Business Ethics

Unethical behavior and where it comes from

Unethical behavior in business includes:

• falsifying or concealing information, like a manager who backdates safety inspections in a log, or a salesperson who hides a fee until after the customer signs;
• misusing company property, like an employee who fills up a personal car with the company gas card;
• causing harm to employees or customers, like a supervisor who pressures workers to skip safety steps to meet a deadline.

None of this is limited to new or low-level employees. Unethical behavior can occur at every level of a business, up to the CEO's office.

Incentive structures help explain why. Businesses reward the results they want with bonuses, commissions or promotions, and rewards work: people do more of what pays. That is also the danger, because an incentive can tempt someone to gain a benefit for themselves unethically. A car repair shop that pays mechanics a commission on every part they replace has given them a reason to recommend parts customers do not need. A sales manager whose bonus depends on hitting a quarterly target has a reason to book next quarter's orders early. Neither reward makes anyone dishonest. Both make dishonesty pay.

How businesses encourage ethical behavior

Businesses have four tools.

• A code of conduct puts the rules in writing: no gifts from suppliers worth more than $25, report every safety shortcut, never share customer data.
• Training teaches employees to follow those ethical guidelines, often by practicing on realistic cases, so the right response is familiar before the pressure arrives.
• Internal repercussions for ethical transgressions, anything from a written warning to being fired, show that the rules are real.
• Modeling ethical behavior means leaders follow the rules where everyone can see. A CEO who catches a mistake in her own expense report, says so in a staff meeting and pays the money back does more to teach the code than any page of it.

There is a business case for all of this. Ethical practices attract customers and employees, and they build brand loyalty: people would rather buy from, and work for, a business they trust. When something does go wrong, the response has consequences of its own. How a business handles unethical behavior or an ethical dilemma can strengthen or damage its relationships with customers and employees, change how the public sees it, and raise or lower its profits.

Ethical dilemmas

You met core values in the Vision lesson. An ethical dilemma exists when a core value, such as transparency, fairness or empathy, conflicts with another core value or with the business's goals or practices. Both sides are things the business cares about, which is what makes a dilemma hard.

• Value against value. The manager in the prediction at the top of this lesson feels empathy for a worker who lost a home, while fairness says every employee gets the same leave.
• Value against goal. A restaurant that advertises local beef learns its supplier now ships from 900 miles away. Transparency says tell customers now. The goal of protecting sales says wait until a new local supplier is found.

Leaders facing a dilemma consider how each possible response would affect stakeholders, the people and groups with something at stake in the decision. They also consider what each response would do to the business's reputation and to its company culture, meaning what employees learn about how things are really done there.

Two ways leaders decide

One way is to weigh benefits and costs for each stakeholder group. List the groups, estimate what each possible response would give to and take from each one, and choose the response with the greatest total benefit or the least total harm.

The other is to choose the response most consistent with the business's vision or goals. If the vision promises customers complete honesty, the honest response wins even when it costs more.

The two methods can agree, as they do in the example below. When they do not, the leader has to decide which one should win this time and be ready to explain why to the people who lose.