Key business ethics concerns relate to questions about whether various stakeholders consider

specific business practices acceptable. By its very nature, the field of business ethics is
controversial, and no universally accepted approach has emerged for resolving its questions.
Nonetheless, most businesses are establishing initiatives that include the development and
implementation of ethics programs designed to deter conduct that some stakeholders might
consider objectionable. In this module, we are going to explore business ethics as a dimension of
social responsibility. First, we define business ethics and examine its importance from an
organizational perspective. Next, we identify different ethical issues that most organizations
encounter. Finally, we look at several ways to handle ethical dilemmas.

After successful completion of this module, you should be able to:

➢ Understand the definition and importance of business ethics.
➢ Identify ethical issues common in most organizations.
➢ Learn how to handle ethical dilemmas.

Business Ethics
Business ethics comprises the principles and standards that guide the behavior of individuals and
groups in the world of business. Most definitions of business ethics relate to rules, standards, and
moral principles regarding what is right or wrong in specific situations. Principles are specific and
pervasive boundaries for behavior that are universal and absolute. Principles often become the basis
for rules. Values are used to develop norms that are socially enforced. Integrity, accountability,
and trust are examples of values. Ethical business decisions foster trust in business relationships,
and trust is a key factor in improving productivity and achieving success in most organizations.
New legislation and regulations designed to encourage higher ethical standards in business have
been put in place. As a result, businesspeople have been codifying ethical standards into
meaningful policies that spell out what is and is not acceptable, which allows them to reduce the
probability of behavior that could create legal problems.

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Ethical Issues in Business
An ethical issue is a problem, situation, or opportunity requiring an individual, group, or
organization to choose among several actions that must be evaluated as right or wrong, ethical or
unethical. An ethical issue is simply a situation, a problem, or even an opportunity that requires
thought, discussion, or investigation to determine the moral impact of the decision. The
classification of ethical issues relevant to most business organizations is discussed in the next
section.

Abusive or Intimidating Behavior

Abusive or intimidating behavior is one of the most common ethical problems for employees, but
what does it mean to be abusive or intimidating? The concepts can mean anything from physical
threats, false accusations, annoying a coworker, profanity, insults, yelling, harshness, and ignoring
someone to being unreasonable; and the meaning of these words can differ by person. With such,
intent should be a consideration. If the employee was trying to convey a compliment when the
comment was considered abusive, then it was probably a mistake. The way a word is said can be
important. In addition, the fact that we now live in a multicultural environment, doing business
and working with many different cultural groups, highlights the depth of the ethical and legal issues
that may arise. Companies should have standards that draw the line to determine which behaviors
are considered abusive or intimidating in the workplace.

Bullying
Bullying is associated with a hostile workplace when someone (or a group) considered a target is
threatened, harassed, belittled, verbally abused, or overly criticized. Bullying can cause
psychological damage that can result in health-endangering consequences to the target. Some
suggest that employers should take the following steps to minimize workplace bullying:
➢ They should have policies in place that make it clear that bullying behaviors will not be
tolerated.
➢ The employee handbook should emphasize that workers must treat each other with respect.
Employers should encourage employees who feel bullied to report the conduct and should handle
such complaints in much the same way as discriminatory harassment complaints are handled.

Lying
To be honest, is to tell the truth to the best of your ability; lying relates to distorting the truth. There
are three major types of lies. The first includes joking without malice, and the so-called white lie
that is told to avoid hurting someone's feelings. The second type of lie is lying by commission or
creating a perception of belief by words that intentionally deceive the receiver of the message. The
third type of lie, lying by omission, involves intentionally not informing the receiver of material
facts. When lying damages others, it can be the focus of a lawsuit. You should be able to understand
when a lie becomes unethical in business based on the context and intent to distort the truth. A
lie becomes illegal if it is determined by the judgment of courts to damage

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others. The question you need to ask is whether lies are distorting openness, transparency, and
other values that are associated with ethical behavior.

Conflict of Interest
A conflict of interest exists when an individual must choose whether to advance his or her interests,
those of his or her organization, or those of some other group. To avoid conflicts of interest,
employees must be able to separate their private interests from their business dealings. In many
developed countries, it is generally recognized that employees should not accept bribes, personal
payments, gifts, or special favors from people who hope to influence the outcome of a decision.
Bribes also have been associated with the downfall of many managers, legislators, and government
officials. When a government official accepts a bribe, it is usually from a business that seeks some
favor, perhaps a chance to influence legislation that affects it. Giving bribes to legislators or public
officials, then, is a business ethics issue.

