Business Ethics and Corporate Governance UNIT - 2

 

UNIT 2 : ETHICAL ISSUES IN BUSINESS

Recognizing Ethical Issues: Ethical Awareness

Ethical awareness is the ability to identify situations where moral considerations are involved. This skill is critical in business ethics and corporate governance, ensuring that individuals and organizations uphold ethical standards.

Ethical issues arise when a decision, action, or policy conflicts with established moral principles. Recognizing such issues requires a deep understanding of ethical values and their application in various contexts.

Foundational Values for Identifying Ethical Issues

Integrity

Integrity is about doing the right thing—even when it's inconvenient or no one is watching. It involves staying true to strong moral principles like truthfulness and fairness in decision-making. In business, this means refusing to manipulate information or take unethical shortcuts. Example: A company maintaining transparency in financial reports, instead of tweaking numbers to impress shareholders, shows integrity in action.

Honesty

Honesty means being truthful in all communications and actions. It involves sharing accurate information, admitting mistakes, and avoiding deception—especially when trust is at stake. Honest behavior creates credibility and builds long-term relationships with stakeholders, clients, and employees. Example: If a company accidentally overcharges a customer and promptly informs them while offering a refund, it demonstrates honesty and earns respect.

Fairness

Fairness means treating all people and groups equitably, without bias or favoritism. It ensures justice and promotes trust within the organization. Fair practices build morale and prevent workplace discrimination. Example: When promotions are based strictly on performance and merit—not caste, gender, or connections—employees feel valued and motivated.

Concept of Ethical Issues and Dilemmas

Ethical issues arise when individuals or organizations face situations that challenge moral principles. These issues often involve conflicts between what is legally permissible, socially acceptable, and morally right.

An ethical dilemma, on the other hand, occurs when a decision must be made between two morally conflicting choices, where neither option is entirely right or wrong. In such cases, the challenge is to choose the most ethically justifiable path. Example: Should a worker report a friend’s unethical behavior or stay loyal? Both options have emotional and ethical consequences.

Emerging Ethical Issues and Dilemmas in Business

Data Privacy Concerns

Businesses today gather vast amounts of personal data from customers and employees. However, poor security or unethical use—such as selling data without consent—can lead to breaches, surveillance, or exploitation. Example: A shopping app shares user location with advertisers without informing users, violating privacy.

Environmental Sustainability

Companies are under pressure to reduce their environmental footprint while remaining profitable. Failing to balance the two may lead to greenwashing or harmful practices. Example: A factory claims to use eco-friendly packaging but continues polluting nearby water sources.

Diversity and Inclusion

Workplaces still face unequal access and treatment based on gender, caste, ethnicity, or disability. This creates moral dilemmas in hiring, promotions, and leadership roles. Example: A qualified candidate is overlooked for a leadership role because of their caste background.

Artificial Intelligence & Automation

AI can improve efficiency—but it can also replace jobs or make biased decisions based on flawed algorithms. Example: An automated hiring tool rejects female applicants more frequently due to biased training data.

Social Media & Consumer Influence

Companies use digital platforms to market products, but manipulation, fake endorsements, and targeted misinformation raise ethical concerns. Example: A brand pays influencers to promote a product without disclosing it's a paid ad—misleading consumers.

 

Ethical Issues in Functional Areas of Business

Ethical Issues in Marketing and Sales

Marketing and sales influence consumer behavior, making ethical considerations essential. Common ethical concerns include:

False Advertising & Deceptive Claims – Misleading promotions or exaggerations that misrepresent a product’s effectiveness. L’Oréal was fined for claiming its skincare products could “boost genes” and make skin look “visibly younger” without scientific proof.

Price Manipulation & Hidden Fees – Unethical pricing strategies such as predatory pricing, price gouging, or concealed charges. Spirit Airlines faced backlash for advertising low fares but adding high baggage and seat selection fees later.

Data Privacy in Consumer Targeting – Unauthorized collection and use of personal information for targeted advertising. Facebook–Cambridge Analytica scandal involved unauthorized harvesting of user data for political advertising.

Unethical Sales Tactics – Pressuring customers into purchases through manipulation or misinformation. Dove faced criticism for an ad that appeared to show a Black woman turning into a white woman, sparking accusations of racism.

Cultural Sensitivity & Stereotyping – Marketing strategies that exploit stereotypes or promote harmful narratives. Some crowdfunding campaigns falsely claim urgency (e.g., “Only 24 hours left!” for weeks) to manipulate donors emotionally.

Ethical Issues in Finance

Finance plays a critical role in business decisions, and ethical concerns often arise in areas like:

Fraudulent Financial Reporting – Manipulating financial data to mislead investors and regulators. Enron used off-the-books entities to hide debt and inflate profits, leading to one of the biggest corporate scandals in history.

Insider Trading – Using confidential information for personal financial gain. Example: A banker uses secret company data to buy shares before the public knows.

Unethical Tax Practices – Exploiting legal loopholes to evade taxes rather than contributing fairly. Small and medium enterprises (SMEs) often underreport income or operate partially in cash to avoid VAT and income tax.

Predatory Lending & Investment Scams – Taking advantage of vulnerable individuals with misleading financial products. Microfinance institutions in rural Nepal have been criticized for charging high interest rates and using aggressive recovery tactics.

Conflict of Interest in Financial Advice – Advisors recommending investments for their personal benefit rather than the client's best interest. Some investment firms have been penalized for pushing high-commission products that weren’t in clients’ best interests.

