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ETHICS AND DILEMAAS
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Submitted to :
Submitted By
Dr. Ambika Bhatia
Bhupinder singh
Assist. Professor MBA-2
(sem-4)
Roll no 2906
Punjabi University Regional Centre for IT& Management Mohali
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1. Inroduction
2. Salient Features Of Ethical Dilemmas
3. The Need For Ethics
4. The Nature Of Ethics
5. Ethics And The Law
6. Stakeholders And Business Ethics
7. Societal Ethics
8. Government Policies On Ethics
9. A Framework For Ethical Decision Making Recognize An Ethical Issue
10.Factors, In Helping You Deal With An Ethical Dilemma
11.Resolving Ethical Dilemmas
12.Case Study
13.Steps To Resolving An Ethical Dilemma.
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INTRODUCTION
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What is Ethics?
Ethics (also known as moral philosophy) is a branch of philosophy which seeks to address
questionsabout morality; that is, about concepts like good and bad, right and wrong, justice,
virtue, etc.
“Ethics” refers to the moral values that govern the appropriate conduct of an individual or group.
“Ethics”speaks to how we ought to live, that is, how we ought to treat others and how we ought
to run or manageour own lives.
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Simply stated, ethics refers to standards of behavior that tell us how human beings ought to act in
the many situations in which they find themselves-as friends, parents, children, citizens,
businesspeople, teachers, professionals, and so on.
Ethics refers to a system of moral principles a sense of right and wrong, and goodness and
badness of actions and the motives and consequences of these actions. As applied to business
firms, ethics is the study of good and evils, right and wrong and just and unjust actions of
businessmen. Ethics is a body of principles or standards of human conduct that govern the
behavior of individuals and groups. Ethics arise not simply from man's creation but from human
nature itself making it a natural body of laws from which man's laws follow. Ethics is a branch of
philosophy and is considered a normative science because it is concerned with the norms of
human conduct, as distinguished from formal sciences such as mathematics and logic, physical
sciences such as chemistry and physics, and empirical sciences such as economics and
psychology.
Ethics is seen as an individual’s own personal attitude and a believe concerning what is right or
wrong, good or bad. It is important to note that ethics reside within individuals and that
organization doesn’t have ethics. People have ethics. Consequently, its definition and
understanding varies from person to person. These are not absolute, but are relative. Ethical
behaviors are in the eye of beholder. What is right or wrong is a personal individual matter, but is
still influenced by socially accepted norms. Right, and proper and fair are the ethical terms. It
expresses a judgment about behavior towards people they felt to be just. Ethics are useful tools
for sorting out the good and bad components within complex human interactions. Business ethics
does not differ from generally accepted norms of good or bad practices. If dishonesty is
considers to be unethical and immoral in the society, then any business man who is dishonest his
or her employees, customer’s shareholders, or competitors is unethical and immoral person.
Businessmen should not try to evolve their own principles to justify ‘what is right and what is
wrong’. Ethics refers to accepted principles of right or wrong that govern the conduct of a
person, the members of a profession, or the actions of an organization. Business Ethics are the
accepted principles of right or wrong governing the conduct of business people. Ethical decisions
are those that are in accordance with those accepted principles of right and wrong, whereas and
unethical decision in one that violates accepted principles. This is not as straightforward as it
sounds Managers may face ethical dilemmas, which are situations where there is no agreement
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over exactly what the accepted principles of right and wrong are, or where none of the available
alternatives seems ethically acceptable
It is helpful to identify what ethics is NOT
Ethics is not the same as feelings. Feelings provide important information for our ethical
choices. Some people have highly developed habits that make them feel bad when they
do something wrong, but many people feel good even though they are doing something
wrong. And often our feelings will tell us it is uncomfortable to do the right thing if it is
hard.
Ethics is not religion. Many people are not religious, but ethics applies to everyone. Most
religions do advocate high ethical standards but sometimes do not address all the types of
problems we face.
Ethics is not following the law. A good system of law does incorporate many ethical
standards, but law can deviate from what is ethical. Law can become ethically corrupt, as
some totalitarian regimes have made it. Law can be a function of power alone and
designed to serve the interests of narrow groups. Law may have a difficult time designing
or enforcing standards in some important areas, and may be slow to address new
problems.
Ethics is not following culturally accepted norms. Some cultures are quite ethical, but
others become corrupt -or blind to certain ethical concerns (as the United States was to
slavery before the Civil War). "When in Rome, do as the Romans do" is not a satisfactory
ethical standard.
Ethics is not science. Social and natural science can provide important data to help us
make better ethical choices. But science alone does not tell us what we ought to do.
Science may provide an explanation for what humans are like. But ethics provides
reasons for how humans ought to act. And just because something is scientifically or
technologically possible, it may not be ethical to do it.
IS ETHICS JUST ABOUT HAVING THE RIGHT PRINCIPLES?
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When people respond intuitively to the question ‘What is ethics?’ they tend to identify ethics
with principles which distinguish right and wrong. And this is correct – as far as it
goes. However, the kinds of situations which demand ethical action motivated by sound ethical
principles also require a specific kind of thinking, namely ethical reflection.
d
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An Ethical dilemma is a complex situation that often involves an apparent mental conflict
between moral imperatives, in which to obey one would result in transgressing another. This is
also called an ethical paradox since in moral philosophy, paradox often plays a central role in
ethics debates. "Love your neighbour" is sometimes in contradiction to an armed rapist: if he
succeeds, you will not be able to love him. But to pre-emptively restrain them is not usually
understood as loving. This is one of the classic examples of an ethical decision clashing or
conflicting with an organismic decision, one that would be made only from the perspective of
animal survival: an animal is thought to act only in its immediate perceived bodily self-interests
when faced with bodily harm, and to have limited ability to perceive alternatives - see fight-or-
flight response.
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Ethics in business has to do with making the right choices - often there is no apparent one
right way and one must choose the best in the circumstances. Managers are sometimes
faced with business choices that create tensions between ethics and profits, or between
their private gain and the public good. Any decision where moral considerations are
relevant can potentially give rise to an ethical dilemma, for example:
• A decision that requires a choice between rules
• A decision where there is no rule, precedent or example to follow
• A decision that morally requires two or more courses of action, which are in
practice incompatible with each other.
• A decision that should be taken in one’s self-interest, but which appears to violate
a moral principle that you support.
It is the imperative to act, combined with the uncertainty of which action to take, that
causes a dilemma.
Salient Features of ethical dilemmas
• Uncertain outcomes
• Multiple choice and alternatives
• Mixed consequences
• Direct/Indirect involvement
THE NEED FOR ETHICS
If your workplace lacks ethical standards, your employer risks losing valuable employees
and customers and possibly even more. Federal laws impose heavier penalties on
employers convicted of criminal wrongdoing if they cannot prove that they’ve made
efforts to implement ethical measures to prevent and deter illegal conduct. Some of the
primary forms of employee misconduct or unethical behavior include the following:
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◆ Misrepresenting time or hours worked;
◆ Lying to supervisors;
◆ Lying to co-workers, customers, vendors, or the public;
◆ Misuse of your employer’s assets; and
◆ Lying on reports or falsifying records.
As you can see, there is a widespread need for ethics in your workplace. A code of ethics
can provide guidelines for your conduct and help improve the overall atmosphere of your
workplace. Your employer’s workplace ethics policy deters employee misconduct, avoids
conflicts of interest, helps keep you and your co-workers honest, provides you with
guidelines for resolving sensitive issues, and helps make clear that all employees are
responsible for their unethical behavior.
