Videos Cases
Chapter Introduction
Chapter Objectives
· Define ethical issues in the context of organizational ethics
· Examine ethical issues as they relate to the basic values of honesty, fairness, and integrity
· Delineate misuse of company 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 business ethics issues
· Examine the challenge of determining an ethical issue in business
An Ethical Dilemma
Jayla just landed an internship with Acme Incorporated in the Payroll Department. She was excited because these internships usually turned into a full-time job after graduation. Jayla was hired by Deon, the head of the Payroll Department. He told her about their policies and stressed the need for maintaining strict confidentiality regarding employee salaries and pay scales. “Several years ago we had an intern who violated the confidentiality policy and was given a negative internship summary,” explained Deon.
“I understand, sir,” Jayla responded.
Jayla was determined to learn as much as she could about the job. She made sure she was always on time, followed all of the policies and procedures, and got along well with her coworkers. She started to feel like she fit in at Acme and dreamed of the day when she worked there permanently. However, one day while studying the books, Jayla began to notice abnormalities in one salesperson’s salary. Greg, one of the senior sales representatives, made three times as much as the next highest earning salesperson in the company. Jayla assumed he must be a spectacular salesperson and worked efficiently. She often overheard Mia, the General Manager, and Deon praise Greg for his sales numbers. She also noticed the three of them would often go to lunch together.
One morning, Deon handed a stack of client folders to Jayla. He explained, “These are the clients for the salespeople for the week. They will come to you when they need more work, and they are only to take the files on top of the pile. You are in charge of making sure the salespeople don’t pick and choose the files. This is how we keep things fair among the sales force.”
“I will make sure the files are distributed fairly,” Jayla promised. She was excited to be trusted with this responsibility, and she made sure she did her best. Mary, one of the salespeople, came by to get files for the week. They made small talk as Mary looked into her files. She looked disappointed.
“You didn’t get any good clients?” Jayla asked.
“Nope, not a one,” replied Mary, “which is just my luck!” She threw down the files in exasperation. Jayla was concerned and asked, “What’s the matter?”
“I’m sorry,” she replied, “It’s just that my sales have been slipping, and my pay checks are much smaller than they used to be. If my pay decreases much further, I may lose my health benefits. My daughter is asthmatic, and she has been in and out of the hospital over the last few months.” Jayla looked at Mary sympathetically and tried her best to console her.
The next week, before the salespeople started coming into the office to pick from the pile, Jayla had some documents for Deon to sign. When she arrived at his office, the door was slightly open. She peeked in and saw Deon and Greg going through the stack of clients. Jayla watched as Greg rifled through the pile and picked out files.
“Thanks, Deon. These are the top clients for the week,” Greg said.
“No problem, Greg,” Deon responded “Anything for my favorite brother-in-law. Just keep up the good work.”
Jayla stood there, mouth open. She turned to walk back toward her desk. She could not believe what she just saw. The boss was giving Greg all the good clients, while the rest of the salespeople had no choice in which they were assigned. Jayla knew this favoritism was a serious conflict of interest. Then she thought of Mary and her situation.
“What am I supposed to do?” Jayla wondered. “If I say something to Deon, he will give me a bad evaluation. If I say anything to Mia, I may get fired. And I definitely can’t say anything to the other salespeople. There would be a riot.” Saddened, she sat at her desk and wondered what to do.
Questions | Exercises
1. Discuss how this conflict of interest situation affects other salespeople, the organizational culture, and other stakeholders.
2. Describe the decision that Jayla must make. What are the potential ramifications of her choices?
3. Are there legal ramifications to this kind of behavior? If so, what are the potential consequences?
Stakeholder concerns determine in large part whether specific business actions or decisions are perceived as right or wrong, which drives what the organization defines as ethical or unethical. In the case of the government, community, and society, what was merely an issue to the firm can become an ethical issue and later law. Additionally, stakeholders often raise issues when they exert pressure on businesses to make decisions that serve their particular agendas. For example, the use of antibiotics in Chinese agriculture has become a serious worldwide health concern. U.S. agencies and consumer interest groups as well as retail food outlets are trying to protect consumers from distribution networks that smuggle meat and seafood with unsafe food additives onto the table of consumers.
People make decisions and then recognize that a particular issue or situation has an ethical component; therefore, a first step toward understanding business ethics is to develop ethical issue awareness. Ethical issues typically arise because of conflicts among individuals’ morals and the core values and culture of the organizations where they work. Institutions in society provide foundational principles and values that influence both individuals and organizations. The business environment presents many potential ethical conflicts. Organizational objectives can clash with its employees’ attempts to fulfill their own personal goals. Similarly, consumers’ need for safe, quality, and competitively priced products may create a demand for consumer regulation. For instance, the Food and Drug Administration considered regulation on the use of pure caffeine powder after two people died from using the substance.
In this chapter, we consider some of the ethical issues emerging in business today, including how they arise from the demands of specific stakeholder groups. In the first half of the chapter, we explain certain universal concepts that pervade business ethics, such as integrity, honesty, and fairness. The second half of the chapter 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 employee privacy. We also examine the challenge of determining decisions that have an ethical component for the firm to consider. Because of the rise of the multinational corporations as well as increased vertical systems competition, there are certain practices and products that have ethical and legal issues. It is important you understand that what was once a legal activity can become an ethical issue, resulting in well-known practices becoming unethical or illegal.
3-1Recognizing an Ethical Issue (Ethical Awareness)
Although we have described a number of relationships and situations that may generate ethical issues, in practice it can be difficult to recognize them. Failure to acknowledge or be aware of such issues is a great danger to any organization. Some issues are difficult to recognize because they are gray areas that are hard to navigate. For example, when does a small gift become a bribe? Employees may engage in questionable behaviors because they are trying to achieve firm objectives related to sales or earnings. Our personal morals or values issues are easier to define and control but the complexity of the work environment, however, makes it harder to define and reduce ethical issues.
Business decisions, like personal decisions, may involve a dilemma. In a dilemma all of the alternatives have negative consequences, so the less harmful choice is made. An ethical issue in business is simply a situation involving a group, a problem, or even an opportunity that requires thought, discussion, or investigation before a decision can be made. Because the business world is dynamic, new ethical issues emerge all the time. Table 3-1 defines specific ethical issues identified by employees in the National Business Ethics Survey (NBES). Misuse of company time, abusive behavior, and lying to employees are personal in nature but are committed in the belief that the action is furthering organizational goals. Falsifying time or expenses, safety violations, and abuse of company resources are issues that directly relate to an ethical conflict that could damage the firm.
