Chapter 5

Emerging Business Ethics Issues

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Learning Objectives
By the end of this chapter, you should be able to:
• Define ethical issues in the context of organizational ethics
• Examine ethical issues as they relate to the basic values of honesty,
fairness, and integrity
• Delineate misuse of company resources, abusive and intimidating
behavior, lying, conflicts of interest, bribery, corporate intelligence,
discrimination, sexual harassment, fraud, consumer fraud, financial
misconduct, and insider trading
• Examine the challenge of determining an ethical issue in business

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Icebreaker
• What does the term “dilemma” mean to you?
• Share examples of misconduct in the workplace.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 5-1
Recognizing an Ethical Issue
(Ethical Awareness)

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Recognizing an Ethical Issue
(Ethical Awareness) 1 of 1
• People make ethical decisions when they find an ethical component in a
particular issue or situation.
• Failure to acknowledge or be aware of ethical issues is hazardous to an
organization.
– In a dilemma, all of the alternatives have negative consequences, so the less harmful
choice is made.
– Collusion is a secret agreement between two or more parties for a fraudulent, illegal,
or deceitful purpose.
– Deceitful purpose suggests trickery, misrepresentation, or a strategy designed to lead
others to believe something less than the whole truth.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 5-2
Foundational Values for Identifying Ethical Issues

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Foundational Values for Identifying Ethical Issues 1 of 3
Integrity
• Integrity – One of the most important elements of virtue; refers to being
whole, sound, and in an unimpaired condition; implies a balanced
organization that not only makes ethical financial decisions but also is
ethical in the more subjective aspects of its corporate culture.
• At a minimum, businesses are expected to follow laws and regulations.
• Business relations should be grounded in integrity.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Foundational Values for Identifying Ethical Issues 2 of 3
Honesty
• Honesty – Refers to truthfulness or trustworthiness
• Issues related to honesty arise because business is sometimes regarded as a
game governed by its own rules rather than those of society.
– Business must make clear what rules apply.

• Dishonesty – A lack or absence of integrity, incomplete disclosure, and an

unwillingness to tell the truth

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Foundational Values for Identifying Ethical Issues 3 of 3
Fairness
• Fairness – The quality of being just, equitable, and impartial

• Three fundamental elements that motivate people to be fair include:

– Equality – Refers to the fair and even distribution of benefits and resources
– Reciprocity – An interchange of giving and receiving in social relationships
– Optimization – The trade-off between equity (equality) and efficiency (maximum
productivity)

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Knowledge Check
Question: What are the three fundamental elements that motivate people
to be fair?

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 5-3
Emerging Ethical Issues and
Dilemmas in Business

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 1 of 14
• Ethical issue – A problem, situation, or opportunity that requires an
individual, group, or organization to choose among several actions that
must be evaluated as right or wrong, ethical or unethical
• Ethical dilemma – A problem, situation, or opportunity that requires an
individual, group, or organization to choose among several actions that
have negative outcomes
– There is not a right or ethical choice in a dilemma, only less unethical or illegal
choices as perceived by any and all stakeholders.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 2 of 14
Misuse of Company Time and Resources
• Time theft is estimated to cost companies hundreds of billions of dollars
annually.
– Late arrivals, leaving early, long lunch breaks, inappropriate sick days, excessive
socializing, engaging in personal activities

• Using company computer software and internet services for personal

business is one of the most common ways employees misuse company
resources.
– Many companies have policies delineating acceptable use of resources

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 3 of 14
Abusive or Intimidating Behavior
• Abusive or intimidating behavior – Common ethical problem, may refer to:
– Physical threats
– False accusations
– Being annoying
– Profanity (e.g., dirty words or jokes)
– Insults
– Yelling
– Harshness
– Ignoring someone
– Unreasonableness
• Within abusive behavior or intimidation, intent should be a consideration
• Bullying creates a hostile environment
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Debate Issue: Take a Stand
• Workplace bullying is abusive behavior used to assert one’s power over
another.
• The U.S. does not have laws against workplace bullying.
– Many believe employees should be legally protected from workplace bullying because
it is harmful (e.g., depression, anxiety, and low self-esteem).
– Others believe this would limit managers’ ability to manage since they would be afraid
their management styles could be perceived as bullying.
– Bullying is hard to define, making such a law difficult to enforce.
• Take a stand:
1. Bullying in organizations can be harmful to employees and therefore
warrants legal action.
2. Laws against bullying are not feasible as they are hard to define and
have the potential to limit managers’ ability to manage.
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 4 of 14
Lying
• Lying – Untruthfulness that can be joking without malice, commission lying,
and omission lying
• Commission lying is creating a perception or belief by words that
intentionally deceive the receiver of the message.

