Ethical Issues in the Functional Area

Ethical issues can arise in various functional areas of a business such as marketing, research and development, HRM, production and finance. Ethical issues in all these functional areas must be controlled or coordinated by the chief executive officer (CEO) of the enterprise.

Ethics in Marketing

Marketing is a technique that is used to attract and persuade customers. Marketing provides a way in which a product is sold to the target audience. Marketing is a management process that identifies, anticipates and supplies consumer requirements efficiently and effectively. The main aim of marketing is to make customers aware of the products and services.

It also focuses on attracting new customers and keeping existing customers interested in the product. The marketing department consists of various subdivisions, such as sales, after-sales service and marketing and research.

In the field of sales, the following ethical issues require safeguards against unethical behaviour:

• Not supplying the products made by the company as per the order
  
  
• Not accepting responsibility for the defective product
  
  
• Not giving details about the hidden costs, such as transportation cost, while making the contract with the client
  
  
• Changing the specifications of the product without giving any prior information to the customer
  
  
• Changing the terms of the business without taking any approval from the client
  
  
• Delaying the delivery of the goods without giving any proper reason
  
  
• Treating two customers differently
  
  
• Not providing the after-sales service as per the contract
  
  
• Selling the same product at different prices to different customers

Advertising and promotion provide the means for communicating with the customer. In the field of advertising and promotion, the following are examples of unethical communication practices:

• Making false commitments to the customers about the benefits of the product
  
  
• Supplying products that are different from those that are advertised
  
  
• Giving wrong prices to the customers during advertising
  
  
• Not giving the promised gift in the promotional campaign
  
  
• Hiding major flaws of the product
  
  
• Providing wrong testimonials about the product to prospective customers
  
  
• Not providing the advertised service to the customers as a part of the promotional plans
  
  
• Increasing the price of the product before starting its promotional campaign
  
  
• Making false references about the competitive products

While selling the product to the customer, a company provides some extended features or facilities along with the product, such as after-sales service. These facilities are provided to increase the sale of the product.

In the field of after-sales service, the following ethical issues require safeguards against unethical behaviour:

• Using below-standard material for the service and charging for relatively better material from the customer
  
  
• Using outmoded service equipments which can be harmful for the products during service
  
  
• Not taking the service calls if the location is not easy to reach, while free service was promised before the sale of the product
  
  
• Making only temporary adjustment in the product, which can last only for a short time or to make the product useful for the time being
  
  
• Not keeping proper service records of major products for future use, as they can help in easy diagnosis of problem
  
  
• Overbilling the service charges, when the customer is not aware of the actual rates
  
  
• Using rejected or below-standard components for customer’s temporary relief
  
  
• Refusing the service of the product due to personal reasons
  
  
• Exchanging healthy parts with below-standard parts when the product comes for servicing

Marketing research is done to find out the needs of the market, its trends and competitive activities. In the field of marketing research, the following are example of unethical behaviour:

• Research is conducted only to substantiate the viewpoint of the manager.
  
  
• Research is focused on the areas that do not need to be covered.
  
  
• Some old research is presented as the new one just for the purpose of financial gain.
  
  
• A biased research report is prepared to suit the marketing manager.
  
  
• The research report is sold to the competitor.
  
  
• The report does not include important facts.

Ethical Issues in Advertising

In the advertising field, the ethical issues include decisions on what business and market a corporate organization should enter. Another ethical issue can be the decision on what product should be provided by a corporate organization to its customers.

Though it is important that ethical standards be provided for the advertising of a particular product, it is not easy to establish common ethical standards which are agreed upon by different organizations.

According to Ferrel and Gresham, ‘There is no clear consensus about ethical conduct; that ethical standards are neither absolute nor constant; and that attempts to determine whether particular marketing activities are ethical or non-ethical cannot produce a definitive code of marketing behaviour’.

However, there is a general view also related to ethics in advertising. This view is that advertising practices, such as deceptive advertising, price fixing, holding of product test data, and falsifying research behaviour in the market are unethical practices.

