ETHICAL ISSUES IN BUSINESS
CONTENTS
1.
WHAT IS BUSINESS ETHICS? ............................................................... 1
2.
RESOLVING ETHICAL DILEMMAS ........................................................ 1
3.
ETHICS MANAGEMENT.......................................................................... 3
4.
ETHICS TOOLS ....................................................................................... 4
4.1
4.2
4.3
CODE OF ETHICS ................................................................................. 4
CODE OF CONDUCT.............................................................................. 5
POLICIES AND PROCEDURES ................................................................. 6
5.
KEY ISSUES IN BUSINESS ETHICS ...................................................... 8
6.
CHARACTERISTICS OF ETHICAL ORGANISATIONS ........................ 11
7. SOURCES AND HELPFUL REFERENCES .. ERROR! BOOKMARK NOT
DEFINED.
1. WHAT IS BUSINESS ETHICS?
Many definitions of ethics exists, thus the proper understanding of this field can
vary significantly. Some definitions include:
 Addressing the scope of responsibilities owed to the stakeholders of a
business.
 Acting with integrity.
 Ensuring proper business practices.
 Responsible business conduct.
 Owning social responsibility.
 Following moral guides and standards.
 Choosing between right and wrong and doing what is right.
In truth all of the above contribute to the field of business ethics. However, the
last point is probably the most significant factor in ethical workplaces –
Choosing what is right. Unfortunately, workplace decisions are not always clear
cut in a ‘right’ or ‘wrong’ decision. This guide will present some tools to help
ensure employee behaviour, at all levels, and is guided by ethical standards.
Ethical conduct in the workplace can be divided into two areas:
 Managerial Mischief: the practices, decisions and behaviours of
individuals in a business which are unquestionably illegal and unethical.
 Moral Mazes: the daily issues dealt with by a business which may not
be as clear cut as managerial mischief issues. These can include:
potential conflict of interest, incorrect use of resources or
mismanagement of contracts.
The second point is the focus of this guide.
2. RESOLVING ETHICAL DILEMMAS
Situations often arise in daily business where a choice must be made to act in
one way over another. In some cases neither option is completely right or
completely wrong. This is known as an ethical dilemma. Whatever option is
chosen, one or more of the business’s values will not be upheld in the outcome.
The following is a series of questions to ask when assessing which option will
provide a better course for the business and its stakeholders.
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Has the problem been defined accurately? Are you aware of all the facts
and in a position to make an informed decision?
Has the cause of the situation been identified at its simplest level?
Has the business’s corporate values and principles been addressed?
Which ones should be upheld at all cost? Prioritise the values.
Who will make the final decision regarding the issue? What are their
loyalties in respect to the business and society? What is their intention
in making the decision and why?
List the possible courses of action that may be taken.
What are the potential outcomes of each action? List these and identify
the stakeholders who will be affected by each action.
Have all stakeholders who will be affected in both positive and negative
ways been identified? Has the business informed these stakeholders
and sought their opinions and input?
For each potential action consider:
 In the shoes of the affected stakeholders, does the action seem fair and
reasonable given the circumstances? Will this opinion still be held in the
future?
 Has the business determined if the action taken would be appropriate as
law which may be applied in any similar situation? If not, what gives the
business the right to do it now while preventing others to follow suit in
the future?
 Has the business considered what would be the repercussions if the
details of the decision where disclosed to the world?
With the ethical analysis in mind choose an appropriate course of action.
Formalise it through objectives, an action plan and methods of monitoring to
ensure the results are as ethically positive or ‘right’ as possible to minimise any
harm to stakeholders.
© Cobalt Ice
When a conclusion has been reached there are a number of additional ethical
tests which may be applied to determine the appropriateness of a specific
course of action:
Consider:
 Transparency: Do you mind if others know of your decision? If you do
what are you hiding?
 Effect: Who does your decision affect? Why have you chosen to affect
these people?
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Fairness: Given the circumstances will the decision be considered fair
by the people who will be affected? What can be done to compensate
for any unfairness?
Also ask:
 Is the action legal?
 Does the action comply with company policies, procedures and values?
 How do you feel about doing it? If you feel guilty, outline why?
 Would you follow the same course of action if your family and friends
were affected?
