Question: Discuss some recent examples of businesses engaging in unethical practices. Classify these practices as issues of conflict of interest, fairness and honesty, communications, or business relationships. Why do you think the businesses chose to behave unethically? What actions might the businesses have taken?
Answer:
In recent years, numerous companies have been associated with unethical practices across various sectors. Below are several prominent instances, categorized by the type of unethical behavior exhibited:
Conflict of Interest
PwC’s Role with Evergrande: In 2024, PwC incurred a fine of $62 million in China for its involvement in assisting Evergrande in hiding fraudulent activities, which resulted in a temporary halt of its operations within the country. The firm terminated 11 employees and lost key clients as a consequence. This case illustrates a conflict of interest, as PwC’s responsibilities as an auditor were compromised by its participation in the client’s fraudulent actions.
Fairness and Honesty
Evergrande’s Financial Deception: In 2024, the Chinese property developer Evergrande was accused of inflating its sales figures, exaggerating its revenues by $78 billion during 2019 and 2020. This misrepresentation misled investors and creditors regarding the company’s financial stability, resulting in substantial financial losses and eroding trust in financial disclosures.
Communications
Theranos’ Misleading Claims: Under the leadership of Elizabeth Holmes, Theranos promoted its blood-testing technology as groundbreaking, despite being aware of its ineffectiveness. This false information misled investors, patients, and the general public, leading to serious financial and health consequences.
Business Relationships
Trafigura’s Deceptive Practices: The commodities trading firm Trafigura came under scrutiny following a $1.1 billion issue in its Mongolian oil division and a $600 million nickel fraud in 2023. These events strained its relationships with lenders and raised alarms regarding the company’s risk management strategies.
Reasons for Unethical Behavior
Profit Maximization – Organizations frequently emphasize immediate financial success over enduring ethical principles. In their quest for increased revenue and enhanced shareholder value, companies may resort to dishonest practices, including financial misrepresentation or deceptive marketing strategies.
Competitive Pressure – Fierce competition within the market can compel businesses to adopt unethical practices to gain an advantage over their competitors. When the stakes involve survival or market leadership, some firms may engage in activities such as price-fixing, misleading advertising, or other forms of deception.
Weak Regulation & Oversight – In sectors characterized by insufficient regulatory enforcement, businesses may feel encouraged to violate ethical standards, operating under the belief that the likelihood of detection or facing significant repercussions is minimal. This phenomenon is particularly prevalent in emerging markets or industries with rapidly changing technologies.
Corporate Culture & Leadership – A workplace environment that emphasizes profit and performance above all else can foster unethical behavior. If senior management exhibits a lack of commitment to ethical standards, employees may feel compelled to act unethically to fulfill expectations.
Preventive Actions Businesses Can Take
Establish Strong Ethical Guidelines – Organizations should create and implement a comprehensive code of conduct that clearly defines ethical standards for employees across all levels.
Ensure Transparency in Operations – Maintaining open and honest communication with investors, customers, and stakeholders fosters trust and diminishes the likelihood of engaging in dishonest practices.
Strengthen Internal Controls & Audits – The introduction of robust compliance programs and regular audits can assist in identifying and preventing unethical behavior before it escalates.
Encourage an Ethical Corporate Culture – Companies should advocate for integrity through effective leadership, clear policies, and accountability among employees. Promoting whistleblowing and safeguarding whistleblowers can also serve as a deterrent to unethical actions.
Provide Regular Ethics Training – Offering education to employees on ethical decision-making is essential.
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