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TOPIC OVERVIEW – INTRODUCTION TO ETHICS, UNETHICAL BEHAVIOR IN
ORGANIZATIONS
1.1 Introduction
“I want employees to ask themselves whether they are willing to have any contemplated act
appear the next day on the front page of their local paper- to be read by their spouse,
children and friends – with the reporting done by an informed and critical reporter”
Warren Buffet
1.2 Learning Outcomes from the Module Outline
LO.1 Understanding the definition and differences between Ethics, Value and Business Ethics.
LO.2 Explain the nature of ethics and its application to society and businesses.
LO.3 Review Codes of Conduct and Ethics within organisations, and determine who is
responsible for administration.
1.3. Introducing ethics in the marketing framework
Ethics are standards of moral conduct. To set in an ethical fashion is to conform to an accepted
standard of moral behavior. Undoubtedly, virtually all people prefer to act ethically. It is easy
to be ethical when no hardship is involved – when a person is winning and life is going well.
The test comes when things are not going well – when pressures build. These pressures arise
in all walks of life, and marketing is no exception (Etzel et al., 1997).
Marketing executives face the challenge of balancing their own best interests (recognition, pay,
and promotion) with the best interest of their organizations, consumers and society into a
workable guide for their daily activities. In any situation, they must be able to distinguish what
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is ethical from what is unethical and act accordingly, regardless of the possible consequences
(Etzel et al., 1997).
An ethical framework
The cultural environment (or cultural forces in the external environment), the industrial
environment (the standards and nature of all competitors) and the organizational environment
(characteristics and standards of the company itself) all shape perceptions of ethical
judgements. The personal experiences of individual decision-makers also affect perceptions
and decision making.
Ethical dilemmas
Marketers constantly face ethical dilemmas. For example, should marketers advertise state
lotteries, alcohol products, or cigarettes? Should marketers remote products (such as candy) to
children that may have long-term health consequences? Should marketers pay large retailers a
kickback to obtain shelf space? Ethical dilemmas mean that conflicting viewpoints on an issue
exist (Kinnear et al., 1995).
Figure 1: Ethics and its components
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Setting Ethical Guidelines
Many organizations have formal codes of ethics that identify specific acts (bribery, accepting
gifts) as unethical and describe the standards employees are expected to live up to. Over 90%
of the 1000 largest U.S. companies have ethic. (Weisendanger, 1991) as do many smaller
businesses. These guidelines lessen the chance that an employee will knowingly or
unknowingly violate a company’s standards. In addition, ethic codes strengthen a company’s
hand in dealing with customers or prospects who encourage unethical behavior. For young or
inexperienced executives, these codes can be valuable guides, helping them resist the pressure
to compromise personal ethics in order to move up in the firm. However, every decision can
not be taken out of the hand of the manager. Furthermore, determining what is right and what
is wrong can be extremely difficult. It is not realistic for an organization to construct a twocolumn list of all possible practices, one headed ‘ethical’ and the other ‘unethical’. Rather, a
marketer must be able to evaluate a situation and formulate a response (Etzel et al.,1997).
Formal control systems are, totally or partially, designed to monitor the agency relationships
within business organizations (Jensen and Meckling, 1976). An agency relationship involves a
contract under which one or more persons (the principal) engage another person (the agent) to
perform some service on their behalf. If both parties to this relationship are utility maximizers,
it is probable the agent will not always act in the best interests of the principal. Problems arising
from agency relationships are the conflict between the desires or goals of the agent and
principal, and the costs absorbed by the principal in attempting to verify the
agent’s behaviour (Eisenhardt, 1989).
There is an ethical reasoning model that can be taught to current and future managers which is
developed by Arthur Andersen and Co.
The model expands the traditional cost-benefit analysis to include all the individuals and
groups affected, not just the decision maker’s organization, to help clarify the ethical
dimensions of a decision. The procedure consists of :
1. Identifying the decision options and the likely consequences of each.
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2. Identifying all individuals and organizations that will be positively or negatively
affected by the consequences of each option.
3. Estimating the negative impact (costs) and positive impact (benefits) of each option
from the point of view of the affected party, taking into consideration each one’s
particular interests and needs.
4. Ranking the costs and benefits of each option and making a decision.
This approach is an attempt to be systematic and logical in ethical decisions. It will work only
if the decision-maker can be objective and impartial, and if there are sufficient time and
motivation to do the required analysis. However, ethical situations are frequently charged with
emotions and decisions must be made quickly. Thus, an alternative approach that attempts to
personalize the situation may be more practical. When faced with an ethical problem, honest
answers to the following questions should indicate which route to follow:

(Etzel et al.,1997).

