13 Ethical Issues and Dilemma
13.1 What is an Ethical Issue?
An ethical issue is a situation in business that has moral implications — someone could be helped or harmed by the choice. An ethical dilemma is the harder case: a situation in which every available course of action has some morally undesirable feature. There is no clean choice, only the least bad one.
Manuel Velasquez’s working definition: an ethical dilemma exists when “two or more ethical principles point in different directions, and the decision-maker must choose which one to violate”. The accountant who discovers a senior partner inflating revenue faces such a dilemma: honesty (report it) conflicts with loyalty and job security (do not).
| Hallmark | Meaning |
|---|---|
| Conflict | Two or more values or duties conflict |
| Stakes | Real consequences for real people |
| No clean choice | Every option carries some moral cost |
- Ethical problem — a situation that needs an ethical decision; one good answer may exist.
- Ethical issue — a recurring topic with moral content (privacy, bribery, environment).
- Ethical dilemma — no clean answer; every option violates some principle.
13.2 Common Ethical Issues in Business
13.2.1 Conflict of Interest
A conflict of interest arises when a person’s private interest interferes — actually, potentially or in appearance — with their official duty. Examples: a board director who is also a vendor; a procurement officer with an undisclosed stake in a supplier; an analyst recommending a stock owned by a relative. The standard remedy is disclosure, supplemented by recusal from the affected decision.
- Actual — a present, real conflict between private and official interest.
- Potential — a foreseeable but not present conflict.
- Apparent / Perceived — no real conflict, but a reasonable observer could believe one exists.
13.2.2 Insider Trading
Trading in a listed security based on Unpublished Price-Sensitive Information (UPSI). Insider trading damages market fairness and is criminalised under the SEBI (Prohibition of Insider Trading) Regulations, 2015 in India and the Securities Exchange Act 1934 + Rule 10b-5 in the US. Penalties include disgorgement, fines, debarment and imprisonment.
::: {.callout-note title=“Who is an”insider” under SEBI 2015?“} - Connected persons — directors, employees, immediate relatives, fiduciaries. - Persons in possession of UPSI — even outsiders, if they have such information.
The 2018 amendment introduced Structured Digital Database for tracking UPSI and Code of Conduct requirements. :::
13.2.3 Bribery and Corruption
Indian law: Prevention of Corruption Act, 1988 (amended 2018) — covers both giver and taker; Companies Act 2013 prohibits bribes by company. International: US Foreign Corrupt Practices Act, 1977 (FCPA), UK Bribery Act, 2010 (extraterritorial), OECD Anti-Bribery Convention 1997, UN Convention Against Corruption (UNCAC) 2003.
A small payment to a low-level official to expedite a routine action (e.g., processing of a licence). Permitted under US FCPA but prohibited under the UK Bribery Act.
13.2.4 Discrimination and Workplace Harassment
Indian framework includes:
- Equal Remuneration Act, 1976 (now subsumed in the Code on Wages, 2019).
- Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 — “POSH Act” — mandates Internal Complaints Committee (ICC) in workplaces with 10+ employees, based on the Supreme Court’s Vishaka v. State of Rajasthan (1997) guidelines.
- Rights of Persons with Disabilities Act, 2016.
- Transgender Persons Act, 2019.
13.2.5 Whistle-blowing
A whistle-blower discloses, internally or externally, unethical or illegal conduct observed in the workplace. India’s Whistleblowers Protection Act, 2014 protects public-servant whistle-blowers. For listed companies, SEBI LODR Regulation 22 mandates a Vigil Mechanism / Whistle-blower Policy with direct access to the Chair of the Audit Committee. Topic 22 of this book treats whistle-blowing in depth.
13.2.6 Privacy and Data Ethics
Indian framework: Digital Personal Data Protection (DPDP) Act, 2023; Information Technology Act, 2000 (Section 43A — sensitive personal data); Aadhaar Act, 2016. Globally: EU GDPR (2018), California Consumer Privacy Act (CCPA, 2018).
- Marketing — deceptive advertising, dark patterns, predatory pricing, planned obsolescence.
