Chapter 3:

Managing Ethical Business

Concerns

Part Two:
Ethical Challenges and Public
Policy Responses

© 2013 Cengage Learning. All Rights Reserved. 1

 Recognizing an Ethical Issue

An ethical issue is a problem, situa2on, or

opportunity that requires an individual or
group to choose among ac2ons
 New ethical issues are emerging constantly
 Can be di=cult to recognize ethical issues
Failure to do so puts corpora/ons at risk
• Is a problem in industries where winning is
perceived to be a game

© 2013 Cengage Learning. All Rights Reserved. 2

 Specific Types of Observed Misconduct

© 2013 Cengage Learning. All Rights Reserved. 3

 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 impar2al
 Equality: How wealth or income is distributed
 Reciprocity: Occurs when an ac2on that has an eJect
upon another is returned
 OpBmizaBon: The tradeoJ between equity and
e=ciency
 Integrity: Uncompromising adherence to
ethical values
 One of the most important terms rela2ng to virtue

© 2013 Cengage Learning. All Rights Reserved. 5

 Ethical Issues and Dilemmas in Business

 An ethical dilemma is a problem, situa2on, or

opportunity that requires an individual or
group to chose among several wrong or
unethical ac2ons
 There is no ethical choice

© 2013 Cengage Learning. All Rights Reserved. 6

 Shareholder Issues

© 2013 Cengage Learning. All Rights Reserved. 7

 Misuse of Company Resources

The leading form of observed misconduct

 Can range from unauthorized use of
equipment and computers to embezzling
company funds
 Time theO costs organiza2ons hundreds of
billions in lost produc2vity annually

© 2013 Cengage Learning. All Rights Reserved. 8

 Abusive or Intimidating Behavior

One of the most common ethical problems

 Can be physical threats, false accusa2ons,
profanity, insults, harshness, ignoring
someone, or unreasonableness
 Intent is important in determining abuse

Bullying is a growing problem

• Is associated with a hos2le workplace

© 2013 Cengage Learning. All Rights Reserved. 9

 Actions Associated with Bullies

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 Lying

Three types of lies

 Joking without malice
 Commission lying is crea2ng a false percep2on
with words that deceive the receiver
 Crea2ng noise
 Omission lying is inten2onally not informing
channel members of problems rela2ng to a
product that aJects awareness, inten2on, 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 organiza2on, or
some other group
 Individuals must separate personal interests
from business dealings

© 2013 Cengage Learning. All Rights Reserved. 12

 Bribery

The prac2ce of oJering something in order

to gain an illicit advantage
 DiJerent types of bribery
 AcBve bribery: The person who promises or gives
the bribe commits the oJense
 Passive bribery: An oJense commiXed by the
o=cial who receives the bribe
Facilita,on payments: Legal as long as they
are small

© 2013 Cengage Learning. All Rights Reserved. 13

 Corporate Intelligence
The collec2on and analysis of
informa2on on
 Markets
 Technologies
 Customers and compe2tors
 Socioeconomic and external poli2cal trends
Three intelligence models
• Passive monitoring system for early warning
• Tac2cal \eld 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 sur\ng
 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 discrimina2on 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, promo2on, or privileges

© 2013 Cengage Learning. All Rights Reserved. 16

 Discrimination (continued)

 Equal Employment Opportunity Commission

(EEOC)
 The Age DiscriminaBon in Employment Act
 AJrmaBve AcBon Programs
 EJorts to recruit, hire, train, and promote quali\ed
individuals from groups that have tradi2onally
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
 HosBle work environment
 The conduct was unwelcome
 The conduct was severe, pervasive, and regarded
by claimant as hos2le/oJensive
 The conduct was such that a reasonable person
would \nd it hos2le or oJensive

© 2013 Cengage Learning. All Rights Reserved. 18

 Dual Relationship

A personal, loving, and/or sexual

rela2onship with someone with whom you
share professional responsibili2es
 A key ethical issue in sexual harassment

Unethical dual rela,onship: The

rela/onship causes a con@ict 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. De\ni2on of sexual harassment
3. Non-retalia2on policy
4. Speci\c procedures for preven2on
5. Establish, enforce, and encourage vic2ms to
report
6. Establish a repor2ng procedure
7. Timely repor2ng requirements to the proper
authori2es

© 2013 Cengage Learning. All Rights Reserved. 20

 Environmental Issues

Are becoming signi\cant concerns in

business
 Air polluBon: Gases and par2culates in the air that
can linger or be carried long distances by winds
 The Kyoto Protocol: An interna2onal treaty on climate
change that commits na2ons to reducing greenhouse
gas emissions
 Water polluBon: Results from dumping sewage
and toxic chemicals in places where they can \lter
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 plas2cs
 Consumers consider recycling to be the most
important thing they can do to live “greener” lives
 AlternaBve energy: Is considered “green”
because it produces fewer emissions and
creates less pollu2on
Wind Hydropower
Solar Biofuels
Geothermal Nuclear
© 2013 Cengage Learning . All rights reserved. 22
 Consumers’ Favorite Green Practices

© 2013 Cengage Learning. All Rights Reserved. 23

 Fraud

Any purposeful communica2on that

deceives, manipulates, or conceals facts in
order to create a false impression
 Accoun2ng fraud
 Misrepresenta2on of company’s \nancial reports
 Drama2c changes in accoun2ng \eld
 Increased compe22on and pressures to perform
can create opportuni2es for misconduct
 Accountants should abide by a strict code of ethics

© 2013 Cengage Learning. All Rights Reserved. 24

 Marketing Fraud
The process of dishonestly crea2ng,
distribu2ng, promo2ng, and pricing products
 PuOery: Exaggerated adver2sing claims,
blustering, and boas2ng
 Can be di=cult to dis2nguish from fraud
 Implied falsity: An adver2sing message that
misleads, confuses, or deceives the public
 Literally false: Claims can be divided into tests
prove and bald asser/ons (non-establishment
claims)

© 2013 Cengage Learning. All Rights Reserved. 25

 Consumer Fraud

 When consumers aXempt 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 \nancial
crisis
 Many \rms rewarded risk-taking
 Di=cult-to-understand \nancial instruments and
murky accoun2ng played roles
 Government calls for reform
 Stricter controls on hedge funds and other
instruments
 Greater transparency
 Dodd-Frank Wall Street Reform and Consumer
Protec/on 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 2me
 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 protec2on of intellectual

proper2es
 Books, movies, soOware
 Can be di=cult 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 protec2ng privacy
Iden/ty theJ is a growing problem
© 2013 Cengage Learning. All Rights Reserved. 29
 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 2me

The ethical decision making process starts

when ethical issue awareness occurs and a
discussion begins

© 2013 Cengage Learning. All Rights Reserved. 30