Figure 2: Ethics and values comparison
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1.3.1. Pragmatic reasons for behaving ethically
Marketing executives should practise ethical behavior because it is morally correct. While it is
simple and beautiful in concept, it is not sufficient motivation for everyone.
 To reverse declining public confidence in marketing. Periodically we hear about
misleading package labels, false claims in ads, phoney list prices, and infringements of
well-established trademarks. Though such practices are limited to a small proportion of
marketing, they damage the reputation of all marketers. To reverse this situation,
business leaders must demonstrate convincingly that they are aware of their ethical
responsibilities and will fulfil them. Companies must set high ethical standards and
enforce them. Moreover, it is management’s interest to be concerned with the wellbeing of consumers, since they the lifeblood of a business.
 To avoid increases in government regulation. Our economic freedoms sometimes have
a high price, just as our political freedoms do. Business apathy, resistance, or token
response to unethical behavior simply increases the probability of more government
regulation. Indeed, most governmental limitations on marketing are the result of
management’s failure to live up to its ethical responsibilities at one time or another.
Moreover, once some form of government control has been introduced, it is rarely
removed.
 To retain the power granted by society. Marketing executives wield a great deal of
social power as they influence markets and speak out on economic issues. However,
there is responsibility tied to that power. If marketers do not use them in a socially
acceptable manner, that power will be lost in the long run.

represents the marketing function. You may base your opinion of a retail store on the
behavior of a single sales clerk (Etzel et al.,1997).
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1.3.2 Public policy and ethical issues in direct marketing
Direct marketers and their customers usually enjoy mutually rewarding relationships.
Occasionally, however, a darker side emerges. The aggressive and sometimes shady tactics of
a few direct marketers can bother or harm consumers, giving the entire industry a black eye.
Abuses range from simple excesses that irritate consumers to instances of unfair practices or
even outright deception and fraud. During the past few years, the direct marketing industry has
also faced growing concerns about invasion of privacy issues.
The direct marketing industry is addressing issues of ethics and public policy. Direct marketers
know that left untended, such problems will lead to increasingly negative consumers attitudes,
lower response rates, and calls for more restrictive state and federal legislation. More
importantly, most direct marketers want the same things that consumers want: honest and welldesigned marketing offers targeted only toward consumers who will appreciate and respond to
them. Direct marketing is just too expensive to waste on consumers who don’t want it. (Kotler
and Armstrong, 2011).
Determinants of Responses to ethical dilemmas
The standards and attitudes of the firm and the value systems of decision-makers will largely
determine how ethical dilemmas will be resolved. Several questions can guide behavior:
1. Does the decision violate someone’s rights or the law?
2. Is everyone who is affected by the decision treated fairly?
3. Would you mind reading about the decision and its consequences in the newspaper?
(Kinnear et al., 1995).
Good ethics are a cornerstone of sustainable marketing. In the long run, unethical marketing
harms customers and society as a whole. Further, it eventually damages a company’s reputation
and effectiveness, jeopardizing its very survival. Thus, the sustainable marketing goals of longterm consumer and business welfare can be achieved only through ethical marketing conduct.
Conscientious marketers face many moral dilemmas. The best thing to do is often unclear.
Because not all managers have fine moral sensitivity, companies need to develop corporate
marketing ethics policies—broad guidelines that everyone in the organization must follow.
These policies should cover distributor relations, advertising standards, customer service,
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pricing, product development, and general ethical standards. The finest guidelines cannot
resolve all the difficult ethical situations the marketer faces (Kotler and Armstrong, 2011).
The power of the informal system stems from its control of behaviour in ambiguous and/or
unexpected situations. Controlling behaviour through formal rules requires the development of
specific rules for specific situations, prior to the situations occurring. Organizations can never
specify a set of written rules that will cover all possible contingencies; thus, the formal system
provides limited guidance (Ouchi, 1980).
Increasingly, companies are responding to the need to provide company policies and guidelines
to help their managers deal with questions of marketing ethics. Of course, even the best
guidelines cannot resolve all the difficult ethical decisions that individuals and firms must
make. But there are some principles from which marketers can choose. One principle states
that the free market and the legal system should decide such issues. A second and more
enlightened principle puts responsibility not on the system but in the hands of individual
companies and managers. Each firm and marketing manager must work out a philosophy of
socially responsible and ethical behavior. Under the sustainable marketing concept, managers
must look beyond what is legal and allowable and develop standards-based on personal
integrity, corporate conscience, and long-term consumer welfare. If marketers choose
immediate sales-producing actions in all these cases, their marketing behavior might well be
described as immoral or even amoral. If they refuse to go along with any of the actions, they
might be ineffective as marketing managers and unhappy because of the constant moral tension
(Kotler and Armstrong, 2011).
