The nature of business and how companies conduct their business today has created a potential for organizational members to engage in unethical conduct or behavior. Unethical behavior is defined as the harmful effect that one’s conduct has on other people. This harmful effect can be either illegal or morally unacceptable by the organization or the general society at large. Unethical behavior is usually brought about by the social behaviors and relationships that people have within organizations. Unethical behavior in organizations is usually influenced by the individual characteristics, their relationship with other organizations members and how they have embedded themselves into the organizations system.
Many people recognize self interest as the major reason why individuals or companies engage in unethical conduct. There has been an increasing concern over the recent past on the business practices of most corporate companies around the world and how these practices might affect the ethical fabric of today’s society. As members of the society, we daily face cases of ethics when our moral standards are put to question by purchasing counterfeit goods or engaging in illegal business transactions.
The overall desire for individuals and businesses to be successful has most people engaging in unethical behavior so that they can get ahead. Unethical behavior in general is a vice in today’s society that has become limitless and unavoidable. In some cases, unethical practices in organizations might go unnoticed for a long time but in the event they are brought to light, the company might face litigation cases or cases of malpractice that might cost the company billions of dollars in lawsuits and settlements.
Unethical Organizations and Business Practices
The standards that are used to define what makes up ethical behavior are known as the ethical standards.
These are the principles that govern the actions or behaviors of every member of an organization or society. The most common ethical standards that are used by organizations today are the codes of ethics which set out the ethical and behavioral standards that employees within an organization are expected to follow. Codes of ethics are used to define the values and beliefs of a society, an individual or an organization.
However these codes of ethics have some grey areas that make it difficult to provide a clear cut answer for unethical practices that might bring success to a company or business entity. As a result, these grey areas force unethical practices onto an organization (Dellaportas et al 2005). Business ethics and practices have been defined as the moral values and principles that are used to determine the conduct of employees within an organization. Business practices are the commercial practices that the company engages so as to generate an income and make a profit. While the primary goal of most businesses is to make a profit, they forget that they should practice ethical behavior as they search for these profits.
Corporate greed has led to the increasing ethical malpractices in the business world with many companies now focused on making a profit while they disregard moral and ethical issues (Dellaportas et al 2005). According to Brenkert (2004) companies have found themselves in unethical practices as a result of the falling trade barriers around the world and the increasing international business environment that has created opportunities for organizations to expand their activities to other countries. The continued globalization of the world’s economy will increase the complexity of organizations to deal with ethical issues because of the varying cultural perceptions of ethical conduct. Managing ethical issues effectively in organizations will continue to present a challenge for organizations as the global economy moves toward the 21st century. Ethical pressures occur on different levels which could be from the individual level, societal level, company level or the global level (Brenkert 2004). The recurring unethical practices that take place in most organizations include lack of managerial transparency, distortion of financial information to mislead stakeholders, invasion of employees privacy, office nepotism and favoritism, corporate greed to gain excessive profits, managers taking credit for their subordinates work, receiving kickbacks or gifts for a business deal, stealing company money, firing an employee for whistle blowing on the company’s unethical conduct, using company property and material for personal use and divulging company secrets and information to the competitors. The unethical practices that consumers engage in include warranty claims after the claims period, fraudulent return of merchandise after the relapse period, tampering with utility meters, inaccurate claims on credit card applications, false insurance claims (Brenkert 2004).
Companies that have engaged in unethical practices over the years include H.B. Fuller’s glue selling business in Honduras where the glue was sniffed by homeless children in the country. Beech-Nut Nutrition Company’s unethical practice of selling adulterated apple juice claiming that it is 100 percent fresh juice, Dow Corning selling defective silicone breast implants, Sears Roebuck engaging in unethical business practices by forcing its customers to purchase services that did not require in the first place, the continued production of cigarettes by the tobacco which is seen to be the manufacture of a dangerous product and Enron’s questionable accounting practices and unethical partnerships (Gini and Marcoux 2008). These examples of organizational and individual unethical practices demonstrate the kinds of ethical concerns that are in the global world today. Despite the fact that these practices continue to occur around the world, their presence in the corporate or societal environment continues to present a challenge on how to deal with unethical behavior.
The Enron scandal was presented as a classic case of a company engaged in unethical behavior and practices that led to the collapse of the once promising company. Enron was held in high esteem by major industry players in the U.S.
with Fortune magazine naming Enron the most innovative company in America. In 2000, the magazine ranked Enron amongst the 100 best companies to work for in America. However, when the company’s problems were leaked to the media, Enron’s ranking was downgraded as investors and creditors began to panic. In less than two years, Enron declared the largest corporate bankruptcy in the history of America that saw the company facing legal investigations into its ethical malpractices.
