author Eric Beversluis suggests that honesty is a problem because people often reason along
order to build the ideal society. A key principle to Li is that an honest person
should show their feelings honestly on his face so as to facilitate the coordination these lines:)
of all at achieving long term improvement. 1. Business relationships are a subset of human relationships that are

• The second level is Yi, or righteousness, where a person does what is right based governed by their own rules, which, in a market society, involve
on reciprocity. competition, profit maximization, and personal advancement within the

• The deepest level of honesty is called Ren, and it is based on an understanding of organization.
and empathy toward others.

• The Confucian version of Kant’s Golden Rule is to treat your inferiors as you 2. Business can therefore be considered a game people play
would want superiors to treat you

Fairness
Fairness is the quality of being just, equitable, and impartial.
3. Ordinary rules and morality do not hold in games like football, basketball or
• Fairness clearly overlaps with other commonly used terms such as justice, equity, equality, and morality. There
boxing. are three fundamental elements that seem to motivate people to be fair:

- equality, in business, equality is about how income is distributed between employees within a company, a
4. Logically, then, if business is a game like football, basketball or boxing, ordinary country, or across the globe
ethical rules do not apply
• This type of reasoning leads many people to conclude that anything is - reciprocity, it is an interchange of giving and receiving in social relationships. Reciprocity occurs when an
acceptable in business. action that has an effect upon another is reciprocated with an action that has an approximately equal effect upon
the other.
• Indeed, several books have compared business to warfare
- Optimization is the compromise between equity (that is, equality or fairness) and efficiency (that is, maximum
productivity).

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Integrity Ethical Issues and Dilemmas in Business

• An ethical issue is a problem or opportunity that requires an individual or group to choose
Integrity refers to being whole, sound, and in an unimpaired (undamaged) among actions that are evaluated as ethical or unethical
condition. In an organization, it means uncompromising adherence to ethical values.
• An ethical dilemma is a problem, situation, or opportunity that requires an individual
Integrity is connected to acting ethically; in other words, there are practical or • or group to choose among several wrong or unethical actions
standard limitations on what it means to act with integrity.
• A constructive next step toward identifying and resolving ethical issues is to classify the issues that are
relevant to most business organizations (as seen below)

Abusive or Intimidating Behavior

• One of the most common ethical problems • Is it abusive behavior to ask an employee to complete a project rather than be
with a family member or relative in a crisis situation?
• Can mean anything from physical threats, false accusations, profanity, insults,
harshness, ignoring someone, or even unreasonableness • What does it mean to speak profanely (sacrilege, vulgar, rude, unrefined,
blasphemy )? Is profanity only related to specific words or terms that are
• It is important to understand that with each term there is a continuum. For
common in today’s business world?
example, what one person may define as yelling might be another’s definition of
normal speech.
• If you are using words that are normal in your language but others consider
• Civility in our society has been a concern, and the workplace is no exception. profanity, have you just insulted, abused, or disrespected them?

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• Within the concept of abusive behavior or intimidation, intent should be a consideration. E.g. What if a Bullying is associated with a hostile workplace where someone (or a group) considered a target is threatened,
male manager asks his female subordinate if she has a date for tonight because she is dressed so nice? harassed, belittled, or verbally abused or overly criticized.

• Finally, you have the problem of word meanings by age and within cultures. Is it okay to say “honey” • Bullying may create what some may call a hostile environment, but this term is generally associated with sexual

to an employee, fellow employee, employee friend, and/or your superior, and does it depend on gender harassment.

or location?
• Bullying can cause psychological damage that can result in health-endangering consequences to the target.

• For example, if you were to call a friend that worked with you “honey” in one country or region, will it
• As depicted below, bullying can use a mix of verbal, nonverbal, and manipulative threatening expressions to
have the same acceptability factor in another country or region?
damage workplace productivity. Bullying can also occur between companies that are in intense competition.

