Key Issues in Business Ethics

This unit has the following learning objectives:

To identifying three key values that enable decision makers to evaluate activities that might have significant ethical dimensions:

  • Integrity
  • Honesty
  • fairness

To understand and identify the range of issues that typically challenge managers, leaders and employees.

To understand and recognise the four levels of ethical issues.

To identify the type of ethical challenges that we face by profession and industry sector.

To consider some of the ethical issues in HR, Marketing and Accounting and Finance.

What is an Ethical Issue?

  • An ethical issue can be seen as a problem, situation, or opportunity, which has several possible options, and where each must be evaluated as right or wrong, ethical or unethical.
  • Aguilar states, “Managers who are sensitive to the ethical content of business decisions and operational activities, who agree to behave ethically, and who hold compatible views on how to analyse ethical situations still must confront the inherently perplexing nature of many ethical problems” (1994, p33).

Three Key Values

Ferrell, Fraedrich and Ferrell (2015) provide a simple approach of identifying three key values that enable decision makers to evaluate activities that might have significant ethical dimensions:

  • Integrity
  • Honesty
  • Fairness

Four Levels of Business Ethics

MacDonald (2015) provides a different approach to understanding ethical issue. Rather than using concepts of principles and values as suggested by Farrell, Fraedrich and Farrell above, she used a contextual approach:

  • Personal Level- each person must engage in ethical decision making as we wrestle with various options and possible outcomes that are associated with business decisions- ultimately we still must make the decision.
  • Organisational level- as agents of a firm, we make decisions on behalf of or in the interests of the organisation rather than self-interest. -If a manager makes the decision for organisation- who is held responsible- the organisation as a legal person or the manager or both?
  • National Level- at this level ethics relates to the expectations a society collectively holds about the behaviour of its citizens, organisation and the practices deemed acceptable. MacDonald suggests that bribery and corruption can be considered as national level issues
  • International Level- in many ways this level seeks to address how the national level issues interact on a global stage- concepts such as globalisation, ecological and sustainability and economic aspects such as fair trade, tax inconsistencies, free trade agreements can be seen as ethical because they all have the potential to generate benefits and harms for few, some or all.

Industries, Sectors and Professions

  • There are many different ways of categorising and describing ethical issues.
  • MacDonald (2015) notes some issues can be specific to industries such as the banking and finance, retail or hospitality industries.
  • Some may be specific to the private sector more so than the public and not for profits. Another way is to look at issues as they pertain to the “professions” such as Doctors and Nurses, Lawyers, Accountants and Marketers etc.,

Industries, Sectors & Professions

Farrell Fraedrich and Farrell (2015) simply describe a range of ethical issues that could apply to sectors, industries and professionals:

  • Misuse of company time and resources
  • Abusive or intimidating behaviour
  • Lying
  • Conflicts of interest
  • Bribery (and Corruption)
  • Corporate intelligence
  • Discrimination sexual harassment
  • Fraud
  • Insider trading
  • Intellectual property rights
  • Privacy Issues

Conflict of Interest

Differentiating private versus organizational interests is problematic due to the fact that establishing ethical relationships is in part linked to reciprocity- the concept of doing something for another person with the expectation that the favour will be returned.

Reciprocity is the basis of developing a trusting relationship with another person.

Different cultures have slightly different ways of facilitating reciprocity-

  • A conflict of interest is a situation where an individual advances their own personal interest at the expense of the organization.
  • It can also be were a person’s existing relationships with stakeholders result in decision making being potentially compromised.

Conflict of Interest

Conflict and Agency

  • Agency describes the relationship between owners of a business and those who are delegated the tasks of running the business, making the product or service and bringing it to the market.
  • The expectation is that the “agent” will act in the interests of the organization and thus the owners and will not their personal interest.

Real v Perceived Conflict of Interest

A real conflict of interest is when a manager or leader’s ability to act in the interests of the organisation is compromised and they make a decision which clearly is to their own benefit at the expense of the organization.

A perceived conflict of interest occurs when stakeholders and others believe that a manager or leader’s ability to act in the interests of the organisation is compromised.

It does not necessarily mean that it is, but people believe it to be the case.

Inappropriate behaviour in the workplace

  • Farrell, Fraedrich and Farrell (2015) identify a range of interpersonal behaviours that related to how people interact and related to each other that are clearly ethical issues and in some cases illegal behaviour.
  • In recent years discrimination, sexual harassment and bullying in the workplace have been gaining greater attention, particularly in the Australian context.

Ethical Issues in HR

McDonald (2015) identifies a number of ethical issues which occur within the HR discipline including:

  • Issues relating to the rights and duties of employees with those of managers
  • Discrimination
  • Ethical issues during recruitment and selection, compensation, engaging in the work environment, safety and health and separation from an organisation
  • The characteristics of a ‘just’ work environment
  • Rights of employees – the right to:
  • a safe working environment
  • fair compensation
  • information
  • consultation and to express one’s view
  • fair treatment
  • confidentiality and privacy
  • equity and fairness.
  • Respect – ensure that:
  • all employees in an organisation demonstrate consideration, esteem and deference
  • staff are not subject to inequitable treatment or discrimination.

Ethical Issues in HR

  • Duties – of both the employees and the managers:
  • occupational health and wellbeing
  • expectation of honesty and integrity by all parties.
  • Due process – ensuring adherence to appropriate procedures and processes.
  • Justice – ensuring equity and fairness in the workplace.
  • Environmental awareness – the pursuit of sustainability in human resource practices.
  • Confidentiality – upholding the confidence of information and processes to protect privacy.

