ETHICS IN

BUSINESS

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A father wanted to teach his adolescent son a lesson on managing the
family business. Does the son understand how the family partnership
conducts business? “Suppose a customer is shortchanged by ten
dollars. You know the customer has been slighted, but no one else is
aware of the problem. What do you do?” the father asked. Seeking
clarification, the son responded, “You mean, do we tell the customer?”
“Well . . .” his father said somewhat tentatively. “What I am really asking
is do we tell our partner?” What was the father’s lesson? Cheating is
okay if no one knows about it? Such one-dimensional thinking reflects
the norm in today’s American business climate. David Noonan, noted
business consultant, points out that “One needs only to pick up a
newspaper or turn on the news to see how far many corporations have
strayed from moral business practices and efficient management.”
 1.Coca-Cola admitted to rigging taste tests on its new frozen drink.

Examples 2 Tokyo Electric Power, the company behind Japan’s postearthquake nuclear crisis,
has allegedly been involved in a long list of accidents and cover-ups over the years.
3 Mitsubishi admitted to covering up defects to postpone a recall.

of 4 The BP oil spill in the Gulf of Mexico emerged as unquestionably the

environmental catastrophe of the century, but some argue that it also
demonstrates an ethical crisis.

Unethical
5 Bank One was fined by National Association of Security Dealers (NASD) for
allowing late trading of its mutual funds.
6 Weatherford International LTD, an oilfield services company, disclosed errors in its
tax accounting leading to adjustments of more than $100 million in its financial

Practices statements from 2007 to 2010. The necessary adjustments involve errors in
determining tax liabilities.
7 • Raj Rjaratnam, described by US attorney Preet Bharara as “one of the most
educated, successful, and privileged professionals in the country,” became the thirty-
fifth person to plead or be found guilty of insider trading during a federal crackdown
extending from 2009 to 2011. (Sub-prime Crisis)
 Unethical Practices

The Recording Industry Association of America (RIAA), on behalf of its member companies and
copyright owners, has sued more than 30,000 people for unlawful downloading. RIAA detectives log on
to peer- to- peer networks where they easily identify illegal activity since users’ shared folders are
visible to all. The majority of these cases have been settled out of court for $1,000–$3,000, but fines
per music track can go up to $150,000 under the Copyright Act. The nation’s first file- sharing
defendant to challenge an RIAA lawsuit, Jammie Thomas- Rasset, in 2013 reached the end of the
appeals process to overturn a jury- determined $222,000 fine. She was ordered to pay this amount,
which she argued was unconstitutionally excessive, for downloading and sharing 24 copyrighted songs
using the now- defunct fi le- sharing ser vice Kazaa
 A young adult’s behavior is primarily motivated by a
Today’s youth are “wired” and connected to technology
desire to meet his or her basic need for recognition,
24/7. Statistics suggest that “two- thirds of [American]
attention, and approval. In a survey conducted in
youth go online every day for school work, to keep in
1999, students in over 100 schools were asked the
touch with their friends, to play games, to learn about
following question: “Is it easier for you to get noticed
celebrities, to share their digital creations, or for many
or get attention in this school by doing something
other reasons.”3 Given the accessibility of technology, it
positive or something negative?” Almost 100%
should be no surprise that individuals are using the
replied “negative.” Adolescents turn to cyberbullying
Internet, cell phones, and other electronic instruments to
to fuel their need for attention and recognition from
bully each other. A 2010 study revealed that “30% of
their peers. It began primarily in chat rooms and
middle school students were victims of at least one of
instant messaging conversations, but has expanded
nine forms of cyber bullying two or more times in the past
to include social networking web sites (Facebook
30 days” and “22% of middle school students admitted to
and MySpace) and video- sharing web sites
engaging in at least one of fi ve forms of cyber bullying
(YouTube). Text messaging and anonymous web
two or more times in the past 30 days.”4 Females are
postings are common methods of cyberbullying. Very
more likely to choose cyberbullying over traditional
recently, cyberbullying has established a presence in
bullying. The rationale is that females prefer the
portable gaming devices through “virtual worlds” and
nonconfrontational nature of technology.
interactive sites.
 Ethics