Ethical Issues in Information Technology

The rapid advancement of technology introduces new ethical challenges, including:

Data Privacy & Security Breaches – Unauthorized access to sensitive user information, raising concerns over cybersecurity. Equifax suffered a massive breach in 2017, exposing data of 147 million people.

Artificial Intelligence Bias – AI algorithms unintentionally discriminating against certain demographics. Nepali language voice assistants often fail to recognize regional dialects or female voices accurately—raising concerns of algorithmic bias.

Misinformation & Manipulation – Spread of false information through automated bots and unethical content creation. Twitter/X and Facebook have faced criticism for failing to curb fake news during elections

Digital Piracy & Intellectual Property Theft – Unlawful use of copyrighted content without proper authorization. Napster was shut down for enabling illegal music sharing, violating copyright laws.

Environmental Ethics

This focuses on a company’s responsibility to protect nature. Example: A cement factory installing dust filters shows care for public health. Failing to manage waste, overusing resources, or polluting rivers are all unethical environmental acts.

In the business world, environmental ethics guides decision-making toward sustainability, fairness, and long-term accountability.

Key Ethical Issues in Environmental Responsibility

Pollution Pollution harms air, water, and soil—posing serious risks to human health and wildlife. Ethically, it challenges the balance between industrial progress and environmental responsibility. Example: Factories releasing untreated waste into rivers compromise public health and ecosystem stability.

Resource Depletion Excessive use of natural resources, like water, fossil fuels, and minerals, leads to scarcity and long-term damage. Ethically, it raises concerns about sustainability and fairness across generations. Example: Over-mining in hilly regions not only exhausts minerals but disrupts local communities and terrain.

Biodiversity Loss Human actions such as deforestation and pollution endanger species and disrupt ecosystems. This loss weakens ecological balance and threatens future resources. Example: Clearing forests for commercial farming drives animals from their natural habitats and pushes species toward extinction.

Climate Change Greenhouse gas emissions from vehicles, industries, and deforestation accelerate global warming, leading to extreme weather and sea level rise. Ethically, it demands action to protect both present and future populations. Example: Increasing floods in Nepal’s Terai region highlight the real-life impact of climate change.

Intergenerational Equity This refers to fairness between current and future generations—ensuring today’s decisions don’t harm tomorrow’s rights. Example: Using clean energy today helps future generations live in a safer, healthier climate.

Environmental Justice Environmental harm often disproportionately affects poor or marginalized communities. Ethical concerns arise when certain groups suffer more while others benefit. Example: Brick kilns near low-income neighborhoods expose residents to harmful smoke, while profits go elsewhere.

Corporate Greenwashing Some companies falsely claim to be eco-friendly for marketing gains. This undermines real sustainability efforts and misleads consumers. Example: A company labeling its plastic products as “eco-safe” without any actual recycling plan engages in greenwashing.

Whistleblowing

Whistleblowing means reporting unethical behavior inside an organization. Example: An employee notices bribes being paid to officials and informs the anti-corruption body. Ethical companies protect whistleblowers from retaliation and encourage safe reporting channels.

Whistleblowers act in the public interest, often risking their careers to uphold integrity and accountability.

Types of Whistleblowing (with Examples)

Internal Whistleblowing

This is when an employee reports unethical or illegal behavior to someone inside the organization, such as a supervisor or HR department. Example: A staff member sees a coworker manipulating expense reports and informs the manager to handle it internally.

External Whistleblowing

If internal reporting doesn’t work—or is ignored—the employee may report the issue to people outside the company, like the media or legal authorities. Example: A worker notices hazardous waste being dumped by the company and reports it to an environmental agency.

Anonymous Whistleblowing

Sometimes, whistleblowers want to stay unidentified to avoid retaliation or workplace tension. They report the issue confidentially, often through hotlines or anonymous emails. Example: An employee sees favoritism in promotions and submits a complaint using the company’s anonymous suggestion box.

Making Ethics Work in Organizations

Ethics should be part of a company’s culture—not just policies. Key ways to do this:

Lead by Example

Ethical behavior starts at the top. When leaders consistently act with honesty, respect, and fairness, employees are more likely to follow that standard. Example: A manager refusing to accept bribes during supplier negotiations shows integrity—and sets a moral tone for the team.

Establish Clear Codes of Ethics

Having a formal code of ethics helps employees understand what is acceptable and what isn’t. It reduces confusion and builds a shared understanding of organizational values. Example: A company document that prohibits discrimination and guides employees on ethical communication fosters accountability.

Impart Necessary Training

Ethics training helps employees recognize dilemmas and make better decisions. It also teaches them how to report misconduct appropriately. Example: A bank conducts sessions on data privacy and anti-corruption practices for new staff.

Create Safe Reporting Channels

Employees must be able to report unethical behavior without fear. Organizations should offer secure, confidential mechanisms—like hotlines or suggestion boxes. Example: A worker notices unsafe factory conditions and reports them anonymously through a whistleblower portal.

Integrate Ethics into Performance Reviews

Ethical behavior should be part of how employee performance is evaluated—not just targets and results. Example: Staff are praised not only for productivity, but also for respectful customer handling and fair teamwork.

Transparent Corporate Governance

Governance should be open and responsible. Sharing financial reports, board decisions, and operational updates builds trust. Example: A company uploads its annual audit and board meeting minutes to its website for stakeholders to view.

Corporate Social Responsibility (CSR)

Organizations must contribute to society beyond profits. This includes environmental care, education support, and ethical sourcing. Example: A business donates a portion of profits to flood relief and uses recyclable packaging for its products.

Accountability

When individuals are held responsible for their actions, ethics becomes enforceable—not optional. Example: A supervisor misusing travel allowances is investigated and penalized as per company rules.