Chapter 3:

Emerging Business Ethics

Issues

Part Two:
Ethical Issues and the
Institutionalization of Business
Ethics

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 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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 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

© 2013 Cengage Learning. All Rights Reserved. 4

 Fairness and Integrity

 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
 Integrity: Uncompromising adherence to
ethical values
 One of the most important terms relating to virtue

© 2013 Cengage Learning. All Rights Reserved. 5

 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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 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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 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

© 2013 Cengage Learning. All Rights Reserved. 11

 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

© 2013 Cengage Learning. All Rights Reserved. 12

 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

© 2013 Cengage Learning. All Rights Reserved. 13

 Corporate Intelligence
The collection and analysis of
information on
 Markets
 Technologies
 Customers and competitors
 Socioeconomic and external political trends
Three intelligence models
• Passive monitoring system for early warning
• Tactical field support
• Support dedicated to top management strategy
© 2013 Cengage Learning. All Rights Reserved. 14
 Corporate Intelligence
 Hacking
 System hacking
 Remote hacking
 Physical hacking
 Social engineering
 Shoulder surfing
 Password guessing
 Dumpster diving
 Whacking
 Phone eavesdropping
© 2013 Cengage Learning. All Rights Reserved. 15
 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

© 2013 Cengage Learning. All Rights Reserved. 16

 Discrimination (continued)

 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

© 2013 Cengage Learning. All Rights Reserved. 17

 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

© 2013 Cengage Learning. All Rights Reserved. 18

 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

© 2013 Cengage Learning. All Rights Reserved. 19

 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

© 2013 Cengage Learning. All Rights Reserved. 20

 Environmental Issues

Are becoming significant concerns in

business
 Air pollution: Gases and particulates in the air that
can linger or be carried long distances by winds
 The Kyoto Protocol: An international treaty on climate
change that commits nations to reducing greenhouse
gas emissions
 Water pollution: Results from dumping sewage
and toxic chemicals in places where they can filter
into water supplies

© 2013 Cengage Learning. All Rights Reserved. 21

 Environmental Issues (continued)
 Recycling: The reprocessing of materials,
especially steel, aluminum, paper, glass,
rubber, and some plastics
 Consumers consider recycling to be the most
important thing they can do to live “greener” lives
 Alternative energy: Is considered “green”
because it produces fewer emissions and
creates less pollution
Wind Hydropower
Solar Biofuels
Geothermal Nuclear
© 2013 Cengage Learning . All rights reserved. 22
 Consumers’ Favorite Green Practices

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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

© 2013 Cengage Learning. All Rights Reserved. 24

 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 and bald assertions (non-establishment
claims)

© 2013 Cengage Learning. All Rights Reserved. 25

 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

© 2013 Cengage Learning. All Rights Reserved. 26

 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

© 2013 Cengage Learning. All Rights Reserved. 27

 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 that is
not public

© 2013 Cengage Learning. All Rights Reserved. 28

 Intellectual Property Rights and
Privacy
Involve the legal protection of intellectual
properties
 Books, movies, software
 Can be difficult to enforce
 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

© 2013 Cengage Learning. All Rights Reserved. 30