Module-II

Meaning of Ethics
The word ethics is derived from the Greek word ‘ethos,’ meaning ideals, norms,
morals, or character of an individual or a group of individuals prevailing in a society.
Therefore, ethics can be defined as a study of moral behaviour and defining what is
right and what is wrong in the behaviour of an individual by judging them on the
basis of the standards of moral conduct, expressed and established by the society in a
specific field of activity.
What is Business Ethics?
 Business ethics refers to the set of principles or standards that govern the
moral conduct of business. It is concerned with the relationship between the
techniques, practices, and objectives of an organization. Business ethics says
that businesses have to be honest with themselves and society.
 Some examples of business ethics are treating workers fairly, charging fair
prices from customers, providing good quality goods and services, earning
reasonable profits, using accurate and fair weights of the goods, etc.
 However, unethical behaviour involves corrupting public servants to get
favours, defrauding customers through misleading advertisements, providing a
false image of the business in its books of accounts and financial statements,
using the properties and assets of the business for personal use, revealing trade
secrets to competitors, etc.
Definition of Business Ethics
 According to Andrew Crane,
“Business ethics is the study of business situations, activities, and decisions where
issues of right and wrong are addressed.”
 According to Raymond C. Baumhart,
“The ethics of business is the ethics of responsibility. The business man must promise
that he will not harm knowinfly.”
 According to Wikipedia,
“Business ethics (also corporate ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a
business environment. It applies to all aspects of business conduct and is relevant to
the conduct of individuals and entire organizations.”
Importance of Business Ethics
The significance of business ethics cannot be overstated, as it holds numerous benefits
for companies, stakeholders, and society as a whole. Here are some key reasons why
business ethics is crucial:
1. Building Trust and Credibility
By adhering to ethical principles, businesses can establish trust and credibility with
their stakeholders. Consumers are increasingly conscious of the ethical practices of
companies and are more likely to support and remain loyal to organizations that align
with their values. Similarly, ethical conduct can attract and retain top talent, as
employees are often motivated by a sense of purpose and a desire to work for
companies with strong ethical foundations.
2. Long-term Sustainability
Ethical business practices contribute to the long-term sustainability of an organization.
Companies that prioritize ethical behavior are less likely to encounter legal or
reputational issues that can undermine their operations and profitability. Additionally,
by promoting environmental responsibility and corporate social responsibility,
businesses can ensure their long-term viability and positive societal impact.
3. Competitive Advantage
In an increasingly globalized and interconnected world, ethical business practices can
provide companies with a competitive advantage. Consumers and investors are more
inclined to support organizations that demonstrate a commitment to ethical behavior,
making it easier for these companies to attract and retain customers, secure
investments, and enhance their brand reputation.
4. Risk Mitigation
Unethical business practices can expose companies to significant risks, including legal
penalties, fines, litigation, and reputational damage. By prioritizing ethical conduct,
businesses can mitigate these risks and protect themselves from potential costly
consequences.
5. Positive Societal Impact
Ethical businesses contribute to the overall well-being of society by promoting fair
labor practices, environmental sustainability, and corporate social responsibility. This
positive societal impact not only enhances the reputation of the company but also
fosters a more equitable and sustainable world for all.
6. Employee Engagement and Retention
Employees are often motivated by a sense of purpose and a desire to work for
organizations that align with their personal values. By embracing ethical business
 practices, companies can foster a positive and inclusive work environment, leading to
increased employee engagement, productivity, and retention.
7. Regulatory Compliance
Many countries and industries have established laws and regulations that govern
ethical business practices. Adhering to these regulations not only ensures compliance
but also demonstrates a company’s commitment to upholding ethical standards, which
can enhance its reputation and credibility with stakeholders.