Manuel Velasquez, a leading writer in the field of business ethics, defines

business ethics as “a study of moral standards and how these apply
to the systems and organizations through which modern societies
produce and distribute goods and services and to the people who
work within these organizations.
Batson and Neff define business ethics as the application of moral
standards to the structures, policies, systems, and decision-making
processes that facilitate the production and distribution of goods
and services and affect the treatment of people within the
organization and the greater society.
Both aspects of this definition raise two important questions: (1) Whose
moral standards are to be used? (2) What is the best way to apply moral
standards or principles in our business, societal, and personal lives?
 Ethics: Definition
 Ethics is defined as that characteristic which constitutes good
and bad human conduct and that which decides what is good
and evil, right and wrong, and thus what we ought and ought
not to do.
 The ethical sense of right and wrong is derived by a set of
social values through which our actions can be tested.
 In a social group, the ethical standards are set keeping the
social values as the base.
 Values are the central desires of individuals in any social group.
 They are the choices that an individual makes to enhance the
quality of his or her existence
 Ethics: Definition
 Thus the term ‘ethics’ defines the standards that bear on right and wrong
issues of society.
 Business ethics is thus a set of professional standards, which emphasize
principles of honesty and duty to the business and the general public.
 The significant principles included in business ethics are
1. Fairness
2. Integrity
3. Commitment to agreements
4. Broad-mindedness
5. Considerateness
6. Importance of human esteem and self-respect
7. Responsible citizenship
8. Attempt to excel
9. Accountability
 1. Ethical Subjectivism
ETHICAL
This concept emphasizes that the ethical
CONCEPTS choice of the individual decides the rightness
or wrongness of his behavior.
Ethics is the branch 2.Ethical Relativism

of philosophy that
is used to evaluate According to this concept, no principle is
human actions. The universally applicable and so it would be
inaccurate to measure the behavior of one
major ethical society with another’s principles or standards.
concepts in Relativism overlooks the fact that there may
business are: be enough evidence to believe that an ethical
practice is based on false belief, illogical
reasoning, and so on.
 3.Consequentialism

Consequentialism is based on two ideas: the concept of value and the

maximization of value. If, for example, honesty is considered as a value, an act is
considered ethical only if it maximizes this value. An act, which does not maximize
the said value, is not ethically permissible.

4. Deontological Ethics

This concept stresses that ethical values can be developed from the concepts of
reason as all rational individuals possess the ability to reason.
We may, for example, end up causing pain unknowingly while trying to create
happiness.
Therefore, the ethical value of an action cannot be determined by its
consequences. Instead, it is in the motive that lies behind the particular action.
 5.Ethics of Virtue

This concept emphasizes those traits that give the individual a sense of
satisfaction from ethical point of view. Virtuous acts like courage, honesty,
tolerance and generosity are done as a way of living and not by chance. 
 6.Whistle Blowing

Whistle blowing refers to the attempt of an employee to disclose what he or she

believes to be illegal behavior in or by the organization.
From one point of view, this seems to deceive the principle of honesty in
business ethics, as it is taken for granted that the employees of an organization
need to be loyal to its workings.
However, when loyalty to one’s organization in particular is perceived to be
harming one’s general loyalty to mankind, the act of whistle blowing is justified.
Failure on the part of the management of the organization to fulfil its social
obligations calls for whistle blowing.
It is the responsibility of the whistle blower to be careful about revealing the
organization’s secrets and to consider the harm it may cause to his colleagues
and shareholders. The steps that should be taken into consideration by the
whistle blower are:
 6.Whistle Blowing

The steps that should be taken into consideration by the whistle blower are:

1. Ascertain the gravity of the situation before whistle blowing

2. Scrutinize the purpose

8. Consult a lawyer if needed
3.Authenticate and keep a record of the concerned information

4.Determine the type of offences and whom it should be reported 9. Anticipate and document
vengeance
5. Assert claim in a proper way

