MODULE 3

BUSINESS ETHICS

Session Topic: Emerging Business Ethics

Learning Objectives:
The following specific learning objectives are expected to be realized at the end of the session:

1. Define ethical issues in the context of organizational ethics.

2. Identify the causes of unethical behavior in business
3. Identify ethical issues and determine how they relate to the basic values of honesty, fairness, and
integrity
4. Describe the different ethical issues and dilemmas in business.
5. Explain the challenges of determining an ethical issue in business.

Key Points:
Ethical issues Shareholders issues
Ethical dilemma Ethical issues in business
Foundational values for ethical behavior Ethical dilemmas in business
Privacy issues

Core Content:

Introduction
In this module the universal concepts that pervade business ethics, such as integrity, honesty, and
fairness will be explained. It will also 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, financial misconduct, insider trading,
intellectual property rights, and privacy as well as the the challenge of determining decisions that have an
ethical component for the firm to consider.

Topics include the following:

1. Recognizing an Ethical Issue
2. Foundational Values for Identifying Ethical Issues
3. Ethical Issues and Dilemmas in Business
4. The Challenge of Determining an Ethical Issue in Business

In-text Activities

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

DILEMMAS IN BUSINESS

• Is a problem, situation, or opportunity that requires an individual, group, or organization to choose

among several actions that have negative outcomes

SHAREHOLDER ISSUES

1. Core values

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2. Shareholder participation in electing directors
3. Executive compensation
4. Legal compliance
5. Lobbying and political activities
6. Reputation management
7. Integrity in collecting and managing data
8. Supply chain relationships and human rights

ETHICAL ISSUES

Types of Observed Misconduct

1. Misuse of company time

2. Abusive behaviour
3. Lying to employees
4. Company resource abuse
5. Violating company internet use policies
6. Discrimination
7. Conflicts of interest
8. Inappropriate social networking
9. Health or safety violations
10. Lying to outside stakeholders
11. Stealing
12. Falsifying time reports or hours worked
13. Employee benefit violations
14. Sexual harassment

CAUSES OF UNETHICAL BEHAVIOR

Meeting overly aggressive financial or business objectives which clash with employee personal
objectives and customers safety
Meeting schedule pressures
Helping the organization survive
Resisting competitive threats
Saving jobs

FOUNDATIONAL VALUES FOR IDENTIFYING ETHICAL ISSUES

Integrity

- Integrity is one of the most important and oft-cited elements of virtue, and refers to being
whole, sound, and in an unimpaired condition.
- Integrity is a value that relates to all business activities, not just ethical issues.
- Integrity relates to product quality, open communication, transparency, and relationships
- An organization’s integrity usually rests on its enduring values and unwillingness to deviate
from standards of behavior as defined by the firm and industry

Honesty

- Honesty refers to truthfulness or trustworthiness. To be honest is to tell the truth to the best of
your knowledge without hiding anything.
- The opposite of honesty is dishonesty. Dishonesty can be broadly defined as a lack of
integrity, incomplete disclosure, and an unwillingness to tell the truth. Lying, cheating, and
stealing are actions usually associated with dishonest conduct.
- The causes of dishonesty are complex and relate to both individual and organizational
pressures. Many employees lie to help achieve performance objectives.

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 Fairness

- Fairness is the quality of being just, equitable, and impartial. Fairness clearly overlaps with
concepts of justice, equity, equality, and morality.

- There are three fundamental elements that motivate people to be fair: equality, reciprocity,
and optimization.

o Equality is about the distribution of benefits and resources. This distribution could be
applied to stakeholders or the greater society.

o Reciprocity is an interchange of giving and receiving in social relationships. Reciprocity

occurs when an action that has an effect upon another is reciprocated with an action that
has an approximately equal effect. Reciprocity is the return of favors approximately equal
in value.

o Optimization is the trade-off between equity (equality) and efficiency (maximum

productivity). Discriminating on the basis of gender, race, or religion is generally
considered unfair because these qualities have little bearing upon a person’s ability to do
a job. The optimal way to hire is to choose the employee who is the most talented,
proficient, educated, and able.