• Omission lying is intentionally not informing others of any differences,

problems, safety warnings, or negative issues relating to the product or
company that significantly affect awareness, intention, or behavior.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 5 of 14
Conflicts of Interest
• Conflict of interest – When an individual must choose whether to advance
his or her own interests, those of the organization, or those of some other
group
• Employees must be able to separate their private interests from their
business dealings.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 6 of 14
Bribery
• Bribery – The practice of offering something (often money) in order to gain
an illicit advantage from someone in authority
• Active bribery – When the person who promises or gives the bribe
commits the offense
• Passive bribery – Offense committed by the official who receives the bribe
• Facilitation payments – Payments made to obtain or retain business or
other improper advantages that do not constitute bribery payments for U.S.
companies in some situations

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 7 of 14
Corporate Intelligence
• Corporate intelligence – The collection and analysis of information on
markets, technologies, customers, and competitors, as well as on
socioeconomic and external political trends

– Corporate intelligence involves an in-depth discovery of information from corporate

records, court documents, regulatory filings, and press releases, as well as any other
background information about a company or its executives.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 8 of 14
Discrimination
• Discrimination – Prejudices based on race, color, religion, sex, marital
status, sexual orientation, public assistance status, disability, age, national
origin, or veteran status; illegal in the United States
• Equal Employment Opportunity Commission (EEOC) – Federal agency
that protects against workplace discrimination
• Age Discrimination in Employment Act – Outlaws hiring practices that
discriminate against people of 40 years or older, as well as those that
require employees to retire before the age of 70
• Affirmative action programs – Involve efforts to recruit, hire, train, and
promote qualified individuals from groups that have traditionally been
discriminated against on the basis of race, gender, or other characteristics
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 9 of 14
Sexual Harassment
• Sexual harassment – Any repeated, unwanted behavior of a sexual nature
perpetrated upon one individual by another
• Hostile work environment – Three criteria must be met:
1. The conduct was unwelcome;
2. The conduct was severe, pervasive, and regarded by the claimant as so hostile or
offensive as to alter his or her conditions of employment; and
3. The conduct was such that a reasonable person would find it hostile or offensive.

• Dual relationship – A personal, loving, and/or sexual relationship with

someone with whom you share professional responsibilities

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 10 of 14
Sexual Harassment (continued)
• Steps to avoid sexual misconduct or harassment include:
1. Establish a statement of policy

2. Establish a definition of sexual harassment

3. Establish a nonretaliation policy

4. Establish specific procedures for prevention

5. Establish a reporting procedure and encourage victims to report

6. Enforce established policies

7. Make sure the company has timely reporting requirements to the proper authorities

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 11 of 14
Fraud
• Fraud – Any purposeful communication that deceives, manipulates, or
conceals facts in order to harm others
• Accounting fraud – Inaccurate information in a corporation’s financial reports,
in which companies provide important information on which investors and
others base decisions
• Marketing fraud – dishonestly creating, distributing, promoting, and pricing
products
– Puffery – Exaggerated advertising and boasting upon which no reasonable buyer would rely
– Implied falsity – A message that has a tendency to mislead, confuse, or deceive the public
– Ambiguous statements

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Discussion Activity

• Do you think puffery should be illegal?

• Example: Best TV Ever by Samsung

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 12 of 14
Consumer Fraud
• Consumer fraud – When consumers attempt to deceive businesses for
their own gain
– Price tag switching, item switching, lying to obtain age-related or other discounts,
taking advantage of return policies

• Collusion involves an employee who assists the consumer in fraud.

• Duplicity may involve a consumer staging an accident and then seeking
damages; purchasing, wearing, and then returning an item of clothing; or
asking for a refund by claiming a defect.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 TABLE 5-5 Common Types of Consumer Fraud
Type of Fraud Definition Example
Chargeback fraud Disputing a legitimate transaction with a After receiving her large shipment in the mail,
bank or credit card company after Melanie filed a claim with her credit card
receiving the goods purchased company claiming it was never shipped.
Price arbitrage Swapping differently priced but similar Daniel placed a 1-terabyte hard drive into the box
items for a higher return for a 20-terabyte drive and returned it for a full
refund.
Return fraud Defrauding a retailer through the return Joe filled a PlayStation box with rocks, resealed
process by replacing an item with it, and received a full refund when the store clerk
something different or returning an item failed to check the merchandise.
that was not legitimately purchased
Showrooming Visiting a brick-and-mortar store to Aliyah goes to a bookstore to view and examine
examine products before going online what books to buy and then goes online to buy
to purchase it a lower cost them at the cheaper ebook price.
Wardrobing Purchasing an item, wearing it, and Jessica, a social media influencer, wore an
then returning it for a refund expensive dress for a photo on Instagram and
then returned it for a full refund.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 13 of 14
Financial Misconduct
• The failure to understand and manage ethical risks played a significant role
in the global financial crisis (Great Recession).
– Caused in part by a failure of the financial industry to take appropriate responsibility
for use of risky, complex financial instruments
– Subprime lending emerged as an ethics issue.
o Loan officers received commissions on securing loans from borrowers with no
consequences if the borrower defaulted on the loan.
o “Liar loans” were developed to create more sales and higher personal compensation for
lenders.

• Risk management in the financial industry continues to be a key concern.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Emerging Ethical Issues and
Dilemmas in Business 14 of 14
Insider Trading
• Insider trading – The buying or selling of stocks by insiders who possess
information that is not yet public
– Buying or selling stocks using information that is not yet public is illegal.
– Insider trading is legal if the individual legally buys or sells stock in an insider’s own
company as long as the transaction(s) are reported to the SEC within two business
days.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 5-4
The Challenge of Determining an
Ethical Issue in Business

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 The Challenge of Determining an
Ethical Issue in Business 1 of 1
• Most ethical issues concerning a business will become visible through
stakeholder concerns.
• Problems can become ethical issues as a result of changing societal values.
• Crisis management – The process of handling a high-impact event
characterized by ambiguity and the need for swift action to access and
respond to potential damage

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.