The legal investigations that were conducted into the scandal showed that the company had been greatly mismanaged and its demise had been caused by a combination of unethical business practices and executive authority in the company. The company’s executives created unhealthy business climate within the organization because they misused their power to take advantage of the loopholes in the company’s code of ethics to justify their unethical behaviour. One of the major ethical practices that led to the company’s downfall included Enron’s executives taking advantage of the knowledge they had of the company’s true financial state and using this information to engage in insider trading so that they could make a profit. What the executives at Enron did was considered as giving into the greed that was used to keep the wheels of capitalism running smoothly (Gini and Marcoux 2008). The company executives also engaged in off balance sheet financing by using subsidiaries to hedge its investments. In the company’s books, this off balance financing inflated the company’s profits while at the same time reducing its debts. The situation was further compounded when the company’s board of directors put a rubber stamp on the company’s off balance sheet deals. Employees within the company spoke of how they logged in transactions that were meant to make the company’s finances look better on paper.
Some of Enron’s employees did not know that the practice was now widespread throughout the company because of the complex nature of the transactions. Enron employees also found themselves involved in unethical practices due to the company’s cut throat and competitive nature. The company was aggressive in the market and it rewarded its employees for making fast deals that would earn the company big profits. Such a culture taught employees to restructure their business deals so that they could close fast and help the company’s numbers to grow. The company’s employees noted that teamwork and cooperation within the company began to disappear quickly as workers began to engage in competition and dangerous business practices (Gini and Marcoux 2008).
The most significant aspect of the Enron debacle was that the corruption scandals and the lying done by the executives was hardly notable or unique from other scandals that have affected major corporations around the world. The Enron scandal was simply a case of rich people wanting to get more by doing whatever it took to get more money. Despite the fact that the company had a code of ethics, the company executives and their employees simply ignored it when they performed their business operations. The main goal of Enron became to create money and increase profits even though the company was heavily in debt (Gini and Marcoux 2008). The lesson to be learned from the Enron scandal is that companies or businesses in the corporate world must change their culture of making profits and forgetting everything else.
Companies should understand that achieving high profits with complete disregard to ethical behavior could be a high price to pay. The culture of achieving profits has to change where employees are made aware of the acceptable levels of ethical practices that should be used to achieve these profits. Corporate executives and company managers should be made aware of the consequences that might result from conducting business in an unethical way (Dellaportas et al 2005). Part of the general problem of ethical violations by most companies is that they show little concern for the moral fabric that holds the society together. They are usually focused on making a profit and improving their balance sheets so that they can gain more stakeholders and investors. For codes of ethics to be effective, they should include punishments or penalties that will be used to deal with managers or company employees involved in ethical malpractices. These punishments could be in the form of paying restitution to those who have been affected by the unethical practices and paying out some part of the company’s profits to the society (Dellaportas et al 2005).
Such punishments are meant to deter the company from engaging in unethical income generating behavior or conduct. Social responsibility should also be included in the codes of ethics used by most companies as the customers, investors and stakeholders of a company come from the society. Companies that violate the social code of ethics should be punished in terms of paying out restitution or engaging in community development activities. Fining a company could not be enough as it will offset this amount by downsizing or increasing the prices of its products/services.
The most appropriate form of penalty would be to create social initiatives that are equitable to the fine (Dellaportas et al 2005).
Companies Engaged in Unethical Practices
Wal-Mart is considered to be the largest retail market in the United States with many of its stores situated around the world. The company has however not escaped the myriad of ethical problems that affect major corporations around the world.
Wal-Mart employs more workers than any other large company in the United States but its employees have continued to live below the poverty line despite the company raking in billions in profits. In addition, the company portrays itself as a retail store that only sells U.S. manufactured products but in reality the company has commodities on its shelves that have been made in foreign countries. As a result of such issues, the retail company faces a certain degree of controversy due to these ethical malpractices (PBS 2005). Wal-Mart employees earn a very low salary where a middle level worker earns an average of $12,000 to $17,000 annually.
This has forced some of the workers to seek for financial assistance from the public coffers and financial aid organization so that they can get by financially. The reasons that have been floated as to why Wal-Mart pays its employees such low salaries are that the company wants to cut down on its operating costs thereby ensuring that its products retail at a lower price than those of its competitors. This is seen to be unethical conduct by the company as it pursues high profits by limiting its employees pay and benefits. Because of this the company has gained a reputation that is focused on selling low priced goods instead of increasing its employees wages (PBS 2005).
Apart from the low wages, the company’s health insurance is extremely costly it difficult for most average workers to afford it. Wal-Mart employees pay a health insurance of 35 percent that is double that of the national average. Those workers who cannot afford the company’s health insurance are forced to use state healthcare which is mostly funded by the American tax payer’s money.
