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What Are the Different Types of Problems in Business Ethics?

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  • Written By: Kenneth W. Michael Wills
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 08 August 2014
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There are a wide range of problems in business ethics. Those problems, however, are usually begin with five main concerns. In business school, students are usually taught a set of concepts that are considered core to corporate responsibility, though following these concepts creates ethical dilemmas. Such ethical dilemmas create the tension in the application of business ethics, due to inherent contradictions. Several types of problems arise from these contradictions stemming from the core corporate responsibilities to include problems with stakeholder equity, profit focus, quantitative emphasis, and accounting for externalities as well as the very interpretation of corporate responsibility.

Stakeholder equity is a problem in business ethics because managers and executives are often under pressure to place the majority of that equity with shareholders, usually at the expense of other stakeholders in the organization. For example, a corporation might be pressured to pay out millions in dividends to its shareholders in a given year, but to make that payment the corporation may need to downsize the workforce. Such a decision creates an ethical dilemma because one stakeholder is given preference over another without justification. Arguably, the workforce and shareholders contribute equally to the corporation, while both equally have a stake in the organization.

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Profit focus, therefore, often becomes the mandate among many business executives and managers. Creating sound, sustainable profit seldom produces problems in business ethics, but many businesses emphasize profit to the point that stakeholders are negatively affected. Problems of such nature are manifested in creating profits from quality reduction, creating profits through the decrease of operational expenses that result in failure to meet consumers needs, and retaining more profit by reducing employee pay and benefits or cutting some compensation measures all together. When some stakeholders profit at the expense of other stakeholders a contradiction of business ethics arises in that maximizing profit appears to encourage greed, rather than prudence, bringing into question whether even the interest of the business in served in the long term.

Quantitative emphasis also tends to create many types of problems in business ethics, since while many types of decisions can be quantified, many cannot. Costs often can be assigned and quantified, but benefits are far more subjective. Therefore, when business decisions demand a focus on quantitative data to make decisions and avoid the arduous task of considering other benefits that cannot be directly measured, ethical issues are bound to present themselves. Take for example a business tasked with deciding whether to implement a safety program. Managers and executives face the ethical dilemma of justifying an expenditure that may cut into profit or implementing a program with potential benefits for the organization of which they cannot quantify.

Externalities also present problems in business ethics, simply because figures on a balance sheet do not always tell the full story about a company. Defined as a liability that is not recorded on the business's financial records, externalities may not even be viewed, or considered, as liabilities since they do not appear on the record. Yet, liabilities can exist whether or not they are recorded. Many decisions involve externalities like environmental harm caused by production, health problems caused by lack of proper scientific research before releasing a product to market, and social problems caused by business decisions that neglect to account for social impact. Businesses that neglect to account for their actions — other than direct impact on the objective of maximizing profit for shareholders — create countless ethical dilemmas for managers and executives.

Corporate responsibility often entails actions and decisions that are in the best interest of the business. Interpretation of that mandate is of vital importance, because if the focus is strictly on generating quantitative results designed to maximize profit in the present as the best interest of the business, then the business runs the risk of forfeiting not only its own future, but the future of many, if not all, of its stakeholders. Given the ethical issues faced with contradictory mandates and external realities, managers and executives face hard questions they must not only ask, but diligently seek for the right answers. Overcoming problems in business ethics means recognizing those contradictions and understanding why they exist and how to best apply ethical solutions to minimize harm to all stakeholders — not just a select few — as well as the social environment at large.

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