Ethical Dilemmas in Business Types & Factors | What is an Ethical Problem? – Video & Lesson Transcript | Study.com

A business demonstrates ethical behavior when its decisions and its actions embody justice, truthfulness, and fair dealing with its stakeholders. While ethics are always important, ethical issues in corporate America are of exceptional importance because of the trust consumers place in the products and services they use on a daily basis. There is an inverse relationship between ethical problems and government regulation. As a business chooses to behave ethically, the need for statutory or regulatory government intervention is lessened.

An ethical problem, often referred to as an ethical dilemma, could be described as the state in which a business must choose between behavior that is most advantageous to them or behavior that is just, fair, and morally right for stakeholders. In a free-market economy, ethical dilemmas are extremely common. This is because the economic forces that drive prices down through competition are the forces from which ethical dilemmas arise. Capitalism rewards innovation, hard work, and value by allowing businesses to engage in reasonable practices that make the most money. Ethical problems in a business environment arise when doing the right thing is mutually exclusive with the actions most advantageous to the business or person.

Ethical Dilemma Factors

In a free-market economy, regulatory agencies seek to take a hands-off approach when it comes to dictating what a business can or cannot do as they seek to turn a profit. When they do become involved, it is usually because regulation is necessary to protect the consumer and the public in general. The wide latitude afforded to businesses exists only so far as voluntary ethical behavior eliminates the need for mandatory regulations. There are four important factors to consider when evaluating ethical behavior.

• Integrity

One common factor that often plays a role in business ethics is integrity. Integrity refers to a workplace culture that is fair, equitable, honest, and just. Integrity is especially important in business because unethical behavior is not necessarily illegal.

The recession of 2008 provides an excellent example of a case in which a lack of integrity in business had far-reaching consequences. At the heart of the Great Recession was the mortgage loan industry. Specifically, sub-prime mortgages are for borrowers whose credit or financial position made securing a standard mortgage difficult or impossible. Unfortunately for many buyers, these alternative products often had extremely unfavorable terms in the form of balloon payments, adjustable interest rates, and interest-only loans. These products offered potential homebuyers very affordable monthly payments for a relatively short period of time. However, when the unfavorable terms caused a sharp increase in monthly payments, many of these borrowers lost their homes to foreclosure.

Offering these types of loan products to subprime borrowers was perfectly legal. The unfavorable terms were clearly outlined in writing as required, and no one was coerced or forced to accept these terms. However, prospective homebuyers placed an unspoken trust in their agents to make verbal representations of the most important elements of the loan. When no such representations were made, buyers had little or no knowledge about the consequences of using an alternative loan product.

For reasons like this, most organizations have an ethical code of conduct that details the expectations of the organization and its employees.

• Problematic Organizational Relationships

Employees, executives, and directors of a business all share a responsibility to promote and act in a way that prioritizes the business over personal preferences. Knowing the organization’s purpose, often found in a mission statement, is critical. All employees, directors, and executives should be able to clearly articulate the mission and evaluate their conduct in that light.