Nature of Business Ethics
The characteristics or features of business ethics are:-
 Code of conduct: Business ethics is a code of conduct. It tells what to do and what
not to do for the welfare of the society. All businessmen must follow this code of
conduct.
 Based on moral and social values: Business ethics is based on moral and social
values. It contains moral and social principles (rules) for doing business. This includes
self-control, consumer protection and welfare, service to society, fair treatment to
social groups, not to exploit others, etc.
 Gives protection to social groups: Business ethics give protection to different social
groups such as consumers, employees, small businessmen, government, shareholders,
creditors, etc.
 Provides basic framework: Business ethics provide a basic framework for doing
business. It gives the social cultural, economic, legal and other limits of business.
Business must be conducted within these limits.
 Voluntary: Business ethics must be voluntary. The businessmen must accept business
ethics on their own. Business ethics must be like self-discipline. It must not be
enforced by law.
 Requires education and guidance: Businessmen must be given proper education and
guidance before introducing business ethics. The businessmen must be motivated to
use business ethics. They must be informed about the advantages of using business
ethics. Trade Associations and Chambers of Commerce must also play an active role
in this matter.
 Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is considered
as good in one country may be taboo in another country.
Scope Of Business Ethics
 Ethics In Compliance
Various regulations govern companies in the country. All organisations must
comply with these rules failing which they will be punished with heavy
penalties. Most firms follow the rules due to fear of punishment. But companies
that have good business ethics follow the rules because of a desire to be
compliant. They follow the rules and stay updated with the latest regulations.
The management monitors all the operations in the company to ensure there is
no violation of rules in any department.
 Ethics In Finance
There are various areas in finance where companies are faced with ethical
issues. This is one area that provides ample opportunities to violate laws.
Companies with good ethics will avoid them. They will not give misleading
financial analyses or manipulate their accounts. Such organisations don’t act in
a manner in which the shareholders are cheated with wrong information or
figures. These firms don’t show fake reimbursements to reduce their tax burden.
They understand the nature of business ethics, and so avoid bribery or
kickbacks. You will not find such establishments doing overbilling.
 Ethics In Human Resources
This is one department where there are ample opportunities to violate social
values, and the HR department must ensure that this doesn’t happen. They
should make sure there is no discrimination based on caste, age, gender,
physical disabilities or appearance. Companies must also take care to prevent
sexual harassment in the workplace. Employees must be allowed to represent
their issues without fear. It is not correct for firms to shift financial risk to the
employees through performance-based salaries. Companies need to understand
the nature of business ethics and operate accordingly.
 Ethics In Marketing
This is the topic that deals with how a company markets its products. We can
see various issues in the way firms market their product with false promises or
assurances. Some companies also indulge in reducing the supply of products to
the market, thereby raising the price. The content of certain advertisements
hurts some sections of society. There are also misleading advertisements that
cheat customers into buying a product. Companies must not use children
 wrongly to promote their products. Competition in the market must also be fair
without damaging the reputation of other companies.
 Ethics In Production
This is one area where there is much ambiguity about following fair practices.
Various production practices could be dangerous to the employees. Companies
must ensure that they change technologies and machines that can cause harm to
the workers. The materials used in production must not include addictive or
disease-causing. The manufacturing process in the company must not cause
harm to the environment. A keen understanding of the nature of business
ethics is essential to avoid such practices.
Factors Influencing Business Ethics
1. Personal Code of Ethics
2. Legislation
3. Leadership
4. Government Rules and Regulations
5. Ethical Code of the Company
6. Social Pressures
7. Ethical Climate of the Industry
Now let’s discuss in detail all the above factors influencing Business Ethics.