3. ETHICS MANAGEMENT
Business ethics is increasingly becoming a public issue. Thus, the link between
acting ethically and corporate survival is becoming stronger. In order to ensure
the success of a business it is imperative that ethics is managed in the
workplace. Advantages of initiating an ethics management program include:
 Trust from the consumer that the product bought isn’t made or provided
through unethical behaviour.
 Increased employee satisfaction and therefore reduced turnover. Some
aspects of ethical business involve treating employees’ right.
Workplaces with low morale often result from poor treatment and
expectations of staff.
 Protection of business reputation. Once a business has been tarnished
by even a rumour of unethical behaviour it can result in increased public
scrutiny and lost revenue, which may never be recovered.
 Ensures a guide for ethical decision making is adhered to in stressful
times, such as through change or struggle, this provides consistency and
builds trust from all stakeholders.
 Guides business and individual growth of the employees who can learn
to face up to the good and bad repercussions of their actions.
 Can prevent employees breaking the law or allow for early detection and
rectification. Implementing an ethics program is cheaper then the cost of
litigation.
 Communication of the values and ideals the business stands for to all
employees through training of policies and procedures.
 Develops awareness and sensitivity to ethical issues by all levels of
employees.
The benefits gained from ethics management will vary considerably depending
on the approach taken by individual businesses and the industry within which
they operate. Essentially the purpose of ethics management is to instil a set of
moral values and behaviours which are shared by the people of the
organisation and are imperative to achieving the organisations long-term goals.
It is important to keep the following in mind when developing an ethics
management program:
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Understand that ethics management is an ongoing process of reflection
on the business’s moral values and behaviours, which must be
evaluated regularly, especially in changing circumstances.
The values of the business must be converted into expectations of
employee behaviours through policies, procedures and training. It is not
sufficient to say these are the values. They must be lived in every aspect
of the business.
Ethical dilemmas should be approached as a group and using the
procedure outlined above. Where possible the outcomes and causes of
the dilemma should be made public to ensure the problem does not
occur again.
Cross-functional teams should be used when developing tools to
implement an ethics program. This will ensure the involvement and input
of shared values from all levels of the business.
Understand that mistakes will be made in the process of acting ethically
as it is not always easy to determine the most ethical path to take. Value
accountability alongside forgiveness and rectification of unethical
behaviour, especially when implementing an ethics program.
In order to manage ethics effectively a business must:
 Have full support of the top management, who should lead by example.
 Establish an ethics committee that reports to the board. The committee
should develop, administer and train employees on ethical policies and
procedures and the process for resolving ethical dilemmas.
 Assign a role of ethics officer in departments, to be a point of reference
for employees to discuss current ethical issues which may exist in the
workplace.
 Continually review the program. Consider the following points:
o Have the values of the business changed? Do the codes, policies
and procedures still reflect the values?
o Are the moral and ethical standards of the work completed inline
with external standards?
o Do the employees have any new ethical issues which must be
addressed?
o Does the code clearly state the values and standards of the
business to all stakeholders?
The management of business ethics relies heavily on three tools:
 Code of ethics.
 Code of conduct.
 Policies and Procedures.
The purpose of these tools and the considerations that should be addressed
when developing these are outlined in the following sections.
4. ETHICS TOOLS
4.1
Code of Ethics
The code of ethics outlines specifically the expectations of standards of
practices, behaviours and professional conduct and responsibilities. The code
also provides a framework for self evaluation of moral standards benchmarking
individual practices.
The code of ethics is closely linked to the value statements of the business.
Thus, it may not be necessary to have both documents. However, the process
of identifying the ethical standards of the business will be beneficial to all
businesses.
Some examples which may be included are:
 To act with honesty and integrity at all times.
 To respect fellow employees, customers and other contractors.
When writing a code of ethics consider the following:
 Use a cross-functional team to ensure all levels and functions of the
business have an opportunity to express concerns.
 Review laws and regulations which apply to your business. A good
reference here is the compliance guide.
 Identify and prioritise values that are critical to success in your industry.
E.g. a doctor must maintain confidentiality and be objective.
 Identify and prioritise values that are critical to success within the
business. Interview employees and identify current negative issues
affecting the internal environment. Identify the cause of these issues and
values that would help rectify the issue and prevent its recurrence.