The Nature of Ethics
Suppose you see a person being mugged in the street. How will you behave? Will you act in
some way to help even though you risk being hurt? Will you walk away? Perhaps you might
adopt a “middle-of-the-road approach” and not intervene but call the police instead? Does the
way you act depend on whether the person being mugged is a fit male, an elderly person, or even
a street person? Does it depend on whether there are other people around, so you can tell
yourself, “Oh well, someone else will help or call the police. I don’t need to”?
Ethical Dilemmas The situation described above is an example of an ethical dilemma, the
quandary people find themselves in when they have to decide if they should act in a way that
might help another person or group, and is the “right” thing to do, even though doing so might
not be in their own self-interest. A dilemma may also arise when a person has to decide between
two different courses of action, knowing that whichever course he or she chooses will result in
harm to one person or group even though it may benefit another. The ethical dilemma here is to
decide which course of action is the “lesser of two evils.”
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People often know they are confronting an ethical dilemma when their moral scruples come into
play and cause them to hesitate, debate, and reflect upon the “rightness” or “goodness” of a
course of action. Moral scruples are thoughts and feelings that tell a person what is right or
wrong; they are a part of a person’s ethics. Ethics are the inner-guiding moral principles, values,
and beliefs people use to analyze a situation and decide what is “right.” At the same time, ethics
also indicate what inappropriate behavior is and how a person should behave to avoid doing
harm to another person. The essential problem in dealing with ethical issues, and thus solving
moral dilemmas, is that there are no absolute or indisputable rules or principles that can be
developed to decide if an action is ethical or unethical. Put simply, different people or groups
may dispute which actions are ethical or unethical Depending on their own personal self-interest
and specific attitudes, beliefs, and values. How, therefore, are we and companies and their
managers to decide what is ethical and act accordingly?
Ethics and the Law
The first answer to this question is that society as a whole, using the political and legal process,
can lobby for and pass laws that specify what people can and cannot do. In the last chapter, for
example, we examined the many different kinds of laws that exist to govern business. Laws also
specify what sanctions or punishments will follow if those laws are broken. Different groups in
society lobby for laws to be passed based on what they believe is right or wrong. Once a law is
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passed, the decision about how to behave in a certain situation moves from the personally
determined ethical realm to the socially determined legal realm. If you do not conform to the
law, you can be prosecuted and punished. Changes in Ethics over Time Neither laws nor ethics
are fixed principles cast in stone, however. Both change over time. As a society’s ethical beliefs
change, its laws change to reflect them. it was considered both ethical and legal to own slaves in
ancient Rome and Greece and in the United States until the nineteenth century. Ethical views
regarding whether slavery was morally right subsequently changed, however, and slavery was
later outlawed. In most societies today behaviors like murder, theft, slavery, and rape are
considered unacceptable and prohibited. But many other kinds of behaviors are open to dispute
when it comes to whether they are ethical or should be made illegal or not .
Some people might believe that a particular behavior such as smoking tobacco or possessing
guns is unethical and should be made illegal. Others might argue that it is up to individual people
if they want to own guns or smoke. In the United States it is, of course, illegal to possess or use
marijuana even though it has been shown to have many medical uses. Some cancer sufferers and
AIDS patients find that marijuana relieves many of the side effects of medical treatment, like
nausea and lack of appetite. Yet, in the United States, the Supreme Court has held that the federal
government can prohibit doctors from prescribing marijuana to these patients, so their suffering
goes on. By contrast in Canada there has been a widespread movement to decriminalize
marijuana, and in other countries, marijuana is perfectly legal. The point is laws can and do
change as people’s ethical beliefs change.
For example, in Britain in 1830, there were over 350 different crimes for which a person could
be executed, including sheep stealing. Today there are none. Capital punishment has been
abolished. As you can see, both ethical and legal rules are relative: No absolute standards exist to
determine how we should behave. Consequently, we frequently get caught in moral dilemmas
and are continually faced with ethical choices. It is a part of life. Companies and their managers
are no different. Some make the right choices, while others do not. In the early 2000s, a rash of
scandals occurred at major U.S. companies, including Enron, WorldCom, Tyco, Merrill Lynch,
and others. Managers in some of these companies clearly broke the law and defrauded investors.
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In other cases, managers used legal loopholes to divert hundreds of millions of dollars in
corporate money for their own use.
At WorldCom, for example, former CEO Bernie Ebbers used his position to place six of his
friends on WorldCom’s 13-member board of directors. Obviously these six people voted in favor
of Ebbers’s recommendations to the board. As a result, Ebbers received huge stock options and a
personal loan of over $150 million from WorldCom. In return, his supporters were well rewarded
for being directors. Among other perks, Ebbers allowed them to use WorldCom’s corporate jets
for a minimal fee—something that saved them hundreds of thousands of dollars each year.
Although not all of the activities Ebbers and other corporate wrongdoers engaged in were illegal,
this does not make these behaviors ethical. In many cases societies later pass laws to close the
loopholes used by unethical people, such as Ebbers and Rockefeller,who gain at the expense of
others. But ordinary people, not just corporate executives make everyday decisions in the course
of business about what is ethical and what is not. A case in point is the pirating of digital
products using the Internet, as Business in Action discusses.
Stakeholders and Business Ethics
Just as people have to work out the right and wrong ways to act, so do companies. When the law
does not specify how companies should behave, their managers must make these decisions.
Who are the people or groups affected by a company’s business decisions? If a company behaves
in an ethical way, how does this benefit people and society? Conversely, how are people harmed
by a company’s unethical actions? The people and groups affected by the way a company does
business are called its stakeholders. Stakeholders supply a company with its productive
resources. As a result, they have a claim on and stake in the company. Because stakeholders can
directly benefit or be harmed by its actions, the business ethics of a company and its managers
are important to them. Who are a company’s major stakeholders? What do they contribute to a
company, and what do they claim in return? Next we examine the claims of these stakeholders—
stockholders, managers, employees, suppliers and distributors, customers, the community, and
the nation-state.
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Stockholders
Stockholders have a claim on a company because when they buy its stock, or shares, they
become its owners. This stock grants them the right to receive some of the company’s profits in
the form of dividends. And they expect to get these dividends. In 2003, for example, Microsoft
had over $46 billion in cash on hand to fund its future operations. Under pressure from its
shareholders, Microsoft declared a dividend of 31 cents per share be paid to the owners of its 5
billion shares. (Bill Gates received $100 million in dividends based on his own personal
stockholdings.) Stockholders are interested in the way a company operates because they want to
maximize their return on their investment. Thus, they watch the company and its managers
closely to ensure they are working diligently to increase the company’s profitability.
Stockholders also want to ensure that managers are behaving ethically and not risking investors’
capital by engaging in actions that could hurt the company’s reputation and quickly bankrupt it.
Once mighty Enron took less than one year to fall after the covert Stakeholders and Business
Ethics
• Customers
• Managers
• Company
• Stockholders
• Employees
• Suppliers and
• Distributors
• Community,
• Society, and
• Nation-State
Types of Company Stakeholders stakeholders People or groups of people who supply a company
with its productive resources and thereby have an interest in how the company behaves. actions
of its top managers came to light. The Enron tragedy was brought about by a handful of greedy
top managers who abused the trust of stakeholders. A number of pension funds that had invested
heavily in Enron stock were especially hard hit, adversely affecting thousands of retirees. The
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collapse of Enron is also said to have precipitated the crash of the entire stock market in 2001,
wiping out the savings of millions of Americans.
