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In this chapter, we consider some of the ethical issues emerging in business today, including how they arise from the demands of specific stakeholder groups. In the first half of the chapter, we explain certain universal concepts that pervade business ethics, such as integrity, honesty, and fairness. The second half of the chapter explores a number of emerging ethical issues, including misuse of company time and resources, abusive and intimidating behavior, lying, conflicts of interest, bribery, corporate intelligence, discrimination, sexual harassment, fraud, financial misconduct, insider trading, intellectual property rights, and privacy. We also examine the challenge of determining decisions that have an ethical component for the firm to consider.
Jayla has just started an internship with Acme Incorporated in the payroll department, and this position could become a full time job after graduation. Unfortunately, Jayla is confronted with a conflict of interest when she notices her boss giving favoritism to a sales employee. Jayla was hired by Deon, the head of the Payroll Department, who is related to Greg, one of the senior sales representatives. Deon puts Jayla in charge of handing out client folders to the salespeople. Deon instructs Jayla that the salespeople are only to take files from the top of the pile and that no salespeople are allowed to choose from the files. Jayla takes this instruction seriously. However, one morning Jayla notices Deon and Greg picking through the pile of client folders and taking the best files for Greg. Greg is Deon’s
brother-in-law and is getting preferential treatment. Other salespeople are following the rules and getting the leftover client folders.
How should Jayla handle this ethical dilemma? She could not easily go to Deon, since he is helping Greg get the preferred files. If she reports this behavior to the General Manager, Mia, she may get fired. If she continues to follow Deon’s instruction, then the other salespeople’s sales will likely continue to suffer. Another issue is other salespeople, like Mary, are suffering because Greg is getting to select the best client files and leaving them the leftovers. She could inform other salespeople about Deon’s and Greg’s activities, but this could also get her fired along with causing trouble among the sales staff. Should Jayla start letting all the salespeople pick through the client folders or continue as Deon instructed her? How do students feel about this issue? What would they do?
I. Recognizing an Ethical Issue (Ethical Awareness)
A. The first step in understanding business ethics is to develop ethical issue awareness.
1. Ethical issues typically arise because of conflicts among individuals’ personal moral philosophies and values, the values and culture of the organizations in which they work, and those of the society in which they live.
B. Failure to acknowledge ethical issues puts corporations at great risk. Some issues are difficult to recognize because they are gray areas that are hard to navigate.
C. An ethical issue is a situation involving a group, a problem, or even an opportunity that requires thought, discussion, or investigation in order to make a decision.
A. Understanding foundational values can help identify and develop discussions and a constructive dialogue on appropriate conduct.
1. Integrity refers to being whole, sound, and in an unimpaired condition. In an organization, it means uncompromising adherence to ethical values.
2. Honesty refers to truthfulness or trustworthiness. 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.
a. Dishonesty is a lack of integrity, incomplete disclosure, and an unwillingness to tell the truth. Lying, cheating, and stealing are actions usually associated with dishonest conduct.
b. Lying can be defined as:
i) untruthful statements that result in damage or harm
ii) white lies which do not cause damage but instead function as excuses or a means of benefitting others
iii) statements obviously meant to engage or entertain without malice
3. Fairness is the quality of being just, equitable, and impartial.
a. In business, equality is about the distribution of benefits and resources. This distribution could be applied to stakeholders or the greater society.
b Reciprocity is an interchange of giving and receiving in a social relationship. It is the return of small favors of approximately equal value.
c. Optimization is the trade-off between equity (that is, equality or fairness) and efficiency (that is, maximum productivity).
A. An ethical issue is a problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical.
B. An ethical dilemma is a problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that have negative outcomes
C. Misuse of company time and resources is a major form of observed misconduct in organizations.
1. Using company computer software and Internet services for personal business is one of the most common ways employees misuse company resources
2. Many companies, like Coca-Cola, have implemented official policies delineating acceptable use of company resources.
D. Abusive or intimidating behavior is a common ethical problem for employees.
1. The concepts of abusive or intimidating behavior can mean anything from physical threats, false accusations, annoying behavior, profanity, insults, yelling, harshness, ignoring someone, or even unreasonableness. The meaning of these words can differ from person to person.
2. Intent is an important factor in determining whether a situation is abusive.
3. Bullying is associated with a hostile workplace where a person or group is threatened, harassed or overly criticized.
a. The concept of bullying is now considered a legal issue, with millions of Americans reporting having experienced or witnessed bullying at work.
b. Wage theft is another way that employers create an abusive environment. Employees are increasingly claiming that companies are failing to pay them overtime for working extra hours.
c. Bullying can cause psychological damage that may result in health-endangering consequences to the target.
d. There is currently no law prohibiting workplace bullying.
e. Bullying also occurs between companies that are in intense competition.
E. Lying relates to distorting the truth. There are three types of lies:
1. Joking without malice
2. Commission lying is creating a perception or belief by words that intentionally deceive the receiver of the message.
a. Commission lying involves using words or creating noise that intentionally confuse the receiver of a message. Noise can be the intentional use of modes of communication that the sender knows the receiver does not fully understand.
