Ethical Issues in Business and Marketing - Literature review Example

Lecturer: Executive Summary Business ethics is an important area of study as it affects sustainability and long term profitability of an organization. This paper is a critical evaluation of ethical issues arising in business and marketing. Financial issues have been discussed including creative accounting, insider trading, executive compensation and bribery. Human resource issues in business have also been highlighted including discrimination in employment, at will employment, democracy in the workplace, workplace privacy, occupational health and safety. The paper also critiques the ethics of production and intellectual property, knowledge and skills in business. It also discusses the ethics of sales and marketing including aspects such as price skimming, anti-competitive practices as well as unethical practices emerging through advertising content. Introduction The philosophy of business is reflected in business ethics that focuses on establishing the central purposes of an organization. In essence, the major purpose of business is to exhaust the possibilities of enhancing profits. It is therefore outside the business objectives to engage in other activities at the expense of shareholder returns. Corporates are expected to make profits while adhering to the legal and ethical guidelines of the society. It is important to note that a business cannot be responsible but rather, individuals running it must engage in responsible business activities. The general ethical standards of people also apply to businesses and therefore there is no ethics that is unique to business. Corporate social responsibility (CSR) is a strategy that demonstrates the value of business ethics in relation to the community within which it is established. Businesses forgo profits to engage in CSR, which is associated with respect and concern for the wellbeing of consumers and the general public even of it is not the core objective. Corporates in many countries such as in the US are considered as individuals to a certain extent whereby they can be prosecuted, they have a right to sue and are also liable to taxation, in addition to owning property. This implies that business entities have autonomous ethical accountabilities. The stakeholders anticipate a business to uphold ethical obligations in relation to its employees, suppliers, clients, neighbours and the general public. Ethical Issues Arising in Business and Marketing Ethics of Finance Creative accounting is the first ethical issue in finance that businesses are faced with. It involves the application of the principles of standard accounting methods while not upholding the essence of the rules. Businesses engage in innovative strategies to portray their profits, assets and liabilities to sway the understanding of readers to match the desired interpretation of the corporate rapporteur. It is among the foundations of corruption in businesses that is inconspicuous to the shareholders and therefore can go on for a long time with eventual calamities. Some companies in the US such as Enron and Worldcom have been associated with accounting misdeeds that led to the 2002 stock market slump (Mishkin and White, 2012). Businesses exaggerated their revenue to benefit from the executive reimbursement package through the stock options. These were sold at an overestimated value leading to over exaggerated profits. Shareholders are misled regarding the fundamental financial performance of a business through judgmental accounting that is tailored unconnectedly to the actual financial statements. Earnings are also managed to give a company an upper hand in contract bidding especially those that require considerable figures in the financial statements. Some businesses may inflate their income to receive government incentives such as tax waivers and subsidies (Mellahi, Morrell and Wood, 2010). Insider trading is also an ethical issue related to the illegal act of accessing classified information about a public company by an insider and using it to trade in the company shares and securities without the knowledge of shareholders. Insiders are usually company employees and directors as well as shareholders owning more than 10% of the company investment securities. Shareholder value is lost among investors who do not have the advantage of accessing the confidential information (Wicks, 2009). For example, the CEO of a company may learn that it is headed for acquisition and buys shares speculating that the price will rise, which turns out to be true. Shareholder interests are not protected by the CEO in such a case as they do not have access to such information. It is a financial issue that hampers economic growth as it increases the investment cost for security issuers. The practice is allowed in the US especially if it involves high ranking officials and important shareholders so long as the information is disclosed to the public or to the regulator for monitoring purposes. However, many of the insider trading deals go unreported making monitoring difficult (Desjardins, 2011). Executive