Part Two

Ethical Issues
and the
Institutionalization
of Business Ethics

Chapter 3
Emerging Business
Ethics Issues

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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
Behavior 2011 (%) 2009 (%)

2012), 39.
Workplace Ethics in Transition (Arlington, VA: Ethics Resource Center,
Source: Ethics Resource Center, 2011 National Business Ethics Survey:
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
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 Integrity: Uncompromising adherence to
ethical values
 One of the most important terms relating to virtue

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 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: 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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 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

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

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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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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
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.
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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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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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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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The collection and analysis of information
on…
 Markets
 Technologies
 Customers and competitors
 Socioeconomic and external political trends

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Three intelligence models
 Passive monitoring system for early warning
 Tactical field support
 Support dedicated to top management
strategy

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 Hacking
 System hacking
 Remote hacking
 Physical hacking
 Social engineering
 Shoulder surfing
 Password guessing
 Dumpster diving
 Whacking
 Phone eavesdropping
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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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 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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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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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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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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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.
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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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 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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 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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 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 that is not
public

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 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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 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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