 Identify and prioritise any values that other stakeholders deem important
for the business to uphold.
 List the top 5-10 values identified from the combination of steps 1-5.
 Write words or short sentences that capture the meaning of the values
for your business and compel employees to adhere to the meaning of
the statements.
 Add information that can tell an employee where they can go if the
meaning of the statements is unclear.
 Review and test the code on a small group of people, rewrite if
necessary.
 Distribute the code as far as possible to ensure all employees and
stakeholders know the standards and expectations of the business.
 Review the code at least annually. Ask whether each statement is still
relevant and has meaning to the business.
 Avoid trying to cover all ethical issues in the statement. Address the
issues that are most prevalent to your business.
4.2
Code of Conduct
The format of codes of conduct can vary significantly between businesses. The
code may be a short mission statement to a complex list of compliance issues
relating to the conduct of employees. The code of conduct takes the code of
ethics one step further and assigns expected specific behaviours which relate
to the values. It is commonly a list of “do not’s.”
Examples include:
 Any conduct that disrespects embarrasses or intimidates other
employees, customers or contractors.
 Unethical use of sick leave or other entitlements.
 Failure to turn up to work on time.
 Committing acts which potentially damage the reputation of the
company.
 Unlawful use of the company’s resources.
 Insubordination.
 Job performance etc.
The following outlines a procedure for developing a code of conduct:
 Identify behaviours which are critical to upholding the ethical standards
and values outlined in the code of ethics. Other behaviours which relate
to values that may not have made the top 5- 10 may also be addressed.
 Write the behaviours using words that indicate that all employees must
comply.
 Review the code of conduct with a sample group of employees to clear
up any confusion of wording.
 Distribute the code to all employees so that behaviour expectations are
clearly understood.
Some additional tips for writing a code:
 Be concise and use specific examples wherever possible.
 Write in an active voice rather then passive. This compels a responsive
action from the reader.
 Explain anything which may not be obvious to the reader.
 Use everyday language, not complex terms which will make the code
boring and difficult to read.
4.3
Policies and Procedures
Businesses often have numerous ingrain policies and procedures which
regulate day to day business operations. In order for an ethics program to be
effective, the committee developing the codes must also review the existing
policies and procedures to ensure the standards and expectations are
consistent with the ethical behaviour outlined in the codes.
After addressing existing policies and procedures the committee should also
look to implement new ones which promote further ethical behaviour. E.g.
policies requiring waste is recycled wherever possible, policies that allow
employees paid time to contribute to community events or local charities or
policies that outline how ethical dilemmas are to be dealt with (see Section 2:
Resolving Ethical Dilemmas above).
The development and implementation of policies and procedures should
support the ethics management program, and include areas to:
 Train employees in ethical behaviour (e.g. an external course in
business ethics or an internal course in the relevance of ethics in all
existing policies and procedures). These may be included in the
induction process of new employees.
 Reward ethical behaviour and outline the consequences of unethical
behaviour.
 Outline methods of communication, which may be anonymous, that
employees may use to report suspected unethical practices of other
employees or stakeholders.
 Detail the procedures that will be followed to review the ethical relevance
of the codes, policies and procedures.
 Empower employees to take responsibility for their own ethical
behaviour.
The ethics tools are a means of communicating the business’s ethical and
moral expectations of employee and stakeholder behaviour with regards to the
organisation. However, the process of developing these documents is not
sufficient. Judgement on ethical organisations is often based on the actions of
the people involved, not the existence of codes, policies or procedures. These
tools merely act as a guide which may positively affect those actions.
The best method of managing ethical situations is to avoid unethical behaviour
completely. Therefore in order to maximise the positive influence of these
guides and promote active ethical standards a business implementing an ethics
management program must:
 Endorse all aspects of the program at the senior levels.
 Fully integrate ethics into all business activities at the outset of the
program. Acting ethically in only half a business’s operations will make
the effort appear superficial and will not be taken seriously by
stakeholders.
 Ensure everyone who will be affected by the code is given the
opportunity to read, understand and question it.
 Regularly ensure everyone reviews the codes and policies to make
certain they stay at the forefront of their thoughts when acting within the
business.
 Refer to the codes, the expectation of adherence and consequences of
breach in all contracts.