• It is possible the term honey could be acceptable speech in some environments, and be construed as
• Actions associated with bullying may include but not only limited to the following:
being abusive or intimidating in other situations?
• Abusive behavior also vary by different genders

Lying (Dishonesty)
 Spreading rumors to damage others
 Blocking others’ communication in the workplace • Lying or Dishonesty can be broadly defined as a lack of integrity, incomplete disclosure, and an unwillingness

 Flaunting status or authority to take advantage of others to tell the truth.

 Discrediting others’ ideas and opinions

• Lying and dishonesty are synonymous with cheating, and stealing. Lying, cheating, and stealing are the
 Use of e-mails to demean others actions usually associated with dishonest conduct.
 Failing to communicate or return communication
• The causes of dishonesty are complex and relate to both individual and organizational pressures.
 Insults, yelling, and shouting
 Using terminology to discriminate by gender, race, or age
• Many employees lie to help achieve performance objectives. For example, they may be asked to lie about
 Using eye or body language to hurt others or their reputation when a customer will receive a purchase..
 Taking credit for others’ work or ideas

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Lying can be segmented into three

(1) Joking without malice (hatred): causing damage or harm;
Conflicts of Interest
• A conflict of interest exists when an individual must choose whether to
(2) Commission lying is creating a perception or belief by words that intentionally deceive the receiver of
the message: advance his or her own interests, those of the organization, or those of
- Also called a “white lie,” which doesn’t cause damage but can be called an excuse or something
told to benefit someone else; some other group.
- for example, lying about being at work, expense reports, or carrying out work assignments,
advertising that a product is “homemade” when it is made in a factory is lying.

(3) Omission lying is intentionally not informing the channel member of any differences, problems,
• To avoid conflicts of interest, employees must be able to separate their
safety warnings, or negative issues relating to the product, service, or company that significantly affects private interests from their business dealings.
awareness, intention, or behavior.
- A classic example for decades was the tobacco manufacturers that did not allow negative research to
appear on cigarettes and cigars.
• The conflicts of interest usually relate to hiring friends or relatives to
enhance the probability of getting the a favors in future.

Bribery Corporate Intelligence

Bribery is the practice of offering something (usually money) in order to gain an illicit advantage. • Corporate intelligence is the collection and analysis of information on:
The key issue regarding whether or not something is considered bribery is determining whether the act • Markets
is illicit or contrary to accepted morality. • Technologies
Bribery therefore is defined as an unlawful act, but it can be a business ethics issue. • Customers and competitors
• Socioeconomic and external political trends
The reason is that bribery can be defined differently in varying situations and cultural environments.

- Active bribery, meaning that the person who promises or gives the bribe commits the offense. • A lack of security and proper training allows one to use a variety of techniques to gain access to a
company’s vital information.
- Passive bribery is an offense committed by the official who receives the bribe. It is not an offense,
however, if the advantage was permitted or required by the written law or regulation of the country
• Some techniques for accessing valuable corporate information include physically removing the
- N.B: Small facilitation payments made to obtain or retain business or other improper advantages do not constitute hard drive and copying the information to another machine, hacking, dumpster diving, social
bribery payments. engineering, bribery, and hiring away key employees

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Discrimination Sexual Harassment

• Sexual Harassment refers to a repeated, unwanted behavior of a sexual nature perpetrated upon one
• Discrimination refers to an unequal or preferential treatment based on irrelevant individual by another
criteria, such as gender, race, color, religion, national origin, or disability.
• It may be verbal, visual, written, or physical and can occur between people of different genders or those of
the same sex
• A company can be sued for discrimination if it:
• Refuses to hire an individual for discriminatory reasons • Sexual harassment, however, is often discriminatory in that it mainly targets women because they are
women .
• Unreasonably excludes an individual from employment
• E.g example of sexual harassment is when a manager tells an employee to “sleep with me or else you're fired.
• Unreasonably discharges an individual • Other examples of sexual harassment can include unwelcome sexual requests, unwelcome touching, and
• Discriminates against an individual with respect to hiring, employment terms, unwelcome sexual comments.
promotion, or privileges • For example, sexual insinuations; staring or ogling at a woman; sexist remarks about women's bodies, clothing,
or sexual activities; the posting of pictures of nude women; and unnecessary touching, patting, or other physical
conduct can all constitute harassment

