Ethical Issues at an Organizational Level

This chapter discusses the ethical issues that arise in organizations, in the areas of human resources, finance, sales, marketing, and production. The chapter also notes the Enron scandal, a highly-publicized case regarding ethics. Take some time to search for the Enron scandal and note the ongoing effect this case has on business today.

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

Learning Objective: Evaluate ethical issues that face organizations in the fields of 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 formulated, disseminated, and followed at the organizational and functional levels (i.e. sales marketing, production, etc. ) to be effective.


  • Ethics: A branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong codes of conduct. It is often equated with moral philosophy.


  • The Enron scandal, revealed in October 2001, led to the bankruptcy of the Enron Corporation, a large American energy company based in Houston, Texas, and prompted the dissolution of Arthur Andersen, one of the world's five largest audit and accountancy partnerships. The scandal was the largest bankruptcy reorganization and audit failure in American history at that time. Many Enron executives were indicted and sentenced to prison. Enron's unethical practices caused their employees and shareholders to lose billions of dollars.
  • Notable cases of intellectual property copyright infringement include Napster, Eldred v. Ashcroft, and Air Pirates.
  • Ethical organizations often go above-and-beyond required behavior. Examples include offering employees wellness programs, health insurance, retirement, paid maternity leave, paid time leave for adoptive parents, childcare, flextime, education reimbursement, and telecommuting options.

Organizational ethics describes how an organization responds ethically to an internal or external stimulus. It expresses the values of an organization to its employees, its customers, and the community, irrespective of governmental and regulatory laws.

Four elements 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 in the United States caused critics to challenge the ethics of the executives in charge of U.S. and European financial institutions and regulatory bodies. Previously, many overlooked finance ethics 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 and 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. The HR manager must respond to ethical issues related to discrimination concerning age, disability, gender, sexual orientation, race, religion, and weight.


Ethical Issues in Sales and Marketing

Ethics in marketing refers to the principles, values, and ideals marketers and marketing institutions follow. Marketing issues related to ethics include marketing redundant or dangerous products and services; a lack of transparency regarding environmental risks, product ingredients (genetically modified organisms), possible health risks, or financial risks; disrespect 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, illegal actions, such as price-fixing, and legal actions, such as price discrimination and price skimming. Certain promotional activities have drawn fire, such as greenwashing, bait-and-switch, shilling, viral marketing, spam (electronic), pyramid schemes, and multi-level marketing. Advertising practices can raise objections, such as attack ads, subliminal messages, sex in advertising, and marketing in schools.


Ethical Issues in Production

Business ethics refers to the duty companies have to ensure their products and production processes do not cause harm. Few goods and services can be produced and consumed without any risk, so determining an ethical course can be difficult. In some cases, consumers demand and choose to purchase products that will likely cause harm, such as tobacco products. Production may have an environmental impact, such as pollution, habitat destruction, and urban sprawl. Meanwhile, the downstream effects of technologies, such as nuclear power, genetically-modified food, and mobile phones, can be difficult to ascertain.

While it may be advisable to prohibit some types of companies from introducing new products before any safety issues and negative consequences have been fully explored and resolved, this sentiment would have precluded many new technologies from being introduced and going to market. Meanwhile, product testing protocols are frequently criticized for violating the rights of humans and animals.

Similarly, businesses, such as drug manufacturers and producers of medical devices, have to tow a fine line between safety and innovation. For example, is it better to be cautious by insisting drug manufacturers conduct additional testing to prevent potentially harmful drugs and defective medical devices from going to market? Or is it better to let companies introduce new and promising drugs before sufficient testing has completed because they could provide an antidote to certain fatal diseases? Does your response change if the company stands to gain a great deal of money from the new drug it creates and sells to a desperate audience?

Source: Boundless
Creative Commons License This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 License.

Last modified: Thursday, October 29, 2020, 3:43 PM