· 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.
Specific Types of Observed Misconduct
Lying to employees
Conflicts of interest
Violating company Internet use policies
Health or safety violations
Lying to outside stakeholders
Retaliation against someone who reported misconduct
Falsifying time reports or hours worked
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
Integrity, honesty, and fairness are widely used values for evaluating activities that could become ethical issues. Ethical issues can emerge from almost any decision made in an organization. Understanding these foundational values can help identify and develop discussions and a constructive dialogue on appropriate conduct. It is just as important to emphasize appropriate conduct associated with these values as it is to discover inappropriate conduct.
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. Integrity complements honesty, which becomes the glue that holds business relationships together to make everything else more effective and efficient.
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.
This type of reasoning leads many to conclude that anything is acceptable in business. Indeed, several books have compared business to warfare—for example, The Guerrilla Marketing Handbook and Sun Tsu: The Art of War for Managers. The common theme is that surprise attacks, guerrilla warfare, and other warlike tactics are necessary to win the battle for consumer dollars. New England Patriots coach Bill Belichick uses lessons from The Art of War to help shape his coaching philosophy. Believing that games can be won before players even take to the field, Belichick believes attention to detail and the ability to use an opponents’ weaknesses against him is crucial to success. Although this business-as-war mentality can help a company remain competitive, it could also foster the idea that honesty is unnecessary in business. For instance, accusations that the New England Patriots used slightly deflated footballs during a game to gain an advantage could be construed as a dishonest way to win. The National Football League suspended Patriots quarterback Tom Brady for the first four games of the season, fined the Patriots $1 million, and took away two draft picks.
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.
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.
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
Source: Adapted from Jaclyn Jaeger, “Top Shareholder Issues for 2012 Proxy Season,” Compliance Week, March 8, 2012, http://www.complianceweek.com/blogs/the-filing-cabinet/top-shareholder-issues-for-2012-proxy-season#.VOy0wnnTBVI (accessed April 15, 2017).
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. As another example, Virgin Group adopted a new policy allowing employees to take as much vacation time as they need. Although left to the employees’ discretion, CEO Richard Branson believes employees will use their judgment and not abuse the system to get out of work.
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.
Wage theft is another way that employers create an abusive environment. Employees are increasingly claiming that companies are failing to pay them overtime for working extra hours. Federal and state regulators are investigating this uptick in wage theft allegations to see if employers are violating minimum wage and overtime laws. For instance, some Subway and McDonalds franchisees have been found guilty of violating pay and hour rules. As a result, Subway franchisees were forced to reimburse employees more than $3.8 million. Forcing employees to work overtime with no compensation or paying them less than what the law dictates creates a negative environment where employees often feel bullied or exploited.
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. As Table 3-3 indicates bullies can use a mix of verbal, nonverbal, and manipulative threatening expressions to damage workplace productivity. Approximately 72 percent of bullies in the workplace outrank their victims. If managers do not address bullying behaviors in the organization, then what starts out as one or two bullies may begin to spread. It has been found that employees who have been bullied are more likely to find it acceptable to bully others.
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. Workplace bullying is illegal in many other countries. Some suggest employers take the following steps to minimize workplace 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 people feel justified screaming or yelling at you in front of others, and are you punished if you scream back?
· 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. In many cases, the alleged misconduct can not only have monetary and legal implications but also threaten reputation, investor confidence, and customer loyalty.
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.
Lying by commission can involve complex forms, procedures, contracts, words that are spelled the same but have different meanings, or refuting the truth with a false statement. Forms of commission lying include puffery in advertising. For example, saying a product is “homemade” when it is made in a factory is lying. “Made from scratch” in cooking technically means that all ingredients within the product were distinct and separate and were not combined prior to the beginning of the production process. Many food and cleaning supply labels use the word “natural” to imply that its ingredients are healthier, organic, or nongenetically modified. In reality, the word “natural” is not regulated and does not have to mean any of these things.
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. Manipulating financial reports to inflate earnings is also a form of omission lying that can result in fraud.
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.
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. Ralph Lauren Corp. employees gave Argentine customs officials dresses, perfume, and cash to accelerate the passage of merchandise into the country. Over $580,000 was paid. This amount was not considered to be facilitation payments—they were considered to be bribes. When discovered, Ralph Lauren reported the bribery and cooperated with an investigation. As a result of their cooperativeness, they were not prosecuted under the Foreign Corrupt Practices Act. However, they agreed to pay $1.6 million to resolve the investigation.
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.” Companies have paid billions of dollars in fines to the Department of Justice for bribery violations. The law does not apply only to American firms but to all firms transacting business with operations in the United States. This could also mean firms do not necessarily have to commit the bribery in the United States to be held accountable. For instance, Alcoa paid $384 million to settle allegations that it had paid bribes to a Bahraini state-controlled smelter.
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 involves an in-depth discovery of information from corporate records, court documents, regulatory filings, and press releases, as well as any other background information about a company or its executives. CI can be a legitimate inquiry into meaningful information used in staying competitive. For instance, it is legal for a software company to monitor its competitor’s online activities such as blogs and Facebook posts. If the company learns from monitoring its competitor’s public postings it is likely planning to launch a new product, the company could use this intelligence to release the product first and beat the competition. Such an activity is acceptable.
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. Theft of corporate trade secrets has been on the rise among technology companies such as Samsung. Corporate espionage is estimated to cost the world economy $445 billion each year—about 1 percent of global income. If discovered, corporate espionage can lead to heavy fines and prison sentences. A lack of security and proper training allows a person to use a variety of techniques to gain access to a company’s vital information. Some techniques for accessing valuable corporate information are included in Table 3-4.
Ways to Steal Corporate Trade Secrets
Method of Corporate Espionage
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
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. Given the fact that nearly one-third of the nation’s workers are 55 years old or over, many companies need to change their approach toward older workers.
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. For example, McCormick & Schmicks Seafood Corporation paid a settlement of $1.3 million to settle a lawsuit that it discriminated against African American workers. It also adopted recruitment procedures to attract African American job applicants. However, many companies voluntarily implement affirmative action plans in order to build a more diverse workforce. Although many people believe affirmative action requires the use of quotas to govern employment decisions, it is important to note two decades of Supreme Court rulings made it clear that affirmative action does not permit or require quotas, reverse discrimination, or favorable treatment of unqualified women or minorities. To ensure affirmative action programs are fair, the Supreme Court established standards to guide their implementation:
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.”
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