compensation comprises of monetary and non-monetary rewards given to the executive of a company for performance or honour. They include salaries, a home, vehicles and shares among other benefits. In many economies including the US, executive compensation is relatively high compared to the average employees’ salary. Initially it was viewed as a motivation to retain the highly valued talent of chief executives. Currently, controversy surrounds the essence of executive compensation bearing in mind that chief executives determine their own pay at the expense of the shareholder value. The board of directors are charged with the responsibility of determining executive compensation and in most instances shareholder value has not been upheld such as situations whereby revenue takes a downward trend but the CEO’s compensation remains exorbitant Trevino and Nelson, 2010). Bribery is a financial and ethical issue that has significantly affected the corporate sector in many economies. It is a crime that involves giving and receiving cash and other forms of presents to influence the actions of an entity in favour of another. Businesses engage in bribery to evade taxes and to obtain contracts that they may not be qualified to undertake. According to Zadek (2013), bribery globally is projected to be over USD 1 trillion. Businesses also engage in bribery in exchange for non-compliance with laws such as environmental regulations. On the other hand, it has been applied as a form of extortion by those in authority to businesses that do not want to stop their production processes for routine checks by state officials. Extortion occurs when such officials pretend to be interested in checking for irregularities compelling the business to bribe to avoid disturbance. Such behaviour has led to businesses engaging in unethical and illegal practices under the cover of corrupt officials (Liedtka, 2011). Ethics of Human Resources Businesses are faced with ethical issues in human resource management while trying to balance best practices and maximization of output while minimizing cost of labour. Discrimination is one of the ethical issues whereby organizations exercise prejudice against certain groups of people stereotyped as non-performers or incapable of helping it to accomplish business goals. People may be discriminated on the basis of race, gender, sexual orientation, disability and religion among other characteristics that are outside the mainstream labour force. Some organizations engage in affirmative action aimed at ensuring the groups that are predisposed to discrimination have access to opportunities within their ranks. However, it still presents a major challenge to uphold inclusiveness in the workforce especially when aspects such as disability are not favoured by the nature of work (Fisher and Lovell, 2009). At will employment is also an ethical issue based on the relationship between a business and its employees. Unjustified termination of employment that is undertaken without prior notice or benefits to the affected employees may be a measure towards maintenance of a lean workforce when it is deemed to be necessary. Under such circumstances, businesses justify their actions by arguing that employees also have a right to terminate employment without justification. In the US, at-will employment is not illegal but its opponents contemplate it to undermine the principle of bargaining power between the business and its workforce (Ferrell, Fraedrich and Ferrell, 2012). In an ideal relationship, businesses are expected to accommodate employee representation and to uphold democracy in the workplace. Trade unions ensure that employees’ rights are maintained and organize legal strikes when necessary. However, businesses are faced with a dilemma of maintaining profitability or to meet employees’ needs, which are mainly aimed at improved compensation, terms of employment and workplace environment all requiring financial inputs. It is therefore common for the organizations to thwart impending strikes by all means including sacking the leaders and weakening trade unions (Schwartz, 2011). Workplace privacy is regularly interfered with as businesses ensure that employees’ time is utilised for production activities and not private matters. Surveillance cameras are therefore installed with or without knowledge or consent of the employees thereby intruding their privacy. Proponents of workplace monitoring argue that a business pays for every our spent by the employees at work and therefore only business activities should be undertaken. Other privacy issues include drug testing and health status reporting whereby an employee is compelled to expose personal matters to remain in employment (Fisher and Lovell, 2009). Occupational health and safety is an important aspect of the workplace that protects the business premises as well as employees. However, some businesses ignore its importance due to the costs involved, such as provision of appropriate working gear for employees. In many cases employees endure harsh working conditions to keep their employment. However, it is unethical for businesses