Managers
Managers are a vital stakeholder group because they are responsible for using a company’s
financial capital and human resources to increase its profitability and stock price. Managers have
a claim on an organization because they bring to it their skills, expertise, and experience. They
have the right to expect a good return or reward by investing their human capital to improve a
company’s performance. Such rewards include good salaries and benefits, the prospect of
promotion and a career, and stock options and bonuses tied to the company’s performance. As
we discussed in Chapter 3, managers must be motivated and given incentives to work hard in the
interests of stockholders. Their behavior must also be scrutinized to ensure they do not behave
illegally or unethically and pursue goals that threaten stockholders’ (and employees’) interests.
Unfortunately, we have seen in the 2000s how easy it is for top managers to find ways to
ruthlessly pursue their self-interest at the expense of stockholders and employees because laws
and regulations were not strong enough to force them to behave ethically.
Employees
A company’s employees are the hundreds of thousands of people who work in its various
functions, like research, sales, and manufacturing. Employees expect that they will receive
rewards consistent with their performance. One principal way a company acts ethically toward
employees and meets their expectations is by creating an occupational structure that fairly and
equitably rewards them for their contributions. Companies, for example, need to develop
recruitment, training, performance appraisal, and reward systems that do not discriminate
between employees and that employees believe are fair.
Suppliers and Distributors
No company operates alone. Every company relies on a network of other companies that supply
it with the inputs it needs to operate. Companies also depend on intermediaries such as
wholesalers and retailers to distribute its products to the final customer. Suppliers expect to be
paid fairly and promptly for their inputs; distributors expect to receive quality products at agreed-
upon prices. Once again, many ethical issues arise in the way companies contract and interact
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with their suppliers and distributors. Important issues concerning how and when payments are to
be made or product quality specifications are governed by the terms of the legal contracts a
company signs with its suppliers and distributors. Many other Customers are often regarded as
the most critical stakeholders: If a company cannot persuade them to buy its products, it cannot
stay in business. Thus, managers and employees must work to increase efficiency and
effectiveness in order to create loyal customers and attract new ones. They do so by selling
customers quality products at a fair price and providing good after-sales service. They can also
strive to improve their products over time. Many laws exist that protect customers from
companies that attempt to provide dangerous or shoddy products. Laws exist that allow
customers to sue a company that produces a bad product, such as a defective tire or vehicle,
causing them harm. Other laws force companies to clearly disclose the interest rates they charge
on purchases—a cost that customers frequently do not factor into their purchase decisions. Every
year thousands of companies are prosecuted for breaking these laws, so “buyer beware” is
an important business rule customers must follow.
Community, Society, and Nation
As we have seen in previous chapters, the effects of business activity permeate all aspects of the
community, society, and nation in which it takes place. Community refers to the physical
location in which a company is located, like a city, town, or neighborhood. A community
provides a company with the physical and social infrastructure that allows it to do business; its
utilities and labor force; the homes in which its managers and employees live; the schools,
colleges, and hospitals that service their needs, and so on. Through the salaries, wages, and taxes
it pays, a company contributes to the economy of the town or region in which it operates and
often determines whether the community prospers or suffers. Similarly, a company affects the
prosperity of a society and a nation and, to the degree that a company is involved in global trade,
all of the countries in which it operates.
Although the way an individual McDonald’s restaurant operates might be of small consequence,
the combined effects of the way all McDonald’s (and other fast-food companies) do business are
enormous. In the United States alone, over 500,000 people work in the fast-food industry, and
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many thousands of suppliers like farmers, paper cup manufacturers, builders, and so on, depend
on it for their livelihood. Small wonder then, that the ethics of the fast-food business are
scrutinized closely. The industry is the major lobbyer against attempts to raise the minimum
wage, for example, because a higher minimum wage would substantially increase its operating
costs However, responding to protests about chickens raised in cages in which they cannot Move
their wings, McDonald’s—the largest egg buyer in the United States—issued new ethical
guidelines concerning cage sizes and related matters. Its egg suppliers must abide by these
guidelines if they are to retain its business. Business ethics are also important because the failure
of companies can have catastrophic effects on the communities in which they operate, and, if the
businesses are large enough, entire regions and evens nations. The decision of a large company
to pull out of a community can seriously threaten its future. Some companies attempt to improve
their profits by engaging in actions that, although not illegal, can hurt communities and nations.
One of these actions is pollution. As we discussed in the last chapter, many U.S. companies
reduce costs by trucking their waste to Mexico where it is legal to dump it in the Rio Grande.
The dumping pollutes the river from the Mexican side, and the effects are increasingly being felt
on the U.S. side, too.
Business Ethics Some companies, like Merck, Johnson & Johnson, Prudential Insurance, Fannie
Mae, and Blue Cross-Blue Shield, are well known for their ethical business practices. Other
companies, like Arthur Andersen, Enron, and WorldCom, are either out of business or struggling
to survive. What explains such differences between the business ethics of these companies and
their managers? There are four main determinants of differences in business ethics between
companies and countries: societal ethics, occupational ethics, individual ethics, and organization
al Ethics
Societal Ethics
Societal ethics are standards that govern how members of a society should deal with one another
in matters involving fairness, justice, poverty, and the rights of individuals. Societal ethics
emanate from a society’s laws, customs, and practices, and from the unwritten values and norms
that influence how people interact with each other. Most people have internalized (made a part of
their moral fabric) certain values, beliefs, and norms that specify how they should behave when
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confronted with an ethical dilemma. In other words, an “internal compass” of sorts guides their
behavior. Societal ethics vary among societies. Countries like Germany, Japan, Sweden, and
Switzerland are well known as being some of the most ethical countries in the world, with
strong values about social order and the need to create a society that protects the welfare of all
people. In other countries the situation is very different. In many economically poor countries
bribery is standard practice to get things done—such as getting a telephone installed or a contract
awarded. in the United States and other economically advanced countries, bribery is considered
unethical and is illegal.
IBM came under fire after managers in its Argentina division paid a $6 million bribe to land a
$250 million contract servicing the computers of a large, state-owned bank. IBM won the
contract, but the managers who arranged the bribe were fired. Although bribes such as these are
not necessarily illegal under Argentine law, IBM’s organizational rules forbid the practice.
Moreover, the payment of bribes violates the U.S. Foreign Corrupt Practices Act, which
prohibits U.S. companies from paying bribes in order to win contracts abroad. It also makes
companies liable for the actions of their foreign managers, and allows companies found in
violation to be prosecuted in the United States. By firing the managers, IBM signaled that it
would not tolerate unethical behavior by any of its employees, and it continues today to take a
rigorous stance toward ethical issues.
Countries also differ widely in their beliefs about appropriate treatment for their employees. In
general, the poorer a country is, the more likely employees are to be treated with little regard.
One issue of particular ethical concern that has set off protests around the world is the use of
child labor, discussed in Business in Action. Business Ethics and Social Responsibility
Ethics is the study and practice of decisions about what is good, or right. Ethics guides us when
we are wondering what we should be doing in a particular situation. Business ethics is the
application of ethics to the special problems and opportunities experienced by businesspeople.
For example, as a business manager, you might someday decide what is best for Nike and the
various people affected by decisions at Nike. Is the company doing the right thing when it
attempts to reduce costs of production by having its shoes assembled in countries where the
working conditions are very substandard compared to those in the United States? Such questions
present businesses with ethical choices, each of which has advantages and disadvantages. An
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ethical dilemma is a problem about what a firm should do for which no clear, right decision is
available. Reasonable people can expect to disagree about optimal solutions to ethical dilemmas.