Table 3-1
Specific Types of Observed Misconduct
|
Behavior |
|
Abusive behavior |
|
Lying to employees |
|
Conflicts of interest |
|
Violating company Internet use policies |
|
Discrimination |
|
Health or safety violations |
|
Lying to outside stakeholders |
|
Retaliation against someone who reported misconduct |
|
Falsifying time reports or hours worked |
|
Stealing/theft |
|
Employee benefit violations |
|
Delivery of substandard products |
Source: Ethics Resource Center, National Business Ethics Survey of the U.S. Workforce (Arlington, VA: Ethics Resource Center, 2014), 41
There are a wide range of issues that could be identified as misconduct; therefore many employees observed more than one type of misconduct. Although it is impossible to list every conceivable ethical issue, any type of manipulation or deceit, or even just the absence of transparency in decision making, can create harm to others. For example, collusion is a secret agreement between two or more parties for a fraudulent, illegal, or deceitful purpose. “Deceitful purpose” is the relevant phrase in regard to business ethics, as it suggests trickery, misrepresentation, or a strategy designed to lead others to believe something less than the whole truth. Collusion violates the general business value of honesty that is one of the three foundational values that are used to identify ethical issues.
3-2Foundational Values for Identifying Ethical Issues
3-2aIntegrity
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 global value that relates to all activities, not just business issues. Integrity relates to product quality, open communication, transparency, and relationships. Therefore, it is a foundational value for managers to build an ethical internal organizational culture. In an organization, integrity means uncompromising adherence to a set or group of values. It is connected to acting ethically; in other words, there are substantive or normative constraints on what it means to act with integrity. 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.
At a minimum, businesses are expected to follow laws and regulations. In addition, organizations should not knowingly harm customers, clients, employees, or even other competitors through deception, misrepresentation, or coercion. Although they often act in their own economic self-interest, business relations should be grounded in integrity. Failure to live up to this expectation or abide by laws and standards destroys trust and makes it difficult, if not impossible, to continue business exchanges.
3-2bHonesty
Honesty refers to truthfulness or trustworthiness. To be honest is to tell the truth to the best of your knowledge without hiding anything. Confucius defined an honest person as junzi, or one who has the virtue ren. Ren can be loosely defined as one who has humanity. Yi is another honesty component and is related to what we should do according to our relationships with others. Another Confucian concept, li, relates to honesty but refers to the virtue of good manners or respect. Finally, zhi represents whether a person knows what to say and what to do as it relates to honesty. The Confucian version of Kant’s Golden Rule is to treat your inferiors as you would want your superiors to treat you. As a result, virtues such as familial honor and reputation for honesty become paramount.
Issues related to honesty also arise because business is sometimes regarded as a game governed by its own rules rather than those of society as a whole. Author Eric Beversluis suggests honesty is a problem because people often reason along these lines:
1. Business relationships are a subset of human relationships governed by their own rules that in a market society involve competition, profit maximization, and personal advancement within the organization.
2. Business can therefore be considered a game people play, comparable in certain respects to competitive sports such as basketball or boxing.
3. Ordinary ethics rules and morality do not hold in games like basketball or boxing. (What if a basketball player did unto others as he would have them do unto him? What if a boxer decided it was wrong to try to injure another person?)
4. Logically, then, if business is a game like basketball or boxing, ordinary ethical rules do not apply.
Many argue that because people are not economically self-sufficient, they cannot withdraw from the relationships of business. Therefore, business must not only make clear what rules apply but also develop rules appropriate to the involuntary nature of its many participants. Such rules should contain the value of honesty.
The opposite of honesty is dishonesty. Dishonesty can be broadly defined as a lack or absence 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. For example, they may be asked to lie about when a customer will receive a purchase. Lying can be defined as
1. untruthful statements that result in damage or harm;
2. “white lies,” which do not cause damage but instead function as excuses or a means of benefitting others; and
3. statements obviously meant to engage or entertain without malice.
These definitions become important in the remainder of this chapter.
3-2cFairness
Fairness is the quality of being just, equitable, and impartial. Fairness clearly overlaps with the concepts of justice, equity, and equality. There are three fundamental elements that motivate people to be fair: equality, reciprocity, and optimization. In business, equality is about the distribution of benefits and resources. This distribution could be applied to stakeholders or the greater society.
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. It is the return of favors approximately equal in value. For example, reciprocity implies workers be compensated with wages approximately equal to their effort. Walmart tried to display ethical reciprocity by increasing the wages it paid to its lowest level employees to $10 per hour and begin paying bonuses. It is estimated that $157 million in bonuses have been paid to its 850,000 employees.
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.
3-3Ethical Issues and Dilemmas in Business
As mentioned earlier, stakeholders and the firm define ethical issues. 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. An ethical dilemma is a problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that have negative outcomes. There is not a right or ethical choice in a dilemma, only less unethical or illegal choices as perceived by any and all stakeholders.
A constructive next step toward identifying and resolving ethical issues is to classify the issues that are relevant to most business organizations. Table 3-2 reflects some pressing ethical issues to shareholders. Some of these issues deal with the economic conditions and/or misconduct at firms from other countries. In this section, we classify ethical issues in relation to misuse of company time and resources, abusive or intimidating behavior, lying, conflicts of interest, bribery, corporate intelligence, discrimination, sexual harassment, fraud, financial misconduct, insider trading, intellectual property rights, and privacy issues.
Table 3-2
Shareholder Issues
|
1. Core values |
|
2. Shareholder participation in electing directors |
|
3. Equitable compensation strategies |
|
4. Ethical and legal compliance |
|
5. Community and regulatory integrity |
|
6. Reputation management |
|
7. Big data and cybersecurity |
|
8. Supply chain relationships and human rights |
3-3aMisuse of Company Time and Resources
Time theft can be difficult to measure but is estimated to cost companies hundreds of billions of dollars annually. It is widely believed the average employee “steals” 4.25 hours per week with late arrivals, leaving early, long lunch breaks, inappropriate sick days, excessive socializing, and engaging in personal activities such as online shopping, watching sports, or texting while on the job.
Although companies have different viewpoints and policies, the misuse of time and resources has been identified by the Ethics Resource Center as a major form of observed misconduct in organizations. One of the greatest ways that employees misuse their work time and company resources is by using the company computer for personal uses. Many employees observe others using their computers for personal reasons or violating internet policies. Often lax enforcement of company policies creates the impression among employees that they are entitled to certain company resources, including how they spend their time at work. Such misuse can range from unauthorized equipment usage to misuse of financial resources.
