Ethical Business Issues & Solutions

Ethics in Business:
Business ethics studies appropriate business policies and practices regarding potentially controversial subjects,
including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, fiduciary
responsibilities, and much more. The law often guides business ethics, but at other times business ethics provide
a basic guideline that businesses can follow to gain public approval

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Note

Business ethics refers to implementing appropriate business policies and practices with regard to arguably
controversial subjects.
Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery,
discrimination, social responsibility, and fiduciary responsibilities.
The law usually sets the tone for business ethics, providing a basic guideline that businessescan choose to follow
to gain public approval

Understanding Business Ethics

Business ethics ensure that a certain basic level of trust exists between consumersand various forms of market
participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios
of family members andsmall individual investors as they do to wealthier clients. These kinds of practices ensure
the public receives fair treatment.

The concept of business ethics began in the 1960s as corporations became moreaware of a rising consumer-
based society that showed concerns regarding the environment, social causes, and corporate responsibility. The
increased focus on "social issues" was a hallmark of the decade.

Since that time, the concept of business ethics has evolved. Business ethics goesbeyond just a moral code of
right and wrong; it attempts to reconcile what companies must do legally vs. maintaining a competitive
advantage over other businesses. Firms display business ethics in several ways.

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Business ethics ensure a certain level of trust between consumers and corporations,guaranteeing the public fair
and equal treatment.

Ϟ Important
Business ethics ensure a certain level of trust between consumers and corporations,guaranteeing the public fair
and equal treatment.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behavior and how a lack of these
moral principles contributes to the downfall ofmany otherwise intelligent, talented people and the businesses
they represent

There are generally 12 Business ethics principles:

 Leadership: The conscious effort to adopt, integrate, and emulate the other 11 principles to guide
decisions and behavior in all aspects of professional and personal life.
 Accountability: Holding and others responsible for their actions. Commitment to following ethical
practices and ensuring others follow ethics guidelines.
 Integrity: Incorporates other principles—honesty, trustworthiness, and reliability. Someone with
integrity consistently does the right thing and strivesto hold themselves to a higher standard.
 Respect for others: To foster ethical behavior and environments in the workplace, respecting others is a
critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.
 Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths, omissions, and under
or overstating don't help a business improve its performance. Bad news should be communicated and
received in the same manner as good news so that solutions can be developed.
 Respect for laws: Ethical leadership should include enforcing all local, state, and federal laws. If there
is a legal grey area, leaders should err on the side oflegality rather than exploiting a gap.
 Responsibility: Promote ownership within an organization, allow employeesto be responsible for their
work, and be accountable for yours.
 Transparency: Stakeholders are people with an interest in a business, such as shareholders, employees,
the community a firm operates in, and the familymembers of the employees. Without divulging trade
secrets, companies

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  should ensure information about their financials, price changes, hiring and firing practices, wages and
salaries, and promotions are available to thoseinterested in the business's success.
 Compassion: Employees, the community surrounding a business, business partners, and customers
should all be treated with concern for their well-being.
 Fairness: Everyone should have the same opportunities and be treated the same. If a practice or
behavior would make you feel uncomfortable or placepersonal or corporate benefit in front of equality,
common courtesy, and respect, it is likely not fair.
 Loyalty: Leadership should demonstrate confidentially and commitment totheir employees and the
company. Inspiring loyalty in employees and management ensures that they are committed to best
practices.
 Environmental concern: In a world where resources are limited, ecosystemshave been damaged by past
practices, and the climate is changing, it is of utmost importance to be aware of and concerned about
the environmental impacts a business has. All employees should be encouraged to discover andreport
solutions for practices that can add to damages already done.

Why is Business Ethics important

There are several reasons business ethics are essential for success in modern business. Most importantly,
defined ethics programs establish a codeof conduct that drives employee behavior—from executives to middle
management to the newest and youngest employees. When all employees make ethical decisions, the company
establishes a reputation for ethical behavior . Its reputation grows, and it begins to experience the benefits a
moral establishment reaps

 Brand recognition and growth

 Increased ability to negotiate
 Increased trust in products and services
 Customer retention and growth
 Attracts talent
 Attracts investors

When combined, all these factors affect a business' revenues. Those that failset ethical standards and enforce
them are doomed to eventually find themselves alongside Enron, Arthur Andersen, Wells Fargo, Lehman
Brothers, Bernie Madoff, and many others.