For example, imagine yourself in the position of a business manager at Wells Fargo Bank. You
know that providing bank accounts for customers has costs attached to it. You want to cover
those costs by charging the customers the cost of their checking accounts. By doing so, you can
preserve the bank’s revenue for shareholders and employees of Wells Fargo. So far, the decision
seems simple. But an ethical dilemma soon appears. You learn from recent government reports
that 12 million families cannot afford to have bank accounts when they are charged a fee to
maintain one. You want to do the right thing in this situation. But what would that be? The study
of business ethics can help you resolve this dilemma by suggesting approaches you can use that
will show respect for others while maintaining a healthy business enterprise. Making these
decisions would be much easier if managers could focus only on the impact of decisions on the
firm. If, for example, a firm had as its only objective the maximization of profits, the “right
thing” to do would be the option that had the largest positive impact on the firm’s profits But
businesses operate in a community. Communities have expectations for behavior of individuals,
groups, and businesses. Different communities have different expectations of businesses. Trying
to identify what those expectations are and deciding whether to fulfill them complicate business
ethics. The community often expects firms to do much more for it than just provide a useful good
or service at a reasonable price.
For example, a community may expect firms to resist paying bribes, even when the payment of
such fees is an ordinary cost of doing business in certain global settings . The social
responsibility of business consists of the expectations that the community imposes on firms
doing business inside its borders. These expectations must be honored to a certain extent, even
when a firm wishes to ignore them, because firms are always subject to the implicit threat that
legislation will impose social obligations on them. So, if the community expects businesses to
obey certain standards of fairness even when the standards Business Law and Business Ethics
Before business managers consider the social responsibilities of firms in their communities, they
need to gather all the relevant facts. Nike’s decision about where and how to manufacture their
shoes depends on a huge array of facts: alternative costs, the legal framework in each relevant
country, the social responsibilities of firms in the various jurisdictions unemployment rates, and
levels of literacy among potential workers, just to name a few. But experienced managers know
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that assembling the facts is just the beginning of a thoughtful business decision. Next, it makes
sense to ask, Is it legal to go forward with this decision?
The legality of the decision is the minimal standard that must be met. But the existence of that
minimum standard is essential for the development of business ethics. To make this point, let’s
take a look at the growing practice of bribery in the absence of such legal standards. In some
countries businesses must pay bribes to receive legitimate supplies. Though the businessperson
may be morally opposed to paying the bribes, the supplies are necessary to stay in business and
there may be no other means of obtaining them. Thus, foreign companies face an ethical
dilemma: They must decide whether to pay bribes or find alternative sources of supplies. For
instance, when McDonald’s opened its doors in Moscow, it made arrangements to receive its
supplies from foreign providers. These arrangements ensured that the franchise did not have to
engage in questionable business practices.
ETHICS AND LAW
Laws and ethics have common aim- defining proper and improper behavior. But the two are not
quite same. Laws are the society’s attempt to formalize that is to reduce to written rules- idea
about what is right and what is wrong in various walks of like. However, it is rarely possible for
written rules to capture all the sublet variations that people give to ethics. Ethical concepts are
more complex than writing rules. Ethics deals with human dilemmas that frequently go beyond
the formal language of laws and the meanings given to legal rules. Similarities and differences
apart, legal rules help promote ethical behavior in organization. Some of the acts which seek to
ensure fair business practices in our country are the followings:
The Foreign Exchange Regulation Act, 1973, now replaced by FEMA.
The Companies Act, 1956.
The Monopolies and Restrictive Trade Practices Act, 1969.
The consumer Protection Act, 1986.
The Environment Protection Act, 1986.
The Essential Commodities Act, 1955.
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Government policies on ethics
Cultural Expression as a Human Right :- Although there is no specific mention of ‘culture’ or
‘ethnicity’, the UN Universal Declaration of Human Rights provides for the equality of
individuals, prohibits discrimination based on race/religion/language, and freedom of religion.
These protections are generally accepted to cover the right to collective protection of culture.
Cultural Expression as reflected in Social Work Ethics:- The IFSW’s Declaration of Ethical
Principles recognizes in its introduction that IFSW guidelines should be adapted to differing
cultural contexts. These principles prohibit discrimination on any basis (race, religion, language,
etc) and adhere to the UN declaration of human rights. It can be assumed that these ethics
encourage social workers to support their government’s adopting policies that fit these
principles. Government policy on cultural diversity can have a major impact on the practice of
Social Work Of course, while social workers may refer to such broad principles as the UN
Declaration of Human Rights and the IFSW Declaration of Ethical Principles when dealing with
cultural diversity, these laudable standards do not always translate into reality on the ground
level of day-to-day practice. Both individual and structural barriers may exist. Being human
themselves, social workers bring any number of biases to their work and they also practice
within the context of government policy on cultural diversity. Governments world-wide have
taken a variety of approaches to addressing cultural diversity in policy. And since social workers
often work in government regulated settings, have their profession regulated by legislation and
deal with the effects of other government policy on their ‘clients’, government policy without a
doubt is a key shaping factor of practice. If cultural rights are not being respected, government
policy will shape the recourses available to social workers and the people with whom they work.
How government policies affect the ethics
Sometimes it's easy to see when things go wrong in government: Elected officials take bribes;
candidates lie about their opponents; city officials make important public decisions in secret
meetings. Other times, the right thing is not so obvious: Should a councilmember represent the
wishes of the majority, even when he or she thinks the majority is wrong? Is it acceptable for a
governor to appoint a family member to his or her cabinet if the appointee is the best person for
the job?
Whether the ethical issues are obvious or complicated, they are easier to address if public
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servants have given some thought to the kinds of dilemmas they will confront before a crisis
occurs. The materials in this "primer" on government ethics are intended to provide elected
officials, government workers, and ordinary citizens with an introduction to the basic questions
that are likely to come up in the conduct of public business.
A Framework for Thinking Ethically
We all have an image of our better selves-of how we are when we act ethically or are "at our
best." We probably also have an image of what an ethical community, an ethical business, an
ethical government, or an ethical society should be. Ethics really has to do with all these
levelsacting ethically as individuals, creating ethical organizations and governments, and making
our society as a whole ethical in the way it treats everyone. Why Identifying Ethical Standards is
Hard There are two fundamental problems in identifying the ethical standards we are to follow:
On what do we base our ethical standards?
How do those standards get applied to specific situations we face?
If our ethics are not based on feelings, religion, law, accepted social practice, or science, what
are they based on? Many philosophers and ethicists have helped us answer this critical question.
They have suggested at least five different sources of ethical standards we should use.
Five Sources of Ethical Standards
The Utilitarian Approach
Some ethicists emphasize that the ethical action is the one that provides the most good or does
the least harm, or, to put it another way, produces the greatest balance of good over harm. The
ethical corporate action, then, is the one that produces the greatest good and does the least harm
for all who are affected-customers, employees, shareholders, the community, and the
environment. Ethical warfare balances the good achieved in ending terrorism with the harm done
to all parties through death, injuries, and destruction. The utilitarian approach deals with
consequences; it tries both to increase the good done and to reduce the harm done.