- Finance / Accounting — earnings management, creative accounting, audit failures (Arthur Andersen → Enron, 2001; PwC → Satyam, 2009; SR Batliboi → IL&FS, 2018).
- HR — wrongful termination, surveillance, age discrimination, exploitative gig work, “wage theft”.
- Operations — sweatshops, child labour, unsafe products (Bhopal Union Carbide 1984, Maruti Manesar 2012).
- Environment — pollution, climate emissions, deforestation, water mismanagement.
- IT / AI — algorithmic bias, deepfakes, mass surveillance, electoral manipulation (Cambridge Analytica 2018).
- International — cultural relativism, child labour in supply chains, transfer pricing, tax havens.
13.3 Famous Ethical Cases — Global and Indian
| Case | Year | What happened | Lesson |
|---|---|---|---|
| Bhopal gas tragedy (Union Carbide) | 1984 | MIC gas leak; > 15 000 deaths over time | Industrial safety, corporate accountability |
| Exxon Valdez oil spill | 1989 | Alaska oil spill | Environmental ethics |
| Enron + Arthur Andersen | 2001 | Special purpose entities, audit collapse | Earnings management, auditor independence — led to Sarbanes-Oxley 2002 |
| WorldCom | 2002 | Capitalising line costs to inflate profits | Accounting fraud |
| Tylenol cyanide (Johnson & Johnson) | 1982 | 7 deaths; J&J pulled all bottles nationwide | Crisis ethics — positive case study |
| Nike sweatshops | 1990s | Asian supplier labour abuses | Supply-chain ethics |
| Satyam Computer Services | 2009 | Ramalinga Raju confessed to ₹7 800 cr fraud | “India’s Enron” — IFRS audit failure |
| Volkswagen Dieselgate | 2015 | Software cheating on emissions tests | Deceptive engineering |
| Wells Fargo fake accounts | 2016 | Bank opened 3.5 million unauthorised accounts | Toxic sales culture |
| Cambridge Analytica | 2018 | Misuse of 87 million Facebook profiles | Data privacy, electoral ethics |
| IL&FS collapse | 2018 | Defaulting NBFC; audit failure | Auditor independence, related-party transactions |
| Boeing 737 MAX (MCAS) | 2018–19 | Two crashes; 346 deaths | Safety vs cost trade-off |
| PNB / Nirav Modi | 2018 | ₹14 000 cr LoU fraud | KYC / internal controls failure |
13.4 Ethical Dilemmas — Classical and Modern
- Truth-telling vs Loyalty — the accountant who finds irregularity.
- Personal gain vs Company welfare — accepting a vendor gift.
- Justice vs Mercy — to discipline an employee strictly or with compassion.
- Short-term vs Long-term — quarterly numbers vs investment in safety.
- Individual vs Community — privacy vs public-health surveillance.
- Profit vs Principle — selling to oppressive regimes.
- Heinz dilemma — Kohlberg’s archetype: a man steals an unaffordable drug to save his dying wife.
- Trolley problem — Philippa Foot (1967), Judith Thomson (1985): divert a runaway trolley to kill one and save five.
13.4.1 The Rushworth Kidder Four Paradigms
Rushworth Kidder (How Good People Make Tough Choices, 1995) classified hard ethical dilemmas as conflicts between two rights:
| Paradigm | Conflict | Example |
|---|---|---|
| Truth vs Loyalty | Honest disclosure vs being loyal to friend / employer | Whistle-blowing on a colleague |
| Individual vs Community | One person’s interest vs the group’s | Confidential mental-health information of an employee operating heavy machinery |
| Short-term vs Long-term | Immediate need vs distant benefit | Quick layoffs vs investment in retraining |
| Justice vs Mercy | Strict equal treatment vs compassionate exception | Punishing the rule-breaker who acted under extenuating circumstances |
13.4.2 Kidder’s three resolution principles
- Ends-based (Utilitarian) — choose what does the greatest good for the greatest number.
- Rule-based (Deontological) — choose the act you would want all to follow.
- Care-based (Golden Rule) — do unto others as you would have them do unto you.