to focus on profitability oblivious of the plight of their employees (Griseri and Seppala, 2010). Ethics of production Production is a core business activity that is the foundation of its competitiveness in the market. A business is expected by law to ensure that the production processes and the products are safe for humans, animals and the environment in general. However, businesses are faced with the ethical dilemma while producing certain goods such as alcohol, arms and tobacco products among other consumer products that are regarded as harmful to human health. Even though arms are used for security purposes, they are also used to take life and therefore the business may be considered to contribute to immoral practices. A business that sells guns may make profits at the expense of human or wild life (Blowfield and Murray, 2011). Production processes may result in harmful effluents being released in to the environment. The current concerns regarding global warming are mainly as a result of greenhouse gas emissions from industries leading to destruction of the ozone layer (BSR, 2014). This has left humans exposed to the dangers of excessive UV radiation while businesses are celebrating increased productivity and expanding to global markets. Some companies release waste in to water bodies unabatedly so long as authorities do not realize the practice. Others take advantage of the breakdown in the enforcement of environmental laws, even with the understanding that environmental pollution is unethical (Blowfield and Murray, 2011). Many technological innovations have succeeded through unethical practices in research and development such as product testing through the use of animals and financially underprivileged populations such as poor rural communities. Some of the technologies are associated with long term impacts such as changes in the genetic composition of biodiversity through the introduction of genetically modified organisms. Mobile phone technology was associated with harmful radiation in the initial handsets that were sold in the market (Griseri and Seppala, 2010). Ethics of Intellectual Property, Knowledge and Skills Patent and copy rights are not respected as businesses compete in the market. To avoid legal suits, the infringing businesses make a slight difference for their products not to be a direct imitation to the original. Since they do not spend money on innovations, they are able to sell such products at a low price (Zadek, 2013). Counterfeit production is an unethical practice that has led to poor performance among innovating companies. Business ideas are reproduced before the owner of such information breaks even. Counterfeit products include electronics and medicine among other essential consumer goods. The issue of counterfeit products is double edged as it affects consumers who do not get value for their money and the innovative companies that lose money to counterfeit businesses (Desjardins, 2011). While it is not illegal to employ people formerly employed by competitors, businesses engage in the unethical practice of ‘poaching’ knowledgeable employees from competitors with the aim of weakening them (Liedtka, 2011). Others ensure that all knowledgeable people in the labour market with specialized skills in a core production component are hired regardless of them having no vacancy to fill to ensure that competitors do not hire them. Businesses also engage in industrial espionage to track the activities of competitors. It might be difficult for businesses to prove the presence of such espionage in court but it is an unethical practice that can financially cripple an innovative business as new product inventions are launched by competitors before the owner (Ferrell, Fraedrich and Ferrell, 2012). Ethics of Sales and Marketing Price skimming presents a major ethical issue in marketing as it involves a high initial price for the customer and then the seller lowers as the customer haggles. The seller has no justification for a high initial price for a product apart from the expectations for super profits at the expense of customer satisfaction (Harrison, Newholm and Shaw, 2005). If the customer fails to bargain, the seller accepts the payment, which raises the question of the seller’s moral obligation to the buyer. Price skimming has led to the change in consumer’s decision making process as it has forced them in most instances to think that sellers must mention a high starting price and lower it later after bargaining. Some sellers have lost potential customers by offering products at their exact prices as the culture of bargaining has become entrenched in consumer’s minds and therefore they expect a bargaining opportunity no matter the magnitude of price difference (Velasquez, 2011). Other businesses engage in anti-competitive practices to thwart competition in the market. Dumping is one of the practices involving a business offering products in a competitive market at a price that is lower than the break-even point (Aaker, Fournier and Adam, 2009). The business makes a loss but competitors are forced out of the market as they cannot