Leaders often find themselves in the position of making tough decisions, like choosing between profit and ethics. Wage inequality, animal testing and dubious accounting practices are common ethical dilemmas in business. Some say that welfare and ethics are opposites, with the latter being of little concern to businesspeople. However, it is possible to do business ethically without sacrificing profits and losing your competitive advantage.
Revenue and ethics are not mutually exclusive. Business leaders can act ethically and still maximize profits. Ethical companies may actually find it easier to attract investors, increase customer loyalty, raise brand awareness and retain top talent.
What Would You Do?
Imagine the following scenario: You are running a startup and trying to cut costs, yet you need people to handle bookkeeping, sales prospecting, social media marketing and other small but time-consuming tasks. Hiring qualified staff would cost you thousands a month, so you decide to start an unpaid internship program instead. This way, you will get help with your day-to-day business operations without paying a cent.
The problem is that you may not have too much to offer to your interns; perhaps you have just as little experience as they do. Plus, your workplace environment may not be challenging enough to help them grow professionally. You are not comfortable with your decision, but you decide to prioritize business growth at the expense of others. In this case, your decision is driven by financial considerations and not ethics.
Consider another example. Your business is growing at a fast pace, so you ask your staff to work overtime. Although they are entitled to overtime pay, you say no right from the start. Furthermore, you make it clear that those who do not comply may risk losing their jobs or being sanctioned.
In both scenarios, your employees may end up feeling disengaged and may lose their motivation to do a good job. They may also reach the point of burnout, engage in workplace conflicts or even turn against you. As a result, your business will suffer. Most times, unethical decisions affect companies, employees and customers alike, possibly to the point of no return.
What Is an Ethical Dilemma?
As the business owner, you had two choices in both of these scenarios. None of the choices were ideal, though. That is an example of an ethical dilemma: a moral situation in which you must choose between two or more alternatives, none of which are preferable. The best thing you can do when facing ethical dilemmas in business is to assess your options and their consequences and make a decision accordingly.
Sometimes, both alternatives may have positive outcomes in the long run. Pharma companies, for instance, are often in the news for their practices, such as testing their products on humans or animals. On one hand, these practices serve the greater good by helping with the development of potentially life-saving drugs. On the other hand, they are morally wrong because no one has the right to play with people's lives or use animals for research.
The same goes for companies that outsource their operations to low-income countries, such as India or Mexico. This practice helps businesses save money, allowing them to grow at a quicker rate and diversify their products. At the same time, it has a positive economic impact on developing countries by creating new jobs. The downside is that labor and environmental standards may slip, and outsourcing to emerging markets affects the number of jobs available in the U.S. and other developed countries.
Ethical Dilemmas in Business
From accounting and human resources to product development, most business practices involve some sort of ethical dilemma. According to Rushworth M. Kidder, a well-known book author and head of the Institute of Global Ethics, there are four paradigms that encompass most dilemmas:
- Truth versus loyalty
- Individual gain versus the greater good
- Good for the long term versus good for the short term
- Justice versus mercy
Say you have a brilliant office manager who plays a key role in your organization. One day, you hear that he's constantly harassing other employees, causing stress and tension in the workplace. You keep receiving complaints and find yourself in the position of deciding whether to keep him in the company or let him go. He refuses to change his behavior despite getting several warnings.
As a leader, you have several options. One is to choose the greater good and fire your office manager. However, you fear that your business will suffer, and it could take you months to find another employee with the right skills and experience. In this case, you must decide whether it is worth sacrificing the well-being of your staff for the well-being of your business.
However, if your employees are living in fear and feeling harassed on a daily basis, they won't perform at their peak. Their productivity and engagement may decrease, affecting your business in the long run. No matter what you do, someone will suffer. That someone could be you, your staff or your office manager.
Ethics vs. Profits: Notable Examples
There are countless examples of ethical dilemmas that business leaders may face. Walmart, for instance, is under public scrutiny for its questionable practices. In 2008, the company sued an employee with brain damage to recover the health care costs paid to him. In 2012, Walmart was accused of bribing the Mexican government to increase sales and beat local competitors.
Zara is constantly accused of unfair labor practices meant to increase its profits. Another example of unethical behavior can be attributed to Enron, an American energy company that committed accounting fraud. Its leaders used special-purpose entities to hide massive debt from creditors and investors and engaged in questionable accounting practices and forged documents.