In the advertising field, marketing promotion is the area where a large amount of public scrutiny takes place. Media persons report immediately any lack in ethical standards while selling products, in public relations and advertising. Organizations follow various methods that are unethical while advertising for their products and services.

These methods are:

• Ambiguity
• Concealed facts
• Exaggeration
• Psychological appeal

Ambiguity

Ambiguous advertisements are mostly deceiving for customers. Advertisements become ambiguous when they are wrongly interpreted and also with, the use of words through which organizations can avoid making direct statements. For example, you can consider the word ‘help’. This word is used by organizations to ambiguously advertise their products.

It can be used in the following ways in advertisement:

• Help us keep young
• Help you improve your complexion
• Help prevent cavities
• Help keep our house insect free

Organizations must provide clear information about products even though their advertisements can be interpreted differently by individuals. Ambiguity in advertisements can affect the health, loyalty and expectations of people who will be purchasing the product that has been advertised.

Concealed Facts

Organizations can conceal information related to a product that may result in less selling of that product thereby resulting in loss. The advertising practice of concealing facts is unethical because it, in a way, allows the exploitation of people. There are mainly two considerations regarding advertisements that force organizations to conceal facts. The first consideration is that information that will help in selling a product in the best way should be provided.

The second consideration is that the information about a product should be provided in such a manner that:

• Individuals, who will be purchasing the product do not feel that false promises have been made to them and that they have been let down.
  
  
• Advertisements related to a product are able to avoid objections from agencies that are responsible for monitoring advertising.

Organizations may conceal facts that may be important in fulfilling the needs of customers. This way the organizations may be exploiting the customers and causing serious health injuries to them. Customers may also not be able to obtain the products of their choice.

Exaggeration

Organizations may mislead the customers by providing exaggerated information in the advertisements of their products. The exaggerated information is information that is not supported by evidence. Organizations can exaggerate information in advertisements by using superlative phrases. For example, an organization manufacturing pain relief ointments, can exaggerate information by stating that a pain reliever provides extra pain relief.

The use of these superlatives may not cause any harm to customers but may be misleading sometimes. For example, if a washing powder manufacturing organization uses the phrase, ‘best loved by housewives’ then no harm may be caused to consumers of washing powders.

Psychological Appeal

A psychological appeal is the appeal made considering the emotions of customers. The main objective of psychological appeal is to persuade customers to purchase products by appealing to their emotions and not to reason. For example, consider a car advertisement which focuses on the desire of the elite class to achieve status. Similarly, a life insurance company may use emotions, such as pity and fear in its advertisement to persuade people to take insurance policies. Through psychological appeal, the organizations make promises about their product that are not fulfilled when customers buy the products.

Ethical Issues in Takeovers and Mergers

Mergers and takeovers are stimulated by the urge to diversify or to anchor the new market rather than to dominate an industry. This diversification may decrease overhead costs or protect the organization from economic descent in its actual industry. A takeover may come from within the organization with help from an external source. The primary goal of the corporate investor is profit of the shareholders, so even they may be convinced by the idea of the replacement of the top management.

There are certain events that lead to mergers:

• Lack of funds to compete with organizations with better facilities, new equipments and a large workforce.
  
  
• A growing number of competitors who have recovered from their respective economic conditions with the help of mergers and acquisitions.
  
  
• Liberalization has weakened the economy in many Indian organizations as they have not been able to adjust with the competitive market.
  
  
• Due to technological advancements, there is technical competition making it difficult to attain economies of scale and to retain skillful personnel.
  
  
• Emergence of multinationals that have substantial resources to pose a challenge to the market share of Indian organizations.

Merger Process

Every merger and takeover has certain characteristics. The merger process involves:

• The decision to consider options of merging
• Search of a suitable merger partner
• The decision to merge with a specific partner
• Making a proposal to a suitable partner
• Negotiation of merger agreements
• Formulation of implementation plans
• Accomplishing the implementation plan
• Review and evaluation

Issues during the merger process

Some organizations are not prepared to face issues and problems that come up during the merger process. They barely have a systematic and expansive process for planning and implementation due to the following reasons:

• Often, the steps taken during the merger are in response to internal and external stress. So, there is always the question of whether the merger will be able to achieve the organizational objectives.
  