Ideas of fairness are sometimes shaped by vested interests. One or both parties in the
relationship may view an action as unfair or unethical because the outcome was less beneficial
than expected.

ETHICAL ISSUES AND DILEMMAS IN BUSINESS

1. Misuse of company time and resources (time theft)

a. Late arrivals d. inappropriate sick days
b. Leave early e. excessive socializing
c. Long lunch breaks f. engaging in personal activities (online shopping)

2. Abusive or intimidating behavior

a. Physical threats f. yelling

b. False accusations g. harshness
c. Being annoying h. ignoring someone
d. Profanity i. unreasonableness
e. Insults j. bullying

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 3. Lying

a. Commission lying is creating a perception or belief by words that intentionally deceive the
receiver of the message
b. Omission lying is intentionally not informing others of any differences, problems, safety
warnings, or negative issues relating to the product or company that significantly affect
awareness, intention, or behaviour

4. Conflict of interests

a. Exist when an individual must choose whether to advance his or her own interests, those of
organization, or those of the organization, or those of some other group
b. To avoid conflicts of interest, employees must be able to separate their private interests from
their business dealings

5. Bribery

a. The practice of offering something in order to gain an illicit advance from someone in authority
b. Gifts, entertainment, and travel can also be used as bribes

Related to the ethics of bribery is the concept of active corruption or active bribery , meaning the
person who promises or gives the bribe commits the offense.

Passive bribery is an offense committed by the official who receives the bribe. It is not an
offense, however, if the advantage was permitted or required by the written law or regulation of
the foreign public official’s country.

6. Corporate intelligence

a. The collection and analysis of information on markets, technologies, customers, and

competitors, as well as on socioeconomic and external political trends

Issues Related to Corporate Intelligence

a. Hacking (System, Remote, and Physical)

b. Social engineering - It uses psychological manipulation to trick users into making security
mistakes or giving away sensitive information
c. Password guessing
d. Dumpster diving - is the process of searching trash to obtain useful information about a
person/business that can later be used for the hacking purpose

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 e. Whacking (wireless hacking) - to access the data on a wireless network without authorization
f. Phone eavesdropping

7. Discrimination

a. Discrimination on the basis of race, color, religion, sex, marital status, sexual orientation,
public assistance status, disability, age, national origin, or veteran status

8. Sexual harassment

a. Can be defined as any repeated, unwanted behaviour of a sexual nature perpetrated upon
one individual by another
b. It may be verbal, visual, written, or physical and can occur between people of different
genders or those of the same gender
c. The key ethical issues associated with sexual harassment are dual relationships and
unethically intimate relationships

9. FRAUD

a. Is any purposeful communication that deceives, manipulates, or conceals facts in order to

harm others
b. Accounting fraud, Marketing fraud, Puffery, Implied falsity, and Labelling issues

Accounting fraud - usually involves inaccurate information whether intentionally or not on

corporation’s financial reports, on which investors and others base decisions involving millions.

Pressures on accountants today include time, reduced fees, client requests to alter opinions
concerning financial conditions or lower tax payments, and increased competition

Marketing fraud - —the process of dishonestly creating, distributing, promoting, and pricing
products. False or misleading marketing communications destroys customers’ trust in a company.

Puffery can be defined as exaggerated advertising, blustering, and boasting upon

which no reasonable buyer would rely and is not actionable.

Implied falsity means the message has a tendency to mislead, confuse, or deceive
the public. Advertising claims that use implied falsity are those that are literally true but
imply another message that is false.

Labeling issues - change of product’s labels intended to stave off increasing scrutiny
of critics.