3. Omission lying is intentionally not informing others of any differences, problems, safety warnings, or negative issues related to the product or company that significantly affects awareness, intention, or behavior.
4. The point at which a lie becomes unethical in business is based on the context of the statement and its intent to distort the truth A lie becomes illegal if it is determined by the judgment of courts to damage others.
F A conflict of interest exists when an individual must choose whether to advance his or her own interests, those of the organization, or those of some other group.
1. To avoid conflicts of interest, employees must be able to separate their private interests from business dealings.
G. Bribery is the practice of offering something (usually money) in order to gain an illicit advantage. Bribery can be defined as an unlawful act, but it can also be a business ethics issue in that a culture includes such payments as standard practice.
1. Active bribery means that the person who promises or gives the bribe commits the offense.
2. Passive bribery is an offense committed by the receiver of the bribe.
3. Facilitation payments to obtain or retain business do not constitute bribery payments in the United States, as long as they are small. However, the legality of this practice varies in other countries.
H Corporate intelligence is the collection and analysis of information on markets, technologies, customers, and competitors, as well as on socioeconomic and external political trends.
1. CI involves an in-depth discovery of information from corporate and court documents, regulatory filings, and press releases.
2. CI is not an ethical issue if the information is obtained legally.
3. However, there are a number of questionable or illegal techniques used to collect information (see Table 3-4).
a. Computers, local area networks, and the Internet have made the theft of trade secrets very easy.
b. Theft of corporate trade secrets has been on the rise among technology companies such as Samsung.
c. A lack of security and proper training allows a person to use a variety of techniques to gain access to a company’s vital information.
I Discrimination on the basis of race, color, religion, sex, marital status, sexual orientation, public assistance status, disability, age, national origin, or veteran status is illegal in the United States.
1. A company in the United States can be sued for discrimination if it:
a. Refuses to hire an individual for discriminatory reasons
b. Maintains a system of employment that unreasonably excludes an individual from employment
c. Unreasonably discharges an individual
d. Discriminates against an individual with respect to hiring, employment terms, promotion, or privileges of employment as it relates to discrimination
2. The Equal Employment Opportunity Commission (EEOC) handles discrimination filings.
3. The Age Discrimination in Employment Act specifically outlaws hiring practices that discriminate against people 40 years of age or older, as well as those that require employees to retire before the age of 70.
4. 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 on the basis of race, gender, or other characteristics.
a. These programs may be mandated from the federal level, but many companies opt to implement them voluntarily.
5. Discrimination can also be an ethical issue in business when companies use race or other personal factors to discriminate against specific groups of customers.
J Sexual harassment is a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964. It is defined as a repeated, unwanted behavior of a sexual nature perpetrated upon one individual by another.
1. To establish sexual harassment, an employee must understand the definition of a hostile work environment, for which three criteria must be met:
a. The conduct was unwelcome
b. The conduct was severe, pervasive, and regarded by the claimant as so hostile or offensive as to alter his or her conditions of employment
c. The conduct was such that a reasonable person would find it hostile or offensive
2. A key ethical issue associated with sexual harassment is called dual relationship, which is defined as a personal, loving, and/or sexual relationship with someone with whom you share professional responsibilities.
3. An unethical dual relationship is one where the relationship causes a conflict of interest or risk of impairment to professional judgment.
4. Consent is created if any sexual relationship is considered mutual.
5. Companies should take appropriate steps to avoid sexual misconduct or harassment charges.
6. Once these steps have been taken, a training program should identify and describe forms of sexual harassment and give examples, outline grievance procedures, explain how to use the procedures and discuss the importance of them, discuss the penalty for violations, and train employees about the essential need for a workplace free from harassment, offensive conduct, or intimidation.
K In general, fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to harm others. Fraud is a crime that can result in fines and/or imprisonment.
1. Accounting fraud usually involves falsifying information about a corporation’s financial reports, which would otherwise provide important information about the financial health of the company to investors and other stakeholder groups.
a. Three factors, known as the fraud triangle, seem to predict why people commit fraud: pressure, opportunity, and rationalization.
b. Accountants today feel increased pressure to perform, to keep fees low, and must follow complicated regulations all of which can contribute to the pressure to commit fraud.
c. As a result, accountants must abide by a strict code of ethics that defines their responsibilities to their clients and to the public interest.
d. Congress passed the Sarbanes-Oxley Act in 2002 to address many of the issues that create conflicts of interest for accounting firms auditing public corporations. The law generally prohibits accounting firms from providing both auditing and consulting services to the same firm.
i) One of the results of Sarbanes-Oxley was the establishment of a Public Company Accounting Oversight Board. This will be discussed in more detail in the next chapter.
