Unethical business practices have been around since pretty much the beginning of business. We’ve all heard the term "snake oil salesman," which originated in the 1800s when Americans would sell fraudulent oil made from rattlesnakes when the real, effective product was made from the Chinese water snake. Today, people seem even more critical of unethical behavior, from Amazon’s alleged warehouse worker conditions to Nestle reportedly profiting from the limited water supply from California’s desert regions.
Running a business is sometimes high stakes, especially if there’s a lot of competition in the market. No matter how cut-throat it is, if customers perceive you as selfish, there will always be backlash. You have the choice to run your business with high ethical standards or not, but what is ignoring your social responsibility actually worth? Avoid these common unethical practices.
What Is Business Ethics?
Business ethics is the study of appropriate business policy and practice. Typically, this is guided by the actual law, but there are many loopholes that raise controversy among consumers. Is Amazon unethical to put workers in a high-pressure environment? Is it unethical for billion-dollar companies like Walmart to pay paltry wages to workers, even if that wage is above the federal minimum?
Just because companies aren’t performing outright illegal practices like insider trading, discrimination and bribery doesn’t mean they’re not still raising ethical issues. In fact, some unethical practices may seem so minor that businesses don’t even notice it’s happening. There is usually some sort of gray area, but businesses have an ethical responsibility toward:
- Their workers
- Their consumers
- Their partners
- The environment
- The general public
- The greater society
Those who put their profits or companies over any one of those sectors may indeed face backlash for unethical business practices.
Conflict of Interest
Conflict of interest is one of the more absentminded unethical business practices. Companies don’t always realize this is happening because they’re so busy going about their daily lives and are often very close to the issue. Commonly, you’ll see conflict of interest policies in the media, especially companies with strong journalistic standards like the New York Times, and this helps promote more ethical reporting. For example, ethical publishers opt to disclose conflicts of interest within a story, which could be as small as stating they were given a free product for a review or as large as disclosing that they’re financially tied to the subject on which they’re reporting.
In 2020, this was a major issue during Michael Bloomberg’s presidential campaign. How was Bloomberg News going to ethically report unbiased information about its boss, especially when, according to the New York Times, company guidelines prohibit it from reporting on his wealth and personal life? The publication attempted to mitigate this issue by abstaining from investigating Bloomberg and his political rivals. Sometimes, the best course of action in a conflict of interest is to recuse yourself entirely.
False advertising, also known as misleading product information, doesn’t just get you in trouble with consumers — you can face serious issues with the Federal Trade Commission. False advertising generally falls into the following categories:
- Deceptive product descriptions: The laws on this are particularly strict in the world of health, beauty, pharmacy and food. You cannot use terms like “organic” or “natural” unless they meet USDA guidelines, you can’t have misleading illustrations and pictures and you definitely, definitely can’t misrepresent ingredients. For example, Dannon had to pay out $45 million in a class-action lawsuit for falsely claiming Activia and DanActivia had “clinically proven” health benefits in 2010.
- Deceptive pricing: This typically involves hidden surcharges that substantially inflate the price of a product or when companies inflate the price of a product and then pretend it’s on sale. The former often happens with phone companies that hide additional fees (like texting limits and out-of-network fees) and make unauthorized charges on a confused customer’s bill.
- Deceptive measurement: You can’t use different kinds of measurement or packing material to make consumers feel like they’re getting more than they are.
- Deceptive comparisons: Companies may want to compare their product to their competitors, but they must proceed with caution and always remain ambiguous. For example, in 1997, Pizza Hut sued Papa John’s for using the slogan “better ingredients, better pizza.” This was dismissed in court after it was ruled to be an objective statement.
- Deceptive guarantee or warranty: You must be able to — or at least intend to — deliver what you say you’re going to deliver.
The best course of action to avoid false advertising is to just be honest. Remember that with ethical business practices, transparency is always key.
Mistreating employees is one of the major unethical business practices across the globe. It’s not always limited to illegal activities like child labor. It can fall into a number of gray areas or hard-to-enforce practices like:
- Misclassifying employees as contractors to avoid paying for benefits.
- Paying very low but technically legal wages.
- Utilizing labor from developing nations to pay cheap wages.
- Enforcing strict productivity rules that cause employees to sacrifice their health and safety.
The thing about mistreating employees is that it doesn’t always present itself in an extreme way, like Amazon reportedly pressuring warehouse workers to the point that they urinate in bottles for fear of being disciplined for taking a bathroom break. At the heart of it, it usually boils down to choosing profits over the welfare of employees.
Even something as seemingly small as a bootstrapped business having no paid-sick-day policy can be considered unethical depending on the circumstance. For example, a 2014 report from the Centers for Disease Control and Prevention found that 20% of service workers came into work at least once that year while suffering from vomiting or diarrhea, but a study also found that offering paid sick days to low-paid employees who could not otherwise afford an unpaid day off can greatly mitigate this.
Amidst the COVID-19 outbreak in the United States, companies like Walmart, McDonald's and Dollar Tree have come under fire for not giving employees paid sick leave and endangering the lives of consumers who come into contact with employees who may be sick.
It’s never good to have incorrect financial statements, but what’s even worse is knowingly manipulating records to make your business appear more profitable. Part of corporate responsibility is reporting correct statements, particularly to shareholders and the IRS. In 2015, Toshiba came under fire for this very practice and was forced to pay a $60 million fine as a result. The company had exaggerated profits by $1.2 billion, which in turn manipulated shareholder confidence.