10. Consumer fraud

a. It occurs when consumers attempt to deceive business for their own gain
b. Consumers engage in many reforms of fraud against businesses, including price tag
switching, item switching, lying to obtain age-related and other discounts, and taking
advantage of generous return policies by returning used items, especially clothing that has
been worn (with the price tags still attached)

11. Financial misconduct

a. Means fraud, gross negligence or intentional or wilful misconduct that contributes, directly or
indirectly, to the company’s financial or operational results

12. Insider trading

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 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 own company

13. Intellectual property right infringement

a. Intellectual property infringement is the violation of a protected intellectual property right.

Intellectual property rights are the rights given to an inventor or creator for their original
works. This means that infringement is violating the right protected by a patent, trademark, or
copyright

Privacy Issues

Some privacy issues that must be addressed by businesses include the monitoring of employees’ use
of available technology and consumer privacy.

Employee privacy. There are few legal protections of an employee’s right to privacy, which allows
businesses a great deal of flexibility in establishing policies regarding employee privacy while using
company equipment on company property. From computer monitoring and telephone taping to video
surveillance and GPS satellite tracking, employers are using technology to manage their productivity
and protect their resources. The ability to gather and use data about employee behavior creates an
ethical issue related to trust and responsibility.

Consumer privacy. There are two dimensions to consumer privacy: consumer awareness of
information collection and a growing lack of consumer control over how companies use the personal
information they collect.

Environmental issues

– Kyoto protocol emission carbon dioxide Global worming (Climate treaty)

– Water pollution dumping raw swage or toxic materials in river
– Waste management
– Green revolution

THE CHALLENGE OF DETERMINING AN ETHICAL ISSUE IN BUSINESS

Most ethical issues concerning a business will become visible through stakeholder concerns about an
event, activity, or the results of a business decision. The mass media, special interest groups, and
individuals, through the use of blogs, podcasts, and other individual generated media, often generate
discussion about the ethical nature of a decision.

How to Identify an Ethical Issue

- An activity approved by most members of the organization and customary in the industry is
probably ethical.
- If the issue withstands open discussion between groups within and outside the organization,
it is probably ethical.
- Covert (Secret) discussion and destroyed or documents indicate potential problems.
An activity approved by most members of the
Summary

Recognizing an ethical issue is essential to understanding business ethics and therefore to create an
effective ethics and compliance program that minimizes unethical behavior. Businesspeople must
understand the universal moral constants of honesty, fairness, and integrity. Without embracing these
concepts, running a business becomes difficult. Fairness is the quality of being just, equitable, and

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impartial, and overlaps with concepts of justice, equity, equality, and morality. The three fundamental
elements that motivate people to be fair are equality, reciprocity, and optimization. Equality relates to how
wealth is distributed between employees within a company, country, or globally; reciprocity relates to the
return of favors approximately equal in value; and integrity refers to a person’s character and is made up
of two basic parts, a formal relation one has to oneself and a person’s set of terminal, or enduring, values
from which he or she does not deviate.

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. By contrast,
an ethical dilemma has no right or ethical solution. Abusive or intimidating behavior includes physical
threats, false accusations, being annoying, profanity, insults, yelling, harshness, ignoring someone, and
unreasonableness. Bribery is the practice of offering something (usually money) in order to gain an illicit
advantage. A conflict of interest occurs when individuals must choose whether to advance their own
interests, those of the organization, or some other group. Corporate intelligence is the collection and
analysis of information on markets, technologies, customers, and competitors, as well as on
socioeconomic and external political trends. The tools of corporate intelligence are many. One tool is
hacking, accomplished through systemic, remote, and physical means; another is social engineering, in
which someone is tricked into revealing valuable corporate information. Other techniques include
dumpster diving, whacking, and phone eavesdropping. Another ethical/legal issue is discrimination on the
basis of race, color, religion, sex, marital status, sexual orientation, public-assistance status, disability,
age, national origin, or veteran status. Additionally, discrimination on the basis of political opinions or
affiliation with a union is defined as harassment. Sexual harassment is a form of sex discrimination.

Assessment/Evaluation

1. Case study
2. End of lesson quiz

References
(Please refer to the course syllabus)

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