Business Ethics

Why Ethical Problems Occur in Organizations

Graphics courtesy of MediumOpens in new window

As discussed earlier, there are many reasons why organizations should be ethicalOpens in new window, so why do ethical problems occur in business? Given the number of recent scandals it appears that ethical problems occur frequently in business.

Understanding what cause them is one step toward leaders and organizations minimizing their occurrence and their impact on business operations and on the people affected or harmed. Some of the main reasons are summarized in Table X-1.

1.     Personal Gain and Selfish Interest

Personal gain, or even greed, cause ethics problems. Businesses sometimes employ people whose personal values are less than desirable. They will put their own welfare ahead of all others, regardless of the harm done to their employees, the company, or society.

A leader or employee who puts his or her own self-interest above all other considerations is called an ethical egoist. Self-promotion, a focus on self-interest to the point of selfishness, and greed are traits commonly observed in an ethical egoist.

The ethical egoist tends to ignore ethical principles accepted by others, believing that ethical rules are made for others. Altruism—acting for the benefit of others when self-interest is sacrificed—is seen to be sentimental or even irrational. “Looking out for number one” is the ethical egoist’s motto.

2.     Competitive Pressures on Profits

When organizations are squeezed by tough competition, they sometimes engage in unethical activities to protect their profits. This may be especially true in organizations whose financial performance is already sub-standard.

Research has shown that leaders of poor financial performers and organizations with financial uncertainty are more prone to commit illegal acts. In addition, intense competitive pressure in the global marketplace has resulted in unethical activity, such as price fixing, falsifying documents, or the use of kickbacks or bribes.

3.     Conflicts of Interest

Ethical challenges in business often arise in the form of conflicts of interest. A conflict of interestOpens in new window occurs when an individual’s self-interest conflicts with acting in the best interest of another, when the individual has an obligation to do so.

For example, if a purchasing agent directed their organization’s orders to an organization from which she had received a valuable gift, regardless if this organization offered the best quality or value, he would have acted unethically because of a conflict of interest. In this situation, he would have acted to benefit himself, rather than in the best interests of his employer.

A failure to disclose a conflict of interest may represent deception in and of itself and may hurt the person or organization on whose behalf judgment has been exercised. Many ethicists believe that even the appearance of a conflict interest should be avoided, because it undermines trustOpens in new window.

Many cases of unethical activity illustrate conflicts of interest, in which opportunities for organizational self-enrichment conflict with the long-term viability of the organization and the best interest of employees, customers, suppliers, and stockholders. Many organizations seek to guard against the dangers inherent in conflicts of interest by including prohibitions of any such in their codes of ethics.

4.     Cross-Cultural Contradictions

Some of the most challenging ethical problems occur as organizations do business in other societies where ethical standards differ from those at home.

Today, leaders in all multinational corporations, regardless of the nation where they are headquartered, often face this kind of ethical dilemma. For example, what may be an unsafe product in an organization’s home country may not be forbidden in a receiving nation, especially if the organization knows that the products are exported to another country where others are exposed to serious health risks.

As business becomes increasingly global, with more and more organizations penetrating overseas markets where cultures and ethical traditions vary, these cross-cultural questions will occur more frequently. And as they do, leaders will need to find answers to them!