Types of Business Ethics:

1. General Business Ethics

2. Functional Business Ethics
3. International Business Ethics
4. Ethics of economic system

3Cs of Business Ethics:

Comply: With laws of land, customs, community and other laws/regulations

Contribute : Produce high quality goods for society
Consequence: Internal/External, Intentional/Unintentional based on Business

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There are several theories regarding business ethics, and many different types can be found, but what makes a
business stand out are its CorporateSocial Responsibility practices, transparency and trustworthiness, fairness,
and technological practices.

Corporate Social Responsibility

Corporate social responsibility (CSR) is the concept of meeting the needs of stakeholders while accounting for
the impact meeting those needs has on employees, the environment, society, and the community in which the
business operates. Of course, finances and profits are important, but they should be secondary to the welfare of
society, customers, and employees—because studies have concluded that corporate governance and ethical
practices increase financialperformance.

Note:

Businesses should hold themselves accountable and responsible for theirenvironmental, philanthropic, ethical,
and economic impacts.

Transparency and Trustworthiness

It's essential for companies to ensure they are reporting their financial performance ina way that is transparent.
This not only applies to required financial reports but all reports in general. For example, many corporations
publish annual reports to their shareholders.

Most of these reports outline not only the submitted reports to regulators, but howand why decisions were made,
if goals were met, and factors that influenced performance. CEOs write summaries of the company's annual
performance and give their outlooks.

Press releases are another way companies can be transparent. Events important toinvestors and customers should
be published, regardless of whether it is good or bad news.

Technological Practices and Ethics

The growing use of technology of all forms in business operations inherently comeswith a need for a business
to ensure the technology and information it gathers is.

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being used ethically. Additionally, it should ensure that the technology is secured to the utmost of its ability,
especially as many businesses store customer information and collect data that those with nefarious intentions
can use.

Fairness

A workplace should be inclusive, diverse, and fair for all employees regardless of race, religion, beliefs, age, or
identity. A fair work environment is where everyone can grow, be promoted, and become successful in their
own way.

How to Implement Good Business Ethics

Fostering an environment of ethical behavior and decision-making takes time andeffort—it always starts at the
top. Most companies need to create a code of conduct/ethics, guiding principles, reporting procedures, and
training programs to enforce ethical behavior

Once conduct is defined and programs implemented, continuous communication with employees becomes
vital. Leaders should constantly encourage employees toreport concern behavior—additionally, there should
be assurances that if whistle- blowers will not face adversarial actions.

Note:

Example: A pipeline for anonymous reporting can help businesses identifyquestionable practices and reassure
employees that they will not face any consequences for reporting an issue.

Monitoring and Reporting Unethical Behavior

When preventing unethical behavior and repairing its adverse side effects, companies often look to managers
and employees to report any incidences they observe or experience. However, barriers withinthe company
culture (such as fear of retaliation for reporting misconduct) can prevent this from happening.

Published by the Ethics & Compliance Initiative (ECI), the Global Business Ethics Survey of2021 surveyed
over 14,000 employees in 10 countries about different types of misconduct they observed in the workplace.
49% of the employees surveyed said they had observed misconduct and 22% said they had observed behavior
they would categorize as abusive.
86% of employees said they reported the misconduct they observed. When questioned if theyhad experienced
retaliation for reporting, 79% said they had been retaliated against.

Ethics Audit:
An ethical culture is the foundation of effective internal controls. Every auditor knows that internal controls are
best practice and necessary to ensure compliance with applicable laws and regulations and to ensure that there
is a system of checks and balances to detect inappropriate transactions. Yet, without a culture of ethics and
compliance, people will find ways to circumvent internal controls, policies, and procedures.

While there is no set ethics audit definition, an ethics audit can include reviewing the code of ethics, reviewing
past incidents and the response by the individual and the organization, and interviewing employees to
understand their perspective on the organization’s ethics. Some choose to utilize different ethics audit types.
The ethics audit types vary from assessing individual employee awareness to understanding the overall ethical
culture. In the end, ethics auditing is similar to any other audit. We approach the audit by defining an
organizational objective, risks, and controls. The objective is to build a strong ethical culture and the risks
include lack of awareness, weak incident reporting, and poor commitment from management. fear of
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retaliation is one of the primary reasons employees cite for not reporting unethical behavior in the workplace.
ECI says companies should worktoward improving their Corporate Culture by reinforcing the idea that
reporting suspected misconduct is beneficial to the company. Additionally, they should acknowledge and
reward the employee's courage in making the report.