Wal-Mart’s high healthcare insurance is unscrupulous because it has the ethical obligation of giving inexpensive health care to its workers. It should therefore increase its employee’s salaries and reduce the health care insurance to ensure its employee’s healthcare costs are not directed towards the American taxpayers (PBS 2005). At certain periods of time, Wal-Mart employees worked overtime without receiving any form of compensation. This was seen to be an ethical malpractice as Wal-Mart’s policy on overtime stated that Wal-Mart employees were supposed to be paid for every overtime minute they had worked. Floor managers and supervisors engaged in unethical practices that forced employees to work overpaid without being paid. These workers eventually filed a lawsuit against the company in 2004 that required the company to pay its workers for the overtime hours they had worked. Wal-Mart’s defense was that it had no such policy and that it was against overtime work which was seen to be a dishonest statement. The company however reacted to the workers claims by firing the managers and supervisors that demanded workers to work overtime (PBS 2005).
There were allegations made in 2003 that Wal-Mart used illegal immigrants as workers in some of its stores. Federal agents conducted an investigation and found hundreds of illegal immigrants to have been employed as cleaners in most of the retail company’s stores. The company found itself being threatened by a class action law suit because it had broken U.
S. immigration laws that required all workers to submit social security payments and remit federal income taxes to the state governments which Wal-Mart had failed to do. The company had also failed to pay the illegal immigrants their wages because they had not registered as legal employees of the company. In its defense to these allegations, Wal-Mart claimed that it had used an outsourcing company for its cleaning activities and it was therefore not at fault. The only fault it had committed was failing to perform a thorough background check on its employees which would have helped to determine the authenticity and integrity of these employees (PBS 2005). Wal-Mart’s treatment of its employees is seen to be unacceptable because the retail giant is a non-unionized organization that does not need a third party to intervene in labor issues. It in its place uses open door strategy where employees can take their grievances directly to the management and board of directors.
This open door policy does not however address the needs of the company’s employees as they are still earning lower salaries than those of their counterparts in other retail stores. The starting salary of Wal-Mart employees is lower than that of unionized companies which forces some workers to quit by the first year. Since it is not a unionized company, it does not allow its employees to talk to any union organizations. This is seen as unethical as the National Labor Relations Act states that employees have the right to talk to union representatives (PBS 2005). The company committed an ethical malpractice when it bribed some of its employees to found out whether there were any unionized workers in its company. This was also in contravention to the National Labor Relations Act that prohibited employers from engaging in acts of bribery with their employees. This moral malpractice saw the UFC Workers raising a grievance with the NLRB against the company citing that Wal-Mart had violated the federal labor laws.
Wal-Mart denied the allegations stating it has never bribed any of its employees to report on union activities within the company. The company committed various ethical malpractices as it encouraged dishonest behavior amongst employees who were encouraged to relay information by being bribed. Another ethical issue that has affected the retail giant is the discrimination the company has against women. According to PBS (2005) women who worked in Wal-Mart had been denied the opportunity to be promoted to a more senior level as well as receive training and development opportunities. The female employees were also underpaid when compared to their male colleagues. A report published in 2001 showed that six female Wal-Mart employees had filed a sexual discrimination lawsuit against the company because Wal-Mart had blatantly infringed on the equal employment rights that women workers were entitled. The report showed that the company had a female employee base of 70 percent but only two out of the fifteen board members were women. Wal-Mart prides itself to be the America’s largest employer of women but this statement becomes untrue when the majority of management positions are occupied by men and women in the company are discriminated against.
Wal-Mart has also engaged in unethical practices that have seen it desert or abandon stores that under perform. This usually leaves behind large sized properties as most of the retail chain stores are calculated to be the size of four or five football fields. The company has left behind more than 25 million square feet of unoccupied space across various locations in America. It has been criticized for abandoning underperforming stores and also failing to sell these large properties to suitable buyers. One store in Kentucky had to be torn down after the company failed to find a buyer for the property which saw billions of taxpayers’ money going to waste (PBS 2005).
As highlighted in the essay ethical conduct in organizations has and will continue being a challenge in the corporate and business world as the global economy continues to undergo globalization.
Companies that have been unethical such as Enron have faced closure, bankruptcy, lawsuits and settlements that have amounted to billions of dollars. Companies that have been able to identify ethical malpractices have been able to rectify these issues therefore avoiding the problems that befell Enron, Sears and Beech Nut. Such incidences have forced most organizations to perform their business operations with an open eye so as to avoid ethical issues. Organizations should therefore view ethical behavior as more than a statutory obligation to comply with ethical legislation and seek ways of improving the behavior of the organization’s employees, and the society at large.
Brenkert, G., (Ed) (2004) Corporate integrity and accountability.
London: SAGE Publications. Dellaportas, S., Alagiah, R.
, Gibson, K., Leung, P., Hutchinson, M., and Van Homrigh, D., (2005) Ethics, governance and accountability: a professional perspective. Queensland, Australia: John Wiley and Sons Gini, A., and Marcoux, A.
M. (2008) Case Studies in Business Ethics. New Jersey: Pearson Education. PBS (2005) Store wars: when Wal-Mart comes to town, business practices. Available at: http://www.pbs.org/itvs/storewars/stores3.html [Accessed 2 November 2010]