Even if you have the best idea and the most committed employees, one stayssuccessful businesswill be a challenge every day. It's not uncommon for companies (big and small alike) to feel this pressure and wonder if there isn't an easier way. Some may choose to work harder while others turn to unethical business practices.
What is the definition of unethical business practices?
Before we look at some examples of unethical business practices, it's important to know what we're talking about. The definition of unethical business practices includes anything that falls under the minimum standards for the Business Code of Conduct. This includes all behavior that is generally considered morally wrong and leads to the abuse of people, animals or the environment.
10 Common Unethical Business Practices
Businesses have found countless ways to act unethically, but most of these acts fall into four main categories: unethical practices toward customers, unethical practices toward employees, unfair competition, and legal but unethical practices.
Unethical business practices towards customers
Businesses use unethical practices aimed at customers, hoping consumers won't notice they're being tricked. They rely on being able to make numerous sales without word getting around that they are cheating.
1. False product claims
There's a big difference between using marketing to present a product or service in the best possible light and lying outright. With traditional advertising, it's easier to monitor whether companies are using deceptive language to target customers. With digital advertising, anyone can place an ad and requires minimal supervision.
To back up the claims they make in their ads, companies can use fake reviews or ask influencers to endorse their products. The good news is that many platforms are cracking downfake reviews, Influencer posts must state that they are advertising and monitor ads more closely.
2. Hidden Terms in User Agreements
Each time you sign up for a new service or download software (including free software), you must click the "Agree" button in the User Agreement. Almost nobody reads these pages of user agreements, which can allow companies to build in some unwanted requirements. For example, you can allow a company to sell your data to third parties, or you could grant rights to your content to a social media platform.
While companies can put anything they want in these Terms of Service,Requirements that are actually not legalare unenforceable and may even lead to lawsuits.
3. Unethical accounting
Intentionally mismanaged accounts can make a business appear more profitable than it really is. This hurts investors who might buy shares in the company only to end up losing when the truth comes out.
Unethical business practices towards employees
Another way companies move forward unethically is by treating employees unfairly. This can keep costs down and increase productivity.
4. Poor working conditions
Low earners are often exposed to long hours and can be refused overtime with threats of dismissal if they do not comply. During the pandemic, the number ofEmployees forced to work in unsafe conditionshas also increased. For example, workers may lack personal protective equipment or be unable to maintain social distancing.
The situation is even worse for undocumented workers and immigrants with work visas, who fear losing their permits if they complain. Unethical companies can also take advantage of the more lax regulations in developing countries and outsource manufacturing jobs or other work to take advantage of cheap labor.
5. Sexual Harassment
Companies sometimes dismiss employee reports of sexual harassment or use gag orders to keep cases from the public (which often results in abuse going unchecked). In other cases, sexual abuse could come from the top down. The #MeToo movement has highlighted the pervasiveness of sexual harassment and abuse in the business world.
One of the biggest threats to any business are its competitors. Some companies try to gain an unfair advantage by targeting their competition through a few different types of unethical business practices.
In the digital age, it's easier than ever to spread false information. Businesses can create fake social media accounts or post anonymously on blogs or forums to spread lies about a competitor. If the user's identity is discovered, the company can face a hefty fine.
7. Misappropriation of Trade Secrets
Breaches of trade secrets can be intentional or negligent. In either case, it can provide a company with information that gives it an unfair economic advantage.
Companies can bribe government officials or industry leaders to get better deals or gain a foothold in the marketplace. The company may offer money or other items of value, e.g. B. political support or better offers for its products and services.
Legal but unethical business practices
There are some unethical business practices that are legal but morally questionable. Nothing stops companies from participating in these activities, especially if they believe their products and services are desirable enough that customers will continue to buy them anyway.
9. Sale of Customer Data
As we saw above, companies can include the right to sell customer data in their contract terms. Often this is perfectly legal, especially if the data does not contain any personally identifiable information. Typically, companies sell this data to advertisers or startups that need a database to market to.
10. Complex Securities
By making investment structures so complex that even experts have trouble deciphering them, companies can defraud investors while remaining within the law. Examples of such unethical business practices include credit default swaps, mortgage-backed securities, hedge funds and specialty investment vehicles. Typically, the company offering the investment underestimates the risk, but the risk becomes apparent later when the portfolio or pension fund funds decline.