6 Determine whether it should be internal or external

7, Determine whether it should be anonymous or otherwise

 7. Ethical Dilemmas

An organization’s ethical problems indicate a conflict between its economic and

social performance. This results in a dilemma for managers. Since people
handle business, it is a crucial requirement to check and ascertain ethical
behaviour at a personal level. This will confirm ethically correct responses from
the organization to the mutual actions of individuals.
 ETHICS IN ORGANIZATIONS

Since unethical practices cost the

industries billions of dollars a year and
damage the images of corporations, the
emphasis on ethical behavior in
organizations has increased over the
recent years
 In 1997, The Financial Times’ annual survey of
Europe’s most respected companies identified
ethical problems as the key reason for the dramatic
drop in Shell’s ranking. The company turned upside
down in the aftermath of these unfavorable
experiences and thus started correcting itself in
order to achieve a sustainable growth (Donaldson
and Dunfee, 1999).
Similar to Shell, many organizations whose
business practices are perceived to be unethical
and whose products are considered to be harmful
to the consumers (e.g., cigarette), face strong
social condemnation.
In recent corporate history, the Enron and Arthur
Anderson episodes underscore the importance of
ethical practices in business.
 Despite the fact that ethical issues frequently crop up in various departments in
a company, many people fail to give proper attention to it. There are many
myths regarding business ethics. They are:

1. It is a matter of belief than management

2.Organizations believe that their employees are ethical so that they

are not required to pay attention to such issues. But ethical issues arise
MYTHS in following situations:
REGARDING
BUSINESS  When there exist significant value conflicts among differing
interests of employees
ETHICS  When other alternatives are equally acceptable
 When there are significant consequences on the ‘stakeholders’ of
an organization.
 Generally people consider honesty and courtesy as the only
business ethics. But when the complex ethical problems come into
play, most people realize that it is difficult to apply ethical principles
in real-life situations
 3. Business ethics constitutes the principles propounded
by philosophers and theologians.
 Many people are of the opinion that business ethics is
a religion or a theoretical debate.
MYTHS  In the day-to-day issues of the organization, business
REGARDING ethics has very little to contribute.
BUSINESS  However, ethics is a management discipline that
requires a planned approach and several
ETHICS
management programs
 4. Business ethics only states the obvious do-good
situations.
 Several people are of the opinion that ethics
represents the values that a person should naturally
aspire to have and, therefore, establishing codes of
MYTHS ethics is unnecessary.
 However, importance should be given to the ethical
REGARDING
values of an organization.
BUSINESS  For instance, it is understood that everybody should
ETHICS be honest.
 If the workers of an organization are not honest then
the code of ethics of that organization should have
honesty listed in it. Code of ethics changes with the
change in the society and the needs of an
organization
 5. Business ethics is an opinion.
 Many people believe that stress and confusion may
inspire good people to behave unethically.
 Ethics in an organization can be managed by helping
each other to stay ethical and to work together through
confusing and stressful ethical dilemmas
MYTHS
REGARDING
BUSINESS
6.Business ethics is the new trend.
ETHICS
 Many people believe that business ethics is a recent
phenomenon and has recently gained attention.
However, it is an old phenomenon that has received
importance now.
 7.Business ethics is unmanageable by an organization.

 Actually, ethics is not directly ‘managed’ by an

organization, but the behavior of the team leader has
a strong moral influence on the employees.
MYTHS  The objectives of an organization, such as maximizing
profit and minimizing costs also have a strong impact
REGARDING
on the ethics of an organization.
BUSINESS  Even the laws, regulations and rules have a good
ETHICS impact on the ethical values of the employees and
hence minimize the harm to the business. But still,
some believe that business ethics cannot be
managed by an organization
 8. Business ethics is a social responsibility.
Many people believe that ethics is a
social responsibility that does not deal
with practical matters. Madsen and
MYTHS Shafritz define business ethics as an
REGARDING application of ethics to the corporate
BUSINESS world. It helps in determining business
ETHICS dealing responsibilities and also
identifies significant business and social
issues
 9.Business ethics is not needed if the
organization has no legal problems.