What Is Business Ethics?

Business ethics concerns ethical dilemmas or controversial issues faced by a company. Often, business ethics
involve a system of practices and procedures thathelp build trust with the consumer. On one level, some
business ethics are embedded in the law, such as minimum wages, insider trading restrictions, and
environmental regulations. On another, business ethics can be influenced by management behavior , with
wide-ranging effects across the company

What Are Business Ethics and Example?

Business ethics guide executives, managers, and employees in their daily actions and decision-making. For
example, consider a company that has decided to dumpchemical waste that it cannot afford to dispose of
properly on a vacant lot it has purchased in the local community. This action has legal, environmental, and
socialrepercussions that can damage a company beyond repair.

NOTE:
The 12 Ethical Principles

Business ethics is an evolving topic. Generally, there are about 12 ethical principles to every cirumstances.
1. Honesty,
2. Fairness,
3. Leadership,
4. Integrity,
5. Compassion,
6. Respect,
7. Responsibility,
8. Loyalty,
9. Law-abiding,
10. Transparency, and
11. Environmental concerns

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7 Examples of Ethical Decision Making in Business:

1. Costco’s Decision To Pay Fair Wages

Costco Wholesale (NASDAQ: COST) is one of the biggest successes in American retail. Impressively,
reported $34.74 billion in quarterly revenues that grew at a rate of 7.35% on 12 May2019. Moreover, Costco’s
stock was trading at an impressive $269.14 a share on 3 July 2019.

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Much of Costco’s success comes from the high level of customer service offered by satisfied employees. One
reason why Costco can attract high-quality employees is its willingness to payhigher than average wages.

For example, Costco raised its base wage from $13 an hour to $14 an hour in 2018 to $15 per hour in 2019,
Fortune reports. In contrast, the average retail worker in America makes between $7.25 and $9 an hour, job-
applications.Meanwhile, the average US retail department manager makes $11to $12 an hour.

Costco succeeds because it can attract the best workers. Additionally, Costco avoids labor trouble, high turnover,
and conflict because its employees are happier.

2.Volkswagen’s Strategy to Reduce its Workforce Without Layoffs

Volkswagen AG (GR: VOW) follows a historic German policy of reducing its workforce withoutlayoffs. To
explain, Volkswagen cuts the workforce by not filling empty jobs. For instance, Volkswagen does not hire
replacements for retiring workers. Consequently, Volkswagen can eliminate up to 7,000 positions and save €5.9
billion ($6.7 billion), Reuters Reports.

However, existing workers in Volkswagen’s German operations will not face layoffs for ten years, The Associated
Press claims. No layoffs are a smart policy because it increases worker morale.

In fact, workers remaining after a layoff experienced a 20% decline in job performance, a review of 20 companies
indicates, The Harvard Business review reports. . Moreover, the same study by the University of Texas’s Deepak
Datta shows layoffs had a negative impact on stock performance.

Additionally, profitability declined after layoffs at most companies, Datta Reports. Finally, researchers from
three universities found companies that layoff workers are twice as likely to file for bankruptcy. The research
comes from the University of Tennessee, Baylor University, and Auburn University.

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Layoffs are bad for Business

One reason why profitability declines after layoffs could be worker morale.

After layoffs, remaining working suffered a 41% decline in job satisfaction, a 36% decline in company loyalty,
and a 20% decline in job performance. This research comes from Magnus Sverke and Johnny Hellgren of
Stockholm University and Katharina Näswall of the University of Canterbury.

Layoffs also discourage productivity and creativity, a study by Teresa Amabile of Harvard Business School
indicates. When a Fortune 500 tech firm cut its staff by 15%, the number of new inventions it patented fell by
24%.

Finally, workers are more likely to quit after seeing colleagues laid off. Downsizing a workforce by 1% leads
to a 31% increase in voluntary turnover in the next year, Charlie Trevor of the University of Wisconsin–
Madison and Anthony Nyberg of the University of South Carolina found.