The Rights Approach
Other philosophers and ethicists suggest that the ethical action is the one that best protects and
respects the moral rights of those affected. This approach starts from the belief that humans have
a dignity based on their human nature per se or on their ability to choose freely what they do
with their lives. On the basis of such dignity, they have a right to be treated as ends and not
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merely as means to other ends. The list of moral rights -including the rights to make one's own
choices about what kind of life to lead, to be told the truth, not to be injured, to a degree of
privacy, and so on-is widely debated; some now argue that non-humans have rights, too. Also, it
is often said that rights imply duties-in particular, the duty to respect others' rights.
The Fairness or Justice Approach
Aristotle and other Greek philosophers have contributed the idea that all equals should be treated
equally. Today we use this idea to say that ethical actions treat all human beings equally-or if
unequally, then fairly based on some standard that is defensible. We pay people more based on
their harder work or the greater amount that they contribute to an organization, and say that is
fair. But there is a debate over CEO salaries that are hundreds of times larger than the pay of
others; many ask whether the huge disparity is based on a defensible standard or whether it is the
result of an imbalance of power and hence is unfair.
The Common Good Approach
The Greek philosophers have also contributed the notion that life in community is a good in itself
and our actions should contribute to that life. This approach suggests that the interlocking
relationships of society are the basis of ethical reasoning and that respect and compassion for all
others-especially the vulnerable-are requirements of such reasoning. This approach also calls
attention to the common conditions that are important to the welfare of everyone. This may be a
system of laws, effective police and fire departments, health care, a public educational system, or
even public recreational areas.
The Virtue Approach
A very ancient approach to ethics is that ethical actions ought to be consistent with certain ideal
virtues that provide for the full development of our humanity. These virtues are dispositions and
habits that enable us to act according to the highest potential of our character and on behalf of
values like truth and beauty. Honesty, courage, compassion, generosity, tolerance, love, fidelity,
integrity, fairness, self-control, and prudence are all examples of virtues. Virtue ethics asks of
any action, "What kind of person will I become if I do this?" or "Is this action consistent with my
acting at my best?"
Putting the Approaches Together
Each of the approaches helps us determine what standards of behavior can be considered ethical.
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There are still problems to be solved, however. The first problem is that we may not agree on the
content of some of these specific approaches. We may not all agree to the same set of human and
civil rights. We may not agree on what constitutes the common good. We may not even agree on
what is a good and what is a harm . The second problem is that the different approaches may not
all answer the question "What is ethical?" in the same way. Nonetheless, each approach gives us
important information with which to determine what is ethical in a particular circumstance. And
much more often than not, the different approaches do lead to similar answers.
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Making Decisions
Making good ethical decisions requires a trained sensitivity to ethical issues and a practiced
method for exploring the ethical aspects of a decision and weighing the considerations that
should impact our choice of a course of action. Having a method for ethical decision making is
absolutely essential. When practiced regularly, the method becomes so familiar that we work
through it automatically without consulting the specific steps. The more novel and difficult the
ethical choice we face, the more we need to rely on discussion and dialogue with others about the
dilemma. Only by careful exploration of the problem, aided by the insights and different
perspectives of others, can we make good ethical choices in such situations. We have found the
following framework for ethical decision making a useful method for exploring ethical dilemmas
and identifying ethical courses of action.
A Framework for Ethical Decision Making Recognize an Ethical Issue
Could this decision or situation be damaging to someone or to some group? Does this decision
involve a choice between a good and bad alternative, or perhaps between two "goods" or
between two "bads"?
Is this issue about more than what is legal or what is most efficient? If so, how?
Evaluate Alternative Actions
Evaluate the options by asking the following questions:
Which option will produce the most good and do the least harm? (The Utilitarian
Approach)
Which option best respects the rights of all who have a stake? (The Rights Approach)
Which option treats people equally or proportionately? (The Justice Approach)
Which option best serves the community as a whole, not just some members? (The
Common Good Approach)
Which option leads me to act as the sort of person I want to be? (The Virtue Approach)
Make a Decision and Test It
Considering all these approaches, which option best addresses the situation?
If I told someone I respect-or told a television audience-which option I have chosen, what
would they say?
Act and Reflect on the Outcome
How can my decision be implemented with the greatest care and attention to the concerns
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of all stakeholders?
How did my decision turn out and what have I learned from this specific situation?
There are 7 It is helpful to identify what ethics is NOT
Ethics is not the same as feelings. Feelings provide important information for our ethical
choices. Some people have highly developed habits that make them feel bad when they
do something wrong, but many people feel good even though they are doing something
wrong. And often our feelings will tell us it is uncomfortable to do the right thing if it is
hard.
Ethics is not religion. Many people are not religious, but ethics applies to everyone. Most
religions do advocate high ethical standards but sometimes do not address all the types of
problems we face.
Ethics is not following the law. A good system of law does incorporate many ethical
standards, but law can deviate from what is ethical. Law can become ethically corrupt, as
some totalitarian regimes have made it. Law can be a function of power alone and
designed to serve the interests of narrow groups. Law may have a difficult time designing
or enforcing standards in some important areas, and may be slow to address new problems.
Ethics is not following culturally accepted norms. Some cultures are quite ethical, but others
become corrupt -or blind to certain ethical concerns (as the United States was to slavery before
the Civil War). "When in Rome, do as the Romans do" is not a satisfactory ethical standard.
Ethics is not science. Social and natural science can provide important data to help us make
better ethical choices. But science alone does not tell us what we ought to do. Science may
provide an explanation for what humans are like. But ethics provides reasons for how humans
ought to act. And just because something is scientifically or technologically possible, it may not
be ethical to do it.
Factors, In Helping You Deal With An Ethical Dilemma.
1. Recognize
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2. Facts
3. Options
4. Test
5. Decide
6. Check
7. Action
Step 1: Recognizing the DilemmaA friend of mine whom I was fairly close to was
stealing office supplies from work. I noticed Karen taking computer paper, pencils, pens, etc. I
knew she was using them for personal use, not for work-related use.
This is where my dilemma came in:
Do I say something to her and risk her becoming angry?
Do I go to my boss and Karen be fired?
Do I ignore the stealing and let it continue?
I didn’t want to ruin my friendship, but I knew this was wrong.
Step 2: Get the Facts
Is she truly taking it home or what is she really doing with it after work?
Does she truly think this is immoral?
What is going on in her life to make her want to steal and not go buy her own? Is she
struggling financially?
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I started to watch her; I watched her leave from work and study what she did with the
merchandise. I started to take notes on what day and what time she took stuff.
Step 3: Identify Your Options
I could confront her about it and risk losing a friendship.
I could tell my boss about it and my friend not know I was the one who told.
I could tell my co-workers and ask them what to do, have one of them confront her.
I could ignore it.
I could put a spreadsheet by the supplies and have my co-workers record what supplies
they are taking (when and why). If the amount taken matches and each person does not
take more than necessary then I will let it go. If not, then I will report to the boss.
Step 4: Test each option: Is it legal? Is it beneficial?
Confronting her: It is legal. Will it be beneficial? I am not sure, she could decide to steal
the products when nobody else is there, end our friendship, and create a poor work
environment for both of us.
Telling my boss: It is legal. I think this would be beneficial because my boss could end it
without an argument between Karen and I.
Telling my co-workers: Legal, but I don’t think it would be beneficial. This would cause
more office drama, rumors, and bad feelings at work.
Ignoring it: Legal in a way, but ignoring it is just as bad as doing in my opinion. This
would definitely not be beneficial. Karen is doing something illegal and wrong. I saw it,
which makes me responsible to do the right thing.
