Ethical Fundamentals

Ethical Issues

Business leaders routinely face ethical issues they must navigate in the course of managing and making decisions for their organizations. These issues arise in every facet of a company’s operations, from its internal management (for example, human resources, employee pay and benefits, accounting practices, and corporate governance) to its external dealings and relationships (for example, marketing/advertising, executive recruitment, regulatory compliance, and relations with vendors and suppliers).

Ethical dilemmas in business confront leaders with the fundamental question: “What’s the right thing to do?” (Or, conversely: “What’s the wrong thing to do?”) Of course, in business, as in life, the ethical choices are not always clear-cut right versus wrong. When the matter at hand is ethically complex or shaded, leaders may find themselves negotiating a trickier question: “Among several options or courses of action, each of which raises ethical red flags, which is the best (i.e., ethically most defensible) choice?”

Regardless of the industry in which they work, leaders and managers often encounter certain common (if not universal) ethical challenges.
Identifying common ethical issues helps us be alert to them and better prepared to resolve them.
Ethical issues faced by leaders in an organization include…
Human resource practices: making sure that our hiring, disciplinary, and firing decisions are consistent, objective, and fair.
Conflicts of interest: making sure that our judgment is not compromised by external factors and that we don’t act in self-interest rather than the best interest of the organization.
Organizational resource use: making sure that we use the organization’s resources only in a fair and appropriate manner.
Confidentiality: making sure that we don’t disclose confidential or privileged information (whether it is internal or external information involved).
Treatment of customers and competitors: making sure that we deal with customers and competitors in a fair and honest manner, avoiding deceptive or misleading practices.
Leaders should develop and nurture a set of beliefs, values, norms, and practices that establish an organization’s ethical culture.

Business ethics invites consideration of the ethical obligations borne by those who operate in the business world. What do business people owe, as an ethical matter, to investors or owners? To the businesses they deal with as customers or sellers? To peers and employees? To society at large?

Legality and Ethics

It is important to note that there is a difference between what is legal and what is ethical. An individual’s behavior can be legal and yet fall short of being ethical. The following examples demonstrate that meeting legal obligations alone doesn’t make an action moral.


Review Checkpoint

To test your understanding of the content presented

1. Sunshine Mortgage encourages its brokers to sell balloon loans that start with low monthly payments but convert to very large monthly payments after five years. These mortgages can bankrupt lower-income homebuyers who often don’t fully understand the terms of the loan and often default when they must meet the higher monthly payments. Sunshine Mortgage decides to target its marketing to these lower-income prospects.

Sunshine Mortgage’s behavior is:Choose only one answer below.

a. Illegal and unethical

b. Legal and unethical

Correct. The answer is B. While Sunshine Mortgage is not breaking the law, its target marketing to lower-income homebuyers can be considered unethical.

c. Illegal and ethical

d. Legal and ethical

2. Classic Jewelry purchases old jewelry at prevailing market prices and refurbishes it. Those who sell the jewelry to Classic are often older people looking for quick cash. Classic ends up pricing the new jewelry at 500% of the price it paid the original owner and making a substantial profit.

Classic Jewelry’s behavior is:Choose only one answer below.

a. Illegal and unethical

b. Legal and unethical

c. Illegal and ethical

d. Legal and ethical

Correct. The answer is D. Classic Jewelry is paying market prices for the old jewelry so it is treating those selling it fairly. That Classic Jewelry can resell the refurbished jewelry at high prices represents capitalism at work and is not unethical.

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