Using company computer software and Internet services for personal business is one of the most common ways employees misuse company resources. While it may not be acceptable for employees to sit in the lobby chatting with relatives or their stock brokers, these same employees go online and do the same thing, possibly unnoticed by others. Typical examples of using a computer to abuse company time include sending personal emails, shopping, downloading music, doing personal banking, surfing the Internet for information about sports or romance, or visiting social networking sites such as Facebook. It has been found that March Madness, the NCAA basketball tournament, is one of the most significant periods during which employees engage in time theft. Many firms block websites where employees can watch sports events. But what about employees stealing time on their own smartphones that are doing these activities? How far does the company go into the lives of their employees?
Because misuse of company resources is such a widespread problem, many firms, such as Coca-Cola, have implemented policies delineating the acceptable use of such resources. Coca-Cola’s policy states that some resource use for personal purposes is acceptable as long as it does not become excessive or harm work activities. Employees are expected to use their judgment to determine when personal activities might be detracting too much from work responsibilities.
3-3bAbusive or Intimidating Behavior
Abusive or intimidating behavior is another common ethical problem for employees, but what does it mean to be abusive or intimidating? These terms refer to many things—physical threats, false accusations, being annoying, profanity, insults, yelling, harshness, ignoring someone, and unreasonableness—and their meaning differs from person to person. It is important to understand that within each term there is a continuum. For example, behavior one person might define as yelling could be another’s definition of normal speech. The lack of civility in our society has been a concern, and it is as common in the workplace as elsewhere. The productivity level of many organizations has been damaged by time spent unraveling problematic relationships.
Is it abusive behavior to ask an employee to complete a project rather than be with a family member or relative in a crisis situation? What does it mean to speak profanely? Is profanity only related to specific words or terms that are, in fact, common in today’s business world? If you are using words acceptable to you but that others consider profanity, have you just insulted, abused, or disrespected them?
Within abusive behavior or intimidation, intent should be a consideration. If the employee tries to convey a compliment, then he or she probably simply made a mistake. What if a male manager asks a female subordinate if she has a date because she is dressed nicely? When does the way a word is said (voice inflection) become important? There is also the problem of word meanings by age and within cultures. The fact that we live in a multicultural environment and work with many different cultural groups and nationalities adds to the depth of the ethical and legal issues that may arise.
Debate Issue: Take a Stand
Is Workplace Bullying Serious Enough to Warrant Legal Action?
Workplace bullying is abusive behavior used to assert one’s power over another. One survey shows that more than one-third of employees have been victims of some kind of workplace bullying behavior. In many cases, the bullies are the supervisors of the organization. Yet while some countries have laws against workplace bullying, the United States does not.
Many believe employees should be legally protected from workplace bullying because bullying is harmful to employee health. Victims of bullying suffer from symptoms including depression, anxiety, and low self-esteem. Bullying permeates the environment of the workplace, causing bystanders to feel its unpleasant effects and creating a toxic workplace. Others, however, believe antibullying laws would limit managers’ ability to manage since they would constantly be afraid their management styles could be perceived as bullying. Also, critics of such a law argue that bullying is hard to define, making such a law difficult to enforce. Instead, they are in favor of internal ways to combat bullying, including conflict resolution, harassment awareness, and sensitivity trainings.
1. Bullying in organizations can be harmful to employees and therefore warrants legal action.
2. Laws against bullying are not feasible as they are hard to define and have the potential to limit managers’ ability to manage.
Bullying is associated with a hostile workplace where someone (or a group) considered a target is threatened, harassed, belittled, verbally abused, or overly criticized. Bullying creates what is referred to as a “hostile environment,” but the concept of a hostile environment is generally associated instead with sexual harassment. Regardless, bullying can cause psychological damage that may result in health-endangering consequences to the target. For example, workplace bullying is strongly associated with sleep disturbances. The more frequent the bullying, the higher the risk of sleep disturbance. Other physical symptoms include depression, fatigue, increased sick days, and stomach problems.
Table 3-3
Actions Associated with Bullies
|
1. Spreading rumors to damage others |
|
2. Blocking others’ communication in the workplace |
|
3. Flaunting status or authority to take advantage of others |
|
4. Discrediting others’ ideas and opinions |
|
5. Use of emails to demean others |
|
6. Failing to communicate or return communication |
|
7. Insults, yelling, and shouting |
|
8. Using terminology to discriminate by gender, race, or age |
|
9. Using eye or body language to hurt others or their reputations |
|
10. Taking credit for others’ work or ideas |
Source: Based on Cathi McMahan, “Are You a Bully?” Inside Seven, California Department of Transportation Newsletter, June 6, 1999.
There is currently no U.S. law prohibiting workplace bullying. However, 27 states have introduced the Healthy Workplace Bill to consider ways to combat bullying.
· Create policies that place reprimand letters and/or dismissal for such behavior.
· Emphasize mutual respect in the employee handbook.
· Encourage employees who feel bullied to report the conduct via hotlines or other means.
In addition to the three items mentioned, firms are now helping employees understand what bullying is by the use of the following questions:
· Is your supervisor requiring impossible things from you without training?
· Does your supervisor always state that your completed work is never good enough?
· Are meetings to be attended called without your knowledge?
· Have others told you to stop working, talking, or socializing with them?
· Does someone never leave you alone to do your job without interference?
· Do human resources officials tell you that your harassment is legal and you must work it out between yourselves?
· Do many people verify that your torment is real but do nothing about it?
Bullying also occurs between companies that are in intense competition. Even respected companies such as eBay have been accused of monopolistic bullying. The Justice Department accused eBay of having a secret agreement with Intuit to avoid hiring workers from each other’s companies. The Justice Department believes this agreement served to limit competition and hinder employment opportunities. eBay settled for $3.75 million.
3-3cLying
Earlier in this chapter, we discussed the definitions of lying and how lying relates to distorting the truth. We mentioned three types of lies, one of which is joking without malice. The other two can become troublesome for businesses: lying by commission and lying by omission. Commission lying is creating a perception or belief by words that intentionally deceive the receiver of the message—for example, lying about being at work, expense reports, or carrying out work assignments. Commission lying also entails intentionally creating “noise” within the communication that knowingly confuses or deceives the receiver. Noise can be defined as technical explanations the communicator knows the receiver does not understand. It can be the intentional use of communication forms that make it difficult for the receiver to actually hear the true message. Using legal terms or terms relating to unfamiliar processes and systems to explain what was done in a work situation facilitate this type of lie.