 People are of the belief that persons

MYTHS who are unethical can function within
REGARDING
the limits of law. For example,
BUSINESS
ETHICS
complaining constantly about others
and withholding information from
superiors. However, breaking the law
often starts with unethical behavior that
has gone unnoticed.
IMPORTANCE
OF BUSINESS
ETHICS
IMPORTANCE

1. Contribute to employee commitment

1. Promotes investors loyalty (shareholders’ loyalty)

3. Customer satisfaction

4. Contributes to profit

4. Contributes to profit
BENEFITS OF
BUSINESS
ETHICS
 3.Induce team
1. Follow law and work and
order in business increase
efficiency
2. Maintain
4. Employees
ethical values
growth and
during crisis
confidence
period
 7.Create strong
5. Avoid fines and
positive image in
legal action
the market

6.Identify values 8.Strengthen

associated with quality,
marketing, strategic organizational
management culture
 DEBATE ISSUE, TAKE A STAND
Does Being Ethical Result in Better Performance?
While research suggests ethical businesses have better performance, there is
also an alternate view. Many businesspeople think ethics and social responsibility
require resources that do not contribute to profits and time spent in ethics training
could be better used for other business activities. One viewpoint is that when
companies push the edge, pay minor fines for misconduct, or are not caught in
wrongdoing, they may end up being more profitable than companies with a strong
ethical culture. Many financial companies became extremely profitable when
taking high-risk opportunities with limited transparency about the nature of the
complex products they sold. To gain competitive advantage, a firm needs to be
able to reach markets and make sales. If a firm is too ethical, it might lose
competitive advantages. On the other hand, Ethisphere ’s World’s Most Ethical
Companies index indicates ethical companies have better financial performance.
1. Ethical businesses are the most profitable. 2. The most ethical businesses are
not the most profitable.
ETHICAL ISSUES AND
DILEMMAS IN
BUSINESS
 1. Shareholder Issues
1 Core values
2 Participation in electing BOD
3 Executive Compensation
4 Legal Compliance
5 Lobbying and Political Activities
6 Reputation Management
7 Integrity in Collecting and Managing Data
8 Supply Chain Relationship and Human Rights
2.Misues 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 and watching sports 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. In the latest survey 33 percent
of respondents observed others misusing company time, and 20 percent
observed company resource abuse such as theft of office supplies. Therefore,
over 50 percent noted misconduct related to resources issues.
 3. Abusive 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
 Actions associated with bullying
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 e-mails 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
 4. Lying
There are three types of lies: (1) Joking without malice (2) Lying by
Commission (3) Lying by Omission.

2. COMMISSION LYING

Commission lying is creating a perception or belief by

Forms of commission lying include puffery in
words that intentionally deceive the receiver of the
advertising. For example, saying a product is
message; for example, lying about being at work,
“homemade” when it is made in a factory is lying.
expense reports, or carrying out work assignments.
“Made from scratch” in cooking technically means
Commission lying also entails intentionally creating
that all ingredients within the product were distinct
“noise” within the communication that knowingly
and separate and were not combined prior to the
confuses or deceives the receiver. Noise can be defined
beginning of the production process. One can lie by
as technical explanations the communicator knows the
commission by showing a picture of the product that
receiver does not understand. It can be the intentional
does not reflect the actual product. For example,
use of communication forms that make it difficult for the
many fast-food chains purchase iceberg lettuce for
receiver to actually hear the true message. Using legal
their products but use romaine lettuce in their
terms or terms relating to unfamiliar processes and
advertising because they feel it is prettier and more
systems to explain what was done in a work situation
appealing than shredded iceberg lettuce.
facilitate this type of lie
 4. Lying

3. OMISSION LYING

The point at which a lie becomes unethical in

business is based on the context of the
Omission lying is intentionally not informing others of statement and its intent to distort the truth. A
any differences, problems, safety warnings, or negative lie becomes illegal if it is determined by the
issues relating to the product or company that courts to have damaged others.
significantly affect awareness, intention, or behavior. A
classic example of omission lying was in the tobacco
Some businesspeople may believe one must
manufacturers’ decades-long refusal to allow negative lie a little or that the occasional lie is
research about the effects of tobacco to appear on sanctioned by the organization.
cigarettes and cigars. The question you need to ask is whether lies
are distorting openness and transparency and
other values associated with ethical behavior.
 5.Conflicts of Interests
Companies or individuals may have conflict of interest in performing a task.