Thus, Volkswagen is smart not to lay off workers. However, history indicates the company could still suffer
serious losses from a smaller workforce. Consequently, layoffs are both unethical and very bad for business.

2. Best Buy’s commitment to Sustainability

Barron’s named electronics retailer Best Buy (NYSE: BBY) “America’s most sustainable company” in
February 2019. Best Buy CEO Hubert Joly is committed to reducing his company’s environmental impact by
reducing waste.

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For instance, Best Buy’s Geek Squad customer service team members drive Toyota Prius hybrid cars, Retail
Dive reports. Consequently, Best Buy claims to have “saved 140,000 gallons of gas, the carbon equivalent of
taking 263 cars off of the road for a year.”

Moreover, Best Buy encourages customers not to throw electronics away by having the Geek Squad service
products. Furthermore, Best Buy claims to have collected two billion pounds of unwanted electronics and
appliances for recycling.

Also, Best Buy operates Teen Tech Centres that teach disadvantaged young Americans basic technology skills.
Teen Tech Best Buy grow its labor force by creating trained employees, Retail Dive reports. Also, Teen Tech
Centres help reduce unemployment in America, which has a serious vocational education shortage.

Ethics are paying off at Best Buy in the form of survival. Notably, Best Buy is the only national electronics chain
left in the United States. Its most famous competitor Radio Shack went out of business in 2017. Other competitors
like Circuit City are also long gone.

Other US brick-and-mortar electronics retailers could not compete with Amazon (NASDAQ: AMZN) and
discounters like Walmart. However, Best Buy recorded annual revenues of $42.879 billion and a gross profit of
$9.961 billion in February 2019. Moreover, Best Buy’s stock was trading at $71.97 a share on 3 July 2019.

Best Buy shows ethical decision-making is vital for a company’s survival. This company’s commitment to ethics
and customer services is helping it survive America’s retail apocalypse.

3. Woolworths gets out of liquor and gambling

Australia’s largest grocer Woolworths Group Limited (OTCMKTS: WOLWF), plans to stop selling liquor and
sell its gambling operations.

Specifically, Woolworths will sell its liquor stores, pubs, and hotel division, which operates poker machines, The
Conversation reports. To clarify, poker machines are what Americans call slot.

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Machines and British label fruit Machines. Woolworths will lose revenues by making its gambling, pub, liquor,
and hotel operations into a separate company. However, the company’s reputation could benefit. Australian
mothers have criticized Woolworths for its investments outside groceries.

The sale is part of Woolworths’ commitment to family-friendly values. Those values go beyond opposition to
drinking and gambling. Woolworths no longer gives out plastic bags and gives free fruit to kids to encourage
healthy eating.

Australia’s Woolworths Group has no connections with the legendary British and American discount store
operator Woolworths. Britain’s Woolworth Group and America’s F.W. Woolworth Company have been defunct
for decades.

4. CVS Health Stops Selling Tobacco

The American drug store and health insurance giant CVS Health (NYE: CVS) stopped selling tobacco products
in 2014.

CVS stopped selling cigarettes and other tobacco products in September 2014. Interestingly, American cigarette
sales fell by 1% in states where CVS had a 15% or greater share of the pharmacy market, a press release claims.

Importantly, CVS bases the press release on a 2011 peer reviewed scientific paper in The American Journal of
Public Health CVS Health estimates 95 million packs of cigarettes were sold as a result of its decision. However,
CVS made some money because nicotine patch sales grew by 4% at its stores.

Interestingly, CVS has been doing well since it quit selling tobacco. In fact, CVS is now one ofAmerica’s largest
grocers with a 3.9% share of the US grocery market, Market mad house estimates Consequently, CVS is
America’s fourth-largest grocer without tobacco.

Additionally, CVS Health had enough money to buy the giant American health insurance company Aetna for $69
billion in October 2018, The Newyork Time reports Plus, CVS recorded revenues of

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$194.579 billion and a gross profit of $31.538 billion for 2018. In contrast, CVS reported a gross profit of $23.367
billion and revenues of $139.367 billion for 2014.

Therefore, CVS Health is bigger and more profitable than ever without tobacco. CVS Health demonstrates ethical
decision-making, and risk-taking can pay off.