To avoid sexual misconduct or harassment charges a company should, at the minimum, take the following
• Workplace display of sexually explicit material photos, magazines, or posters may
steps:
constitute a hostile work environment harassment
1. Establish a statement of policy naming someone in the company as responsible for preventing harassment

• To establish sexual harassment, an employee must understand the definition of a 2. Establish a definition of sexual harassment that includes unwelcome advances, requests for sexual favors, and

hostile work environment, for which three criteria must be met any other verbal, visual, or physical conduct of a sexual nature; that provides examples of each; and that
reminds employees that the list of examples is not all-inclusive.
 Hostile Work Environment 3. Establish a non retaliation policy that protects complainants and witnesses.
• The conduct was unwelcome 4. Establish specific procedures for prevention of such practices at early stages. However, if a company puts
these procedures in writing, they are expected by law to train, measure, and ensure that the policies are being
• The conduct was severe, pervasive, and regarded by the claimant as so hostile or
enforced.
offensive as to alter his or her conditions of employment
5. Establish, enforce, and encourage victims of sexual harassment to report the behavior to authorized

• The conduct was such that a reasonable person would find it hostile or offensive individuals.
6. Establish a reporting procedure.
7. Make sure that the company has timely reporting requirements to the proper authorities

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Environmental Issues Fraud

• The environment is a significant and growing issue in business • Any purposeful communication that deceives, manipulates, or conceals facts in
order to create a false impression is fraud.
• The Kyoto Protocol: An international treaty on climate change that commits nations
to reducing greenhouse gas emissions
• Fraud is a crime and convictions may result in fines, imprisonment, or both.
• Water pollution: Results from dumping sewage and toxic chemicals in places where
they can filter into water supplies
• Among the most common fraudulent activities employees report about their
• Green energy sources are perceived to have lower emissions or waste than traditional coworkers are stealing office supplies or shoplifting, claiming to have worked extra
ones hours, and stealing money or products

• In recent years, accounting fraud has become a major ethical issue, but as we will
see, fraud can also relate to marketing and consumer issues as well.

Lets look at different perspective of fraud Consumer fraud

 Consumer fraud involves intentional deception to derive an unfair economic advantage by an
 Accounting fraud: Misrepresentation of company’s financial reports
individual or group over an organization
 Pressures on accountants today include time, reduced fees, client requests to alter opinions concerning
 Consumers engage in many other forms of fraud against businesses, including price tag
financial conditions or lower tax payments, and increased competition.
switching, item switching, lying to obtain age related and other discounts, and taking advantage
 Other issues that accountants face daily involve compliance with complex rules and regulations, data
of generous return policies by returning used items, especially clothing that has been worn (with
overload, contingent fees, and commissions.
the price tags still attached).
 Marketing fraud: the process of creating, distributing, promoting, and pricing products is another business
area that generates potential ethical issues.
 False or misleading marketing communications can destroy customers’ trust in a company.  Such behavior by consumers affects retail stores as well as other consumers who, for example,
 Lying, a major ethical issue involving communications, is potentially a significant problem.
may unwittingly purchase new clothing that has actually been worn
 In both external and internal communications, it causes ethical predicaments because it destroys trust.
 Misleading marketing can also cost consumers hard-earned money

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Financial Misconduct
Examples of fraudulent activities include shoplifting, collusion or duplicity, and guile.

• Financial misconduct includes a wide variety of actions such as fraud, gross

• Collusion typically involves an employee who assists the consumer in fraud. For example, a cashier negligence or intentional or willful misconduct that contributes directly or
may not ring up all merchandise or may give an unwarranted discount. indirectly to the companies financial or operational results
• The failure to understand manage ethical risks played a key part in the financial
• Duplicity may involve a consumer staging an accident in a shop and then seeking damages against the meltdown and recession of 2008-2009
shop for its lack of attention to safety. A consumer may purchase, wear, and then return an item of
clothing for a full refund. In other situations, the consumer may ask for a refund by claiming a defect.

• Guile (Cunning) is associated with a person who is crafty or understands right/wrong behavior but
uses tricks to obtain an unfair advantage.