13.5 Frameworks for Ethical Decision-Making
13.5.1 Velasquez Six-Step Framework
- Identify the facts — what exactly happened?
- Identify the affected parties — who is involved, who is affected?
- Define the ethical issue — what is the moral question?
- Identify the ethical principles that apply — utility, rights, justice, care.
- List alternatives — what could be done?
- Choose the most ethical alternative that survives all four tests.
13.5.2 Laura Nash’s 12 Questions
Laura Nash (HBR, 1981) — twelve searching questions for a manager facing a hard call:
- Have you defined the problem accurately? How would the other party state it?
- Could you discuss the decision with the affected parties before deciding?
- To whom and what do you owe your loyalty as a person and as a member of the company?
- What is your intention? How does it compare with the likely outcome?
- Whom could your decision injure?
- Whose interests does the decision serve, and over whose loyalty?
- Are you confident your position will be as valid over a long period as it seems now?
- Would you disclose this decision to your boss, family, society at large?
- Could you discuss the problem with someone whose advice you trust?
- Under what conditions would you allow exceptions to your stand?
- How did this situation occur in the first place?
- What is the symbolic potential of your action if (a) understood, (b) misunderstood?
13.5.3 Tests of Ethical Decision Quality
- Front-page test (Warren Buffett): would I be comfortable seeing this decision on the front page of a national newspaper tomorrow?
- Mom test: would I be proud to tell my mother?
- Mirror test: can I look myself in the mirror?
- Long-run test: will I be proud of this in five years?
- Stakeholder impact test: who is harmed, who is benefited?
- Universalisability test (Kant): could this rule be applied to everyone?
- Reversibility test (Golden Rule): how would I feel if I were on the receiving end?
- TV test: would I be comfortable explaining this on television?
13.5.4 Other named frameworks
- PLUS Decision-Making Model (Ethics Resource Centre) — Policies, Legal, Universal, Self.
- Markkula Center’s Five-Lens Framework (Santa Clara University) — Utilitarian · Rights · Justice · Common-good · Virtue lenses.
- Tucker’s 5-Question Model — Profitable? Legal? Fair? Right? Sustainable?
- AMA Three-Step Model (American Management Association) — Define the problem; Generate alternatives; Evaluate by ethical principles.
13.6 Code of Ethics / Code of Conduct
A code of ethics is a formal document of an organisation’s values and behavioural standards. India: companies must adopt a code under Schedule IV of the Companies Act 2013 (for independent directors) and SEBI LODR Regulation 17 / 26 (for board and senior management).
- Statement of purpose / values
- Standards of personal conduct (honesty, fairness)
- Conflict of interest rules
- Confidential information handling
- Insider trading prohibitions
- Anti-bribery / corruption policy
- Gifts and entertainment limits
- Workplace harassment policy
- Whistle-blower mechanism
- Use of company resources
- Reporting and enforcement procedures
- Periodic affirmation by employees
The world’s largest corporate sustainability initiative, launched in 2000 by Kofi Annan. Ten principles covering Human Rights (1–2), Labour (3–6), Environment (7–9) and Anti-Corruption (10). Voluntary participation.
13.7 Indian Ethical Frameworks and Anti-Corruption Bodies
| Body | Year | Role |
|---|---|---|
| Central Vigilance Commission (CVC) | 1964 | Apex integrity institution for the central government |
| Central Bureau of Investigation (CBI) | 1963 | Investigates corruption + serious crimes |
| Lokpal of India | 2014 (Act 2013) | Anti-corruption ombudsman for central public servants |
| Lokayuktas | state-level | State-level anti-corruption ombudsmen |
| Serious Fraud Investigation Office (SFIO) | 2003 | Investigates corporate fraud under Companies Act |
| Enforcement Directorate (ED) | 1956 | Enforces FEMA, PMLA |
13.8 Practice Questions
An ethical dilemma is best described as a situation in which:
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A board director is also a vendor to the company. The standard ethical remedy is:
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In India, insider trading is regulated under:
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A "facilitation payment" — a small payment to a low-level official to expedite a routine action — is:
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India's law on prevention of sexual harassment at the workplace (POSH, 2013) is based on Supreme Court guidelines in:
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Rushworth Kidder's four "right-vs-right" dilemma paradigms are:
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The "Heinz dilemma" — a man considers stealing a drug to save his dying wife — is used as a test of:
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The classic "trolley problem" was first articulated by:
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The "front-page test" — would I be comfortable seeing this decision on the front page of tomorrow's newspaper? — is popularly associated with:
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Which case prompted the US Sarbanes-Oxley Act of 2002?