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 behavior. A classic example of omission lying was in the tobacco manufacturers’ decades-long refusal to allow negative research about the effects of tobacco to appear on cigarettes and cigars. When lying damages others, it can be the focus of a lawsuit. For example, prosecutors and civil lawsuits often reduce misconduct to lying about a fact, such as financial performance, that has the potential to damage others. A class-action lawsuit was filed against Ticketmaster for charging what customers thought were order processing and UPS delivery fees that actually turned out to be profit centers for the firm.
The point at which a lie becomes unethical in business is based on the context of the statement and its intent to distort the truth. A lie becomes illegal if it is determined by the courts to have damaged others. Some businesspeople may believe one must lie a little or that the occasional lie is sanctioned by the organization. The question you need to ask is whether lies are distorting openness and transparency and other values associated with ethical behavior.
3-3dConflicts of Interest
A conflict of interest exists when an individual must choose whether to advance his or her own interests, those of the organization, or those of some other group. The three major bond rating agencies—Moody’s, Standard & Poor’s, and Fitch Ratings—analyze financial deals and assign letters (such as AAA, B, CC) to represent the quality of bonds and other investments. Prior to the financial meltdown, these rating agencies had significant conflicts of interest. The agencies earned as much as three times more for grading complex products than for corporate bonds. They also competed with each other for rating jobs, which contributed to lower rating standards. Additionally, the companies who wanted the ratings were the ones paying the agencies. Because the rating agencies were highly competitive, investment firms and banks would “shop” the different agencies for the best rating. Conflicts of interest were inevitable.
To avoid conflicts of interest, employees must be able to separate their private interests from their business dealings. Organizations must also avoid potential conflicts of interest when providing products. The U.S. General Accounting Office found conflicts of interest when the government awarded bids on defense contracts. Conflicts of interest usually relate to hiring friends, relatives, or retired military officers to enhance the probability of getting a contract.
3-3eBribery
Bribery is the practice of offering something (often money) in order to gain an illicit advantage from someone in authority. Gifts, entertainment, and travel can also be used as bribes. The key issue regarding whether or not something is considered bribery is whether it is used to gain an advantage in a relationship. Bribery can be defined as an unlawful act, but it can also be a business ethics issue in that an industry or even national culture may include such payments as standard practice. 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, including case law.
Small
facilitation payments
made to obtain or retain business or other improper advantages do not constitute bribery payments for U.S. companies in some situations. Such payments are often made to induce public officials to perform their functions, such as issuing licenses or permits. In the United Kingdom these facilitation payments are illegal.
In most developed countries, it is generally recognized that employees should not accept bribes, personal payments, gifts, or special favors from people who hope to influence the outcome of a decision. However, bribery is an accepted way of doing business in other countries, which creates challenging situations for global businesses. Bribes have been associated with the downfall of many managers, legislators, and government officials. It is also not limited to rogue employees—approximately 53 percent of the bribery cases reported involve bribes that had been authorized by managers.
When a government official accepts a bribe, it is usually from a business that seeks some advantage, perhaps to obtain business or the opportunity to avoid regulation. Giving bribes to legislators or public officials is both a legal and a business ethics issue. Federal as well as state antibribery laws exist. It is a legal issue in the United States under the U.S. Foreign Corrupt Practices Act (FCPA) to bribe a foreign official. This act maintains it is illegal for individuals, firms, or third parties doing business in American markets to “make payments to foreign government officials to assist in obtaining or retaining business.”
3-3fCorporate Intelligence
Many issues related to corporate intelligence have surfaced in the last few years. Defined broadly, corporate intelligence (CI) is the collection and analysis of information on markets, technologies, customers, and competitors, as well as on socioeconomic and external political trends. There are three distinct types of intelligence models: a passive monitoring system for early warning, tactical field support, and support dedicated to top-management strategy.
CI has its own set of procedures. For example, can you tell which of the following are acceptable strategies and practices in CI?
1. Develop an effective network of informants. Encourage staff members to gather competitive information as they interact with people outside the company.
2. Have every salesperson talk to those customers who are believed to have talked to competitors.
3. When interviewing job applicants from competitors, have Human Resources ask about critical information, including social network accounts.
4. Have purchasers talk to suppliers to attempt to discover who is demanding what and when it is needed.
5. Interview every employee about his or her knowledge or expertise and leverage it for outside information about other firms within the industry.
6. When you interview consultants, ask them to share examples of their work.
7. Use press releases announcing new hires as an indicator of what type of talent companies are hiring.
8. Use web services to track all the changes anyone makes on a company’s website, thus giving you an indication of which areas a competitor is thinking about and where it might be headed.
9. Use a proxy or other firm to act as a client for the competitor so as to ask about a company’s pricing structure, how fast they ship, turnaround time, and number of employees. Ask for references and call those people as well.
All of these scenarios are legal and frequently used by corporate intelligence departments and firms.
However, corporate intelligence, like other areas in business, can be abused if due diligence is not taken to maintain legal and ethical methods of discovery. Computers, local-area networks (LANs), and the Internet have made the theft of trade secrets very easy. Proprietary information like secret formulas, manufacturing schematics, merger or acquisition plans, and marketing strategies all have tremendous value.
Table 3-4
Ways to Steal Corporate Trade Secrets
|
Method of Corporate Espionage |
Definition |
Examples |
|
Breaking into a computer network to steal information |
System hacking : Assumes the attacker already has access to a low-level, privileged-user account |
|
|
|
|
Remote hacking : Involves attempting to remotely penetrate a system across the Internet |
|
|
|
Physical hacking : Requires the hacker to enter a facility physically and find a vacant unsecured workstation with an employee’s login and password |
|
Tricking individuals into revealing their passwords or other valuable corporate information |
Shoulder surfing : Someone simply looks over an employee’s shoulder while he or she types a password |
|
|
|
|
Password guessing : When an employee is able to guess a person’s password after finding out personal information about him or her |
|
Digging through trash to find trade secrets |
An employee obtains several organizational charts from a rival business by digging through that organization’s trash |
|
|
Using wireless hacking to break into a network |
An intruder uses a radio to tap into a wireless network to access unencrypted data |
|
|
Using a digital recording device to monitor and record a fax line |
A person records a message from a fax line and recreates an exact copy of the message by playing back the recording |
3-3gDiscrimination
Although a person’s racial and sexual prejudices belong to the domain of individual ethics, racial and sexual discrimination in the workplace create ethical issues within the business world. Discrimination on the basis of race, color, religion, sex, marital status, sexual orientation, public assistance status, disability, age, national origin, or veteran status is illegal in the United States. Additionally, discrimination on the basis of political opinions or affiliation with a union is defined as harassment. Discrimination remains a significant ethical issue in business despite decades of legislation attempting to outlaw it.
