Topic 1.6 · Business Ethics

Business Ethics

Why unethical behavior happens, how businesses encourage ethical behavior, and how leaders weigh stakeholders when facing ethical dilemmas.

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Learning objectives

1.6.AExplain how and why businesses encourage ethical behavior.
1.6.BExplain how business leaders respond to ethical dilemmas.

Objective statements © College Board, quoted from the Course and Exam Description.

Unethical behavior includes falsifying or concealing information, misusing company property and causing harm to employees or customers. It can happen at every level of a business. Incentive structures often play a role: when people are rewarded only for hitting a number, some may cut corners to get there.

How businesses encourage ethical behavior

Implementing a code of conduct
Training employees on ethical guidelines
Imposing internal repercussions for ethical violations
Modeling ethical behavior, especially from leaders

Ethics also pays off. Ethical practices attract customers and employees and build brand loyalty. How a business responds to a scandal affects its relationships, its public reputation and its profitability.

Ethical dilemmas

An ethical dilemma exists when a core value such as transparency, fairness or empathy conflicts with another value or with a business goal.

Leaders usually consider the impact on stakeholders:

Internal stakeholders	External stakeholders
Owners, managers, employees	Customers, suppliers, lenders, investors, the community, government

Key terms

Code of conduct: A written set of rules and expectations for ethical behavior within a business.
Ethical dilemma: A situation in which a core value conflicts with another core value or with business goals or practices.
Internal stakeholders: People directly involved in a business's operations and decisions, such as owners, managers and employees.
External stakeholders: People or groups not employed by the business who have an interest in its decisions, such as customers, suppliers, lenders, communities and government.
Incentive structure: The rewards and penalties that shape behavior. Poorly designed incentives can push people toward unethical choices.

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