CHAPTER 3
Emerging Business Ethics Issues
0SUMMARY
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 and consumer
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.
0INSTRUCTOR NOTES FOR “AN ETHICAL DILEMMA”
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?
0LECTURE OUTLINE
0. Recognizing an Ethical Issue (Ethical Awareness)
A. The first step in understanding business ethics is to develop ethical issue awareness.
.
15 Chapter 3: Emerging Business Ethics Issues
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 in business is a situation involving a group, a problem, or even an opportunity that
requires thought, discussion, or investigation in order to make a decision.
II. Foundational Values for Identifying Business Ethics Issues
A. Understanding foundational values can help identify and develop discussions and a constructive
dialogue on appropriate conduct.0
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 malice0
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.
0b. Reciprocity is an interchange of giving and receiving in a social relationship. It is the
return of small favors of approximately equal value. 0
c. Optimization is the trade-off between equity (that is, equality or fairness) and efficiency
(that is, maximum productivity).0
I0. Ethical Issues and Dilemmas in Business
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.
Chapter 3: Emerging Business Ethics Issues 16
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.0
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. 0
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.0
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.0
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.
17 Chapter 3: Emerging Business Ethics Issues
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).0
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.0
1. To establish sexual harassment, an employee must understand the definition of a hostile work
environment, for which three criteria must be met:0
a. The conduct was unwelcome0
b. The conduct was severe, pervasive, and regarded by the claimant as so hostile or
offensive as to alter his or her conditions of employment0
c. The conduct was such that a reasonable person would find it hostile or offensive
2. 00A 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.
Chapter 3: Emerging Business Ethics Issues 18
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.0
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”
19 Chapter 3: Emerging Business Ethics Issues
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.0
L. Financial Misconduct
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.0
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.0
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.
Chapter 3: Emerging Business Ethics Issues 20
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.
7. Employees should be trained to protect data and understand risks associated with information
technology.
IV0. The Challenge of Determining an Ethical Issue in Business
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.
DEBATE ISSUE: TAKE A STAND
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.
21 Chapter 3: Emerging Business Ethics Issues
0“RESOLVING ETHICAL BUSINESS CHALLENGES” NOTES
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?