1. Personal Code of Ethics (Individual Ethics)

A person’s personal code of ethics which is what one considers moral is the prime
responsible factor influencing his behavior.
For Example, Ratan Tata, chairman of Tata Group, is known for his personal code of
ethics that leads to the high brand value of tata group and employee satisfaction.

2. Legislation
It is already stated that the Government will intervene and enact laws only when the
businessmen become too unethical and selfish and totally ignore their responsibility to
society.
No society can tolerate such misbehavior continuously. It will certainly apply pressure
on the Government and the Government consequently has no other substitute to
prohibit such inefficient behavior of the businessmen.
 3. Leadership
If the leader leads in ethical ways and motivates the employees, so the employees will
perform in legal ways then it will be beneficial for the company and for the employees
also.
Leadership plays an important role in business ethics because the leader is a person
who can mold the organization.

4. Government Rules and Regulations

Laws support Government regulations regarding working conditions, product safety,
statutory warnings, etc. These provide some strategies to the business managers for
figuring out what is acceptable or recognized standards and practices.

5. Ethical Code & Policy of the Company

When a company grows larger, its standard of ethical conduct also rises. Any
unethical behavior or conduct on the part of the company shall endanger its
established reputation, public image, and goodwill.
Hence, most companies are very cautious in this respect. They issue-specific strategies
to their subordinates regarding the dealings of the company.

6. Social Pressures
Social forces and pressures have a considerable influence on ethics in business. If a
company supplies sub-standard products and gets involved in unethical conduct, the
consumers will become indifferent towards the company.
Such refusals shall apply pressure on the company to act honestly and stick strictly to
business ethics. Sometimes, society itself may turn against a company.
For example; family, friends, colleagues, neighbour, and the media.

7. Ethical Climate of the industry

The modern industry today is working in a more and more competitive atmosphere.
Hence only those firms, which strictly adhere to the ethical code, can retain their
position unaffected in their line of business.

The 12 ethical principles for business executives

1. HONESTY
All personnel must be committed to telling the truth in all forms of
communication and in all actions. This includes never purposely telling partial
truths, selectively omitting information, making misrepresentations or
overstatements. Honesty also means reliably sharing both good and bad news
with equal candor.
2. FAIRNES
All dealings and relationships must be founded on a conscious commitment to
fairness, treating others as you would like to be treated. Fairness requires
treating all individuals equally and courteously, never exercising power
arbitrarily and never exploiting weaknesses or mistakes for personal or
corporate benefit.
3. LEADERSHIP
Demonstrated by a conscious effort to set a positive example of ethical
behavior, leadership is a commitment to excellence through ethical decision-
making. Businesses and business executives maintain their leads by constantly
improving operational efficiency, worker satisfaction and customer approval.
4. INTEGRITY
Organizations and personnel demonstrate integrity through a consistency
between actions and words that inspires trust and credibility. Integrity also
means keeping promises, honoring commitments, meeting deadlines and
refusing to participate in unscrupulous activities or business dealings.
5. COMPASSION
Fostering a business environment of empathy and compassion requires a
commitment to being kind and caring toward all personnel, business partners
and customers. Business goals must be benevolent, ensured by spending enough
time to understand the needs and sensitivities of others, including the local
community.
6. RESPECT
Respect is demonstrated by a full commitment to the human rights, dignity,
autonomy, interests and privacy of all personnel. It means recognizing that
everyone deserves equal respect and support for sharing ideas and opinions,
without fear of any penalty or form of discrimination.
7. RESPONSIBILITY
Employees exhibit responsibility by taking full ownership of their jobs, striving
to be conscious of the emotional, financial and business consequences of their
actions. Taking their responsibilities seriously also demonstrates employee
maturity and ability to do a job without needing strict supervision.
 8. LOYALTY
Loyalty is proven by never disclosing information learned in confidence and by
remaining faithful to coworkers, clients, business partners and suppliers. Loyal
employees avoid conflicts of interest, help build and protect the good reputation
of their company and help boost the morale of their coworkers.
9. LAW-ABIDING
Organizations must fully comply with all applicable laws and codes from local,
state and federal agencies. Law-abiding businesses and personnel also adhere to
industry and trade regulations, marketplace standards and any additional
mandatory organizational policies, practices and procedures.
[Link]
Accountability requires a total commitment to the ethical quality of all
decisions, actions and relationships. High expectations for ethical behavior
drive business practices when an organization and its personnel are held
accountable to fellow employees, consumers, the local community and the
wider public in general.
[Link]
Committing to transparency requires making business information and policies
available to appropriate groups, such as financial investors, personnel and
consumers. It includes, for example, sharing criteria for price hikes, wages,
hiring, granting promotions, addressing workplace infringements and firing
employees.
[Link] CONSCIOUSNESS
Organizations and personnel demonstrate a commitment to the environment by
helping mitigate the effects of global climate change. Beneficial actions include
reducing the negative environmental impact of doing business by improving
energy efficiency to help lower carbon emissions, reducing water usage and
reducing waste.