A company in the United States can be sued if it
1. refuses to hire an individual,
2. maintains a system of employment that unreasonably excludes an individual from employment,
3. discharges an individual, or
4. discriminates against an individual with respect to hiring, employment terms, promotion, or privileges of employment as they relate to the definition of discrimination.
Nearly 89,000 charges of discrimination were filed with the
Equal Employment Opportunity Commission
(EEOC) in 2014.
Race, gender, and age discrimination are major sources of ethical and legal debate in the workplace. Once dominated by European American men, the U.S. workforce today includes significantly more women, African Americans, Hispanics, and other minorities, as well as disabled and older workers. These groups traditionally faced discrimination and higher unemployment rates and were denied opportunities to assume leadership roles in corporate America. For example, only five Fortune 500 companies are led by African American CEOs.
Another form of discrimination involves discriminating against individuals on the basis of age. The
Age Discrimination in Employment Act
specifically outlaws hiring practices that discriminate against people 40 years of age or older, as well as those that require employees to retire before the age of 70. The act prohibits employers with 20 or more employees from making employment decisions, including decisions regarding the termination of employment, on the basis of age or as a result of policies requiring retirement after the age of 40. Despite this legislation, charges of age discrimination persist in the workplace. Age discrimination accounts for approximately 23 percent of the complaints filed with the EEOC.
To help build workforces that reflect their customer base, many companies have initiated
affirmative action programs
, which involve efforts to recruit, hire, train, and promote qualified individuals from groups that have traditionally been discriminated against on the basis of race, gender, or other characteristics. Such initiatives may be imposed by federal law on an employer that contracts or subcontracts for business with the federal government, as part of a settlement agreement with a state or federal agency, or by court order.
1. there must be a strong reason for developing an affirmative action program,
2. affirmative action programs must apply only to qualified candidates, and
3. affirmative action programs must be limited and temporary and therefore cannot include “rigid and inflexible quotas.”
Discrimination can also be an ethical issue in business when companies use race or other personal factors to discriminate against specific groups of customers. Many companies have been accused of using race, disabilities, gender, or age to deny service or to charge higher prices to certain ethnic groups. Employees have also been terminated or denied jobs due to discrimination. Upper Chesapeake Health System paid $180,000 to settle an EEOC lawsuit alleging that it failed to provide reasonable accommodations and rehire a worker due to her disability, despite the worker’s positive performance reviews.
3-3hSexual Harassment
Sexual harassment is a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964. Title VII applies to employers with 15 or more employees, including state and local governments.
Sexual harassment
can be defined as any repeated, unwanted behavior of a sexual nature perpetrated upon one individual by another. It may be verbal, visual, written, or physical and can occur between people of different genders or those of the same gender. Displaying sexually explicit materials “may create a hostile work environment or constitute harassment, even though the private possession, reading, and consensual sharing of such materials is protected under the Constitution.”
To establish sexual harassment, an employee must understand the definition of a
hostile work environment
, for which three criteria must be met: the conduct was unwelcome; the conduct was severe, pervasive, and regarded by the claimant as so hostile or offensive as to alter his or her conditions of employment; and the conduct was such that a reasonable person would find it hostile or offensive. To assert a hostile work environment, an employee need not prove it seriously affected his or her psychological well-being or that it caused an injury; the decisive issue is whether the conduct interfered with the claimant’s work performance.
A key ethical issue associated with sexual harassment is dual relationships. A
dual relationship
is defined as a personal, loving, and/or sexual relationship with someone with whom you share professional responsibilities. Dual relationships where the relationship could potentially cause a direct or indirect conflict of interest or a risk of impairment to professional judgment can be an ethical or even legal issue.
To avoid sexual misconduct or harassment charges a company should take at least the following steps:
1. Establish a statement of policy naming someone in the company as ultimately responsible for preventing harassment at the company.
2. Establish a definition of sexual harassment that includes unwelcome advances, requests for sexual favors, and any other verbal, visual, or physical conduct of a sexual nature; provides examples of each; and reminds employees the list of examples is not all-inclusive.
3. Establish a nonretaliation policy that protects complainants and witnesses.
4. Establish specific procedures for prevention of such practices at early stages. However, if a company puts these procedures in writing, they are expected by law to train employees in accordance with them, measure their effects, and ensure the policies are enforced.
5. Establish, enforce, and encourage victims of sexual harassment to report the behavior to authorized individuals.
6. Establish a reporting procedure.
7. Make sure the company has timely reporting requirements to the proper authorities. Usually, there is a time limitation (ranging from six months to a year) to file a complaint for a formal administrative sexual charge. However, the failure to meet a shorter complaint period (for example, 60 to 90 days) so a rapid response and remediation may occur and to help ensure a harassment-free environment could be a company’s defense against charges it was negligent.
3-3iFraud
When individuals engage in intentional deceptive practices to advance their own interests over those of the organization or some other group, they are committing fraud. In general,
fraud
is any purposeful communication that deceives, manipulates, or conceals facts in order to harm others. Fraud can be a crime and convictions may result in fines, imprisonment, or both. Global fraud costs organizations more than $3.7 trillion a year; the average company loses about 5 percent of annual revenues to fraud.
Figure 3-1Initial Detection of Occupational Frauds
Source: Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse: 2016 Global Fraud Study, 21.
Accounting fraud
usually involves a corporation’s financial reports, in which companies provide important information on which investors and others base decisions involving millions of dollars. If the documents contain inaccurate information, intentional or not, lawsuits and criminal penalties may result. Diamond Foods paid $5 million to settle SEC charges that former executives had knowingly misled investors by manipulating walnut costs. This manipulation caused the financials to appear better than they were in reality.
The field of accounting has changed dramatically over the last decade. Ethical issues for accountants today include time, reduced fees, client requests to alter opinions concerning financial conditions or lower tax payments, and increased competition. Other issues accountants face daily involve compliance with complex rules and regulations, data overload, contingent fees, and commissions. An accountant’s life is filled with rules and data that must be interpreted correctly, and because of these pressures and the ethical predicaments they spawn, problems within the accounting industry are on the rise. As an example of a possible ethical issue, accountants are permitted to charge performance-based fees rather than hourly rates, a rule change that encouraged some large accounting firms to promote tax-avoidance strategies for high-income individuals because the firms can charge 10 to 40 percent of the amount of taxes saved.