Putting up an inventory sheet: Legal and beneficial, but would have to get boss’s permission.
Also, this could cause office rumors regarding the sheet (why is it up, who’s stealing, etc
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Step 5: Decide Which Option to Follow
I chose to talk to Karen; ask her what is going on and why she is doing that. She is a very kind
and honest person, why would she behave so erroneously? I will keep a close eye and keep an
eye on the supplies; make sure she quit. Make sure she isn’t fooling herself into thinking this is
okay and not a big deal. There is a TED Talk that discusses our society and why we think
cheating and stealing is okay sometimes.
Step 6: Double-check with Spotlight Questions:
How will I feel if my family finds out about my decision? They already know what is
going on and I have talked to them about it. They said I should go to my boss.
How will I feel if this is reported in the newspaper? I will feel fine. I am not ignoring it
and I am trying to tell my friend and my boss without ruining my friendship or work
atmosphere. I should tell my boss first, but I believe people are moral and honest. I think
if I confront her about it, she will burst out crying, tell me how ashamed she is, and stop
stealing.
How will I feel if my boss finds out (if Karen gets her act together and I don’t tell my boss)? I
will probably be afraid Karen will be fired and afraid I will receive disciplinary action since I did
not tell my employer first
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Step 7: Take Action
Now for the good part! I talked to Karen about her actions after work in the parking lot. We sat
down in the back of my truck and discussed why she did it. She explained she is having financial
trouble and her kids needed supplies for school and homework. I explained I would help her out
with money; I am not rich or anything, but she can’t be saving that much with stealing computer
paper. I explained that this is wrong and she can’t be doing this. I said, “You can’t be stealing
from work; they will make you pay for all the stuff you stole and fire you. You have two kids
and a husband to support. He is out of work right now and you are the bread-winner. You can’t
risk losing your job!”
She agreed and agreed not to steal again. She knew it was wrong but felt there were no other
options. She told me she would tell our boss what she did and will work extra hours
undocumented to make up for the items she stole
As you can see, this worked out fairly well for me; I was able to talk to her and she told our boss
herself. Karen was not fired, but she did have to pay for the supplies she stole. Our employer
trusted Karen to tell them how much she stole because she was up front and honest with them
about her stealing. It worked out better for all of us. There are not a lot of ethical dilemma stories
like this one, which is why I chose it!
Resolving ethical dilemmas
These case studies are compatible with the ethical codes of the CCAB member bodies, which
are derived from the Code of Ethics for Professional Accountants issued by the International
Ethics Standards Board for Accountants (IESBA).4
The case studies illustrate the application of the ‘conceptual framework’ approach to resolving
ethical dilemmas. This approach focuses on safeguarding the fundamental principles of:
• integrity,
• objectivity,
• professional competence and due care,
• confidentiality, and
• professional behaviour.
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In order to do so, it is important to be alert to situations that may threaten these fundamental
principles. Identified threats need to be evaluated and managed, to ensure that they are either
eliminated or reduced to an acceptable level. Threats may arise as a result of any of the
following:
• self-interest: the threat that a financial or other interest will inappropriately influence your
judgement or behavior
• self-review: the threat that you will not properly evaluate the results of a previous judgement
made or service performed by you (or someone else within your practice) when forming a
judgement as part of providing a current service
• advocacy: the threat that you will promote a position (usually your client’s) to the point that
your objectivity is compromised
• familiarity: the threat that, due to a long or close relationship with someone, you will be too
sympathetic to that person’s interests, or too accepting of their work
• intimidation: the threat that you will be deterred from acting objectively because of actual or
perceived pressures, including attempts to exercise undue influence over you.
When resolving an ethical conflict, consider carefully whether other parties could or should
be involved in discussions and, if appropriate, how those parties should be approached. You
should keep in mind confidentiality obligations. As a professional accountant in public
practice, you may find yourself under significant time pressure as you try to satisfy the
competing demands of your clients. You could be expected to spend less time discharging
your duties than you feel is actually required, and this could, in turn, give rise to a risk that
any ethical issues that arise will not be adequately considered.
If you are facing, or think you might be facing, an ethical dilemma, you may wish to seek
advice from a trusted colleague within your firm, your professional body or an independent
lawyer. Consider whether your actions in response to the situation and the advice obtained
are sufficiently well documented, either by way of minutes or your own records. In many
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situations, the perception of a reasonable and informed third party will be relevant to the
resolution of the dilemma, and you might be required to evidence the steps you took to
resolve the issue.
Case Study
Case Study 1 Dealing with staff performance issues
Outline of the case
A junior member of staff has just returned to work after taking special leave to care for her
elderly mother. For financial reasons she needs to work full-time. She has been having
difficulties with her mother’s home care arrangements, causing her to miss a number of team
meetings (which usually take place at the beginning of each day) and to leave work early. She is
very competent in her work but her absences are putting pressure on her and her overworked
colleagues. You are her manager, and you are aware that the flow of work through the practice is
coming under pressure. One of her male colleagues is beginning to make comments such as “a
woman’s place is in the home”, and is undermining her at every opportunity, putting her under
even greater stress.
Key fundamental principles
Integrity: You need to be fair to all those involved and act in a straightforward manner.
Confidentiality: You owe a duty of confidentiality to the staff involved.Professional behaviour:
How should you proceed so as not to discredit yourself, your profession or the practice for
which you work?
Considerations
Identify relevant facts: Consider the firm’s policies, procedures and guidelines, best practice and,
with legal assistance if required, applicable laws and regulations. Is there a staff handbook or
similar internal publication? Consider whether it is your proper role to manage this sort of staff
issue. Does the practice have a department responsible for personnel issues?
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Identify affected parties:
Key affected parties are you, the junior member of staff and her colleagues. Other affected
members of staff may be in the personnel department.Who should be involved in the resolution:
Consider not just whom you should involve but also why and when. Can your professional body
provide advice and guidance? Do you have access to appropriate staff in the personnel
department, or are you able to consult an external organisation for confidential advice? Possible
course of action Check the relevant facts. If necessary, clarify staff procedures with the personne
department. Take legal advice if required .Discuss the matter with the junior member of staff.
Possible solutions may include suggesting a more flexible approach to team meetings. Do these
always have to be in the morning? At times, working from home may be an option for the junior
member of staff .You also need to deal with the other member of staff, who needs to be reminded
about proper conduct and how such behaviour may amount to harassment and be in breach of
7the practice’s code of conduct.
Considering the issues and trying to identify a solution enables you to demonstrate that you
are behaving professionally and attempting to resolve the difficulties faced by the junior
member of staff. Throughout, you must be seen to be acting fairly – both towards the junior
member of staff, who is responsible for her mother’s care, and towards other members of
staff. Having considered all reasonable compromises, if the conclusion is reached that the junior
employee is unable to carry out the work for which she was employed, you must turn your
attention to her on-going employment within the practice. This will probably be out of your
hands, and you should deliver the relevant facts to the personnel department or the owners
of the practice. Appropriate confidentiality must be maintained at all times.
You should document, in detail, the steps that you take in resolving your dilemma, in case
your ethical judgement is challenged in the future.8
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Case Study 2 Improper accounting for sales
Outline of the case
You are one of three partners in a firm of accountants. Five years ago the firm was appointed as
external accountants to a young, successful and fast-growing company, engaged to prepare year
end accounts and tax returns. The business had started trading with a handful of employees but
now has a workforce of 200, while still remaining below the size of company requiring a
statutory audit. Due to your close relationship with the directors of the company (who are its
owners) and several of its staff, you become aware that staff purchases of goods manufactured
by the company are authorised by production managers, and then processed outside the
accounting system. The proceeds from these sales are used to fund the firm’s Christmas party.