 Include training in ethical decision making and identification of problems
in personnel induction.
 If the business has offshore offices ensure the codes and policies are
translated into the local language and are relevant to the local situation.
 Make codes publicly available especially to suppliers and distributors
and gauge their ability to uphold similar standards.
 Always follow-up on breaches of the code and do not make exceptions
to the codes application.
 Always review the codes and policies. Codes and policies should not be
static documents. It is important to ensure they always remain relevant
to the business. Furthermore, compliance by relevant stakeholders
should be regularly affirmed.
5. KEY ISSUES IN BUSINESS ETHICS
Ethics is a vast topic with boundless limits. As such, numerous guides could be
written to cover each issue that arises when an ethical decision must be made.
Therefore only a select group of issues with direct relevance to business will be
outlined here. For other issues it is suggested a business attempt the process
outlined in Section 2: Resolving Ethical Dilemmas above, or for the more
difficult decisions, seek external advice.
When implementing and reviewing an ethics management program a business
should consider:
Social Responsibility: This is the responsibility to act ethically and contribute
to the society in which the business operates. It is often said to involve
environmental stewardship, obligations to contribute to charitable activities and
generally contributing to the community through jobs for local residents as well
as increased revenue through tax. The underlying theory is that the business
will only be permitted to operate successfully in the area if it can give back to
and invest in the local community.
Some questions to ask regarding social responsibility include:
 How does the business use its human resources to better employees’
individual lives?
 How involved is the community in considering the direction of the
business?
 How involved is the business in supporting community events?
 How well does the business consider the environmental impacts of its
operations? What is being done to minimise these?
 How well do the business’s products or services meet the needs of the
community?
 How well do the business’s procedures and controls maintain a fair
quality and safety standards of products that reaches the customer?
 How does the business strive to uphold the basic rights that are
ingrained into society? E.g. basic human, animal or environmental rights.
Stakeholder Theory: According to this theory decision makers of a business
have a fiduciary duty to all stakeholders to consider their interests and the
potential consequences to these interests should the business choose one
action over another.
Some questions to ask regarding the stakeholder theory include:
 When making decisions does the business first identify the classes of
individuals who will be affected by the decision?
 When choosing one action over another does the business consider the
options that may provide less benefit to the business but offer an equal
balance of fairness to both the business and its stakeholders?
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Does the business choose the ethically right option over the option of
greatest financial benefit? Refer to Section 2: Resolving Ethical
Dilemmas above.
Corporate Governance: Sets the tone, policy and practices of a business.
Therefore it is vital that the corporate governance of a business acts ethically
as this sets the standard from which everything else in the business follows.
Some areas to consider when evaluating ethical corporate governance
includes:
 Ethical and responsible decision making with accountability.
 Integrity in financial reporting.
 Timely and effective disclosure to stakeholders.
 Respecting the rights and interests of stakeholders.
 Encouraging performance to the benefit of the stakeholders and the
business.
 Managing risk effectively.
 Renumerate fairly.
For more information on Corporate Governance refer to the ASX Corporate
Governance Council Principles of Good Corporate Governance and Best
Practice Recommendations.
Compliance with Laws and Regulations: In business today there are many
laws and regulations which govern the every day running of the organisation.
Society understands that it is ‘right’ to comply with law and ‘wrong’ not to
comply. Therefore, it is an easy leap to grasp that an ethical organisation must
actively seek out laws and regulations which apply to the industry in which they
operate. These vary from employee rights which apply to all businesses to
specific laws such as the correct disposal of toxic waste which may only apply
to a limited number of industries. Refer to the Complying with Rules and
Regulations guide for help in determining the laws and regulations which apply
to your business as well as seeking legal advice.
When referring to ethics and compliance it should also be noted that ethical
organisations will take an extra step to comply with the spirit of the law, rather
then merely complying to the letter of the law.
Reputation Management: The reputation of a business can be a very valuable
intangible asset on which the operations and profit of the business rely.
Therefore it is vital that the reputation, which may have taken years to build, is
preserved. Many things can affect a business’s reputation. However, the most
common is the reporting of unethical business practices within the business’s
operations.
Some points to consider when preserving reputation:
 Are the business decisions and reasons for them transparent?
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Is the communication strategy, through which information is
disseminated to stakeholders, reliable, to prevent misinformation and
suspicion from stakeholders?