Fraud
When an individual engages in deceptive practices to advance his or her interests over those of the
organization or some other group, charges of illegal fraud may result. In general, fraud is any false
communication that deceives, manipulates, or conceals facts to create a false impression to damage
others. It is considered a crime, and convictions may result in fines, imprisonment, or both. The
following are the types of fraud that occur in businesses:
• Accounting Fraud. This is the intentional manipulation of financial statements to create a
false appearance of corporate financial health. Accounting firms have the responsibility to
report a true and accurate picture of the financial condition of the companies for which they
work. Failure to do so may result in charges and fines for both the accounting firm and the
employing company. Several laws have been passed to prevent the occurrence of
accounting fraud.
• Marketing Fraud. This is the intentional misrepresentation or deceit during the process of
creating, distributing, promoting, and pricing products. False or misleading marketing
communications can destroy customers’ trust in a company. One set of laws that is common
to many countries are laws concerning deceptive advertising−that is, advertisements that
are not clearly labeled as advertisements. In the Philippines, we have Republic Act 7394
(The Consumer Act of the Philippines) to protect consumers against false, deceptive, and
misleading advertisements. Misleading advertisements fall into three categories:
▪ Puffery. This can be defined as the exaggerated advertising, blustering, and
boasting upon which no reasonable buyer would rely. When it’s obvious that the
statement is meant to be not taken seriously, that is puffery. This isn’t illegal.
▪ Implied falsity. This means that the message of the advertisement tends to mislead,
confuse, or deceive the public. It doesn’t necessarily have to be false but it’s not
completely true either. This is illegal.
▪ Literal falsity. When the advertisement is stating that the product is something that's
not, that is literal falsity. A product may state that’s completely organic when it has

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 artificial components or state that it can do something that it can’t. This is obviously
illegal.
▪ Consumer Fraud. This occurs when consumers attempt to deceive businesses for
their gain. Consumer fraud involves intentional deception to derive an unfair
economic advantage by an individual or group over an organization. Examples of
fraudulent activities include shoplifting, collusion or duplicity, and guile.
▪ Collusion typically involves an employee who assists the consumer in fraud.
▪ Duplicity may involve a consumer staging an accident and then seeking damages
against the company for its lack of attention to safety.
▪ Guile is associated with a person who is crafty or understands right/wrong behavior
but uses tricks to obtain an unfair advantage. The advantage is unfair because the
person has the intent to go against the right behavior or end.

Discrimination
Discrimination is the act of making distinctions between human beings based on the groups,
classes, or other categories to which they are perceived to belong. While most organizations have
made strides to reduce instances of discrimination, it remains an important legal issue in the
workplace. To help build workforces that reflect their customer base, many companies have
initiated affirmative action programs, which involve efforts to recruit, hire, train, and promote
qualified individuals from groups that have traditionally been discriminated against based on race,
age, gender, or other characteristics.

Sexual Harassment
Sexual harassment is a form of discrimination and is defined as any repeated, unwanted behavior
of a sexual nature perpetrated upon one individual by another. It may be verbal, visual, written, or
physical and can occur between people of different genders or those of the same sex. To establish
sexual harassment, an employee must understand the definition of a hostile work environment, for
which three criteria must be met: the conduct was unwelcome; the conduct was severe, pervasive,
and regarded by the claimant as so hostile or offensive as to alter his or her conditions of
employment; and the conduct was such that a reasonable person would find it hostile or offensive.
A policy must be enacted in the workplace to avoid sexual misconduct.

Dealing with Ethical Issues

Individuals make ethical choices based on their own concepts of right or wrong, and they act
accordingly in their daily lives. Understanding the individual factors will help an organization
determine how to deal with an ethical issue. Ethical dilemmas in the workplace can be more
effectively dealt with if managers follow a few simple steps:

1 Identify the ethical issues. Ethical issues exist, in a broad sense, whenever one’s actions
affect others. In the workplace, a manager’s decisions might affect employees, customers,
suppliers, creditors and shareholders.

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2 Identify alternative courses of action. Every dilemma affords more than just one
opportunity. The cautious handling of workplace ethics issues can resolve personal and
business dilemmas. By identifying the alternatives, the next step can take place.

3 Use ethical reasoning to decide on a course of action. Ethical reasoning skills are
essential to making ethical decisions. A variety of methods exist including:

Egoism
Egoism looks at each decision by considering the effects of a decision only as it relates to
the individual decision-maker. It is a philosophy that defines right or acceptable conduct in
terms of consequences for an individual. Most ethicists dismiss this method because it fails
to consider the consequences on the stakeholders.
Utilitarianism
This is concerned with seeking the greatest good for the greatest number of people. Using a
cost-benefit analysis, a utilitarian decision-maker calculates the utility of the consequences
of all possible alternatives and then chooses the one that achieves the greatest utility through
a calculus/weighting approach.

Ethical Formalism
This is a class of moral philosophy that focuses on the rights of individuals and on the
intentions associated with a particular behavior rather than on its consequences. Ethical
formalists regard certain behaviors as inherently right, and their determination of rightness
focuses on the individual actor, not on society.
It is important to recognize that there is no one “correct” moral philosophy to apply in
resolving ethical and legal issues in the workplace. It is also important to acknowledge that
each philosophy presents an ideal perspective and that most people seem to adopt a number
of moral philosophies as they interpret the context of different decision-making situations.
Each philosophy could result in a different decision in a situation requiring an ethical
judgment. Depending on the situation, people may even change their value structure or
moral philosophy when making decisions.