Theories of Ethics:-

Theory of Absolutism-

Moral absolutism asserts that there are certain universal moral principles by which all
peoples’ actions may be judged. It is a form of deontology.

The challenge with moral absolutism, however, is that there will always be strong
disagreements about which moral principles are correct and which are incorrect.

For example, most people around the world probably accept the idea that we should
treat others as we wish to be treated ourselves. But beyond that, people from different
countries likely hold varying views about everything from the morality of abortion and
capital punishment to nepotism and bribery.

Moral absolutism contrasts with moral relativism, which denies that there are absolute
moral values. It also differs from moral pluralism, which urges tolerance of others’
moral principles without concluding that all views are equally valid.

So, while moral absolutism declares a universal set of moral values, in reality, moral
principles vary greatly among nations, cultures, and religions.

Theory of Relativism-

Moral relativism is the idea that there is no universal or absolute set of moral
principles. It’s a version of morality that advocates “to each her own,” and those who
follow it say, “Who am I to judge?”

Moral relativism can be understood in several ways.

Descriptive moral relativism, also known as cultural relativism, says that moral
standards are culturally defined, which is generally true. Indeed, there may be a few
values that seem nearly universal, such as honesty and respect, but many differences
appear across cultures when people evaluate moral standards around the world.

Meta-ethical moral relativism states that there are no objective grounds for preferring
the moral values of one culture over another. Societies make their moral choices based
on their unique beliefs, customs, and practices. And, in fact, people tend to believe that
the “right” moral values are the values that exist in their own culture.

Normative moral relativism is the idea that all societies should accept each other’s
differing moral values, given that there are no universal moral principles. Most
philosophers disagree however. For example, just because bribery is okay in some
cultures doesn’t mean that other cultures cannot rightfully condemn it.

Moral relativism is on the opposite end of the continuum from moral absolutism,
which says that there is always one right answer to any ethical question. Indeed, those
who adhere to moral relativism would say, “When in Rome, do as the Romans do.”

Kohlberg's Theory of Moral Development

Lawrence Kohlberg’s work was modified and expanded upon Jean Piaget’s previous
work to form a theory that explained how children develop moral reasoning. Piaget
described a two-stage process of moral development. Kohlberg extended Piaget’s
theory, proposing that moral development is a continual process that occurs
throughout the lifespan. His theory outlines six stages of moral development within
three different levels.
Kohlberg’s Theory of Moral Development – Stages of Development

Kohlberg identified three phases or levels of moral reasoning – Post-conventional,

Conventional, and Pre-conventional.

Level 1 – Pre-conventional

At the pre-conventional level we don’t have a personal code of morality. Instead, our
moral code is shaped by the standards of adults and the consequences of following or
breaking their rules.

Stage 1: Punishment- Obedience Orientation

This stage includes the use of punishment so that the person refrains from doing the
action and continues to obey the rules. For example, we follow the law because we do
not want to go to jail.

Stage 2: Instrumental Relativist Orientation

In this stage, the person is said to judge the morality of an action based on how it
satisfies the individual needs of the doer. For instance, a person steals money from
another person because he needs that money to buy food for his hungry children. In
Kohlberg’s theory, the children tend to say that this action is morally right because of
the serious need of the doer.

Level 2: Conventional

At the conventional level, we begin to internalize the moral standards of valued adult
role models.

Stage 3: Good Boy-Nice Girl Orientation

In this stage, a person judges an action based on the societal roles and social
expectations before him. This is also known as the “interpersonal relationships” phase.
For example, a child gives away her lunch to a street peasant because she thinks doing
so means being nice.