As a result, accountants must abide by a strict code of ethics that defines their responsibilities to their clients and to the public interest. The code also discusses the concepts of integrity, objectivity, independence, and due care. Despite the standards the code provides, the accounting industry has been the source of numerous fraud investigations in recent years. Congress passed the Sarbanes–Oxley Act in 2002 to address many of the issues that create conflicts of interest for accounting firms auditing public corporations. The law generally prohibits accounting firms from providing both auditing and consulting services to the same firm. Additionally, the law specifies corporate boards of directors must include outside directors with financial knowledge on the company’s audit committee.
Marketing fraud
—the process of dishonestly creating, distributing, promoting, and pricing products—is another business area that generates potential ethical issues. False or misleading marketing communications destroy customers’ trust in a company. Lying, a major ethical issue involving communication, is a potentially significant problem. In both external and internal communications, it causes ethical predicaments because it destroys trust. T-Mobile paid $90 million to settle charges that it had billed customers millions of dollars for unwanted text messages such as horoscopes.
Puffery
can be defined as exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely upon and is not actionable under the Lanham Act. For example, the National Advertising Division ruled that Tropicana’s promotional claims to be the “world’s best fruit and vegetable juice” is an example of puffery rather than misleading advertising.
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. In most cases, accusations of implied falsity can be proved only through time-consuming and expensive consumer surveys, the results of which are often inconclusive. An example of implied falsity might be a company’s claim that its product has twice as much of an ingredient, implying that it works twice as well, when in reality the extra quantity of the ingredient has no effect over performance.
The characterization of an advertising claim as
literally false
can be divided into two subcategories: tests prove (establishment claims), when the advertisement cites a study or test that establishes the claim; and bald assertions (nonestablishment claims), when the advertisement makes a claim that cannot be substantiated, as when a commercial states a certain product is superior to any other on the market. Kellogg paid $5 million to settle false advertising claims that its Rice Krispies cereal helped children’s immune systems. A class-action lawsuit was later filed against Kellogg for marketing its Kashi as “All Natural” or “Nothing Artificial” when it contained some synthetic and artificial ingredients. Kellogg paid $5 million to settle the suit and agreed to no longer use this labeling.
Another form of advertising abuse involves making ambiguous statements—when the words are so weak or general that the viewer, reader, or listener must infer the advertiser’s intended message. These “weasel words” are inherently vague and enable the advertiser to deny any intent to deceive. The verb help is a good example (as in expressions such as “helps prevent,” “helps fight,” “helps make you feel”).
Labeling issues
are even murkier. For example, Kroger agreed to remove the term “raised in a humane environment” from its packages of Simple Truth chicken when it was discovered that the chickens, supplied by Perdue Farms, were raised in traditional factory farm environments.
3-3jConsumer Fraud
Consumer fraud
occurs when consumers attempt to deceive businesses for their own gain. Shoplifting comprises 37.4 percent of retail shrinkage (losses incurred from employee theft, shoplifting, administrative errors, and supplier fraud) in the United States.
Table 3-5
Types of Consumer Fraud
|
Type of Fraud |
Definition |
Example |
|
Friendly fraud |
Making a big purchase with a credit card and then filing a fraud claim with the credit card company |
After receiving her large shipment in the mail, Melanie filed a claim with her credit card company claiming it was never shipped. |
|
Price arbitrage |
Substituting differently priced but similar items for a higher return |
Daniel placed a 1-terabyte hard drive into the box for a 20-terabyte drive and returned it for a full refund. |
|
Return fraud |
Replacing an item with something different and returning it for a full refund |
Joe filled a PlayStation box with rocks, resealed it, and received a full refund when the store clerk failed to check the merchandise. |
|
Wardrobing |
Wearing an expensive item once for an event and then returning it for a full refund |
Jessica wore an expensive dress to a dinner party and then returned it for a full refund. |
|
Returning stolen goods |
Receiving a full refund on goods that had been stolen |
Samantha stole some clothing and then returned it to the retailer for a refund. |
Consumer fraud involves intentional deception to derive an unfair economic advantage by an individual or group over an organization. Examples of fraudulent activities include shoplifting, collusion or duplicity, and guile. Collusion typically involves an employee who assists the consumer in fraud. For example, a cashier may not ring up all merchandise or may give an unwarranted discount. Duplicity may involve a consumer staging an accident in a grocery store and then seeking damages against the store for its lack of attention to safety. A consumer may purchase, wear, and then return an item of clothing for a full refund. In other situations, a consumer may ask for a refund by claiming a defect. Guile is associated with a person who is crafty or understands right/wrong behavior but uses tricks to obtain an unfair advantage. The advantage is unfair because the person has the intent to go against the right behavior or result. Although some of these acts warrant legal prosecution, they can be difficult to prove, and many companies are reluctant to accuse patrons of a crime when there is no way to verify wrongdoing. Businesses that operate with the philosophy “the customer is always right” have found some consumers take advantage of this promise and have therefore modified return policies to curb unfair use.
3-3kFinancial Misconduct
The failure to understand and manage ethical risks played a significant role in the financial crisis. The difference between bad business decisions and business misconduct can be hard to determine, and there is a thin line between the ethics of using only financial incentives to gauge performance and the use of holistic measures that include ethics, transparency, and responsibility to stakeholders. From CEOs to traders and brokers, all-too-tempting lucrative financial incentives existed for performance in the financial industry.
The most recent global recession was caused in part by a failure of the financial industry to take appropriate responsibility for its decision to utilize risky and complex financial instruments. Loopholes in regulations and the failures of regulators were exploited. Corporate cultures were built on rewards for taking risks rather than rewards for creating value for stakeholders. Ethical decisions were based more on what was legal rather than what was the right thing to do. Unfortunately, most stakeholders, including the public, regulators, and the mass media, do not always understand the nature of the financial risks taken on by banks and other institutions to generate profits. The intangible nature of financial products makes it difficult to understand complex financial transactions. Problems in the subprime mortgage markets sounded the alarm for the most recent recession.
Ethics issues emerged early in subprime lending, with loan officers receiving commissions on securing loans from borrowers with no consequences if the borrower defaulted on the loan. “Liar loans” were soon developed to create more sales and higher personal compensation for lenders. Lenders encouraged subprime borrowers to provide false information on their loan applications in order to qualify for and secure the loans. Some appraisers provided inflated home values in order to increase loan amounts. In other instances, consumers were asked to falsify their incomes to make the loans more attractive to the lending institutions. The opportunity for misconduct was widespread. Top managers and CEOs were complacent about the wrongdoing as long as profits were good. Throughout the early 2000s, in an economy with rapidly increasing home values, the culture of unethical behavior was not apparent to most people. When home values started to decline and individuals were “upside down” on their loans (owing more than the equity of the home), the failures and unethical behavior of lending and borrowing institutions became obvious.