Ethical Issues in HR

Ethical Issues in recruitment, selection and promotion

  • Deceptive applicant information –
    providing false or deceptive information.
  • Soliciting unwarranted information –
    information sought from an applicant must be related to valid criteria that clearly relate to the job in question.
  • Discrimination occurs when preferential treatment is bestowed on employees on grounds other than their qualifications or job performance (Crane & Matten 2010).
  • Glass ceiling
    When an otherwise qualified person reaches an invisible barrier that prevents promotion or salary increases, they are said to have reached a glass ceiling.
  • (McDonald, 2015)

Ethical Issues in HR

Ethical Issues in the workplace

Sexual harassment is where unwelcome sexual advances are made (either verbally or physically).

Workplace bullying has been defined by Victoria Legal Aid as persistent, unwelcome behaviour, mostly using unwarranted or invalid criticism, finding fault, exclusion or isolation. Bullying is a significant health and safety issue, for which employers

are being held responsible.

Violence in the workplace

  • (McDonald, 2015)

Ethical Issues in HR

Organisations that engage in ethical marketing behaviour, such as The Body Shop, engender trust and loyalty, where as organisations that exhibit unethical behaviour erode the confidence of consumers and key stakeholders and can ultimately threaten their own viability through the imposition of greater control or through loss of profitability.

Key Ethical Issues in Marketing

  • Honesty – ensuring accurate representation of the product or service.
  • Accepting responsibility – actions as: serving the needs of customers, avoiding coercion, acknowledging obligations to stakeholders.
  • Confidentiality – protect the private information of customers, employees and partners.
  • Transparency – promoting a spirit of openness in marketing operations.
  • Equity and fairness – justly balancing the needs of the buyer with the interests of the seller.
  • (McDonald, 2015)

Ethical Issues in Marketing

Promotional activity has the tricky task of encouraging consumers to buy but without deceiving or manipulating them. The main criticisms of promotion and the many forms of marketing communication are that it is inherently untruthful, deceptive, unfair, manipulative and offensive (Eagle 2009).

  • Misrepresentation
    Misleading, fraudulent or untrue advertising.
  • Offensive advertising
    Can relate to both the content of the advertisement, that is, overtly sexual, demeaning to women, promoting stereotypes, being disrespectful etc., and also to the products themselves, for example, alcohol, tobacco,
    pharmaceuticals and adult products.
  • Stereotyping
    Gender and racial stereotyping:
  • Deceptive advertising using social media
    False testimonials and fake tweets refer to content generated by the company itself or by someone paid by the company

Ethical Issues in Marketing

  • Public relations
    The role and reputation of the public relations profession is to ensure that a favourable image between the organisation and its ‘public’/stakeholders is maintained, while balancing the company’s integrity and gaining the public’s trust.
  • Sponsorship
    Is a powerful promotional tool, but organisations can come unstuck if the personality to whom they attach their brand acts unethically and is perceived unfavourably by the general public. For example companies that used Lance Armstrong to promote their sporting products
  • (McDonald, 2015)

Ethical Issues in Marketing

Other ethical issues in marketing:

  • Distribution of products and service
  • Data collection and research
  • Privacy of customer information
  • Targeting disadvantages groups
  • Cause related marketing

Ethical Issues in Marketing

  • McDonald (2015) notes that there are many ethical issues in the accounting and finance industry.
  • She highlights misrepresentation and inaccurate financial reporting, accounting fraud, insider trading, conflict of interest, tax avoidance and tax evasion, money laundering and investment scams as amongst the most significant.
  • Misrepresentation and inaccurate financial reporting includes false expenses, over/under valuation of assets and liabilities, inflated profits or hiding losses etc.
  • Accounting fraud occurs when an employee steals cash, assets or other resources from a firm. According to KPMG (2015) the average fraud in Australia and New Zealand is valued at over $3million and only 30% of frauds are reported.
  • Insider Trading occurs when individuals take advantage of access to information before it enters the marketplace, e.g. buying or selling shares due to information not available t the public

Ethical Issues in Finance & Accounting

Tax minimisation – when corporate structures, processes and practices are legitimately organised to reduce the amount of tax paid.

Tax avoidance – is an arrangement which complies with the letter of the law but is possibly not within the spirit of the law. Accounting techniques for tax avoidance include:

  • Transfer pricing – allows companies to shift money between certain tax jurisdictions to avoid paying tax twice on the same amount.
  • Offshore billing – the parent company charges Australian consumers for services from its offshore tax haven subsidiary and the money goes directly to the tax haven.
  • Thin capitalisation – the parent company lends money to its Australian subsidiary via an offshore finance arm based in a low tax jurisdiction.
  • Intangible assets – the parent company in the tax haven owns intangible assets such as Intellectual Property and licenses the use of that property to the Australian operation which pays significant sums to the tax haven based subsidiary, thereby stripping out taxable revenue from the Australian company and placing that revenue in the low tax location.

Tax evasion – where unlawful actions are taken to avoid tax.

(McDonald, 2015)

Ethical Issues in Finance & Accounting

Transparency International (2009) describes money laundering as the process of concealing the origin, ownership, or destination of illegally or dishonestly claimed money by hiding it within legitimate economic activities.

Investment scams are also referred to as Ponzi schemes and in effect use the monies of new investors to pay “returns” to those who joined earlier. The most well know recent scheme was perpetrated by Bernie Madoff in the US whose victims lost an aggregate of US$20 billion.

Ethical Issues in Finance & Accounting