Stage 4: Law and Order Orientation/ Authority and Social Order

This stage includes respecting the authorities and following the rules, as well as doing
a person’s duty. The society is the main consideration of a person at this stage. For
instance, a policeman refuses the money offered to him under the table and arrests the
offender because he believes this is his duty as an officer of peace and order.

Level 3 – Post-conventional

Individual judgment is based on self-chosen principles, and moral reasoning is based

on individual rights and justice. According to Kohlberg this level of moral reasoning is
as far as most people get.

Stage 5: Social Contract Orientation

In this stage, the person is look at various opinions and values of different people
before coming up with the decision on the morality of the action.

Stage 6: Universal Ethical Principles Orientation

The final stage of moral reasoning, this orientation is when a person considers
universally accepted ethical principles. The judgment may become innate and may
even violate the laws and rules as the person becomes attached to his own principles of
justice.

What is an Ethical Dilemma?

An ethical dilemma (ethical paradox or moral dilemma) is a problem in the decision-

making process between two possible options, neither of which is absolutely
acceptable from an ethical perspective. Although we face many ethical and moral
problems in our lives, most of them come with relatively straightforward solutions.

On the other hand, ethical dilemmas are extremely complicated challenges that cannot
be easily solved. Therefore, the ability to find the optimal solution in such situations is
critical to everyone.

Every person may encounter an ethical dilemma in almost every aspect of their life,
including personal, social, and professional.

How to Solve an Ethical Dilemma?

The biggest challenge of an ethical dilemma is that it does not offer an obvious
solution that would comply with ethics al norms. Throughout the history of humanity,
people have faced such dilemmas, and philosophers aimed and worked to find
solutions to them.

The following approaches to solve an ethical dilemma were deduced:

  Refute the paradox (dilemma): The situation must be carefully analyzed. In
some cases, the existence of the dilemma can be logically refuted.

 Value theory approach: Choose the alternative that offers the greater good or
the lesser evil.

 Find alternative solutions: In some cases, the problem can be reconsidered,

and new alternative solutions may arise.

Examples

Some examples of ethical dilemma include:

 Taking credit for others’ work

 Offering a client a worse product for your own profit

 Utilizing inside knowledge for your own profit

Ethical Dilemmas in Business

Ethical dilemmas are especially significant in professional life, as they frequently

occur in the workplace. Some companies and professional organizations (e.g., CFA)
adhere to their own codes of conduct and ethical standards. Violation of the standards
may lead to disciplinary sanctions.

Almost every aspect of business can become a possible ground for ethical dilemmas. It
may include relationships with co-workers, management, clients, and business
partners.

People’s inability to determine the optimal solution to such dilemmas in a professional

setting may result in serious consequences for businesses and organizations. The
situation may be common in companies that value results the most.

In order to solve ethical problems, companies and organizations should develop strict
ethical standards for their employees. Every company must demonstrate its concerns
regarding the ethical norms within the organization. In addition, companies may
provide ethical training for their employees.

What is ethical decision making?

Definition

Ethical decisions inspire trust and with it fairness, responsibility and care for others.
The ethical decision making process recognizes these conditions and requires
reviewing all available options, eliminating unethical views and choosing the best
ethical alternative.

Need for ethical decision by Managers

1. Establishing Trust and Building Reputation

One of the primary reasons ethical decision making holds such significance in
business leadership is its ability to establish trust and build a strong reputation. When
leaders consistently make ethical choices, they demonstrate their commitment to
integrity and gain the trust of employees, customers, and stakeholders. This trust forms
the basis for productive relationships and enduring partnerships, fueling business
growth in the long run.

2. Guiding Organizational Culture

Effective leaders understand that their actions speak louder than words. By
consistently making ethical decisions, leaders set a positive example for their
employees and foster a culture of integrity within the organization. Ethical decision
making becomes the compass that guides employees' behavior, ensuring that the
organization operates within ethical boundaries and aligns its actions with its values.