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The Satyam Computer Services scandal (2009) is often called:
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Johnson & Johnson's recall of all Tylenol bottles after the 1982 cyanide incident is widely cited as a *positive* case study of:
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The "Dieselgate" emissions-cheating scandal involved which company?
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The UN Global Compact has how many principles, grouped across which four areas?
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The Central Vigilance Commission (CVC), India's apex integrity body for the central government, was established in:
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The Lokpal of India was established under:
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Kidder's three principles to resolve right-vs-right dilemmas include all of the following except:
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The 1984 Bhopal gas tragedy involved which company?
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The 2018 Cambridge Analytica scandal involved misuse of data from approximately 87 million users of:
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Match the ethical case with its core issue:
| (i) | Enron 2001 | (a) | Data privacy |
| (ii) | Bhopal 1984 | (b) | Industrial safety |
| (iii) | VW 2015 | (c) | Accounting fraud |
| (iv) | Cambridge Analytica 2018 | (d) | Emissions cheating |
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13.8.1 Advanced Format Questions
A: Whistleblower Protection Act 2014 protects disclosers in Indian public sector.
R: Private-sector whistleblowing is also fully covered under WPA 2014.
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A: Kohlberg's moral development has 3 levels (6 stages).
R: The highest level is post-conventional reasoning.
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Workplace ethical issues: (i) Harassment. (ii) Discrimination. (iii) Conflicts of interest. (iv) Insider trading.
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Famous corporate scandals: (i) Enron 2001. (ii) Satyam 2009. (iii) Volkswagen 2015. (iv) Wirecard 2020.
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13.9 Quick Recall
- Ethical issue = moral implications; Ethical dilemma = no clean choice; Ethical problem = decision needed with possibly a right answer.
- Three hallmarks of a dilemma: conflict · stakes · no clean choice.
- Common issues: Conflict of Interest (disclose + recuse — actual / potential / apparent) · Insider trading (SEBI PIT Regs, 2015) · Bribery (PoCA 1988; FCPA 1977; UK Bribery Act 2010 — no facilitation payments) · Discrimination · POSH Act 2013 (from Vishaka 1997) · Privacy (DPDP 2023, GDPR 2018) · Whistleblowing.
- Kidder (1995) — four “right-vs-right” paradigms: Truth–Loyalty · Individual–Community · Short-term–Long-term · Justice–Mercy. Three resolution principles: Ends-based · Rule-based · Care-based.
- Velasquez 6-step decision framework; Laura Nash’s 12 Questions (HBR 1981); PLUS model; Markkula five lenses.
- Quick gut tests: Front-page (Buffett) · Mom · Mirror · TV · Universalisability (Kant) · Reversibility (Golden Rule).
- Iconic cases: Bhopal 1984 (safety) · Tylenol 1982 (positive) · Enron 2001 → SOX 2002 (accounting) · Satyam 2009 (India’s Enron) · VW Dieselgate 2015 (emissions) · Wells Fargo 2016 (sales culture) · Cambridge Analytica 2018 (privacy) · IL&FS 2018 · PNB-Nirav Modi 2018 · Boeing 737 MAX 2018-19.
- Code of Ethics mandated by Companies Act Schedule IV + SEBI LODR Reg 17/26. UN Global Compact — 10 principles in 4 areas (HR, Labour, Environment, Anti-corruption) launched 2000.
- India anti-corruption: CVC (1964) · CBI · Lokpal (Act 2013, first appointed 2019) · SFIO (2003) · ED.