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.
 6. Bribery

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 a culture includes such fees 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
 Bribery

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 became the first company not to be
prosecuted under the Foreign Corrupt Practices Act.
However, they agreed to pay $ 1.6 million to resolve
the investigation.
 7. Corporate Intelligence (CI)

Corporate intelligence (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. Corporate intelligence 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.
 Legally accepted 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.
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.
 Methods of collecting CI
1. Hacking

 Hacking is considered one of the top three

methods for obtaining trade secrets.
 Currently, there are thousands of websites that
offer free downloadable and customizable hacking
tools that require no in-depth knowledge of  Physical hacking requires the CI agent enter a facility
protocols or Internet protocol addresses. personally. Once inside, he or she can find a vacant or
 Hacking has three categories: system, remote, unsecured workstation with an employee’s login name
and password. Next, the CI agent searches for memos
and physical. or unused letterheads and inserts the documents into
 System hacking assumes the attacker already has the corporate mail system. CI agents could also gain
physical access to a server or telephone room, look for
access to a low-level, privileged-user account. remote-access equipment, note any telephone numbers
 Remote hacking involves attempting to remotely written on wall jacks, and place a protocol analyzer in a
wiring closet to capture data, user names, and
penetrate a system across the Internet. passwords
 Methods of collecting CI
2. Social Engineering

Social engineering is the tricking of individuals into revealing their passwords

or other valuable corporate information. Tactics include casual conversations
with relatives of company executives and sending e-mails claiming to be a
system administrator and asking for passwords under the guise of “important
system administration work.”
Another common social engineering trick is shoulder surfing , in which
someone simply looks over an employee’s shoulder while he or she types in a
password.
Password guessing is another easy social engineering technique. If a person
can find out personal things about someone, he or she might be able to use
that information to guess a password. For example, a child’s name, birthdays,
anniversaries, and Social Security numbers are all common passwords and
are easy to guess.
 Methods of collecting CI
3. Dumpster Diving

Dumpster diving is messy but successful for acquiring trade

secrets.
Once trash is discarded onto a public street or alley, it is
considered fair game. Trash can provide a rich source of
information for any CI agent.
Phone books can give a hacker names and numbers of people to
target and impersonate.
Organizational charts contain information about people who are in
positions of authority within the organization. Memos provide
small amounts of useful information and assist in the creation of
authentic-looking fake memos.
 Methods of collecting CI
4. Whacking

Whacking is wireless hacking. To eavesdrop on

wireless networks, all a CI agent needs is the right
kind of radio and to be within range of a wireless
transmission. Once tapped into a wireless network,
an intruder can easily access anything on both the
wired and wireless networks because the data sent
over networks are usually unencrypted. If a
company is not using wireless networking, an
attacker can pose as a janitor and insert a rogue
wireless access node into a supposedly secure
hard-wired network.
 Methods of collecting CI
5. Phones Eavesdropping

Phone eavesdropping is yet another tool for CI agents. A

person with a digital recording device can monitor and
record a fax line. By playing the recording back an
intruder can reproduce an exact copy of a message
without anyone’s knowledge. Even without monitoring a
fax line, a fax sent to a “communal” fax machine can be
read or copied. By picking up an extension or by tapping
a telephone, it is possible to record the tones that
represent someone’s account number and password
using a tape recorder. The tape recording can then be
replayed over the telephone to gain access to someone
else’s account.
 8.Discrimination

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
many countries.
 9. Sexual Harassment

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.”
 10. Fraud

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.
 10. Fraud

Fraud can be any of the following:

1. Accounting Fraud
2. Marketing Fraud
3. Puffery
4. Implied falsity
5. Labelling Issues
 Case Oppenheimer & CO
A former executive director of investments
at Oppenheimer & Co Inc was sentenced to
1-3/4 years in prison on Wednesday for
conspiring to deceive regulators and his
employer as part of a scheme that left an
Oklahoma-based insurer in receivership.
Allen Reichman, 54, was also ordered by
U.S. District Judge Naomi Reice Buchwald
in Manhattan to pay $10 million in
restitution to the investment firm and forfeit
$200,000. In February, he pleaded guilty to
conspiracy to commit wire fraud.
 Puffery
Puffery can be defined as exaggerated advertising,
blustering, and boasting upon which no reasonable
buyer would rely and is not actionable under any act.
For example, in a lawsuit between two shaving
products companies, the defendant advertised the
moisturizing strip on its shaving razor was “six times
smoother” than its competitors’ strips, while showing a
man rubbing his hand down his face. The court rejected
the defendant’s argument that “six times smoother”
implied that only the moisturizing strip on the razor’s
head was smoother. Instead, the court found the “six
times smoother” advertising claim implied that the
consumer would receive a smoother shave from the
defendant’s razor as a whole, a claim that was false
 Implied falsity
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 in its product, implying
that it works twice as well, when in reality the extra quantity
of the ingredient has no effect over performance.
 Implied falsity
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 ( non-establishment 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.
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”).
Consumers may view such advertisements as unethical because they fail to communicate
all the information needed to make a good purchasing decision or because they deceive
the consumer outright
 Examples of false advertising
.
Misusing the word
"free" - When the
sale is "Buy one.
Get one free," the
second item is not
really free
because you have
to buy the first
one.
 Labelling Issues
Labeling issues are even murkier. For
example, Monster Beverage Corp.
decided to change its label to indicate it
is a beverage rather than a dietary
supplement. Rather than putting
“Supplement Facts” on its cans, the
company will replace it with “Nutrition
Facts.” This may seem like a small
change, but it is intended to stave off
the increasing scrutiny of critics who
believe that energy drink caffeine levels
are unsafe. As part of the labeling
change, Monster labels now display the
drink’s caffeine content.
 11. Consumer Fraud
Consumer fraud occurs when consumers attempt to deceive
businesses for their own gain. Shoplifting is estimated to cost
retailers approximately $ 30 billion annually. 49 Consumers engage
in many other forms of fraud against businesses, including price tag
switching, item switching, lying to obtain age-related and other
discounts, and taking advantage of generous return policies by
returning used items, especially clothing that has been worn (with
the price tags still attached). Such behavior by consumers affects
retail stores as well as other consumers who, for example, may
unwittingly purchase new clothing that has actually been worn.
Fraudulent merchandise returns are estimated to cost about $ 8.9
billion a year.
 12.Financial 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.
The most recent global recession was caused in part by a failure on the part 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
 13. Insider Trading

An insider is any staff , officer, director, or owner of a particular 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, that 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
 14. Privacy 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, 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
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MODEL OF ETHICAL
DECISION MAKING
BEAHVIOR IN
ORGANIZATION
Ethical
Decision
Making
Behavior in
Organization
 Moral Intensity
Moral intensity is a characteristic of 2.Social Consequences
the moral issue itself. It is a major
factor in influencing the ethical Social consensus of the moral issue is the degree of
awareness, ethical decision-making, social agreement that a proposed act is evil (or good).
and behavior of the employees It signifies the social agreement over the individuals’
(Jones, 1991). Every ethical issue behavior as either appropriate or not. A high degree of
can be represented in terms of its social consensus reduces the ambiguity while making
moral intensity – a construct that a choice thus leading to ethical decision-making.
includes the following:
3. Probability Effect

1. Magnitude of Consequences The probability of effect is a joint function of the

probability that the unethical choices will get detected
: Magnitude of consequences of the and will actually cause harm (benefit). In countries like
moral issue is the sum of the harms (or India where legal process is complex and time-
benefits) done to the victims (or consuming, the probability of actual harm is
beneficiaries) of the moral act in significantly reduced in many situations
question
 Moral Intensity
4. Temporal Immediacy 5.Proximity 6.Concentration of Effect
Temporal immediacy is the length Proximity is the feeling of The concentration of effect is an
of time between the present and nearness (social, cultural, inverse function of the number
the onset of consequences of the psychological or physical) that of people affected by an act of a
moral act in question (shorter the moral agent has for the given magnitude. The issues
length of time implies greater victims (beneficiaries) of the evil that affect larger community get
immediacy). The increased (beneficial) activities in question. the social and other such groups
competition and concern for Increased proximity enhances activated. Hence, the managers
performance have been driving the concern for such people in may ignore the immediate
managers towards short-term the managerial decision-making. returns in favor of ethics in their
orientation. Consequently, The concern for people in the decision-making when the
managers may go for unethical organization and its stakeholders concentration of effects is high
choices if the positive outcomes of is found to be higher among
such decisions are significant and managers who are more
quick while the possible negative committed to their profession
outcome could take a longer time. and the organization .
 Your Picture Here And Send To Back