2. Marketing fraud is the process of dishonestly creating, distributing, promoting, and pricing products. False or misleading marketing communications can destroy stakeholder trust in a corporation.
a. Courts place false or misleading advertisements into three categories: puffery, implied falsity, and literal falsity.
i) Puffery can be defined as exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely and is not actionable under the Lanham Act.
ii) Implied falsity means that an advertising message has a tendency to mislead, confuse, or deceive the public.
iii) Literally false claims can be divided into tests prove (establishment claims), when the advertisement cites a study or test that establishes the claim; and bald assertions (non-establishment claims), when the advertisement makes a claim that cannot be substantiated, as when a commercial states a certain product is superior to any other on the market.
b. Advertising can also make ambiguous statements or weak claims from which viewers must infer a message. These are often called “weasel words”
c. Labeling issues also create an ethical gray area.
d. Advertising and direct sale communication can also mislead consumers by concealing the facts within the message.
3. Consumer fraud occurs when consumers attempt to deceive businesses for their own gain. There are many different ways of engaging in consumer fraud, from stealing from stores, to price tag switching, to lying to obtain discounts.
a. Collusion involves an employee who helps a consumer commit fraud.
b. Duplicity involves a consumer duping a store. For example, a customer who stages an accident and then sues the store for damages is engaging in duplicity
c. Guile is associated with a person who knows right from wrong but uses tricks to obtain an unfair advantage.
1. The failure to understand and manage ethical risks played a significant role in the financial crisis. The most recent global recession was caused in part by a failure on the part of the financial industry to take appropriate responsibility for its decision to utilize risky and complex financial instruments.
2. Corporate cultures were built on rewards for taking risks rather than rewards for creating value for stakeholders.
3. Subprime lending and executive compensation in poorly performing or failed firms are two areas of ethical concern that emerged out of the most recent recession.
a. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 to increase accountability and transparency in the financial industry and protect consumers from deceptive financial practices.
b. The act established a Consumer Financial Protection Bureau (CFPB) to protect consumers from unsafe financial products.
4. Remember that top executives are ultimately responsible for decisions made by the employees of their companies. Regulatory systems in place failed to catch the systemic risks that were at play during the financial industry meltdown.
M. Insider Trading. An insider is any officer, director, or owner of ten percent or more of a class of a company’s securities.
1. There are two types of insider trading: legal and illegal
a. Illegal insider trading is the buying or selling of stocks by insiders who possess information that is not yet public.
b. Legal insider trading involves legally buying and selling stock in an insider’s company, but not all of the time. Insiders are required to report their trades within two days of the transaction.
N. Intellectual Property Rights involve the legal protection of intellectual property (IP), such as music, books, and movies.
1. A decision by the Federal Copyright Office (FCO) helped lay the groundwork for IP in a digital world.
2. Digital copyrights continue to be a controversial issue in the United States and across the world, and existing laws are often difficult to enforce.
3. While intellectual property rights’ infringement always poses a threat to companies that risk losing profits and reputation, it can also threaten the health and well-being of consumers (e.g., illegally produced medications).
O Many privacy issues come into play in the business world. Some issues that managers should consider involve monitoring employee use of technology and consumer privacy.
1. It can be a challenge for businesses today to meet the needs of consumers while at the same time protecting their privacy.
2 There are few legal protections of an employee’s right to privacy while at work, which allows employers a great deal of leeway in monitoring employees.
3 Electronic monitoring allows a company to determine whether productivity is lower than it could be because employees are spending too much time on personal activities.
4 Practices that respect employee privacy but do not abdicate the employer’s responsibility help create a climate of trust that promotes opportunities for resolving employee–employer disputes without lawsuits.
5 There are two dimensions to consumer privacy:
a. Consumer awareness of information collection
b. Growing lack of consumer control over how companies use the personal information they collect.
6. Personal information about consumers is valuable not only to businesses but also to criminals an identity is stolen once every two seconds.
A. Most ethical issues will become visible through stakeholder concerns about an event, activity, or the results of a business decision.
B. Determining ethical issues is a constant challenge. Over time, problems can become ethical issues as a result of changing societal values
C. Once stakeholders trigger ethical issue awareness and individuals openly discuss it and ask for guidance and the opinions of others, one enters the ethical decision-making process
Have your students split into two teams. One team will argue for the first point, and the other will argue for the opposing view. The purpose is to get students to realize that there are no easy answers to many of these issues. This particular issue deals with whether employees should be legally protected from workplace bullying. One team might argue that bullying is harmful to employees’ health and permeates the business environment, creating a toxic workplace. The opposing team could argue that laws against bullying are not feasible since they are hard to define and have the potential to limit managers’ ability to manage.
In this case, recent graduate, Daniel, must decide how to handle the contradictions between writing copy for a product being endorsed by a person who no longer uses it. YOLO wants to use celebrity endorser Gloria Kunies to endorse a bacon product produced by Delicious Uber Bacon Ingredients Extraordinaire Corporation. While Gloria has consumed and enjoyed the bacon product in the past, she is currently a vegetarian for health reasons she attributed in part to consuming the bacon.
While her endorsement does not officially break any laws, Daniel believes it is dishonest and a contradiction to have a vegetarian promoting bacon. Ask the students if the situation in any way violates the concepts of fairness, honesty, and integrity. What are the potential repercussions for Delicious Uber Bacon Ingredients Extraordinaire Corporation and YOLO if consumers discover Gloria is now a vegetarian? What would the students do if they were in Daniel’s place?
