CHAPTER 3
Emerging Business Ethics Issues
SUMMARY
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
INSTRUCTOR 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.
LECTURE OUTLINE
I. Recognizing an Ethical Issue (Ethical Awareness)
A. The first step in understanding business ethics is to develop ethical issue awareness.
Awareness arises 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.
Chapter 3: Emerging Business Ethics Issues 15
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.
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
3. Fairness is the quality of being just, equitable, and impartial.
a. In business, equality is about the distribution of benefits and resources. This
4. Honesty, fairness and integrity are the glue that holds businesses together.
III. Ethical Issues and Dilemmas in Business
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. 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.
A. Misuse of company time and resources is a major form of observed misconduct in
organizations.
B. Abusive or intimidating behavior is a common ethical problem for employees. 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.
1. Intent is an important factor in determining whether a situation is abusive.
with millions of Americans reporting having experienced or witnessed bullying at work.
C. 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.
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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.
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.
1. Hacking is one of the top methods for obtaining trade secrets.
a. System hacking assumes that the attacker already has access to a user account
b. Remote hacking involves remotely trying to penetrate a computer system via the
Internet
c. Physical hacking requires that an agent personally enter a facility
recording device can monitor and record a fax line.
G. 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. 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,
Chapter 3: Emerging Business Ethics Issues 17
3. Many companies have initiated affirmative action programs, which involve efforts to
recruit, hire, train, and promote qualified individuals from groups that have
H. 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:
2. The key ethical issue within sexual harassment is called dual relationship, which is
defined as a personal, loving, and/or sexual relationship with someone with whom you
I. 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. Accountants
2. Marketing fraud is the process of dishonestly creating, distributing, promoting, and
pricing products. Serious ethical issues can occur in this area. False or misleading
marketing communications can destroy stakeholder trust in a corporation. False or
deceptive advertising is a key issue in marketing communications.
a. Courts place flase 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.
18 Chapter 3: Emerging Business Ethics Issues
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.
obtain an unfair advantage.
J. Financial Misconduct
1. The failure to understand and manage ethical risks played a significant role in the
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. The Dodd-
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.
K. 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
L. 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.
the world, and existing laws are often difficult to enforce.
M. 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. It
can be a challenge for businesses today to meet the needs of consumers while at the same
time protecting their privacy.
1. 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.
Chapter 3: Emerging Business Ethics Issues 19
a. Consumer awareness of information collection
b. Growing lack of consumer control over how companies use the personal
information they collect.
IV. 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.
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.
“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 bacon.