The response of any organization to ethical dilemmas can be a highly controversial topic in our highly interconnected world. Consumers can easily go online to background check a company and see if their ideals match theirs.
Compliance with socially accepted ethical standards are more necessary than ever to participate in the worldwide economy. This is especially true for companies like Uber and Airbnb, whose business model depends on the complete safety of their services.
Companies also constantly need to make ethical judgments in areas where regulations aren’t yet present. Such decisions can involve the use of emerging technologies to keep up with the fast-changing business environment.
Why Some Companies Get into Trouble
American business magnate Warren Buffett likened trust to the air we breathe—it becomes noticeable when it’s absent.
He made the statement after the Salomon Brothers US Treasury bond trading scandal was revealed in 1991. One of its traders submitted illegal bids in an attempt to purchase more treasury bonds than allowed to one buyer.
Ethical scandals continue to this day, from sexual harassment cases filed against Google and racism at Starbucks to Tesla’s securities and fraud and privacy issues raised against Facebook.
These incidents prove that trust is a timeless element underlying all our business relationships, whether it is with employees, suppliers, or customers. A new Gallup study showed that 60% of American adults are actually skeptical and believe that corruption is widespread in local businesses.
Gallup noted that the following factors lead to “ethical blindness:” the lack of open and frequent discussion on ethical implications within an organization, poor moral leadership, and performance incentives that push the company’s workforce to be hypercompetitive.
A Grand Valley State University research generated similar findings: both employers and managers agree that both monetary gain and business people’s competitive streak are the main contributors of unethical behavior.
Examples of Bad Business Practices
Ethical behavior is living up to your stated values. In an organization, it starts at the top—from the actions and directions of company leaders—and moves down to how employees relate with clients and suppliers.
Some companies try to find an easy way out when overwhelmed by the need to get ahead, despite the consequences to their brands in the long term.
Here we share some of the decisions that can put competitors and customers alike at an unfair advantage, as well as their good practice counterparts:
1. False product promises/dishonesty
The ability to advertise freely online makes it harder to monitor products and brands for their quality, unlike the way that independent advertising boards did back when advertisements were available only via TV, radio, and newspapers.
Dishonesty occurs when businesses cover up errors, hide safety issues about their employees’ working conditions, lie about conflict of interest, put false information in financial statements, hire illegal labor or pay sub-standard wages.
Good practice: Share only facts about the product that are based on research or past achievements, such as certifications, recognitions, and so on.
2. Deceptive user agreements
Some websites can use your personal data like photos, videos, and writing once you click the “I agree” button of their user agreements.
In a study done by Brookings Institution in March 2019, almost three quarters of respondents said they never read (32%) the legal terms or read them sometimes (39%).
Good practice: If you want your customers to sign a user agreement, limit the terms to what consumers are actually signing up for. Moreover, respect their right to privacy for personal and intellectual property.
3. Buying or selling client data
Marketers can be tempted to buy databases of customer data instead of building their own in their desire to seek out buyers more quickly.
Good practice: Data brokering is governed by law. Abide by regulatory requirements when informing customers on how their personal information is used if collected.
4. Financial fraud
Price-fixing, avoiding taxes, and manipulating accounting data to make your company appear less profitable to the tax bureau while looking more profitable to investors are all unethical actions.
Paying underperforming but high-ranking officials is also considered fraudulent.
Good practice: Small businesses must avoid making only one person in charge of all financial decisions and audit their books regularly. Know your employees and enforce a fraud risk policy with training.
Meanwhile, the Council of Institutional Investors (CII) recommends that firms set longer periods for measuring performance for incentive pay. It also advised that rank-and-file pay be used as a “reference point” in determining executive pay at appropriate levels.
CII also shares that executive boards must practice discretion and withdraw executive pay during instances of ethical lapses and personal misconduct causing material reputational damage for the organization.
Profiteering includes price manipulation or creating artificial scarcity, particularly during bad or unusual situations such as tragedy or calamity, abuse of dominant position in the market, and exploiting natural resources for your products or services.
6. Poor hiring process and mistreatment of employees
Small businesses likely fail when their owners or hire additional people without proper planning or necessary resources.
Good practice: Consider the following questions before recruiting people: does the company have extra money to pay a team? How will their efforts contribute to the bottom line? What can they accomplish for you that you can’t do by yourself?
Unfair treatment such as discrimination, sexual harassment, and paying below the minimum wage easily bring down employee trust, employee engagement, employee productivity, employee retention, and raise voluntary turnover.
7. Defaming your competition
Bad mouthing competitors can make your company appear juvenile and unprofessional. Your company can also face a lawsuit and suffer from a bad reputation if you make bogus online reviews and other refutable claims about your rivals.
Good practice: List your company’s accomplishments and instead emphasize how its sustained performance can benefit your customers.
8. Not researching your vendors
Not checking if your suppliers provide good quality products at fair prices can affect your brand’s reputation.
Good practice: Check if your vendors practice ethical practices to avoid getting into any legal controversy.
9. Ignoring or focusing only on the bottom line
Some small business owners have minimum knowledge about profits and revenues and fail to monitor cash flow. They may also tend to only focus on their enterprise without observing their competitors.
Good practice: Make sure to hire an accountant to be on top of computations, expenses, and tax laws. Moreover, keep an eye on new initiatives or trends that can affect your business.
10. Working without IT safety guards
Companies, especially small enterprises, may lack adequate cybersecurity measures due to the lack of IT personnel or resources.
Good practice: Seek advice on securing individual devices and networks from IT professionals. Enforce strong policies for data sharing and handling, and maximize cloud-based solutions for data storage and back-up.
Clear Expectations Will Build Trust
In today’s world of cut-throat competition, it can be easy to assume that your workforce completely understands your company’s values.
Management experts, however, think otherwise and recommend that employers conduct an ethics audit and clarify three things to their employees:
- The organization’s values, including ethical behavior and how they should operate
- Its purpose or what it’s meant to do
- Its vision or where it’s headed
Actively recognizing, rewarding, and enforcing ethical behavior while properly addressing immoral actions help create a trustworthy environment, giving your business a differentiating edge.