Intellectual Property Rights and Privacy The Challenge of Determining Ethical Issues
• Intellectual Property Rights involve the legal protection of intellectual properties, such as music,
books, and movies in Business
• For example, illegally produced medications, when consumed by unknowing • Most ethical issues will become visible through stakeholder concerns about an
consumers, can cause sickness and even death. event, activity, or the results of a business decision
• Determining ethical issues is a challenge
• Privacy issues in the business world
• As the number of people using the Internet increases, the areas of concern related to its use increase as • The ethical decision making process starts when ethical issue awareness occurs
well. Some privacy issues that must be addressed by businesses include; and individuals begin discussion
- monitoring of employees’ use of available technology and
- consumer privacy
• It can be a challenge for businesses today to meet the needs of consumers while protecting their
privacy
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Features of Business Ethics

• Voluntary: Business ethics is meant to be voluntary. It should be self-practiced and
• Code of Conduct: Business ethics is actually a form of codes of conduct. It lets us know must not be enforced by law.
what to do and what not to do. Businesses must follow this code of conduct.

• Requires Education & Guidance: Businessmen should get proper education and guidance
• Based on Moral and Social Values: Business ethics is a subject that is based on moral and about business ethics. Trade Associations and Chambers of Commerce should be active
social values. It offers some moral and social principles (rules) for conducting a business. enough in this matter.

• Protection to Social Groups: Business ethics protect various social groups including • Relative Term: Business ethics is a relative term. It changes from one business to another
consumers, employees, small businesspersons, government, shareholders, creditors, etc. and from one country to another.

• New Concept: Business ethics is a relatively newer concept. Developed countries have
• Offers a Basic Framework: Business ethics is the basic framework for doing more exposure to business ethics, while poor and developing countries are relatively
business properly. It constructs the social, cultural, legal, economic, and other limits in backward in applying the principles of business ethics.
which a business must operate.

Principles of Business Ethics • Fair Treatment to Employees: Fair wages or salaries, facilities and incentives must be provided to
the employees.
• Avoid Exploitation of Consumers: Do not cheat and exploit consumer with measures such as artificial
price rise and adulteration.
• Keep the Investors Informed: The shareholders and investors must know about the financial and
• Avoid Profiteering: Unscrupulous business activities such as hoarding, black-marketing, selling other important decisions of the company.
banned or harmful goods to earn exorbitant profits must be avoided.
• Encourage Healthy Competition: A healthy competitive atmosphere that offers certain benefits to the • Avoid Injustice and Discrimination: Avoid all types of injustice and partiality to employees.
consumers must be encouraged. Discrimination based on gender, race, religion, language, nationality, etc. should be avoided.
• Ensure Accuracy: Accuracy in weighing, packaging and quality of supplying goods to the consumers has
to be followed. • No Bribe and Corruption: Do not give expensive gifts, commissions and payoffs to people having
influence.
• Pay Taxes Regularly: Taxes and other duties to the government must be honestly and regularly paid.
• Get the Accounts Audited: Proper business records, accounts must be managed. All authorized persons • Discourage Secret Agreement: Making secret agreements with other business people to influence
and authorities should have access to these details. production, distribution, pricing etc. are unethical.

• Service before Profit: Accept the principle of "service first and profit next."

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• Practice Fair Business: Businesses should be fair, humane, efficient and dynamic to • Accept Social Responsibilities: Honor responsibilities towards the society.
offer certain benefits to consumers.
• Satisfy Consumers’ Wants: Satisfy the wants of the consumers as the
• Avoid Monopoly: No private monopolies and concentration of economic power main objective of the business is to satisfy the consumer’s wants. All business
should be practiced. operations must have this aim.

• Fulfil Customers’ Expectations: Adjust your business activities as per the • Service Motive: Service and consumer's satisfaction should get more attention
than profit-maximization.
demands, needs and expectations of the customers.

• Optimum Utilization of Resources: Ensure optimum utilization of resources

• Respect Consumers Rights: Honor the basic rights of the consumers. to remove poverty and to increase the standard of living of people.

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