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Chapter 3 Emerging Business

Ethics Issues

Part TwoEthical Issues

and the Institutionalization of Business Ethics

Recognizing an Ethical Issue

An ethical issue is a problem, situation, or opportunity that requires an individual or group to choose among actions

New ethical issues are emerging constantly

Can be difficult to recognize ethical issues

Failure to do so puts corporations at risk

Is a problem in industries where winning is perceived to be a game

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Specific Types of Observed Misconduct

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Behavior 2011 (%) 2009 (%)

Misuse of company time 33 n/a

Abusive behavior 21 22

Lying to employees 20 19

Company resource abuse 20 23

Violating company Internet use policies 16 n/a

Discrimination 15 14

Conflicts of interest 15 16

Inappropriate social networking 14 n/a

Health or safety violations 13 11

Lying to outside stakeholders 12 12

Stealing 12 9

Falsifying time reports or hours worked 12 n/a

Employee benefit violations 12 11

Sexual harassment 11 7

Integrity

Integrity: Uncompromising adherence to

ethical values

One of the most important terms relating to

virtue

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Honesty

Honesty: Truthfulness or trustworthiness

Telling the truth to the best of your knowledge

Dishonesty: A lack of integrity, incomplete

disclosure, or an unwillingness to tell the truth

Issues related to honesty arise when people

perceive business as something where normal

rules do not apply

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Fairness

Fairness: The quality of being just, equitable,

and impartial

Equality: How wealth or income is distributed

Reciprocity: Occurs when an action that has an

effect upon another is returned

Optimization: The tradeoff between equity and

efficiency

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Ethical Issues and Dilemmas in Business

An ethical dilemma is a problem, situation, or

opportunity that requires an individual or group

to chose among several wrong or unethical

actions

There is no ethical choice

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Shareholder Issues

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1. Core values

2. Shareholder participation in electing directors

3. Executive compensation

4. Legal compliance

5. Lobbying and political activities

6. Reputation management

7. Integrity in collecting and managing data

8. Supply chain relationships and human rights

Misuse of Company Resources

The leading form of observed misconduct

Can range from unauthorized use of equipment and computers to embezzling company funds

Time theft costs organizations hundreds of billions in lost productivity annually

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Abusive or Intimidating Behavior

One of the most common ethical problems

Can be physical threats, false accusations, profanity, insults, harshness, ignoring someone, or unreasonableness

Intent is important in determining abuse

Bullying is a growing problem

Is associated with a hostile workplace

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Actions Associated with Bullies

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1. Spreading rumors to damage others

2. Blocking others’ communication in the workplace

3. Flaunting status or authority to take advantage of others

4. Discrediting others’ ideas and opinions

5. Use of e-mails to demean others

6. Failing to communicate or return communication

7. Insults, yelling, and shouting

8. Using terminology to discriminate by gender, race, or age

9. Using eye or body language to hurt others or their reputations

10. Taking credit for others’ work or ideas

Source: Adapted from Cathi McMahan, “Are You a Bully?” Inside Seven , California Department of Transportation Newsletter, June 1999, 6.

Lying

Three types of lies Joking without malice

Commission lying is creating a false perception with words that deceive the receiver Creating noise

Omission lying is intentionally not informing channel members of problems relating to a product that affects awareness, intention, or behavior

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Conflicts of Interest

Exist when an individual must choose whether to advance his/her personal interests, those of the organization, or some other group

Individuals must separate personal interests from business dealings

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Bribery

The practice of offering something in order to gain an illicit advantage

Different types of bribery

Active bribery: The person who promises or gives the bribe commits the offense

Passive bribery: An offense committed by the official who receives the bribe

Facilitation payments: Legal as long as they are small

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Corporate Intelligence

The collection and analysis of information on…

Markets

Technologies

Customers and competitors

Socioeconomic and external political trends

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Corporate Intelligence

Three intelligence models

Passive monitoring system for early warning

Tactical field support

Support dedicated to top management strategy

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Corporate Intelligence

Hacking

System hacking

Remote hacking

Physical hacking

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Corporate Intelligence

Social engineering

Shoulder surfing

Password guessing

Dumpster diving

Whacking

Phone eavesdropping

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Discrimination

Is illegal in the U.S. A company can be sued for discrimination if

it… Refuses to hire an individual for discriminatory

reasons

Unreasonably excludes an individual from employment

Unreasonably discharges an individual

Discriminates against an individual with respect to hiring, employment terms, promotion, or privileges

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Discrimination

Equal Employment Opportunity Commission (EEOC)

The Age Discrimination in Employment Act

Affirmative Action Programs

Efforts to recruit, hire, train, and promote qualified individuals from groups that have traditionally been discriminated against

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Sexual Harassment

A repeated, unwanted behavior of a sexual nature perpetrated upon an individual by another

Hostile work environment

The conduct was unwelcome

The conduct was severe, pervasive, and regarded by claimant as hostile/offensive

The conduct was such that a reasonable person would find it hostile or offensive

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Dual Relationship

A personal, loving, and/or sexual relationship with someone with whom you share professional responsibilities

A key ethical issue in sexual harassment

Unethical dual relationship: The relationship causes a conflict of interest or impairment of professional judgment

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To Avoid Sexual Misconduct,A Firm Needs:1. Statement of policy

2. Definition of sexual harassment

3. Non-retaliation policy

4. Specific procedures for prevention

5. Establish, enforce, and encourage victims to report

6. Establish a reporting procedure

7. Timely reporting requirements to the proper authorities

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Fraud

Any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression

Accounting fraud Misrepresentation of company’s financial reports

Dramatic changes in accounting field

Increased competition and pressures to perform can create opportunities for misconduct

Accountants should abide by a strict code of ethics

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Initial Detection of Operational Frauds

Source: Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse: 2012 Global Fraud Study , 14.

Marketing Fraud

The process of dishonestly creating, distributing, promoting, and pricing products

Puffery: Exaggerated advertising claims, blustering, and boasting

Can be difficult to distinguish from fraud

Implied falsity: An advertising message that misleads, confuses, or deceives the public

Literally false: Claims can be divided into tests prove (establishment claims) and bald assertions (non-establishment claims)

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Consumer Fraud When consumers attempt to deceive

businesses for personal gain

Price tag switching, item switching, or lying to obtain discounts

Collusion involves an employee who helps a consumer commit fraud

Duplicity involves a consumer duping a store

Guile is associated with a person who uses tricks to obtain an unfair advantage

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Financial Misconduct

The failure to understand and manage ethical risks was a key problem in the recent financial crisis Many firms rewarded risk-taking

Difficult-to-understand financial instruments and murky accounting played roles

Government calls for reform Stricter controls on hedge funds and other

instruments

Greater transparency

Dodd-Frank Wall Street Reform and Consumer Protection Act

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Insider Trading

Two types of insider trading

Legal insider trading: Involves legally buying

and selling stock in an insider’s own company,

but not all the time

Illegal insider trading: The buying or selling of

stocks by insiders who possess material

(information) that is not public

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Intellectual Property Rights and Privacy

Involve the legal protection of intellectual properties

Books, movies, software

Many privacy issues in the business world

Employee use of technology

Consumer privacy

Can be challenging for businesses today to meet the needs of consumers while protecting privacy

Identity theft is a growing problem

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The Challenge of Determining Ethical Issues in Business

Most ethical issues become visible through stakeholder concerns

Determining ethical issues is a challenge

Changing societal standards over time

The ethical decision making process starts when ethical issue awareness occurs and a discussion begins

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