One of the greatest challenges for any business owner is navigating ethical issues in business. Whereas some ethical issues in business are covered by laws, the requirements around others are more murky. In these cases, it’s up to the business owner and managers to hold employees accountable for unethical actions — and, of course, to behave ethically themselves.
Ethical Issues in Business: The Definition
Before going any further, it’s important to understand what we mean by ethical issues in business today.
Ethics is a broad term. At its core, acting ethically in business means building a company around integrity and trust as well as complying with regulations. However, there are many other issues that fall under the ethical issues in business definition, including empathy, diversity and acceptance, and carrying out business in accordance to the company’s values.
Types of Ethical Issues in Business
If you are to run an ethical business, you first need to know what types of issues you can expect to face and may need to overcome.
One of the biggest ethical issues affecting the business world in 2020 is discrimination. In the last few months, many corporations have come under fire for lacking a diverse workforce, which is often down to discrimination. However, discrimination can occur at businesses of all sizes. It applies to any action that causes an employee to receive unequal treatment.
Discrimination is not just unethical; in many cases, it is also illegal. There are statutes to protect employees from discrimination based on age, gender, race, religion, disability, and more. Nonetheless, the gender and race pay gaps show that discrimination is still rampant. Other common instances of discrimination include firing employees when they reach a certain age or giving fewer promotions to people of ethnic minorities.
The second major ethical issue businesses face is harassment, which is often related to racism or sexism. This can come in the form of verbal abuse, sexual abuse, teasing, racial slurs, or bullying. Harassment can come from anyone in the company, as well as from customers. In particular, it is an ethical issue for the business if a supervisor is aware of harassment from a client and takes no action to prevent it.
In addition to causing a toxic workplace, harassment can cause employees to leave the company prematurely — a second reason why some businesses lack diversity. Harassment can have a long-term impact on employees: psychologically, in terms of earnings, and even impacting a person’s entire career path.
3. Unethical Accounting
Publicly-traded companies may engage in unethical accounting to appear more profitable than they actually are. In other cases, an accountant or bookkeeper may change records to skim off the top.
4. Health and Safety
Another type of ethical issue that is often protected by law is health and safety. Companies may decide to cut corners to reduce costs or perform tasks faster. As well as injuries, failing to take workers’ safety into account can lead to psychosocial risks (like job insecurity or lack of autonomy), which can cause work-related stress.
5. Abuse of Leadership Authority
Abuse of power often manifests as harassment or discrimination. However, those in a leadership role can also use their authority to pressure employees to skip over some aspects of proper procedure to save time (potentially putting the employee at risk), punish workers who are unable to meet unreasonable goals, or ask for inappropriate favors.
In addition, abuse of authority can extend beyond the workforce. Managers can use their position to change reports, give themselves credit for the work of a subordinate, misuse expenses, and accept gifts from suppliers or clients.
6. Nepotism and Favoritism
Nepotism is when a company hires someone for being a family member. Favoritism occurs when a manager treats an employee better than other workers for personal reasons.
Not only are nepotism and favoritism unfair, they are also disheartening to employees. Workers often find they have to work much harder to receive a promotion or other rewards.
Employees have recently found that the distinction between work life and personal life has become less clear. This is mainly due to the advances in technology.
For one thing, employers may punish for posts on social media, particularly if they complain about work conditions or the company as a whole. Employers may even fire workers who post controversial statements that go against company values.
Another ethical issue surrounds the use of devices belonging to the company. Employers can now monitor all worker activity on laptops and cellphones. Whereas this is supposed to check that employees are sticking to work-related activities during the business day, some employers take it further, tracking keystrokes and reading emails. The question is where to draw the line between monitoring and spying.
8. Corporate Espionage
The opposite to the above can also happen: workers can misuse company data. An employee may steal intellectual property or provide a competitor with information about a client. Usually, this is for monetary purposes, but it can also help an employee secure a position at another firm.