5.McDonald’s Invests in Employee Skills and Animal Rights

Taking an interest in employee well-being could end a labor shortage at McDonald’s (NYSE: MCD). When
faced with a labor shortage in the United States recently, the fast-food giant surveyed 6,500 workers to see what
was wrong, QSR Magazine Reports.

When the survey found younger workers lack basic worker attributes, including teamwork, customer service,
and responsibility, McDonald’s decided to help them. The company launched an Archways to Opportunity
education and career advice program.

For instance, McDonald’s now offers free career and academic advising services for all employees. In the
program, an adviser with a master’s level degree will offer career counselling to employees.

Additionally, McDonald’s more than tripled its employee tuition assistance from $700 a year to
$2,500 a year in March 2018. Also, managers can now receive up to $3,000 a year in tuition assistance, a press
release indicates.

Plus, the company now offers tuition assistance to employees after just 90 days of work. Additionally,
McDonald’s employees who work as little as 15 hours a week can receive tuition assistance. Finally, McDonald’s
plans to spend $150 million on employee education assistance over the next five years.

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Nor is it just employees, McDonald’s treats well. McDonald’s USA plans to use 100% cage-free eggs in its Egg
McMuffins by 2025. A press release claims the company is trying to source two billion cage-free eggs a year.
Thus, McDonald’s is committed to animal rights and employees.

Ethics pay at McDonald’s; the fast giant reports a gross profit of $10.786 billion on revenues of
$21.0252 billion for 2018. However, ethics are not fueling evenue growth. Revenue growth at McDonald’s
shrank by 7.87% in 2018, Stockrow estimates. Only time will tell if ethical behavior can help McDonald’s survive
in a difficult fast-food market.

6.Nike stands by Colin Kaepernick

Another example of the controversy ethical stands can generate is the athletic shoe manufacturer Nike’s decision
to stand by controversial American football player Colin Kaepernick.

Nike is paying Kaepernick millions to participate in its latest “Just Do it Campaign.” The company even plans
to give Kaepernick his own branded line of shoes, Bleacher Report claims.

However, Kaepernick has not played in America’s National Football League (NFL) since 2016. Kaepernick
claims NFL owners blacklisted him for protesting during the national anthem in 2016. To clarify, Kaepernick,
who is black, was protesting police killings of African-American men.

Kaepernick claims NFL owners refuse to hire him for political reasons. Notably, quarterback Kaepernick took
the San Francisco 49ers to the 2013 Super Bow or NFL championship. However, since 2016 Kaepernick has
been a regular target of nasty tweets from President Trump.

Sticking with Kaepernick is ethical for Nike because it demonstrates the company’s commitment to free speech,
diversity, human rights, and the US Constitution. However, the controversy could enhance Kaepernick’s star
power and generate tens of millions of dollars worth of free publicity for Nike. For instance, hundreds of media
outlets will publish, broadcast, and post pictures of Nike’s Kaepernick merchandise for free.

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Statistics estimates Nike’s brand value grew from $28.03 billion in 2018 to $32.421 billion in 2019. Notably,
Kaepernick became an official Nike brand ambassador in Fall 2018. Thus, Kaepernick could have added $4.391
billion in value to the Nike brand.

In the meantime, Nike is making money. Nike made a gross profit of $15.956 billion on revenues of
$36.397 billion in 2018. Moreover, Nike’s revenues grew at a rate of 5.96% in 2018.

Only time will tell if Nike can make money with Kaepernick; however, the player continues to generate
controversy. For instance, he asked Nike to stop marketing sneakers with an American Revolutionary War flag
on them.to highlight ongoing and current racial inequality and the oppression of Black people in America.

The Cost Of EthicsThe potential risks and benefits from taking an ethical stand can be high for companies.
Ethical stands with political and philosophical implications can have a high cost. .

However, some companies demonstrate that ethics can pay off in business

Summary

Why are Business Ethics important?

Business ethics is the application of ethical principles, values, and practices to decisions, policies, and
procedures within a business organization . It is important to recognize that business ethics is a broad term
encompassing many different concepts. Business ethics is important because it sets the tone for how a company
behaves and is perceived. It affects how customers view the company, how employees interact with each other,
and how the public views the company. Business ethics also impacts the company's ability to attract and retain
talent and its financial performance.

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