The top executives or CEOs are ultimately responsible for the repercussions of their employees’ decisions. This is why many leaders step down after a misconduct disaster at a firm. For example, the executive chairman and mortgage mogul William Erbey of Ocwen Financial Corp. stepped down due to alleged misconduct of the company. According to allegations, Ocwen mishandled foreclosures, engaged in conflicts of interest, and abused borrowers who were delinquent in paying back their loans. As a leader, Erbey was expected to exert oversight over the company and its employees to ensure appropriate conduct.
This past widespread financial misconduct led to a call for financial reform. The Dodd–Frank Wall Street Reform and Consumer Protection Act was passed in 2010 to increase accountability and transparency in the financial industry and protect consumers from deceptive financial practices. The act established a Consumer Financial Protection Bureau (CFPB) to protect consumers from unsafe financial products. The CFPB was provided with supervisory power over the credit market. Its responsibility includes making financial products easier to understand, curtailing unfair lending and credit card practices, and ensuring the safety of financial products before their launch into the market. The Dodd–Frank Wall Street Reform and Consumer Protection Act also gives federal regulators more power over large companies and financial institutions to prevent them from engaging in risky practices or becoming “too big to fail.” The act also holds CEOs responsible for the behavior of their companies. Large financial firms must retain at least half of top executives’ bonuses for at least three years. The goal is to tie compensation to the outcomes of the executives’ decisions over time.
3-3lInsider Trading
An insider is any officer, director, or owner of 10 percent or more of a class of a company’s securities. There are two types of insider trading : illegal and legal. Illegal insider trading is the buying or selling of stocks by insiders who possess information that is not yet public. This act, which puts insiders in breach of their fiduciary duty, can be committed by anyone who has access to nonpublic material, such as brokers, family, friends, and employees. In addition, someone caught “tipping” an outsider with nonpublic information can also be found liable. To determine if an insider gave a tip illegally, the SEC uses the Dirks test that states if a tipster breaches his or her trust with the company and understands that this was a breach, he or she is liable for insider trading.
Legal insider trading involves legally buying and selling stock in an insider’s own company, but not all the time. Insiders are required to report their insider transactions within two business days of the date the transaction occurred. For example, if an insider sold 10,000 shares on Monday, June 12, he or she would have to report the sale to the SEC by Wednesday, June 14. To deter insider trading, insiders are prevented from buying and selling their company stock within a six-month period, thereby encouraging insiders to buy stock only when they feel the company will perform well over the long term.
3-3mIntellectual Property Rights
Intellectual property rights involve the legal protection of intellectual property such as music, books, and movies. Laws such as the Copyright Act of 1976, the Digital Millennium Copyright Act, and the Digital Theft Deterrence and Copyright Damages Improvement Act of 1999 were designed to protect the creators of intellectual property. However, with the advance of technology, ethical issues still abound for websites. For example, until it was sued for copyright infringement and subsequently changed its business model, Napster.com allowed individuals to download copyrighted music for personal use without providing compensation to the artists.
A decision by the Federal Copyright Office (FCO) helped lay the groundwork for intellectual property rules in a digital world. The FCO decided to make it illegal for web users to hack through barriers that copyright holders erect around material released online, allowing only two exceptions. The first exception was for software that blocks users from finding obscene or controversial material on the web, and the second was for people who want to bypass malfunctioning security features of software or other copyrighted goods they have purchased. This decision reflects the fact that copyright owners are typically being favored in digital copyright issues.
However, digital copyrights continue to be a controversial issue in the United States and across the world, and existing laws are often difficult to enforce. Approximately 22 percent of all Internet traffic involves copyrighted material, including illegally downloaded or uploaded music, movies, and television shows.
While intellectual property rights’ infringement always poses a threat to companies that risk losing profits and reputation, it can also threaten the health and well-being of consumers. For example, illegally produced medications, when consumed by unknowing consumers, can cause sickness and even death. Research on software piracy has shown that high levels of economic well-being and an advanced technology sector are effective deterrents to software piracy.
3-3nPrivacy Issues
Consumer advocates continue to warn consumers about new threats to their privacy, especially within the health care and Internet industries. As the number of people using the Internet increases, the areas of concern related to its use increase as well. Some
privacy issues
that must be addressed by businesses include the monitoring of employees’ use of available technology and consumer privacy. Current research suggests that even when businesses use price discounts or personalized services in exchange for information, consumers remain suspicious. However, certain consumers are still willing to provide personal information despite the potential risks.
A challenge for companies today is meeting their business needs while protecting employees’ desire for 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. For example, the Electronic Communications Privacy Act of 1986 prohibits the interception of electronic communication and access to stored electronic communications. However, exemptions are made for the “normal course of employment,” and it is generally agreed that employers have to right to monitor company email. Additionally, employee consent also removes protection.
Electronic monitoring allows a company to determine whether productivity is being reduced because employees spend too much time on personal activities. Having this information enables the company to take steps to remedy the situation. Many employers have policies that govern personal phone and Internet use on company time. Additionally, some companies track everything from phone calls and Internet history to keystrokes and the time employees spend at their desks.
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. For example, many are not aware that Google, Inc., reserves the right to track every time you click on a link from one of its searches.
Personal information about consumers is valuable not only to businesses but also to criminals. It is estimated an identity is stolen once every two seconds.
There is an ethical responsibility to protect consumer’s personal information from cybercrime. Any organization needs to develop a compliance system to stop or create a greater risk to deter cybercriminals. Also every organization needs a recovery plan for when a hacker steals personal data. Most likely data breaches will occur and there is an ethical responsibility to quickly notify consumers. Employees should be trained to protect data and understand risks associated with information technology.
3-4The 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. Another way to determine if a specific behavior or situation has an ethical component is to ask other individuals in the business how they feel about it and whether they view it as ethically challenging. Trade associations and business self-regulatory groups such as the Better Business Bureau often provide direction for companies in defining ethical issues. Finally, it is important to determine whether the organization adopted specific policies on the activity. An activity approved by most members of an organization, if it is also customary in the industry, is probably ethical. An issue, activity, or situation that can withstand open discussion between many stakeholders, both inside and outside the organization, probably does not pose ethical problems.