This isn’t something that just has to do with manipulating financial statements to get tax breaks or to bolster investor confidence — companies can also manipulate active user or consumer numbers. In 2016, Wells Fargo was fined $185 million for creating millions of fake credit card accounts.
Poor Environmental Practices
One of the major examples of unethical behavior is when companies negatively affect the environment and wildlife around them. This can happen with all types of businesses, from companies that pollute waterways and emit large amounts of greenhouse gasses to those who accidentally (or purposely) contribute to deforestation or the mistreatment of animals.
For example, SeaWorld habitually came under fire for breeding orcas and holding the animals in captivity until they banned the practice. Similarly, Ringling Brothers was slammed for using elephants in its performances until it removed the creatures from its shows.
Beyond that, major companies like Nestle have faced numerous controversies for equally controversial business conduct. For example, the snack and beverage company was met with so much resistance for trying to bottle spring water in California, an area that habitually experiences widespread droughts, that it was forced to abandon plans for its largest water-bottling plant. Greenpeace International also launched a campaign against the brand in 2010 for using palm oil in products like Kit Kat bars because the product is linked to rain forest destruction in Indonesia.
Sexual Harassment and Discrimination
An increasing number of companies have come under fire not only for sexual harassment and discrimination but for paying off former employees with nondisclosure agreements, essentially buying their silence on the unethical practices. For example, 21st Century Fox came under fire after sexual harassment allegations levied against news chief Roger Ailes and host Bill O’Reilly. The company later agreed to pay $90 million in shareholder settlements because the repeated instances — and the fact that it knew of O’Reilly’s allegations when it renewed his contract — created a company culture that allowed for this unethical behavior.
This can be avoided with strict human resources protocols, full investigations and a company culture where victims are encouraged to speak up rather than be punished.
Bribery and Lobbying
A business may be tempted to give a little kickback for favorable treatment, but this is inherently dishonest. Oftentimes, bribery isn’t as cut and dry as handing a few bucks to an inspection officer for a favorable report. Some people view the legal practice of lobbying as unethical. With this business practice, companies and organizations donate large sums to politicians and lawmakers in hopes it will have some sort of influence.
In general, lobbying is a legal practice, and the legality lies in the fine print. Bribery is considered paying for guaranteed power, but lobbying is considered hoping to influence power. Be careful about for what you lobby, though, as consumers view your causes under close scrutiny. For example, Chick-fil-A has long faced criticism for donating to organizations that allegedly lobby against LGBTQ rights.
What Happens if You Face a Difficult Ethical Decision?
Companies often feel pressured to make certain decisions. This may not exactly be unethical, but it really depends on whom or how many people it affects and to what extent. This is the main thing you need to weigh when making decisions.
For example, what happens when a company that manufactures microchips finds a defect in one chip in a batch that must be immediately sent to a supplier that makes computers or risk losing the entire contract? There’s a fair chance that just one or two microchips are defective, but there’s also a chance that there is a widespread defect, and once the company puts them into computers and sells them, they will face mass public backlash that you could have prevented. What do you do: Delay the product release or hope for the best?
Transparency is usually considered the most ethical practice, so in this specific situation, you may want to discuss the quality control issue with the supplier so an informed business decision can be made.
How to Create an Ethical Workplace
It’s not actually that hard to create an ethical workplace, though business owners are repeatedly met with challenges. Companies and business owners can:
- Promote transparency: Transparent businesses allow shareholders and consumers to make informed choices. They will not be accused of pulling the wool over someone’s eyes for a sale.
- Lead by example: Upper management should always be the example of what is and is not appropriate within a workplace so that lower-level employees can take the lead.
- Have comprehensive workplace policies: Ideally, even if you’re a small business, this should be handled by an HR professional. These standards should be clearly communicated to staff, and they should protect employees and allow them to openly discuss sensitive matters.
- Offer ethics training: Things like sexual harassment training can help reduce instances of unethical behavior among employees.
- Actually punish unethical acts: A slap on the wrist for a harasser is going to do nothing but show employees that this is acceptable. Similarly, you should reward whistle blowers who help maintain an ethical workplace and call out bad behavior.
- Lead with compassion: Ethical employers are compassionate employers. They are able to sympathize with the struggles of employees or even the greater society and environment and do their best to minimize harm whenever a situation should arise.
- Investopedia: Business Ethics
- The New York Times: Bloomberg News’s Dilemma: How to Cover a Boss Seeking the Presidency
- The New York Times: The Companies Putting Profits Ahead of Public Health
- New York Post: Amazon Workers Pee Into Bottles to Save Time: Investigator
- Mass Device: Toshiba Agrees to Pay $60m Fine in Accounting Scandal
- Justia: False Advertising
- Snopes: Chick-fil-A and Same Sex Marriage
- Investopedia: Why Lobbying Is Legal and Important in the US
- Vox: Wells Fargo Cheated Millions of Customers. The Republican Tax Bill Is About to Hand it a Big Win.
- Small Business Bonfire: 5 Extremely Common But Very Distasteful Unethical Business Practices
- Corporate Research Project: Nestle
- Fortune: The 10 Biggest Business Scandals of 2017