However, not all business leaders choose profits over ethics. A good example is Sallie Krawcheck, the former head of global wealth management at Merrill Lynch. Soon after taking over the division in 2009, Krawcheck realized the company's stable value fund was not as stable as it seemed and that millions of low-income workers risked losing their investments. She got fired after bringing it up, but she took this risk despite going through a similar situation with CityGroup in 2008, and today, Krawcheck is the CEO of Ellevest, an organization committed to closing the gender investing gap and empowering women.
The Role of Ethics in Business
The decisions taken within an organization can ruin a business or make it thrive. Corporate ethics, or business ethics, encompass the moral principles that guide business leaders and other key decision makers. While it is true that good business ethics don't always increase profits, poor ethics can harm a company's bottom line in the long term.
Ethical practices can help improve employee morale, increase customer loyalty and enhance productivity in the workplace. They also have a positive impact on your brand image and can make your business more appealing to customers and investors alike. Furthermore, ethical behavior may help increase employee retention, reduce turnover rates and decrease recruitment costs. Unethical behavior, on the other hand, can ruin a firm's reputation, leading to revenue losses, lawsuits and hefty fines.
What Employees Think
Employees who are exposed to a culture based on honesty and integrity are more likely to make ethical decisions. They will stay with that organization longer and perform their duties at a higher level. For example, a large-scale study by Mercier found that employees want to feel that they are working with a purpose and see that their employers care about their health. Companies that use unethical practices, such as forcing people to work overtime or firing those who are sick, may find it difficult to attract talent and retain employees.
In a 2017 survey by CareerBuilder, 61% of workers reported being burned out on the job, and more than one-third reported extremely high levels of stress. Respondents in power positions were the least stressed of all workers. This is a matter of ethics versus profits. It is not uncommon for business leaders to cut costs and maximize profits at the expense of their employees' happiness and well-being.
Business Ethics and Social Responsibility
Organizations around the world have integrated social responsibility in their brand strategy. Google, for example, has become the largest corporate buyer of renewable power on the market. Next on the list are Amazon, Microsoft and Facebook. Another example is LEGO, which has made a public commitment to lower its carbon footprint.
Social responsibility is an integral part of business ethics. This concept seeks to leverage business for a more sustainable world. It is considered the highest level of commitment between an organization and the community in which it operates. Companies that embrace this philosophy act in a manner that benefits society and creates positive changes.
Your business can achieve sustainability by implementing practices that benefit the environment and the local community. These practices can be related to human rights, fair trade, community development, consumer issues and more.
According to Edelman’s Earned Brand report, one in two consumers make buying decisions based on a company's stand on societal issues. About 65% would not purchase from brands that did nothing about an issue they had an obligation to address, like global warming or unfair labor practices. By becoming socially responsible, you will not only make a positive impact on your community but also attract more clients and boost your brand image.
Do Ethics and Profits Mix?
Ethics and profits are not mutually exclusive. A company that acts ethically may find it easier to reach its target market, increase brand awareness and build customer loyalty, which will ultimately boost its profits. Furthermore, it may become more appealing to stakeholders and external investors and may build longer-lasting relationships with its partners and vendors.
There are situations when you may lose revenue by acting ethically, but your efforts will pay off in the long run. For example, losing a contract with an organization known for deceiving its clients may affect your revenue. However, this decision actually contributes to long-term profits because you won't have to deal with the consequences of working with an unethical company.
Consumers purchase from brands whose purpose and business practices align with their beliefs. They expect companies to demonstrate transparency, honesty, integrity and sustainability. Therefore, it is not surprising that businesses are now paying more attention to their impact on the larger ecosystem. The right thing may also be the smart thing, so don't hesitate to follow your gut and say "no" when something seems off.
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- National Institutes of Health: Medical Research With Animals
- Seven Pillars Institute: Pharmaceutical Industry Ethics
- University of Northern Iowa: Four Tough Ethical Dilemmas
- The New Food Economy: “Cheap and Exploitable Labor”: New Report Shows Food Companies Use Cultural Exchange Program to Recruit Foreign Workers
- Forbes: The 10 Telltale Signs That the Future Looks Bad for Wal-Mart
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- Investopedia: The Most Typical Holding in a Special Purpose Vehicle
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- Digital Marketing Institute: 16 Brands Doing Corporate Social Responsibility Successfully