3. Navigating Through Complex Challenges

Business leaders often face intricate challenges that require astute decision making.
Ethical decision making equips leaders with a framework to navigate through these
complexities while upholding their values. By considering the ethical implications of
their choices, leaders can make decisions that not only address immediate challenges
but also contribute to the long-term success and sustainability of the organization.

Ethics in governance practices in corporates

Ethics in corporate governance refers to the system of moral principles and values that
guides the behavior of an organization and its decision-making processes.

It encompasses the responsibilities of organizational leaders to make choices that are

not only legal but also right in terms of societal and stakeholder expectations

The Relationship Between Corporate Governance and Ethics

In business, corporate governance serves as a set of principles that guides the behavior
and actions of individuals involved in the decision-making processes.

It involves establishing structures, policies, and procedures that promote ethical

conduct and protect the interests of stakeholders.
The role of ethics in corporate governance is fundamental, as it dictates the moral
compass by which organizations operate. Ethical considerations provide the
foundation for responsible decision-making, fostering an environment of integrity,
trust, and transparency.

Corporate governance and ethics in business are inseparable, as they ensure that
organizations are not only focused on maximizing profits but also on creating long-
term value for all stakeholders.

What is Corporate Fraud?

Corporate fraud consists of illegal or unethical and deceptive actions committed either
by a company or an individual acting in their capacity as an employee of the company.
Corporate fraud schemes are often extremely complicated and, therefore, difficult to
identify. It often takes an office full of forensic accountants months to unravel a
corporate fraud scheme in its entirety.

When corporate fraud is perpetrated by the top executives of a large corporation, the
fraud often extends to billions of dollars in scale. The victims of corporate fraud are
consumers or clients, creditors, investors, other businesses, and eventually, the
company that is the source of the fraud and its employees. When it is finally
discovered, the company committing the fraud is often left in ruins and forced to
declare bankruptcy.

Much of the money illegally obtained through corporate fraud is often never
recovered, after being spent long ago by the perpetrators.

Why Does Corporate Fraud Happen?

1. The desire or perceived need to attract or retain investors

Corporate fraud commonly occurs for the same reason as any other fraud scheme –
greed. However, amid the highly competitive global business environment of the
modern world, it may also occur for other reasons. Many corporate fraud schemes
consist of fraudulent accounting schemes used to make a company appear more
profitable than it actually is. The impetus behind such schemes is the desire or
perceived need to attract or retain investors.

2. Problems or defects with a company’s products

Another cause of corporate fraud may be problems or defects with a company’s

products, which it tries to hide. Several recent corporate fraud cases have occurred
with pharmaceutical companies that attempted to hide certain side effects or dangers
associated with using certain medicines they manufactured and sold.
Government regulatory authorities, such as the Securities and Exchange Commission
(SEC) in the United States, use laws and regulations to try to prevent, detect, and
punish corporate fraud. However, fraud may go undetected for many years before it
becomes apparent to authorities, especially if the guilty company is a private company
that is not required to publicly disclose its financial records.

Examples – Major Corporate Fraud Cases

Due to the rise of so many large, multinational corporations and conglomerates,

almost all of the largest corporate fraud cases have occurred within the past five
decades. The following are some of the biggest incidences of corporate fraud on
record:

Enron

One of the most notorious cases of corporate fraud is the Enron scandal. At its height,
Enron, a major energy company, was raking in billions upon billions in profits.
However, when the company began to face declining revenues and debt troubles,
company executives hid the facts through massive accounting fraud.

In the end, both Enron and its accounting firm, Arthur Andersen, went under.
Thousands of employees lost their jobs, and Enron’s creditors and investors lost
billions.

The Enron accounting scandal is credited with resulting in the passage of

the Sarbanes-Oxley Act, which required more transparency in companies’ financial
reporting and imposed significantly harsher penalties on any company caught
committing accounting fraud.

