Ethical issues in business are a major concern, with companies facing increasing scrutiny over their business practices.
This comprehensive guide will explore the 8 biggest ethical issues businesses must know and discuss how companies can manage them.
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Business ethics are in the spotlight more than ever before. High-profile scandals like Enron have highlighted how unethical behavior can lead companies to quit. According to the Global Business Ethics Survey, 50% of employees have witnessed unethical behavior in the past year. Every company needs to take ethical issues seriously.
We’ll look at real examples and discuss strategies companies can implement to deter ethical violations before they spiral out of control. Let’s dive in.
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Before exploring specific issues, it’s helpful to understand the most prevalent types of ethical issues in business:
- Accounting fraud — Companies falsifying financial statements and accounting records to appear more profitable.
- Discrimination and harassment — Unfair treatment of employees based on protected characteristics.
- Health and safety — Failure to protect employee wellbeing.
- Conflicts of interest — Executives acting in their own self-interest rather than their company’s.
- Insider trading — Company executives trading shares based on non-public information.
- Cybersecurity — Failure to protect consumer and employee data from breaches.
With these broad categories in mind, let’s explore the 8 biggest ethical issues facing businesses today.
One of the most common ethical issues in business is using unethical accounting practices to inflate financial results. Well-known examples include companies like Enron, WorldCom, and Tyco, which manipulated earnings and falsified financial statements.
Unethical accounting threatens the integrity of financial markets. It misleads shareholders, regulators, and the public about a company’s financial health.
According to the Global Business Ethics Survey, accountants face the most pressure to compromise ethical standards. Tactics companies use include:
- Recording revenue prematurely before completing sales
- Underreporting expenses to inflate profit
- Failing to disclose relevant information in financial statements
The infamous accounting firm Arthur Andersen was charged with obstruction of justice for shredding Enron-related documents. This highlights the widespread nature of unethical accounting.
To deter these issues, companies need robust ethics policies and training. Initiatives like the Sarbanes-Oxley Act also aim to protect consumers by mandating stricter financial reporting requirements.
Workplace discrimination and harassment remain prevalent ethical issues. According to the Equal Employment Opportunity Commission (EEOC), sexual harassment charges increased by 13.6% in 2021.
Forms of discrimination and harassment include:
- Age — Treating employees differently due to their age.
- Disability — Failing to provide reasonable accommodations.
- Race — Making decisions based on race/ethnicity.
- Religion — Not respecting religious practices or beliefs.
- Sex — Discrimination based on gender or pregnancy.
- Sexual harassment — Unwelcome sexual advances or contact.
Discrimination lawsuits can damage a company’s reputation and bottom line. The best way to deter discrimination is to have clear policies, train managers, and maintain an ethical culture where misconduct is not tolerated.
Failure to protect employee health and safety is both unethical and illegal. However, many organizations fall short when it comes to protecting their workforce.
According to the International Labour Organization, over 374 million occupational accidents and work-related diseases occur annually. Common issues include:
- Inadequate training — Failure to train workers on hazards.
- Faulty equipment — Using defective or unsafe machinery.
- Poor ergonomics — Bad office setups that cause repetitive strain.
- Long hours — Scheduling excessive overtime.
- Stress — Subjecting workers to unmanageable workloads.
- Violence — Failing to protect staff from hostile individuals.
Protecting workers involves thoroughly assessing risks, involving staff in decisions, and having robust reporting procedures. Companies also need to promote well-being by tackling issues like work-related stress.
A conflict of interest arises when a company executive prioritizes their interests above their duty to the business. For example, approving contracts with family members or investing in competitors.
According to a Deloitte survey, 42% of executives have observed conflicts of interest in their company. Examples include:
- Self-dealing — Channeling business opportunities to themselves or family/friends.
- Gifts — Accepting lavish gifts that may influence decision-making.
- Outside employment — Working for competitors or suppliers.
- Inside information — Personally profiting from non-public knowledge.
Companies need robust policies requiring executives to disclose potential conflicts of interest. However, the culture also needs to promote ethical behavior from the top down.
Insider trading is an unethical and illegal practice where executives trade shares based on confidential company information that could impact stock prices.
For example, executives selling large amounts of stock knowing an upcoming negative earnings report will cause the share price to plummet. This disadvantages everyday investors without access to such information.