2. Intrinsic
Factors
Factors that are
part of an
individual
1.Moral Awareness
2.Individual Values
Portfolio Designed
3.Cognitive factors
You can simply impress your audience and add a
4.Individual differences
unique zing and appeal to your Presentations. I hope
and I believe that this Template will your Time, Money

5.Demographic variables
and Reputation.
 5. Demographic
Variables

2. Individual Values 3. Cognitive Factors 4. Individual Differences

1. Moral Awareness
The multiple-influence
Individual values Cognition significantly The population
Awareness about an perspective suggests
strongly influence the determines human individual differences factors
ethical issue is a choices of managers.
major step in the
behaviour. Research as one of the key influence
They manifest has extensively
decision-making that themselves as interests
factors in ethical business
leads to the ethical studied the impact of decision-making and ethical
and motives and thus
choices and determine one’s cognitive factors like behavior (Trevino, practices. It
behavior. The cognitive moral 1986). Research has
behavior. In an varies based
Bounded Personal development and shown that the locus of
organization, problems on nationality,
Ethics model control influences
arise when the perceived self- age, education
suggests that people ethical decision-
individual values and efficacy on ethical etc.
are influenced both making directly and
the organization’s behaviour and ethical
by concern for ethics indirectly through
ethics differ and decision-making
and self-interest. outcome expectancies
contradict each other
Extrinsic
Factors
1. Organizational
ethical climate
2. Organizational
group process
3. Accountability
4. Performance
management
system
 1.Organizational ethical
climate
According to Weaver, Trevino and
Colhram (1999), formal corporate Formal codes of ethics which articulate a firm’s
expectations regarding ethics
ethics programs are very useful
in creating a positive ethical Ethics committees charged with developing ethics policies,
climate in the organization and evaluating company or employee actions,

typically include some or all of Ethics communication systems providing a means for
the following elements: employees to report the abuses or obtain guidance

Ethics officers charged with coordinating policies, providing

ethics education, or investigating allegations

Ethics training programs aimed at helping the employees to

recognize and respond to the ethical issues

Disciplinary processes to address unethical behaviour

 Supervisors muster a large amount of 2.Organizational Group
control over the subordinates’ behavior
and well-being (Wimbush, 1999) Process
especially in traditional organizations
where the structure is very tall,
In bureaucratic and traditional
organizations, because of the control
supervisors wield over their
subordinates and the respect
subordinates may have for their
supervisors, subordinates might look
upon their supervisors as role models of
acceptable behavior.
Consequently, group processes that
involve the managers and their
superiors influence the implementation
of code of ethics and decision-making in
organizations.
 3. Accountability
According to Beu and Buckley (2001),
accountability can be a significant factor
contributing to ethical decision-making and
behavior.
Accountability refers to defending or justifying
one’s conduct to an audience that has reward
or sanction authority and where rewards and
sanctions are perceived to be contingent upon
audience evaluation of such conduct.
According to them, one way to ensure that
employees behave appropriately is for the
organization to require that the employees be
held accountable for their actions
 4. Performance
Performance management system that is
output- oriented instigates short term Management System
orientation among managers.
Their concern for annual or half-yearly
performance owing to its strong linkage with
financial and other rewards prompts managers
to ignore ethical concerns for achieving output
whenever such dilemma is encountered.
While managers experience the consequences
of output immediately, the consequences of
lack of ethics in decision-making are both
uncertain and delayed.
Hence, the balance between processes, output,
and ethical concerns in performance
management system is likely to lead to ethical
decision-making in organizations.