Chapter Two

Ethical Problems of
Organization

Lectured by: Ly Phyrith

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 Learning Objectives
1. Key Causes of Unethical Behavior
2. Why Misconduct Is Not Reported
3. Classification of Ethical Issue
4. Ethical Issues Relating to Business
5. Business Costs of Unethical Behavior
6. Application of Ethics to Business Situations
7. Managing stakeholders
8. Ethics and consumers
9. Ethics and employees
10. Ethics and shareholders
11. Ethics and the community
12. Why are the ethical issues?
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1. Key Causes of Unethical Behavior

- Meeting overly aggressive financial or

business objectives
- Meeting schedule pressures
- Helping the organization survive
- Rationalizing that others do it
- Resisting competitive threats
- Saving jobs

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 Key Causes of Unethical
Behavior
- Personal values
- Supervisor influence
- Senior management influence
- Internal drive to succeed
- Performance pressures
- Lack of punishment
- Friends/coworker influence

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2.Why Misconduct Is Not Reported

- fear of not being considered a team player

- did not think corrective action would be
taken
- fear of retribution (from management)
- “no one else cares, why should I”
- did not trust the organization to keep
report confidential

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3. Classification of Ethical Issues
1. conflict of interest
2. honesty and fairness
3. communications
4. organizational relationships

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 1. Conflict of Interest

- exists when an individual must choose

whether to advance his/her own interests,
the organization’s, or others’
- examples include bribes or personal
payments, gifts, or special favors intended
to influence decision making

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 2. Honesty & Fairness

- following applicable laws and regulations &

not knowingly harming stakeholders
- Is advertising prescription drugs on TV and
in magazines fair

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 3. Communications
 refers to the transmission of information
and the sharing of meaning
 examples: deceptive advertising, product

safety information, & product composition

 Are vitamin and herbal supplements using

‘puffery’ in their advertising?

– Note: roughly half of Americans take
supplements

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 4. Organizational
Relationships
 behavior of organizational members
toward stakeholders
 includes confidentiality, meeting

obligations & deadlines, not pressuring

others to behave unethically

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4.Ethical Issues Relating to Business
 Honesty—communication and
behavior consistent with facts
- Disclosure of information
- Promises/commitments
- Laws and professional standards
- Representation of others like shareholders
(applies to board members)
 Unfair competition
- Refrain from bribes and excessive gifts
(that sway judgment)
- Avoid quid pro quo transaction
- Comply with “anti-trust” laws (these relate
to pricing, monopolistic practices) 11
Ethical Issues Relating to Business
 Just compensation
- Respect intellectual property (product piracy)
- Treat employees fairly
 Respecting rights of others
- Treat others with fairness and respect
regardless of age, religion, ethnic group,
sex, economic status, etc., especially children,
women, and subordinates
- Respect the community you operate in by paying
fair share of economic costs
you create
- Respect others and future generations by
treating the environment well

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5.Business Costs of Unethical Behavior

1. Loss of physical assets

2. Increased costs of security
3. Loss of customers—especially those who value
ethics
4. Loss of employees—especially the more ethical
5. Loss of reputation
6. Increased legal costs
7. Higher costs of debt
8. Loss of investor confidence (lower stock price,
difficulty in raising funds, problems with lenders)
9. Costs of bankruptcy

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6.Application of Ethics to Business Situations

- Fraudulent practices, misleading advertising, unfairness

- Can be taught in management education and
organizations—provided students have a personal
understanding of ethics
- Taught by modeling (cases and personal example are
helpful)
- Can be reinforced by policies, codes of ethics, training
- Businesses can teach through proper modeling:
“Companies also have to further strengthen ethics
management and social responsibility activities to
improve their public image’’
Korean Commerce-Industry-Energy Minister Lee Hee-beom

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 7. Managing Stakeholders
 Corporation have multiple stakeholders
and often conflicting interests and
expectations.
 What do business owe their stakeholders?
 Who the stakeholders in a situation are, how

do we determine our organization’s

obligations to them?
 And if those obligations conflict, how does an

organization resolve those conflicts?

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 Thinking through these obligations
requires use of the ethical decision-making
 Carefully thinking about how one might

balance multiple.
Organizatio
n

Employees

Shareholders Consumers

Community
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8.Ethics and Consumer
 Design. Products should meet all
government regulations and specifications
and be safe under all foreseeable
conditions, including misuse by consumer
 Materials. Materials should meet

government regulations and be durable

enough to withstand reasonable use
 Production. Products should be made

without defects
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 Quality control. Products should be
inspected regularly for quality
 Packaging, Labeling and Warnings .

Products should be safely packaged,

should include clear, easily understood
directions for use, and should clearly
describe any hazard
 Notification. Manufacturers should have a

system in place to recall products that

prove to be dangerous at sometime after
manufacture and distribution.
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 Rights of Consumer
 Right to safety
 Right to be informed
 Right to choose
 Right to be heard
 Right to seek redressal
 Right to consumer education

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9. Ethics and Employees
 The right to privacy
 The right not to be fired without just

cause
 The right to a safe workplace

 The right to due process and fair

treatment
 The right to freedom of speech (whistle-

blowing)
 The right to work in an environment that

is free of bias 20
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10. Ethics and Shareholders
 Serving interests of owners
 Trying to perform well in short and long

term

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11. Ethics and the Community
 The public’s concern with the effect of
business’ activities on the environment
 Air
 Water

 Earth

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12. Why are these Ethical Issues?
 The people who pay to have goods made?
 The people who make them?
 The people who buy them?
 The place where the goods are made?
 So,
 Fairness
 Safety

 Honesty

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 References
1. Linda Klebe Trevino, Katherine A. Nelson (2011), Managing
Business Ethics, 5e, John Wiley & Sons. Inc, USA.
2. Marianne Moody Jennings (2009), Business Ethics, 6e,
South-Westen, USA.
3. Joseph DesJardins (2011), An Introduction to Business
Ethics, 4/e, Prentice Hall, USA.
4. Manuel G. Velasquez (2006), Business Ethics, 6e, 2006,
Prentice Hall, USA.
5. Mollie Painter Orland (2008), Business Ethics as Practice,
CAMBRIDGE UNIVERSITY PRESS, UK.
6. Ferrell O.C. et al. (2007), Business Ethics, 4e, Colorado State
University, USA.
7. Robert W. Kolb (2008), Encyclopedia of Business Ethics and
Society, SAGE Publications, Inc., USA.
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