cope with the competition. The prices are raised afterwards to cover the losses in the resulting monopolistic market. Businesses that have already established monopolies set prices that limit market entry by potential competitors (Nicholls and Opal, 2006). Exclusive dealing is also an unethical practice that ensures wholesalers and retailers buy their products from only one supplier, barring other suppliers from competing (Belz and Peattie, 2009). Price fixing has been a significant source of disillusionment among consumers as companies dealing in a particular product form price cartels to sell it at a particular price thereby getting rid of free market competition. Other cartels may refuse to sell their products through a certain vendor and ensuring that they determine which wholesaler or retailer remains in the market. Territorial marketing denies consumers the right to choose from different sellers as businesses divide market territories amongst themselves. Under such market set up, each business commands its own territory without interference by would be competitors. It is also unethical for businesses who force consumers to buy two related products even if they do not need both. This is a marketing strategy that is applied to promote slow moving products (Boatright, 2011). Unethical practices in marketing emerge through advertising whereby content used to attract a particular group of consumers is considered offensive to others. For example advertisements of products meant for adults leave children exposed to inappropriate material. Advertisement of alcoholic beverages and tobacco products is also offensive to people who are fighting against drug abuse (Belz and Peattie, 2009). Conclusion Ethical issues in finance include creative accounting whereby businesses exaggerate profits in their reports for particular gains such as incentives and subsidies. Insider trading involves the use of confidential information of a company for personal gains at the expense of shareholders. Bribery is also a major ethical issue in business whereby money and gifts are offered in exchange for favours, business deals and impunity from legal enforcement. Human resource issues include discrimination on the basis of race, gender and sexual orientation among other characteristics that are considered inappropriate for particular businesses. At will employment involves unjustified termination of employment by businesses in a bid to cut costs. Businesses also fail to uphold workplace democracy and privacy which are part of the employees’ rights. Workers in some businesses work under unfavourable conditions. Unethical practices are also inherent in production such as effluent release to the environment, production of harmful commodities and interference with biodiversity through genetic manipulation. Failure to respect patent and copy rights has a negative influence on innovative businesses. Ethical issues in sales and marketing include price skimming, exclusive dealing, price fixing, territorial marketing and offensive advertising content. References Aaker, J., Fournier, S and Adam B. 2009. When Good Brands Do Bad. Journal of Consumer Research, 31(3), pp.1–16. Belz, F-M. and Peattie, K. 2009. Sustainability Marketing: A Global Perspective, Oxford: Wiley. Boatright, J.R. 2011. Ethics and the Conduct of Business. Upper Saddle River: Pearson Education. Blowfield, M. and Murray, A. 2011. Corporate Responsibility. Oxford: Wiley. BSR, 2014. A Guide to Traceability: A Practical Approach to Advance Sustainability in Global Supply Chains. [online] Available at, [Accessed 12 April 2014]. Desjardins, J.R. 2011. An Introduction to Business Ethics. New York: McGraw-Hill. Ferrell, O.C., Fraedrich, J. and Ferrell, L. 2012. Business Ethics: Ethical Decision Making and Cases. Stamford: Cengage Learning. Fisher, C. and Lovell, A. 2009. Business, Ethics and Values. Pearson Education. Griseri, P. and Seppala, N. 2010. Business Ethics and Corporate Social Responsibility, Stamford: Cengage Learning. Harrison, R., Newholm, T. and Shaw, D. 2005. The Ethical Consumer, London: Sage. Liedtka, J. 2011. Stakeholder Capitalism and the Value Chain, European Management Journal, 15(3), pp. 286-296. Mellahi, K., Morrell, K. and Wood, G. 2010. The Ethical Business: Challenges and Controversies, New York: Palgrave Macmillan. Mishkin, F.S. and White, E.N. 2012. U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy. [online]. Available at, [Accessed 12 April 2014]. Nicholls, A and Opal, C. 2006. Fair Trade: Market-Driven Ethical Consumption, London: Sage. Schwartz, M. 2011. Corporate Social Responsibility: An Ethical Approach. Broadview Press. Trevino, L.K. and Nelson, K.A. 2010. Managing Business Ethics. Oxford: Wiley. Velasquez, M. (2011) Business Ethics: Concepts and Cases. Upper Saddle River: Pearson Education. Wicks, A. 2009. Organization Studies and the New Pragmatism: Positivism, Anti-positivism, and the Search for Ethics, Organizational Science, 12(2), pp.123-140. Zadek, S. 2013. The end of irresponsible business practices by multinationals in China, [online]. Available at, [Accessed 12 April 2014]. Read More