Key fundamental principles
Integrity: Would omitting income from staff sales result in the financial statements and returns to
the tax authority being misleading? Is the practice dishonest, and what should be your
involvement?
Objectivity: In view of the trust that has built up between you and your client, and thethreat
brought about by the familiarity you have with the directors and staff of the company, how will
you maintain your objectivity when deciding on a course of action?
Professional competence and due care: You must ensure that the financial information that you
produce on behalf of your client is in accordance with technical and professional standards.
Professional behaviour: How should you act in order to protect your reputation and that of your
firm and your profession?
Considerations
Identify relevant facts:
Consider relevant accounting standards and any applicable laws and regulations. Determine the
system currently employed for controlling staff sales and funding the staff Christmas party.
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Identify affected parties:
Key affected parties are you and your firm, your client company, its directors and staff, and
users of the company’s accounts, including the tax authority.Who should be involved in the
resolution: The reputation of your firm may be vulnerable, and you should disclose this ethical
dilemma to your partners. Throughout the resolution process, you should keep your partners
informed and be alert to any possible requirement to notify your professional indemnity insurers.
It is not appropriate to discuss the matter with any of the staff of the client company, although
the directors should be informed of the issue as soon as possible, and be involved in the
resolution.9
Possible course of action
Having brought the issue to the attention of your partners, and obtained the relevant details of the
client’s system for accounting for staff sales, you should raise your concerns with the directors
of the client company. You will also have to determine whether the financial statements of
previous years are likely to be misleading and, if so, consider your responsibility (or that of your
client) to inform the relevant authorities (including the tax authority). You should strongly advise
the directors that a staff sales policy should be introduced to ensure that these sales are fully
recorded in the company’s accounting system in the future.
You should explain to the directors the implications of their actions, and that you are
safeguarding the interests of the company and its staff in advising how the situation may be
rectified. If the directors are co-operative, you should advise them of the recommended changes
to the accounting system and how they might disclose the past undisclosed income to the tax
authority. If the directors appear unwilling to change the system in respect of staff sales, you are
obliged to disassociate yourself from any involvement with the company’s financial statements,
and this will require your firm to resign as the company’s accountant. At any time, you may seek
advice from your professional body.In view of your client’s conduct, you are obliged to consider
your whistleblowing obligations, and may have to report the matter to one or more authorities.
You should document, in detail, the steps that you take in resolving your dilemma, in case
your ethical judgement is challenged in the future.10
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Case Study 3 Conflicting clients’ interests
Outline of the case
You are a sole practitioner who used to provide a range of accountancy services for a small
company (Company A) that owns a hardware shop in the town where you practise. Following a
brief retendering process, the client chose to engage an alternative firm of accountants. Both you
and the other firm had been asked to tender for a range of services, including the preparation of
year end accounts, tax compliance work, and a due diligence exercise in respect of the intended
purchase of a small hardware business in the neighbouring town. You believe that you were
unsuccessful in the tendering process on the basis of cost alone, as Company A is not very
profitable, and suffers from the competition of the other hardware business that it intends to
acquire.You are the continuity provider for another local sole practitioner. Two months ago he
suffered a heart attack, and so you are currently acting for a number of his clients. He is not
expected to resume practising for another two months.One of the clients of the incapacitated
practitioner (Company B) operates a shop selling electrical goods. The director and majority
shareholder has called you to arrange a meeting to discuss a business venture that he is
considering.
At the meeting, the client explains that he intends to make an offer for the same small hardware
business that Company A is seeking to acquire. He is aware that there is another bidder for the
business, but is unaware that it is Company A, or that Company A used to be your client.
When the meeting is over, you start to feel uneasy. You want to help Company B and provide a
valued service on behalf of the practitioner for whom you are the continuity provider. But you
realise that you are also in possession of confidential information concerning the plans of your
previous client. You are aware of Company A’s problems and its motivation for wishing to
acquire the business.
Key fundamental principles
Integrity: You must be straightforward and honest.
Confidentiality: How will you ensure that you do not use confidential information relating
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to your previous client to the advantage of Company B?
Professional behaviour: How will you safeguard your reputation and that of your profession?
Considerations
Identify relevant facts:
You have responsibilities to the practitioner for whom you are the continuity provider, and
to his clients. You may assume that the target business has a premium value to Company A,
because Company A already owns a similar business. However, this is confidential
information (which would give Company B a competitive advantage in the bidding process).
You must not breach the fundamental principle of confidentiality. In addition to your 11
professional body’s code of ethics, you should consider any applicable laws and regulations.
Identify affected parties:
Key affected parties are you, Company B (and its director), Company A (and its directors)
and the target business (and its owners). You should also consider the practitioner for
whom you are acting as continuity provider. Who should be involved in the resolution:
The issue of confidentiality is a sensitive one, and you should not involve any parties in the
resolution process without good reason. Any discussion of this ethical dilemma, in itself,
risks breaching confidentiality. The involvement of your professional body may be
particularly useful in such a situation. If the other sole practitioner is well enough, he should
be informed of the dilemma and the actions that you decide to take.
Possible course of action
You must not disclose to the director of Company B any confidential information gained
37
from your former relationship with Company A. Nor may you use the information for the
advantage of Company B or for your own personal benefit. Your problem is complicated by the
fact that you are obliged to act for certain clients under the continuity agreement. However, you
must remove (or reduce to an acceptable level) the threat to the fundamental principle of
confidentiality. This may be achieved by openly declaring the conflict to the director of
Company B. Even so, you must exercise very careful judgement when determining how much
information can or cannot be shared. In the first instance, you should evaluate the threat to the
principle of confidentiality
brought about by the conflicting interests of your current client and your previous client. In
this case, you are likely to conclude that it is significant. Even if you believe that the threat
can be managed while you assist Company B in its bid for the target business, this may not
be the perception of a reasonable and informed third party.
Therefore, you should consider declaring the conflict of interest between Company A and
Company B, and explaining that you cannot act on behalf of Company B in respect of the
proposed bid for the target business. You still have a responsibility to your previous client,
but if you need to disclose this fact to the director of Company B, you should not mention
the name of that client. Such disclosure should be documented.
If pressure is put upon you to disclose the name of the other bidder, you should resist.
Under such circumstances, it may be advisable to disengage from the client completely in
order to effectively safeguard the threat to confidentiality. This will be a measure of last
resort, as you are expected to provide continuity of service to Company B, and also act in
the interests of the practitioner who is incapacitated. You should keep the incapacitated
practitioner informed, if possible.
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In any event, you should document, in detail, the steps that you take in resolving your
dilemma, in case your ethical judgement is challenged in the future.12
Case Study 4 How much to disclose to the finance director
Outline of the case
You are a qualified accountant in practice, and you lead a team providing management
consultancy services. In recent years your practice has undertaken several assignments on
manufacturing efficiency improvements for a medium-sized, quoted group of companies. It
operates through a number of divisions, but line responsibility appears complicated, and so
significant control rests with four semi-autonomous regional directors. The authority of
these directors is enhanced by their seats on the group’s main board. You have cultivated a good
working relationship with the regional director with whom you
are in contact most frequently. Three weeks ago that regional director asked you to
investigate, as a matter of urgency, a particular project, Project A. He had been irritated to
be told, informally, of the likely deferral of the agreed delivery date for the components on
this sophisticated design-and-build contract. Project A comes within the regional director’s
responsibility primarily because of the location of the factory that makes the key
components.
