Did you know ethical issues in businesses can cost millions to the company? When it comes to business profitability, there is a close link to ethics! Business ethics have the power to either make or break your business.
In this blog, let’s learn about how ethical issues in businesses affect a company’s profits with real-life examples. You will also understand the importance of it. Exciting isn’t it? Of course! So let’s start!
Firstly, business ethics refers to the policies and principles the company sticks by when making its place in the market.
Ethical issues in business are situations where these morals are broken, leading to conflicts, and must be taken care of immediately.
Indeed, these business ethics are of great importance to the long-term sustainability of the business.
So let’s quickly look at the importance of addressing ethical issues in businesses!
- Ethical practices help build a positive reputation and trust with loyal customers and improve brand value.
- The ethical treatment of employees promotes a positive work environment, resulting in good productivity.
- Working with ethics can save you from legal complications and reduce the risk of damage.
- Ethical decisions contribute to the long-term success of the company because sustainable profits require responsible practices.
- Indeed, ethical companies will undoubtedly attract genuine investors who support the financial health of the business.
So, let’s understand more about the ethical issues in a business affecting a company’s profits with real-life examples.
Some Examples of Ethical Issues in Business Affecting Company Profitability
1. Discrimination and harassment
We all know that Uber is a giant in the ride-share industry. However, the company also faced situations that tested its strength and reputation in 2017.
The allegations were about the toxic work culture that involved discrimination and harassment. It went viral from a video of the company’s CEO arguing in an ill manner with an Uber driver and reports of using software to avoid law enforcement.
Indeed, these incidents with harsh competition and challenges put the company into a serious crisis, risking its stand in the market as the trust and the reliability of its services were badly hurt.
Therefore, Uber’s former CEO faced allegations of toxic leadership and ill-treatment involving public outrage further spoiled the company’s image.
Additionally, many employees came forward with allegations of sexual harassment, discrimination, and lack of accountability in the company.
Well, all this made a disturbing picture of the company where people felt unsafe and not valued rusting public trust and damaging the company’s reputation heavily.
As a result, Uber had to invest resources in crisis management and legal defense. The negative publicity and the damage to the reputation led to a decrease in user demand and slowed revenue growth. The company experienced difficulties in attracting new investors and establishing confident partnerships.
Furthermore, Uber had to settle many law cases relating to sexual harassment and discrimination paying massive compensations. In 2019, Uber had to pay $4.4 million to resolve an EEOC sexual harassment.
These legal settlements and other ethical issues in businesses impacted the financial stability and profitability of the company.
2. Employee health and safety violations
Hansae Vietnam is a garment-making company in Vietnam.
Indeed, this company is a part of the larger Hansae Group. It identifies globally. This company faced allegations of health and safety violations. Due to its unsafe working conditions, Hansae Vietnam was seen to have multiple health and safety offenses within its factories.
These violations were severe as the factory temperatures were exceeding the national limit of 90 degrees Fahrenheit.
Additionally, the unsafe spraying of cleaning solvents was on record, and continuous incidents of workers being exposed to dangerous conditions were also on record. Because of the inappropriate measures in the safety of the employees, they were facing health risks.
Despite all this, the company also failed Corporate Social Responsibility (CSR) examinations. Hansae Vietnam did not address the unsafe working conditions. Companies usually conduct CSR audits to estimate their commitment to reducing ethical issues in businesses and taking care of social responsibility standards.
Therefore, with all these things, the company’s reputation suffered a lot. The negative publicity affected the investor’s confidence in the company and concerned the potential business partnerships. Thus, the legal effects and compensation payments further impacted profitability.
3. Profits before humanity
Have you ever wondered how a little negligence in the quality of a product can cost a life?
Well, the same happened with Takata Corporation! This company was a Japanese automotive parts manufacturer specializing in safety system airbags supplied globally to various automakers.
The company’s airbag inflators were found to be defective, resulting in explosions during specific situations. Hence, people expressed fury, leading Takata into legal battles and ultimately causing reputational damage. The financial burdens of the lawsuits directly or indirectly affected the profits of the company.
Indeed, Takata’s decision to prioritize cost-cutting and look for profits over the safety of lives led to tragic results. The failure of the company to handle the defects promptly shows a lack of humanity and ethical responsibility.
Therefore, in 2017, Takata filed for bankruptcy due to its airbag recall crisis. The company’s reputation was so severely damaged that it was irreparable.
All of this affected the investor’s confidence and impacted the market capital. This case is a live example showing the importance of moral thinking and addressing ethical issues in businesses.
4. Customer information security
Customer information security is one of the most ethical things for the company to take care of.
But have you ever thought what will happen if our information gets leaked somewhere?
Yes, it happens! Well, there were allegations on Pacific Airways of data breaching.
In October 2018, Cathay Pacific Airways revealed an enormous data breach that impacted approximately 9.4 million upset passengers.
The breach exposed sensitive personal information about its passengers, such as names, passport details, email addresses, and credit card information.
Cathay Pacific’s reputation suffered severe damage. This outcome was truly unforeseen, and both passengers and the public were shaken by the breach and the extent of their data exposure.
The erosion of trust in the airline had a profound impact, affecting customer loyalty and future bookings.
This also resulted in the reduction of market value by $201 million. The airline faced huge legal costs related to the breach, including the files and the compensation claims.
The Information Commissioner’s Office (ICO) fined Cathay Pacific Airways £500,000 as they failed to protect the personal data of their customers. The ICO also emphasized many other security deficiencies, including unprotected backup files, outdated operating systems, and insufficient anti-virus protection.
Thus, the company’s failure to take care of the basic security actions shows how ethical issues in businesses affect the company’s profits.
5. Environmental impact
As we know, Louis Vuitton is a fashion giant, but did you know it faced allegations of animal cruelty?
Well, environmental impacts like this are also ethical issues in businesses that affect the profits of a company.
Louis Vuitton had to face heavy criticism for its use of animal products, including exotic skins like crocodiles, pythons, and giant lizards.
PETA (People for the Ethical Treatment of Animals) raised concerns regarding the ill-treatment of animals in the supply chain of the brand. The allegations include the mistreatment of exotic lizards in Indonesian processing skills and the custody of crocodiles in Vietnam.
These allegations include the unfairness that Louis Vuitton has claimed that 100% of its products are made from materials sourced from farmed animals. However, these large-scale exotic skins and fur operations are not humane at all.
The exotic skin industry has a severe and bad impact on the environment. The rise in deforestation also happens by creating space for these kinds of exotic farms. Furthermore, the strong chemicals used for tanning and processing these skins also pollute waters and harm the ecosystem.
In the past, when a luxury brand faced allegations like these, the company faced huge criticism from the crowd, leading to the suffering of the brand’s reputation. The negative publicity affected the animal lovers out there. Hence, the brand faced many boycotts and reductions in sales, demanding sustainable practices.
Legal battles and fines posed challenges, but the brand’s smart handling of criticism and strategic approach transformation serve as evidence of its current prominent reputation.
End Note
As we conclude, we realize that ethical issues in businesses can have a significant impact on the company’s profits. However, by prioritizing the ethical issues in businesses, companies can build trust with their clients, avoid big scandals, and eventually increase the company’s profits and make their place in the market.
By encouraging integrity, the business can improve its reputation and financial conditions. So, stay committed and dedicated to fair practices and take action today for long-term profitability!
Also Read: Ethical Leadership: Guiding Principles for Managers