What are the consequences of unethical business practices?
The consequences of engaging in unethical business depend on two main factors: was the practice illegal and was the business caught? If the unethical practice breaks the law, the company can be fined—often millions of dollars. Sometimes those responsible for the action are sentenced to prison terms.
Of course, if the practice is never discovered or cannot be proven, it is impossible to take legal action against the company. However, if consumers suspect wrongdoing, they can request changes from the company or launch a boycott.
Famous examples of unethical business practices
Almost every industry has at least a few examples of unethical business practices. Some of the worst offenders become major headlines.
1. Wells Fargo
There has been one massive scandal after anotherWells Fargo. In 1981, the bank was involved in one of the largest embezzlements in history. Then the company became a major player in the 2008 financial crisis with its shady mortgage practices. Shortly thereafter, Wells Fargo pressured employees to set up hidden accounts on behalf of customers to help the business bounce back. This lasted until the scheme was discovered in 2016.
2. Ferrero USA
Ferrero USA is the company behind the Nutella brand. It wasforced to pay severance payof $3.05 million after settling a class action lawsuit alleging false advertising that its chocolate spread is a nutritious choice for children.
Almost everyone is familiar with one of the most recent instances of corporate wrongdoing: theVolkswagen emissions scandal. The company admitted to installing software that manipulated emissions levels to make its cars look like they were eco-friendly.
Foxconn has been accused of violating labor rights for years. Recent leaks have shown thatThe company employs childrenalready 14 years old to work in its factories in China. The supplier delivers products to both Apple and Amazon.
Back in 2009, Coca-Cola advertised Powerade as having more electrolytes than Gatorade, Pepsi's competing energy drink. in retaliation,Pepsi has sued Coca-Colaon the grounds that his claim has no scientific basis.
Halliburton, one of the world's largest oil companies, has been charged with a series of serious crimes. These include doing business with countries with which the US government has banned trade relations, overtaxing the US Army for supplies during the 2003 Iraq war, poor waste management, sexual assault and employee exposure to hazardous chemicals.
The internet and social media in particular have given consumers a bigger voice. Many people choose to speak up about what they consider to be unethical business practices. This can cause significant damage to a company's image and affect brand loyalty. Consumers also understand that money talks — that they have the purchasing power to buy from companies they believe are ethical.
While we're still a long way from seeing an end to unethical behavior, consumer actions are starting to have more impact. Also, companies now have a new way to beat the competition: show they're the moral choice by engaging in ethical business practices.
Understanding some of the common unethical business practices should be just the beginning of your journey to becoming more ethical. You must also be familiar with the most common onesethical issues faced by companies. Finally, to put everything into action, check out our listto follow ethical business practices.
1. Pressure to Succeed. Employees may choose to act unethically based on unrealistic expectations to succeed. For example, a salesperson may make false claims to secure a deal to meet their quota.What are 2 examples of unethical business practices? ›
- Exploiting workers.
- Over-billing customers.
- Exploiting tax loopholes.
- Dumping toxins into the air or water.
- Prescribing unnecessary medical procedures.
- Covering up car defects.
- Designing phones so that users accidentally accept data charges.
- Creating fake identities.
- Misleading Consumers with False Claims. ...
- Bending Terms in User Agreements. ...
- Creating Unfair Competition. ...
- Manipulating Financial Statements. ...
- Bribing to Get a Favorable Deal. ...
- Using Customer Data Inappropriately. ...
- Spamming Email List Subscribers. ...
- Exploiting Employee Skills.
Unethical behaviour has serious consequences for both individuals and organizations. You can lose your job and reputation, organizations can lose their credibility, general morale and productivity can decline, or the behaviour can result in significant fines and/or financial loss.What is the root of unethical behavior? ›
Unethical behavior comes from different elements such as poor personal ethics, a failure to incorporate ethical issues into strategic and operational decision-making, a dysfunctional culture, and the failure of leaders to act ethically.What is the root cause of unethical behavior? ›
Psychological traps are the root causes of unethical behavior. Because they are psychological in nature, some of these traps distort perceptions of right and wrong so that one actually believes his or her unethical behavior is right.What is an example of unethical but not illegal? ›
Being unethical does not always mean remaining illegal as well. For example, if a person lies about work or a project from some other person in the workplace, it is considered unethical. Still, it is not illegal to hide some information from an individual.What are some shady business practices? ›
- False Product Claims. ...