How does society at large view the business? What are the negative
views, and are these views related to unethical behaviour? Consider how
these views may be rectified.
Does the treatment of all stakeholders – employees, investors,
customers, suppliers, distributors and other advisors, reflect the ethical
standards the business says it adheres to?
Auditing Practices: Audits are a process through which the operations of a
business may be evaluated and recommendations of actions to improve, or
rectify breaches of conduct, or report on the effectiveness or progress of those
operations can be made. Audits exist in many forms e.g. internal, external,
financial, resources or governance audits to name a few. These are important
and effective management tools if administered appropriately. In order for them
to be effective there are a number of basic ethical standards that must be
applied:
 Honesty.
 Full disclosure of all relevant information.
 Co-operation of all individuals involved.
 Accountability and opportunity for rectification.
 Appropriate reporting of findings.
For information on Audits and better practices for completing audits refer to the
Australian National Audit Office.
Employment Practices: The area of ethics and employment has been greatly
revolutionised in the last few decades. Corporations must now promote equal
opportunity for all employees and applicants regardless of race, gender or
religion. Furthermore ethical standards have now developed accountability for
workplace safety, the requirement to meet minimum wages and the opportunity
to receive damages from employers through compensation for injury, litigation
for unfair treatment, dismissal, harassment, or breach of contract.
An understanding that happy employees also contributes to low staff turnover
and increased productivity has lead businesses to provide additional benefits
to cover family life of employees especially in corporate business.
When considering ethics and employment practice answer the following
questions:
 Are the employees safe in the workplace?
 Are the employees receiving or aware of all their entitlements?
 What is the business doing to ensure employees are happy, motivated
and productive?
 Is there a system in place to report breach of conduct e.g. unfair
treatment of individual employees, abuse of management power, unsafe
work practices or unfairly high and unachievable expectations?
 Are all employees given a fair and equal opportunity for advancement?
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Are the expectations of employment clearly outlined in the employment
contract and communicated clearly to employees at the beginning of
employment?
Corporate Responsibility: This is an area which may provide numerous
ethical dilemmas for business. Corporate responsibility is the obligations that a
business owes to its internal stakeholders such as employees and more
importantly investors. Investors expect their investment to make them returns
and preferably sooner rather then later. Likewise, employees expect the
business to be run in such a way as to preserve their employment. Thus the
managers are obligated ethically to further the business in the interests of these
stakeholders.
However, as mentioned above, businesses also have a social responsibility.
The clash of these responsibilities may result in ethical dilemmas. For example,
where the opportunity to maximise profit for investors comes at a cost of
damaging the environment and the community within which the business
operates. These dilemmas are best approached using the strategy outlined the
Section 2: Resolving Ethical Dilemmas above.
When considering the ethical issues associated with corporate responsibility a
business should ask:
 Is the business operating in a way that provides first for the ongoing
success of the business and thus produces the returns desired by
investors?
 Is the business operating in such a way as to preserve the employment
contracts of the employees, where possible, and maintain their trust and
loyalty?
 Is the business operating in such a way to maintain contracts and good
relations with suppliers, distributors, retailers and other businesses
important to the success of the operation?
Essentially ethics is about making the right choices and conducing business in
a morally ‘right’ way. The issues above have been explained as these are the
common themes which come to mind in business and ethics discussions.
However, in reality all aspects of business require ethical behaviour.
Approaching all decisions and actions with a set of ethical values and
processes for reaching decisions will help businesses deal as ethically as
possible with situations as they arise.
6. CHARACTERISTICS OF ETHICAL ORGANISATIONS
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Understand that all significant decisions have ethical repercussions.
Always attempt to work through conflicting ethical values of different
stakeholder groups.
Senior management embodies the ethical code and value statements of
the business, thus setting an expectation that all employees follow suit.
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Integrity, fairness and moral values are upheld in every level of the
organisation.
Individuals accept responsibility for their own unethical behaviour and
any repercussions on the business.
The reward system reflects the values of integrity and ethical behaviour.
Policies and procedures of the business are aligned with the codes of
ethics, conduct and value statements. There is no confusion of the
ethical expectations or mixed messages.
The ethical obligations to all stakeholders are held as vital to the success
of the business.