  
• As average organizations do not have experience in mergers, it is tough for them to identify their problems and formulate alternatives.
  
  
• The initial problems that follow mergers mark a chain of events that affects jobs and work assignments. The top management neglects the long-term effects on relevant stakeholders under the pressure of mergers.
  
  
• Mergers lead to new organizations with new management structures, so it becomes difficult to determine directions and policies

Hostile Take-overs

Mergers and takeovers seem friendly but they are increasingly evolving into bitter conflicts. This is due to the reason that the top-level managers want to ensure that they are saved in the event of a merger. A merger can be referred to as the coming together of two organizations in their mutual interests and combining to form a large organization.

In case of a conflict, one organization takes over an unwilling partner, which is called a hostile takeover. The first group may disagree with the existing policies of the organization. Their aim would be to replace the top management with the people who share their concerns and will implement the required changes.

Sometimes, they may want to take over the management to run it efficiently and to save jobs. To prevent such discrepancies, many organizations adopt complex defensive strategies. These strategies are made keeping in view organizational laws and designed in order to wear down the potential of the aggressors. This strategy may be short-term or long term, but may sometimes weaken the financial liquidity of the organization.

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Ethics in Finance

Finance is an important element of an organization and it helps in its growth and development. Finance plays an important role in making resources available in an organization, such as man, machine, material, market and money. The finance manager of the firm is responsible for arranging the finances for the firm.

The finance manager can raise funds from the following two sources:

• Internal Sources: Internal sources means the owner’s own funds that are invested as equity in the organization. In case of small organizations, the owner’s contribution in terms of equity is low. Therefore, large amount of money is raised from external sources.
  
  
• The entrepreneur can raise finance internally from various sources:
  • Deposits and loans given by owner
  • Personal loan from provident fund and life insurance policy
  • Funds accumulated by the retention of profits
  • Ploughing back of profits
    
    
    
• External Sources: External sources means the various financial institutions from where entrepreneurs can raise funds, such as fixed capital, commercial banks and development banks. The entrepreneur can raise finance by:
  
  
• Borrowing money from friends and relatives
  
• Borrowing from financial institutions

The finance department of an enterprise is prone to the following unethical practices:

• Overestimating promoters’ capital utilization
  
  
• Overbudgeting project costs
  
  
• Using underhand tactics with the financers to gain benefits for the firm as well as for themselves
  
  
• Purchasing capital equipments at a time when there is no requirement for it
  
  
• Selling the capital equipments in order to raise additional and unaccounted funds
  
  
• Siphoning funds for the promoter’s personal benefit
  
  
• Investing unapproved funds in order to gain extra profits
  
  
• Claiming insurance cover for losses that never happened
  
  
• Overpricing the current assets in order to gain more working capital than permitted
  
  
• Using working capital funds for personal gains

The accounts department of an enterprise is prone to the following types of unethical issues:

• Showing inflated salaries and getting receipts from employees for an amount larger than what they actually get
  
  
• Playing inflated vendor bills in order to get discounts or commissions
  
  
• Paying overtime wages when there in no requirement for them
  
  
• Maintaining two different sets of books, one for the management and the other for income tax
  
  
• Refusing to reject unacceptable raw materials when the vendor bills have to be paid
  
  
• Delaying the clearance of the bills payable in order to get maximum interest for the amount to be paid
  
  
• Allotting extra travelling allowances to favourite employees
  
  
• Showing wrong figures in the monthly trial balances for personal benefits

The following are the unethical practices of the costing manager:

• Reducing manufacturing costs by manipulating work hours
  
  
• Ignoring cost of rejects
  
  
• Ignoring cost of rework
  
  
• Not accounting for man-hours lost due to strikes and absenteeism
  
  
• Not accounting for man-hours lost in maintenance work
  
  
• Not considering the work stoppages due to change in models
  
  
• Ignoring the man-hours lost due to change in the manufacturing process
  
  
• Ignoring time lost in failed experimentations
  
  
• Not taking into acccount the benefits of economies of sales and experience curve

The following points describe the unethical behaviour of the auditing manager:

• Ignoring major deviations from the budgets
  
  
• Rejecting the tender having lowest cost among all due to personal reasons
  
  
• Helping in hiding black money in order to reduce the tax payable amount
  
  
• Ignoring inflated travel bills of selected employees
  
  
• Accepting payments made by the directors for personal purchases as official payments
  
  
• Enabling the directors in sending and receiving money from overseas through unofficial hawala channels
  
  
• Approving payments to suppliers without checking bills or deliverables
  
  
• Approving the substandard construction made by the constructor and approving their bills for payment

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Ethics in HR

HRM is concerned with the management of the ‘people’ of an organization. The term HRM is used to refer to the procedures, philosophy, policies, and practices related to the management of people within an organization. HRM is an approach to bring the people and the organization together so as to achieve the desired goals. It helps in creating a relation between the management of the organization and the employees which is based on cooperation and coordination according to the designed strategy.

It is the art of promoting, developing and maintaining a competent workforce to achieve the goals of an organization in an effective manner. HRM is responsible for performing various functions like planning, organizing, directing and controlling of human resources. HRM also involves activities like procurement, development, compensation and maintenance.

The following are examples of unethical practices during the recruitment process of a company:

• Recruitment of known persons without assessing their abilities
  
  
• Recruitment on the basis of financial favours
  
  
• Recruitment of the relatives of other employees
  
  
• Recruitment based on the recommendations of friend, business associates and other persons close to the leader
  
  
• Recruitment of underqualified persons
  
  
• Recruitment of overqualified persons
  
  
• Recruitment of less acceptable men when there are better suited women available for the job.
  
  
• Employing children below fourteen years for the job
  
  
• Giving less than minimum wages fixed by the government

The training manager of the company can also indulge in unethical practices as can be seen from the following points:

• Arranging training only for favourite employees, whether they deserve it or not
  
  
• Employing outsiders for providing training to trainees even when there are several persons available inside
  
  
• Planning and organizing the training programme without even knowing the need for training
  
  
• Organizing training during peak seasons or on days when workload is very high
  
  
• Starting training programmes in an ill-prepared manner
  
  
• Extending the time of the training programme to allow the trainees to have a relaxed time
  
  
• Supplying outmoded and old training materials for the purpose of training
  
  
• Experimenting with trainees by asking them to set their own timetable for training

In the area of administration, the following are the unethical practices the manager can indulge in:

• Tampering leave records of the employees
  
  
• Giving leaves continuously to favourite employees
  
  
• Giving promotions to non-eligible persons merely on the recommendations of a friend or business associate
  
  
• Ignoring issues related to the security of the company
  
  
• Interference in various activities of the administration from the top management
  
  
• Giving the contract for uniforms of the employees to the wrong companies just for the sake of personal benefits

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Ethics in Information Technology

Information technology refers to the gathering, processing, creation, delivery and storage of information and all the processes that make all this possible. The volume of work that is handled using IT continues to increase almost everyday. Whatever be the field, one is sure to find IT at work.

Information technology is new to the world in which the clear legal environment is yet to develop, so getting benefits by using IT cannot be surely ethical or

The characteristic of IT is that it is a particular field which has no geographical boundaries but application of IT may affect culture and environment differently. The features which are acceptable in one culture may be unethical in another.

Technology Ethics

Technology ethics is a new subject. The profile of technology ethics is as follows:

• Thinking ethically about human biotechnology.
  
  
• Taking responsibility for e-wastage like environmental damage from computer and other electronic wastages.
  
  
• Employers must check whether employees are wasting time at recreational websites or sending unprofessional e-mails.
  
  
• Sometimes the invasions of piracy occurs through to use of the Internet services.

Ethical Issues

There are various ethical issues involved in information technology. In 1986, Masovi had classified ethical issues in the following four groups:

• Accessibility: It involves the right of accessing the required information as well as the true payment of charges to access the information.
  
  
• Privacy: It deals with the degree of privacy and dissemination of information about an individual.
  
  
• Property: It talks about ownership and value of information.
  
  
• Accuracy: The information which is viable and being accessed is now much more accurate and authentic.