- Hidden Terms in User Agreements. ...
- Unethical Accounting. ...
- Poor Working Conditions. ...
- Sexual Harassment. ...
- Defamation. ...
- Trade Secret Misappropriation. ...
3 Reasons for Unethical Behaviour. The researchers describe the different factors as “bad apples” (individual factors), “bad cases” (issue-specific factors) and “bad barrels” (environmental factors).What big brands are unethical? ›
- Victoria's Secret.
- L.L. Bean.
The 10 most significant risks and costs from unethical behavior: (1) Increased risk of doing business and the possibility of bankruptcy and severely damaged company brand and image. (2) Decreased productivity. (3) Increased misconduct and conflict internally.How common is unethical behavior in US organizations? ›
The Harvard Business Review article, “How Common Is Unethical Behavior in U.S. Organizations?” references a national survey conducted by the Yale Center for Emotional Intelligence with the collaboration with the Faas Foundation, which found that: 29% of U.S. employees have witnessed or experienced unethical behavior.Why is unethical business practices bad? ›
Some of the main effects of unethical behavior in business include loss of company credibility, the negative association between employees, failure to maintain a long-term relationship with consumers, and reduced employee productivity.Why do good people behave unethically? ›
Perception of unfair treatment – Good employees who feel that their efforts are not being adequately recognized or rewarded by the organization may resort to unethical behavior to retaliate for the slight, or to attain what they believe is rightly theirs.What are warning signs of unethical behavior? ›
The ERC reported that employees most often observe the following five unethical behaviors in the workplace: 1) employees misusing company time, 2) supervisors abusing subordinates, 3) employees stealing from their employers, 4) employees lying to their employers, and 5) employees violating company internet policies.Why do unethical practices still exist? ›
People behave unethically because they tend to perceive questionable behaviors exhibited by people who are similar to them — like their co-workers — to be more acceptable than those exhibited by people who they perceive as dissimilar, researchers say.Is unethical behavior is always illegal? ›
An unethical deed may be against morality but not against the law. An illegal deed is always unethical while an unethical action may or may not be illegal.Why do businesses behave unethically? ›
The vast majority of bad ethical decisions in companies tie to money in some way. In some cases, it is the desire to avoid taxes and line the pockets of internal shareholders, which can lead to a company's undoing.How do you handle unethical practices? ›
- Create a Code of Conduct. ...
- Sexual Harassmen and Bullying. ...
- Lead By Example. ...
- Reinforce Consequences. ...
- Show Employees Appreciation. ...
- Welcome an Ethics Speaker. ...
- Create Checks and Balances. ...
- Hire for Values.
Violence, harassment, bullying, theft, and fraud are examples that come to mind. But other behaviors may be less obvious—they're not ideal, but they may be more of a question of whether an employee should be terminated, disciplined, or simply warned to stop. Source: fizkes / iStock / Getty.
Misuse of Company Time
Misusing company time, whether for covering up for a person who arrived late at the workplace or modifying the attendance log, is usually the most significant unethical behavior example. It also comprises knowing a co-worker managing their business during work hours.
Toxic employees are typically overconfident, have self-centered attitudes, and are rule breakers. They tend not to cooperate with others or respect their co-workers because they're always looking out for number one, which can make them difficult people in the workplace environment where teamwork is needed most often.Is Walmart an ethical company? ›
Walmart is proud of its long-standing commitment to protecting human health and the environment. As an ethical and responsible corporate citizen, Walmart is dedicated to minimizing our environmental impact and preserving the health and safety of our associates and customers.Why is Amazon not an ethical company? ›
Amazon ethics have stolen the headlines in recent years, with complaints about the company's treatment of employees, its anti-competition practices, negative impacts on the environment and tax evasion, to name a few. Those concerns make it worth doing your online shopping somewhere else, when possible.Is Starbucks an ethical company? ›
Starbucks is an ethical company which focuses on three main areas: global human rights, equal employment opportunities, and healthcare coverage for employees.What's ethical but illegal? ›
Ethical, but Illegal
A common example of this is “whistleblowing,” or an individual's disclosure of dishonest, corrupt or illegal activity. While it may be ethical to denounce such activity, doing so may violate organizational policies and thus be considered illegal.