Waste Management

Waste Management, the largest garbage and recyclables collector in the United States,
appeared to be one of the most financially sound companies in the United States in the
early 1990s. Investors eagerly bought up the company’s stock, driving its price
steadily higher.

However, when a new CEO assumed the post in 1998, he eventually discovered that,
like Enron, Waste Management previously perpetrated a multi-billion dollar
accounting fraud in an attempt to pump up its profitability numbers.

Unlike Enron, Waste Management was able, under its new leadership, to survive the
resulting scandal, penalties from the Securities and Exchange Commission (SEC), and
a multi-million dollar lawsuit by investors.
ZZZZ Best

The story of ZZZZ Best, a carpet cleaning company founded by a 15-year-old, is a

rags-to-riches-to-rags story. Within six years of the company’s founding, its
entrepreneur owner was able to take the company public, with a valuation of
approximately $300 million. There was just one problem – Barry Minkow, the founder
and owner of ZZZZ Best, had totally made up out of thin air practically all of the
company’s alleged “customers.”

Minkow was keeping the company afloat by using money acquired from new
investors to pay off previous investors – in short, engaging in a classic Ponzi scheme.
Before Minkow could generate enough business to cover his fraud tracks and
hopefully right the company’s finances, his fraud scheme was discovered.

The result was that ZZZZ Best, once an inspiring success story, went completely bust
just a few short months after the company’s initial public offering (IPO).

Wirecard

One of the more recent corporate fraud cases is that of Wirecard, a payment transfer
and processing company in Germany. In early 2020, accounting auditors discovered a
whopping $2 billion discrepancy between the company’s books and the actual money
it held.

Like many corporate fraud schemes, Wirecard’s cooking its books had apparently
been going on for several years before it was detected. Wirecard was forced to declare
bankruptcy, and its CEO was arrested by German authorities.

Wells Fargo

The fraud case of Wells Fargo revealed the danger of companies putting high-pressure
sales quotas on employees. The result of such a practice at Wells Fargo Bank led
hundreds of its employees to open fake accounts for Wells Fargo clients.

Short-term profits went up by millions, but when the widespread fraud was uncovered,
the bank’s fine imposed by the SEC ran into the billions. In addition, the bank lost
hundreds, if not thousands, of clients.
 Promoting ethical culture in business organization

“Having an organizational culture that emphasizes ethical behavior can cut down on
misbehavior of organizations. Research shows that whether an organization develops a
culture that emphasizes doing the right thing even when it is costly comes down to
whether leaders, starting with the CEO, consider the ethical consequences of their
actions. Leaders with a moral compass set the tone when it comes to ethical
dilemmas”.

Robbins and Judge (2009) offer a nice list of what management can do to create a
more ethical organizational culture. They suggest a combination of the following
practices:
1. Be a role model and be visible. Your employees look to the behavior of top
management as a model of what’s acceptable behavior in the workplace. When senior
management is observed (by subordinates) to take the ethical high road, it sends a
positive message for all employees.
2. Communicate ethical expectations. Ethical ambiguities can be reduced by creating
and disseminating an organizational code of ethics. It should state the organization’s
primary values and the ethical rules that employees are expected to follow.
Remember, however, that a code of ethics is worthless if top management fails to
model ethical behaviors.
3. Offer ethics training. Set up seminars, workshops, and similar ethical training
programs. Use these training sessions to reinforce the organization’s standards of
conduct, to clarify what practices are and are not permissible, and to address possible
ethical dilemmas.
4. Visibly reward ethical acts and punish unethical [Link] appraisals
of managers should include a point-by-point evaluation of how his or her
decisions measure up against the organization’s code of ethics. Appraisals must
include the means taken to achieve goals as well as the ends themselves. People who
act ethically should be visibly rewarded for their behavior. Just as
importantly, unethical acts should be punished.
5. Provide protective mechanisms. The organization needs to provide
formal mechanisms so that employees can discuss ethical dilemmas and
report unethical behavior without fear of reprimand. This might include creation of
ethical counselors, ombudsmen, or ethical officers.