Ethical Issues in Business
Oleh: Lusianah, S.E., M.Ak.
Ethical standards are derived from societal mores and deep-rooted personal beliefs about issues of right and wrong that are not universally agreed upon. It is quite possible for two individuals, both of whom consider themselves to be acting ethically, to be on opposite sides of an issue. Often, we confuse ethical issues with legal issues.
We have been inundated with scandals in the stock market, stories of computer crimes and viruses, and almost obscene charges of impropriety and illegalities by corporate executives. Using covert compensation schemes, Enron’s CFO Andy Fastow managed to improve his personal wealth by approximately $40 million. Similarly, Dennis Kozowski of Tyco, Richard Scrushy of HealthSouth, and Bernie Ebbers of WorldCom all became wealthy beyond imagination while driving their companies into the ground. Indeed, during the period from early 1999 to May 2002, the executives of 25 companies extracted $25 billion worth of special compensation, stock options, and private loans from their organizations while their companies’ stock plummeted 75 percent or more.
Ethics pertains to the principles of conduct that individuals use in making choices and guiding their behavior in situations that involve the concepts of right and wrong. More specifically, business ethics involves finding the answers to two questions:
- How do managers decide what is right in conducting their business?
- Once managers have recognized what is right, how do they achieve it?
Ethical issues in business can be divided into four areas: equity, rights, honesty, and the exercise of corporate power.
Making Ethical Decisions
Business organizations have conflicting responsibilities to their employees, shareholders, customers, and the public. Every major decision has consequences that potentially harm or benefit these constituents. For example, implementing a new computer information system within an organization may cause some employees to lose their jobs, while those who remain enjoy the benefit of improved working conditions. Seeking a balance between these consequences is the managers’ ethical responsibility.
The following ethical principles provide some guidance in the discharge of this responsibility.
- Proportionality. The benefit from a decision must outweigh the risks. Furthermore, there must be no alternative decision that provides the same or greater benefit with less risk.
- Justice. The benefits of the decision should be distributed fairly to those who share the risks. Those who do not benefit should not carry the burden of risk.
- Minimize risk. Even if judged acceptable by the principles, the decision should be implemented so as to minimize all of the risks and avoid any unnecessary risks.
The use of information technology in business has had a major impact on society and thus raises significant ethical issues regarding computer crime, working conditions, privacy, and more. Computer ethics is “the analysis of the nature and social impact of computer technology and the corresponding formulation and justification of policies for the ethical use of such technology.
Sarbanes-Oxley Act and Ethical Issues
Public outcry surrounding ethical misconduct and fraudulent acts by executives of Enron, Global Crossing, Tyco, Adelphia, WorldCom, and others spurred Congress into passing the American Competitiveness and Corporate Accountability Act of 2002. This wide-sweeping legislation, more commonly known as the Sarbanes-Oxley Act (SOX), is the most significant securities law since the SEC Acts of 1933 and 1934. SOX has many provisions designed to deal with specific problems relating to capital markets, corporate governance, and the auditing profession. Several of these are discussed later in the chapter. At this point, we are concerned primarily with Section 406 of the act, which pertains to ethical issues.
- Conflicts of Interest. The company’s code of ethics should outline procedures for dealing with actual or apparent conflicts of interest between personal and professional relationships.
- Full and Fair Disclosures. This provision states that the organization should provide full, fair, accurate, timely, and understandable disclosures in the documents, reports, and financial statements that it submits to the SEC and to the public.
- Legal Compliance. Codes of ethics should require employees to follow applicable governmental laws, rules, and regulations.
- Internal Reporting of Code Violations. The code of ethics must provide a mechanism to permit prompt internal reporting of ethics violations.
- Accountability. An effective ethics program must take appropriate action when code violations occur.
6 Ethical Issues in Business:
- Harassment and Discrimination in the Workplace
- Health and Safety in the Workplace
- Whistleblowing or Social Media Rants
- Ethics in Accounting Practices
- Nondisclosure and Corporate Espionage
- Technology and Privacy Practices
- Hall, A. J. 2008. Accounting Information System. Sixth Edition. South-Western Cengage Learning.
- Google Image. 2020
- Oster, V. K. 2019. List of Ethical Issues in Business. SmallbusinessCharon.
- 2020. 6 Ethical Issues in Business and What to Do About Them. Springghr.com