However, over time, problems can become ethical issues as a result of changing societal values. For example, today big data and marketing analytics are becoming new ethical issues as they can reduce employees and consumers to quantitative measurements. Many employers are beginning to use digital dashboards to treat employees like any other organizational asset, using measurements and predictability to determine deviations from the norm so that managers can know which issues need to be addressed. While this has profound implications for understanding employee behavior and how it impacts firm success, some critics believe it is unacceptable to replace humans with a computer in personnel decisions. Some also point out that human behavior can be complex and there could be patterns that cannot be accounted for using a digital dashboard.
Once stakeholders trigger ethical issue awareness and individuals openly discuss it and ask for guidance and the opinions of others, one enters the ethical decision making process, which we examine in Chapter 5.
Chapter Review
3-5aSummary
Stakeholders’ concerns largely determine whether business actions and decisions are perceived as ethical or unethical. When government, communities, and society become involved, what was merely an ethical issue can quickly become a legal one. Shareholders can unwittingly complicate the ethical conduct of business by demanding managers make decisions to boost short-term earnings, thus maintaining or increasing the value of their stock.
Fairness is the quality of being just, equitable, and impartial and overlaps with concepts of justice, equity, and equality. 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.
The misuse of company time and resources—especially computer resources—has become a major ethical issue. 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. Corporate intelligence can be a legitimate business activity but becomes unethical if deception is used to steal another firm’s trade secrets.
Another ethical/legal issue is discrimination, which is illegal in the United States when it occurs 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. To build workforces that reflect their customer base, many companies initiated affirmative action programs. In general, fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression. There are several types of fraud: accounting, marketing, and consumer.
An insider is any officer, director, or owner of 10 percent or more of a class of a company’s securities. There are two types of insider trading: legal and illegal. Intellectual property rights involve the legal protection of intellectual property such as music, books, and movies. Consumer advocates continue to warn consumers about new threats to their privacy.
Chapter Review
3-5cResolving Ethical Business Challenges
Daniel just graduated from Michigan University and landed a job as a copywriter at Young, Olsen, Lindle, and Olson (YOLO) Advertising assigned to one of the subsidiary accounts of Delicious Uber Bacon Ingredients Extraordinaire Corporation. This conglomerate was primarily a food processing manufacturer beginning 100 years ago with pork in the Midwest. Overall corporate sales of beef, chicken, pork, and seafood were more than $750 million each year. YOLO considered many advertising options and opted for a celebrity spokesperson. That meant Daniel would work with Gloria Kunies as the celebrity endorser. Ms. Kunies is a well-known, well-loved, young, and vibrant actress with a large younger following.
Chloe, President of YOLO, asked Daniel to step into her office. “Daniel, this new account is a good start for you. We usually don’t let our new copywriters handle accounts by themselves, but you have proven to be a capable employee. Your job on this account is to write copy for the commercials using Ms. Kunies’s product testimonials. The copy needs to be crafted as a testimonial, targeting the market of 17- to 30-year-olds. Ms. Kunies already signed an affidavit as to being a bona fide user of the product. The scripts should feature her testifying to the quality, value, and tastiness of the bacon. I want you to meet her tomorrow so you can start the writing process and understand her personality in order to script the messages. Spend the rest of the day immersing yourself in her biography and researching her on the Internet.” As Daniel left Chloe’s office he remembered a Facebook post about Ms. Kunies being a vegetarian.
The next day at their meeting, Daniel asked her if she had actually tasted the bacon. Ms. Kunies replied, “Why yes, technically and legally I have tried Uber. In fact, I’ve been a huge fan since I was a kid. Bacon is my favorite food. I’ve done several testimonials in the past and know the American Advertising Federation (AAF) rules. I know as long as my comments are based on verifiable personal use, the message cannot be challenged as deceptive. In fact, Uber bacon has been a favorite of mine since I was young. It wasn’t until a month ago I became a vegetarian. Eating all that bacon for decades really did a number on my cholesterol.”
“So, you feel comfortable about endorsing Uber even though you don’t eat it now?” asked Daniel.
“No question about it. As far as bacon goes, Uber is second to none in taste. If people are going to eat bacon, why not eat the best? Even if it is a heart attack waiting to happen,” Ms. Kunies joked.
The next day Chloe asked Daniel how it went. He explained their conversation and expressed concern over the fact Ms. Kunies is currently a vegetarian, and she attributed her high cholesterol to Uber bacon. Daniel felt relief when he saw the concern in Chloe’s face, but soon realized her concern was about Ms. Kunies pulling out of the advertisement. Daniel reassured Chloe that Ms. Kunies still wanted to promote the product, but it seemed like a contradiction to have a vegetarian promoting bacon. Chloe responded by saying as long as Ms. Kunies had eaten the bacon at some point in her life and thinks it is a good product, it makes no difference as to whether she currently eats the bacon. She continued, “Sometimes in advertising, you have to add a spin to the message you are communicating so it fits with the product you are selling. Not only are you selling a product, but more importantly, you are selling an experience, a feeling, an idea that appeals to consumers.”
As Daniel walked home that evening, he wondered how he was going to write this advertisement. He did not want to begin his career in a dishonest manner, but he also wanted to produce work that pleased his boss. He tried to think of creative ways to mask the contradiction of the advertisement. Maybe with humor? He asked himself if this approach would still feel dishonest. The next morning Daniel was going to meet with both Ms. Kunies and Chloe about what he had written thus far.
Questions | Exercises
1. Describe the ethical issues that Daniel is encountering.
2. Does this situation in any way violate the concepts of fairness, honesty, and integrity?
3. If the advertisement does not violate any laws, then why should Daniel be concerned? What are the possible consequences of the advertisement?
Chapter Review
3-5dCheck Your EQ
Check your EQ, or Ethics Quotient, by completing the following. Assess your performance to evaluate your overall understanding of the chapter material.
1. Business can be considered a game people play, like basketball or boxing.
Answer
Yes
No
Rationale
People are not economically self-sufficient and cannot withdraw from the game of business.
2. Key ethical issues in an organization relate to fraud, discrimination, honesty and fairness, conflicts of interest, and privacy.
Answer
Yes
No
Rationale
Fraud, discrimination, honesty and fairness, conflicts of interest, and privacy are some key ethical issues that businesses face.
3. Only 10 percent of employees observe abusive behavior in the workplace.
Answer
Yes
No
Rationale
According to Table 3-1, 18 percent of employees observe abusive behavior in the workplace.
4. Fraud occurs when a false impression exists, which conceals facts.
Answer
Yes
No
Rationale
Fraud must be purposeful rather than accidental and exists when deception and manipulation of facts are concealed to create a false impression that causes harm.
5. Time theft is a major type of misconduct.
Answer
Yes
No
Rationale
It is estimated the average employee steals approximately 4.25 hours per week.