Tactics to deter insider trading include:
- Blackout periods — Preventing executives trading shares close to major announcements.
- Reporting requirements — Mandating executives disclose share transactions.
- Monitoring — Using software to detect illegal trading patterns.
In the U.S., the Security Exchange Commission (SEC) pursues insider trading cases vigorously. Penalties range from fines to imprisonment. However, insider trading remains an ongoing challenge to eradicate fully.
Technology raises new ethical challenges around privacy, surveillance, and cybersecurity. For example:
- Monitoring employees via camera, computer monitoring, or tracking devices.
- Collecting excessive personal data without consent.
- Failing to disclose data breaches.
- Using AI unethically by amplifying biases.
Employees have a right to privacy, even while using company-owned devices. However, technology lets employers monitor virtually all online activity, blurring ethical lines.
Companies should have clear workplace privacy policies and be transparent about any monitoring. Data collection also needs to follow privacy laws and cybersecurity best practices.
Environmental responsibility is a key ethical obligation for modern companies. However, many organizations still engage in practices harmful to the environment, including:
- Air/water pollution — Releasing toxic emissions or waste.
- Unsustainable sourcing — Using materials that damage ecosystems.
- Waste — Producing excessive, unrecycled waste.
- Carbon emissions — Failure to limit CO2 and greenhouse gases.
Environmental harm can occur directly through company operations or indirectly via supply chains. Either way, organizations have a moral duty to minimize ecological damage.
Strategies include investing in clean technologies, sustainable sourcing, auditing suppliers, and offsetting carbon emissions. Many consumers now demand brands embrace corporate social responsibility.
Bribery involves offering incentives, such as cash or gifts, to influence behavior unethically. For example, bribing overseas officials to award contracts or circumvent regulations.
Corruption is the abuse of power to gain an unfair advantage, often through bribery or extortion.
Transparency International says over 25% of firms worldwide experience public sector bribery. Corruption damages economic development and facilitates crime and human rights abuses.
Anti-bribery laws like the Foreign Corrupt Practices Act impose severe penalties. However, companies must go beyond basic legal compliance and institute ethical cultures intolerant of bribery.
Unethical behavior can never be eliminated. However, companies can take steps to deter issues proactively rather than reacting once problems emerge:
- Institute a strong code of ethics and ensure it permeates decision-making at all levels.
- Provide regular ethics training to employees and suppliers.
- Implement anonymous reporting mechanisms like hotlines to flag issues early.
- Maintain transparency around business operations and practices.
- Establish diverse and independent board oversight committees.
- Incorporate ethics into performance reviews and compensation decisions.
- Conduct regular audits to identify any emerging risks or red flags.
- Promote an ethical culture where choosing the right path is valued over profits.
Ethical challenges will continue arising as technology, regulations, and society evolve. However, companies can get ahead of issues by:
- Identifying current and emerging ethical risks across all business areas.
- Having robust policies and management systems to address key issues like discrimination, safety, conflicts of interest, and data privacy.
- Going beyond basic compliance to embedding strong ethics throughout the organizational culture.
- Ensuring accountability, transparency, and integrity in all business practices.
- Providing regular training to employees, managers, and executives on how to make ethical decisions.
- Maintaining open communication channels so staff feel comfortable reporting any violations or concerns.
- Responding swiftly and decisively to unethical behavior rather than letting problems grow.
- Making values like trust, honesty and fairness central to the brand identity.
- Collaborating with partners and suppliers who demonstrate high ethical standards.
- Auditing regularly to identify any gaps or deficiencies in ethical practices.
- Learning from past mistakes and scandals in your industry to improve policies.
- Reviewing incentive structures and performance metrics to ensure they encourage ethical outcomes.
- Ensuring the board sets the tone for ethics at the top and provides robust oversight.
- Making amends fully if ethical lapses occur and changing practices to stop repeat issues.
- Highlighting any ethical initiatives and progress in company reports and press.
Managing business ethics requires constant vigilance, transparency, and, most importantly, the right culture. Leaders must demonstrate commitment to ethics in all decisions, big and small. With robust strategies and sincere commitment, companies can conduct business ethically and sustainably for the benefit of all stakeholders.