Thus, because moral standards provide the information needed to resolve moral issues, and are
an inherent component of the organization’s informal system, employees are most likely to
respond to forces exerted in the informal system when resolving ethical issues (Falkenberg and
Herremans, 1995). Given its dominant role, the informal system influences
what ethical conflicts are considered by members of an organization, the process by which
conflicts are resolved, and the characteristics of the resolution (Victor and Cullen, 1988).
Managers need a set of principles that will help them figure out the moral importance of each
situation and decide how far they can go with good conscience. But what principle should guide
companies and marketing managers on issues of ethics and social responsibility? One
philosophy is that the free market and the legal system should decide such issues. Under this
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principle, companies and their managers are not responsible for making moral judgments.
Companies can in good conscience do whatever the market and legal systems allow.
Companies can in good conscience do whatever the market and legal systems allow. A second
philosophy puts responsibility not on the system but in the hands of individual companies and
managers. This more enlightened philosophy suggests that a company should have a “social
conscience.” Companies and managers should apply high standards of ethics and morality
when making corporate decisions, regardless of “what the system al- lows.” History provides
an endless list of examples of company actions that were legal but highly irresponsible (Kotler
and Armstrong, 2011).
Organizations and their employees must balance a complex series of stakeholder relationships.
These stakeholder relationships go beyond the basic principal/agent relationship
identified in agency theory to such abstract issues as “appropriate use of public goods”,
“sustainable development”, “consumer rights”, and “social costs of production” (Lodge, 1975).
Each company and marketing manager must work out a philosophy of socially responsible and
ethical behavior. Under the societal marketing concept, each manager must look beyond what
is legal and allowed and develop standards based on personal integrity, corporate conscience,
and long-run consumer welfare. Dealing with issues of ethics and social responsibility in an
open and forthright way helps to build strong customer relationships based on honesty and
trust. In fact, many companies now routinely include consumers in the social responsibility
process As with environmentalism, the issue of ethics presents special challenges for
international marketers. Business standards and practices vary a great deal from one country to
the next. For example, bribes and kickbacks are illegal for U.S. firms, and a variety of treaties
against bribery and corruption have been signed and ratified by more than 60 countries. Yet
these are still standard business practices in many countries. The World Bank estimates that
bribes totalling more than $1 trillion per year are paid out worldwide. The question arises as to
whether a company must lower its ethical standards to compete effectively in countries with
lower standards. The answer is no. Companies should make a commitment to a common set of
shared standards worldwide. Still, written codes and ethics programs do not ensure ethical
behavior. Ethics and social responsibility require a total corporate commitment. They must be
a component of the overall corporate culture (Kotler and Armstrong, 2011).
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1.4 Summary
In this introductory week of the module, we have set the basis for ethics and unethical behavior
in organizations. In the following week, we will examine Sustainability and Supply Chains.
References
Eisenhardt, K., (1989), Agency Theory: An Assessment and Review, Academy of Management
Review 14, 57-74.
Etzel, J.M., Walker, J. B., Stanton, J. W., (1997), Marketing, The McGraw-Hill Companies,
Inc.
Falkenberg, L., Herremans, I., (1995), Ethical behaviours in organizations: Directed by the
formal, Journal of Business Ethics: JBE; Dordrecht Vol. 14, Iss. 2, 133.
Jensen, M. C., Meckling, H. W., (1976), Theory of the Firm: Managerial Behaviour, Agency
Costs and Ownership Structure, Journal of Financial Economics 3, 305-360.
Kinnear, C. Th., Bernardt, L. K., Krentler, A. Kethleen, (1995), Principles of Marketing,
HarperCollinsCollege Publishers.
Kotler, P., Armstrong, G., (2011), Principles of Marketing, Pearson Education.
Lodge, G. C., (1975), The New American Ideology, Knopf, New York.
Ouchi, W. G., (1977), The Relationship Between Organizational Structure
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Victor, B., Cullen, J., (1988), The Organizational Bases of Ethical Work Climates,
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Weisendanger, B., (1991), Significant trends: Doing the Right Thing, Sales and Marketing
Management.