Ethical Issues at an Organizational Level

Organizational ethics express the values of an organization to its employees and affect all functional areas in a business.

Learning Objective

Evaluate ethical issues that face organizations in the fields finance, human resource management, sales and marketing, and production

Key Points

An organization's ethical behavior is an extension of its organizational culture.
The four elements necessary to quantify an organization's ethics are a written code of ethics and standards; ethics training for executives, managers, and employees; availability for advice on ethical situations (i.e, advice lines or offices); and systems for confidential reporting.
Ethical practices need to be established at both the organizational level and the functional level (i.e., sales, marketing, production, etc. ) to be effective.
Ethical practices need to be established at both the organizational level and the functional level (i.e. sales marketing, production, etc. ) to be effective

Term

ethics
A branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct; also called moral philosophy.

Examples

The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's unethical practices led to their employees and shareholders losing billions of dollars.
Notable cases of intellectual property copyright infringement cases include Napster, Eldred v. Ashcroft and Air Pirates.
When organizations go above and beyond mandated behaviors they can be thought of acting ethically. Examples include a plan for its employees by offering "wellness programs" along with general health coverage, and/or a viable stable retirement plan. Further, an organization will allow for paid maternity leave, or even paid time off for new parents after an adoption. Other perks may include, "on-site" childcare, flextime for work hours, employee education reimbursement, and even telecommuting for various days during a week.

Full Text

Organizational Ethics is how an organization ethically responds to an internal or external stimulus. Organizational ethics express the values of an organization to its employees and other entities, irrespective of governmental and/or regulatory laws. There are at least four elements that make ethical behavior conducive within an organization:

A written code of ethics and standards
Ethics training to executives, managers, and employees
Availability for advice on ethical situations (i.e, advice lines or offices)
Systems for confidential reporting.

Ethical Issues in Finance

The 2008 financial crisis caused critics to challenge the ethics of the executives in charge of U.S. and European financial institutions and regulatory bodies. Previously, finance ethics was somewhat overlooked because issues in finance are often addressed as matters of law rather than ethics. Fairness in trading practices, trading conditions, financial contracting, sales practices, consultancy services, tax payments, internal audits, external audits, and executive compensation also fall under the umbrella of finance and accounting. Specific corporate ethical/legal abuses include creative accounting, earnings management, misleading financial analysis, insider trading, securities fraud, bribery/kickbacks, and facilitation payments.

Ethical Issues in Human Resource Management

Human resource (HR) management involves recruitment selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues. Discrimination by age (preferring the young or the old), gender, sexual orientation, race, religion, disability, weight, and attractiveness are all ethical issues that the HR manager must deal with.

Ethical Issues in Sales and Marketing

Ethics in marketing deals with the principles, values, and/or ideals by which marketers and marketing institutions ought to act. Ethical marketing issues include marketing redundant or dangerous products/services; transparency about environmental risks, product ingredients (genetically modified organisms), possible health risks, or financial risks; respect for consumer privacy and autonomy; advertising truthfulness; and fairness in pricing and distribution. Some argue that marketing can influence individuals' perceptions of and interactions with other people, implying an ethical responsibility to avoid distorting those perceptions and interactions.

Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions including price discrimination and price skimming. Certain promotional activities have drawn fire, including greenwashing, bait-and-switch, shilling, viral marketing, spam (electronic), pyramid schemes, and multi-level marketing. Advertising has raised objections about attack ads, subliminal messages, sex in advertising, and marketing in schools.

Ethical Issues in Production

Business ethics usually deals with the duties of a company to ensure that products and production processes do not needlessly cause harm. Few goods and services can be produced and consumed with zero risk, so determining the ethical course can be problematic. In some cases, consumers demand products that harm them, such as tobacco products. Production may have environmental impacts, including pollution, habitat destruction, and urban sprawl. The downstream effects of technologies such as nuclear power, genetically modified food, and mobile phones may not be well understood. While the precautionary principle may prohibit introducing new technology whose consequences are not fully understood, that principle would have prohibited most of the new technology introduced since the industrial revolution. Product testing protocols have been attacked for violating the rights of both humans and animals.

Enron Stocks During the 2001 Scandal

Enron's unethical practices led to their employees and shareholders losing billions of dollars as their stocks became worthless by November of 2001.

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