Once on site, your team had discovered a range of difficulties with the project, starting with
fundamental design faults and extending deep into the manufacturing processes. It is clear
that various contracts will be breached, and litigation is likely to follow. Your team has
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produced a prioritised list of actions and begun working to establish a revised schedule to
take the project to completion.
At a recent meeting, you gave the regional director and the factory manager your estimate
that the delay to Project A will be a minimum of three months. You indicated that extra
direct costs are likely to be £7 million to £10 million. This is before any potential claims for
compensation.
On the instructions of the regional director, your team has been working on a formal report
specifying detailed recommendations. While still incomplete, the report appears certain to
support your previous estimates. You are aware, from the financial press, that the group is
rumoured to have difficulties with its bankers. You assume that the situation with Project A is
likely to be seriously detrimental to the group’s financial position.
One week before the final version of the report is due, you receive a surprise telephone call
from the group’s finance director. He explains that he is about to enter a main board
meeting, but needs to know a date for delivery of the report on Project A. Late the previous
evening, the regional director had informed the finance director that your firm had been
asked to provide the report. He says:
“I appreciate that you have only just started, so there are no reliable estimates yet. But the
regional director mentioned that Project A could incur around £4 million to £5 million in
extra costs, with income delayed by perhaps six to eight weeks. The regional director has
sent his apologies to the board meeting, as he has to attend a family funeral.”
He adds:
“Hopefully, the regional director is being cautious, but if something does turn out to be as
40
wrong with Project A as those numbers suggest, the extra costs and deferred income have
serious implications for the group’s cash flow. The full board will need to start planning 13
remedial action now. When will your report be ready?”
Key fundamental principles
Integrity: How do you maintain your professional integrity: by responding only to the
question asked or by immediately alerting the finance director and the main board to the
seriousness of the situation?
Objectivity: Does loyalty to the regional director, from whom your firm usually takes
instructions, outweigh your responsibility to the main board? If not, can you resist any
feeling of intimidation from the regional director that you may be experiencing?
Confidentiality: Confidentiality is fundamental to the assignment as a whole. But to whom
is the duty of confidentiality owed?
Professional behaviour: The information you have could assist the main board significantly
with the discharge of its duties. Whether you disclose the information now or restrict the
information you provide pending a discussion with the regional director, how can you
protect your reputation and that of your firm?
Considerations
Identify relevant facts:
You should establish why the finance director appears to have incorrect information. Is
there a mistake or misunderstanding, or some other explanation for the discrepancies in
the extra costs and the time frame? You must establish from your engagement letter to
41
whom you owe a duty of confidentiality, in order to resolve your potential conflict of
loyalty.
Identify affected parties:
Key affected parties are you, the regional director, the finance director and the board.
Indirectly, investors and other stakeholders in the group are affected, due to the group’s
recent cash flow problems. Who should be involved in the resolution:
You should involve the regional manager as early as possible, and the finance director and
the main board if necessary.
Possible course of action
You should take care not to make a hasty decision while on the telephone to the finance
director. If necessary, you should state when your report will be ready, and end the
telephone conversation, so that you may establish the facts. It should be possible to call the
finance director back later, even if that means interrupting the board meeting.
As soon as you are able, you should review the firm’s letter of engagement, which will
establish who the client is for the purpose of your duty of confidentiality. Your firm is
engaged as consultants, rather than as auditors, and if your engagement is with the division
overseen by the regional director, it could be argued that communication to the main board
is an internal matter for which you have no direct responsibility.
In the meantime, you should attempt to contact the regional director to inform him of the 14
finance director’s misunderstanding, and reconcile the conflicting estimates. You should not
take part in any deliberate attempt to mislead the main board.
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It is possible that the future of the group as a going concern could be under threat. If a
review of the engagement letter reveals that your engagement is with the main board, in
the absence of an explanation from the regional director, you should call the finance
director and explain that the report is likely to reveal estimates that are very different from
those mentioned earlier.
If the engagement is with the regional director’s group company, a duty of confidentiality is
owed to that client and, if the finance director seeks further information from you, you
should make your position clear. Nevertheless, when you are able to contact the regional
director, you should discuss with him the call you received from the finance director. If you
are then of the opinion that the regional director has deliberately misled the main board,
you should ask him to rectify the position.
If he does not, you might have a conflict of interest. You could seek advice from your
professional body. In addition, in order to determine your responsibilities (and those of the
regional director towards the main board), you may seek independent legal advice.
You should document, in detail, the steps that you take in resolving your dilemma, in case
your ethical judgement is challenged in the future
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STEPS TO RESOLVING AN ETHICAL DILEMMA.
How do you decide what to do if you are presented with an ethical dilemma? There are two
major approaches that you might draw from. One focuses on the practical consequences of your
actions (consequentalist approach) and might be summed up rather brutally by the phrase “no
harm, no foul”. In contrast, the deontological approach would lead you to ask whether an action
is, in itself, right. For example, does an action uphold a promise or demonstrate loyalty. The
essence of deontological approaches is captured by the phrase “Let justice be done though the
heavens fall.” Whilst there is an extensive record of philosophical debate about the relative
merits of these two positions, they can serve as useful starting points for complementary
strategies of coping with ethical dilemmas.
1. WHAT ARE THE OPTIONS?
• List the full range of alternative courses of action available to you.
2. CONSIDER THE CONSEQUENCES
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Think carefully about the range of positive and negative consequences associated with each of
the different paths of action before you.
• Who/what will be helped by what you do?
• Who/what will be hurt?
• What kinds of benefits and harms are involved and what are their relative values? Some things
(e.g. healthy bodies and beaches) are more valuable than others (e.g. new cars). Some harms (e.g.
a violation of trust) are more significant than others (e.g. lying in a public meeting to protect a
seal colony).
• What are the short-term and long-term implications?
Now, on the basis of your answers to these questions, which of your options produces the best
combination of benefits-maximization and harm-minimization?
3. ANALYSE THE ACTIONS
You now have to consider each of your options from a completely different perspective.
Disregard the consequences, concentrating instead on the actions and looking for that option
which seems problematic. How do the options measure up against moral principles like honesty,
fairness, equality, and recognition of social and environmental vulnerability? In the case you are
considering, is there a way to see one principle as more important than the others?
4 MAKE YOUR DECISION AND ACT WITH COMMITMENT
Now, bring together both parts of your analysis and make your informed, decision. Act on your
decision and assume responsibility for it. Be prepared to justify your choice of action. No one
else is responsible for this action but you.
5. EVALUATE THE SYSTEM
Think about the circumstances which led to the dilemma with the intention of identifying and
removing the conditions that allowed it to arise.
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Bibliography
Web sites
http://en.wikipedia.org/wiki/Ethical_dilemma
http://examples.yourdictionary.com/ethical-dilemma-examples.html
http://www.lmu.edu/Page27945.aspx
http://www.ehow.com/about_5481837_ethical-dilemma_.html
http://www.differencemakers.com/swapshop/pdf/dilemma_example
http://blog.nationmultimedia.com/print.php?id=962
http://smallbusiness.chron.com/causes-ethical-dilemma-conducting-business-23439.html
http://www.ehow.com/how_7385408_steps-follow-addressing-ethical-dilemmas.html
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