How to Avoid Ethical Issues in Business
A common method businesses use to manage ethical issues is to simply deny the problem exists. Companies often combine this with a gag order to stop employees talking. If you want to maintain a good reputation, this is the worst thing you can do. After all, sooner or later, the unethical behavior will come to light.
A better strategy is to take an active role, seeking out and correcting unethical behaviors as early as possible. There are a few key tactics that every business owner needs to implement.
Create Company Policies
Monitor Only Pertinent Information on Laptops and Other Devices
It may be necessary to track employee activity to some extent (particularly if you are concerned that workers are spending too much work time on personal activities — which, in itself, can be an unethical behavior). However, you don’t want to go overboard and create a culture of distrust.
Provide Ongoing Training
This should cover aspects like harassment prevention. It’s worthwhile seeking outside support for this from a reputable agency or professional, as low-quality training can even make the problem worse.
Require Employees to Sign a Nondisclosure Agreement
Employees should sign a nondisclosure agreement before they start working with any sensitive information. To create an effective deterrent, specify that violating agreements will result in severe penalties.
Create a Meritocracy
Strive to create a meritocracy where you reward employees according to performance.
Take an Active Role in Daily Activities
Become as involved as you are able in the day-to-day activities at your company. This could help you detect harassment in its early stages and prevent theft, whether monetary or of company materials.
Double Check Your Books on a Regular Basis
By checking your books regularly, you’ll notice if anyone is stealing from you. In the case you do detect theft, you’ll need to decide whether firing the employee is enough or if it’s also necessary to report the crime to the law enforcement.
Ethical Issues in Business: Examples
To understand how ethical issues in business can manifest themselves, it’s a good idea to look at some real life examples.
An especially infamous example of unethical behavior comes from Enron. For years, the energy company was submitting inaccurate financial statements. Collusion with the accounting firm Arthur Andersen LLP meant that Enron’s auditor kept signing off on the falsified statements.
When the truth finally came out, both companies went out of business. This led to the dissolution of thousands of jobs and significant losses for Enron shareholders.
Sexual harassment and abuse allegations against figures high up in Fox News started in 2016 — just over a year before the #MeToo movement took off. Multiple women at the television network said that sexual harassment from superiors led to them being fired, demoted, or denied jobs entirely.
It was later revealed that Fox News had settled several lawsuits (some of them years earlier), but the network was more concerned with covering up the allegations than resolving the underlying issue.
Many companies have come under fire in recent months for not taking steps to protect employees from COVID-19. Some of the worst offenders are the meat processing plants, as workers are unable to social distance and are rarely entitled to sick days. As a result, plants across the country have seen outbreaks.
Tyson Foods initially shut a few of its facilities, but the company later reopened everywhere. Now, it has the highest rate of positive cases of all meat processing plants in the U.S. (at least according to some estimates). In fact, more than 100 labor rights, food justice, animal welfare, and environmental justice groups recently sent a letter asking shareholders to demand a response.
Racial discrimination is often subtle, which makes it extra difficult to combat. However, there have been some instances where discrimination was blatant enough to win a lawsuit. One example is that of Richemont, the luxury goods company.
After black employee Cheryl Spragg called in sick due to a back injury, the company decided to spy on her to confirm the veracity of her claim. Spragg, who found the surveillance intimidating, sued Richemont for both breach of privacy and for being passed over for promotions three times due to her race. The judge ruled in her favor for both, saying that a reasonable course of action would have been to ask a health professional for evidence of Spragg’s injury. Furthermore, the judge found that the company had a preference for white continental Europeans.
It’s important to be clear about what ethical issues in business you can expect to face for two main reasons. First, you can ensure that you own behavior and actions are always ethical. Second, it allows you to develop a positive workplace culture where employees treat each other with respect and strive to grow the business — rather than seeking purely personal gains.
Learning about ethical issues in business and how to avoid them is just the start. Take your strategy to the next level by checking out these top ethical business practices you should be following.