In severe cases of unethical misconduct, it can lead to severe legal issues that result in loss of time, large fines, and other penalties with possible jail time.What is something unethical but legal? ›
Answer and Explanation: An example of something that is legal but unethical is paying employees minimum wage without any increase over time, which leads to them struggling to manage their living expenses. An example of something illegal but ethical is driving over the speed limit.What are red flags of businesses? ›
Some common red flags that indicate trouble for companies include increasing debt-to-equity (D/E) ratios, consistently decreasing revenues, and fluctuating cash flows. Red flags can be found in the data and in the notes of a financial report.What do business owners fear the most? ›
1. Fear of failure. A fear of failure weighs heavy among new business owners, with 39% citing it as a chief concern.
Breaking promises is generally legal, but is widely thought of as unethical; Cheating on your husband or wife or boyfriend or girlfriend is legal, but unethical, though the rule against it is perhaps more honoured in the breach; …and so on.What situation is most likely to lead to unethical behavior in a business setting? ›
Some of the most common ethical challenges in international business involve poor working conditions, managing workplace diversity, handling favoritism, understanding local belief systems, dealing with local authorities, environmental concerns and corruption.Which of the following is considered as a violation of business ethics? ›
Ethics violations such as discrimination, safety violations, poor working conditions and releasing proprietary information are other examples. Situations such as bribery, forgery and theft, while certainly ethically improper, cross over into criminal activity and are often dealt with outside the company.Is Nike an unethical company? ›
Nike has been criticized for using Asian sweatshops as a source of labor. The reports of physical and verbal abuse in Nike's sweatshops astonished the general public. In addition, it was discovered that up to 50% of the factories imposed restrictions on their employees' restroom and water usage.Is Apple an ethical company? ›
Apple conducts business ethically, honestly, and in full compliance with the law. We believe that how we conduct ourselves is as critical to Apple's success as making the best products in the world.Is Nestle still unethical? ›
Nestle is known as an unethical company because of the use of child labour and manufacturing plastic bottles that are damaging the environment.What is the most common cause of ethical failure? ›
The four major factors that can cause ethical problems in the workplace are lack of integrity, organizational relationship problems, conflicts of interest, and misleading advertising.What are four serious consequences if this unethical behavior is not addressed? ›
You can lose your job and reputation, organizations can lose their credibility, general morale and productivity can decline, or the behaviour can result in significant fines and/or financial loss.What are unethical actions in today's society? ›
Cheating, deception, organizational misconduct, and many other forms of unethical behavior are among the greatest challenges in today's society. As regularly highlighted by the media, extreme cases and costly scams are common.What is the most ethical company in the US? ›
Best Buy Co., Inc. (NYSE:BBY) has been honored for the eighth time by Ethisphere in 2022 for being one of the most ethical companies in the US and in the world. It has a significantly low ESG-risk score of 14.2, indicating its commitment to social, environmental and corporate-governance causes.
The most unethical clothing companies are mainly popular multinational and e-commerce brands like Victoria's Secret, GAP, Fashion Nova, Uniqlo, Forever 21, Nike, Adidas, Disney, H&M that have been exposed to multiple unethical practices – including labor exploitation and/ or forced labor.What are the three main reasons unethical business practices happen? ›
- Poor leadership.
- Personal greed.
- Unclear company policies.
Business ethics enhances the law by outlining acceptable behaviors beyond government control. Corporations establish business ethics to promote integrity among their employees and gain trust from key stakeholders, such as investors and consumers.What drives people to make unethical choices? ›
Feeling invulnerable. People who feel a sense of power, which often comes along with wealth and fame, tend to be less likely to believe they are vulnerable to the detrimental consequences of unethical behavior. Experiencing a psychological sense of power leads to a false feeling of control.What is one common reason that people justify their behaviors when they act unethically? ›
Generally, the most common reason people justify unethical behavior is by telling themselves and others that the unethical action was to fulfill a higher purpose.