Module 4: Business Ethics

Study Reminders
Text Version

Policies, Practices, and Cultures

Set your study reminders

We will email you at these times to remind you to study.
  • Monday




























Policies, Practices, and Cultures
Employee Handbooks

Imagine a global company like Wal-Mart, which has over two billion employees worldwide. [1] How do all the employees know what is considered ethical behavior by the company? Can they take as much time as they want for lunch? Are they able to take off as many days as they wish? What expenses qualify for reimbursement? You might be wondering how a company provides guidance to all employees about what behavior it expects from them. All the policies of a company are included in its employee handbook.

Every company has a highly specific code of ethics governing the actions of its employees. This manual, the employee handbook, outlines the company’s policies concerning gift giving, nondisclosure of company information, and other areas of behavior.

Starbucks’ code of ethics, Business Ethics and Compliance: Standards of Business Conduct, for example, explains when employees may and may not accept gifts: “You may not encourage or solicit meals or entertainment from anyone with whom Starbucks does business or from anyone who desires to do business with Starbucks. Giving or accepting valuable gifts or entertainment might be construed as an improper attempt to influence the relationship.” [2]

An employee handbook will also include: the company’s sexual harassment and nondiscrimination policies, an explanation of procedures including breaks and scheduling principles, a list of benefits for part- and full-time employees, a breakdown of disciplinary policies and grounds for dismissal, as well as rules concerning phone, fax, mail, Internet use, and the permissible use of company vehicles.

The handbook will additionally contain information like the history and goals of
the company.

While all employee handbooks are slightly different, all include the guidelines and policies that define ethical behavior in that company or organization. You can review some company policies at the following Web sites:

Gap Code of Business Conduct
Source: The Gap, Inc.
McDonald’s Standards of Business Conduct for Employees http://www.aboutmcdonalds.com
Source: McDonald’s Corporation

What Company Policies Say
Whatever company you end up working for will have its own policies with which you will need to familiarize yourself.

But most companies include the same basic issues that are frequently encountered in sales: conflicts of interest, bribes, and noncompete clauses. The specifics of these policies will vary from company to company, most companies include a gift and entertainment policy in its employee handbook. IBM has a specific policy that covers these areas.


No IBM employee, or any member of his or her immediate family, can accept gratuities or gifts of money from a supplier, customer, or anyone in a business relationship. Nor can they accept a gift or consideration that could be perceived as having been offered because of the business relationship. “Perceived” simply means this: if you read about it in your local paper, would you wonder whether the gift just might have something to do with a business relationship?

No IBM employee can give money or a gift of significant value to a supplier if it could reasonably be viewed as being done to gain a business advantage. If an employee is offered money or a gift of some value by a supplier or if one arrives at their home or office, a manager should be informed immediately. If the gift is perishable, the manager will arrange to donate it to a local charitable organization. Otherwise, it should be returned to the supplier. Whatever the circumstances, the employee or the manager should write the supplier a letter, explain IBM’s guidelines on the subject of gifts and gratuities. Of course, it is an accepted practice to talk business over a meal. So it is perfectly all right to occasionally allow a supplier or customer to pick up the check. Similarly, it frequently is necessary for a supplier, including IBM, to provide education and executive briefings for customers. It’s all right to accept or provide some services in connection with this kind of activity-services such as transportation, food, or lodging. For instance, transportation in IBM or supplier planes to and from company locations, and lodging and food at company facilities are all right. A violation of these policies may result in termination. [4]

A conflict of interest is “a situation in which a person, such as a public official, an employee, or a professional, has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties.” [5] There are four types of conflicts of interest that you may encounter in your career: family interests, gifts, private use of employer property, and moonlighting.

Family interests create a conflict when a relative of yours is either someone from whom you might purchase goods or services for your employer or when you have influence over the potential hiring of a family member of yours.

It’s best to avoid these types of situations as it can be difficult to make an objective decision.

Gifts create a conflict of interest when they are given to you by someone with whom you do business.

Gifts are frequently given at the holidays and may include something small like a case of wine or something more extravagant like a trip.

Private use of employer property can be anything from stealing pens to using your work computer to work on editing your vacation pictures to driving the company car on a weekend getaway and then reporting the mileage on a corporate expense report.

Moonlighting is holding down a second job. While that might not sound insidious at first, if you work two jobs in the same field, it is almost inevitable that you will run into ethical problems.

Who gets your best ideas? Where does most of your energy go? And if you have inside knowledge of two different corporations, working not to let that information influence you will be terribly difficult.

A bribe, according to Merriam-Webster, is “money or favor given or promised in order to influence the judgment or conduct of a person in a position of trust; something that serves to induce or influence.” [6]

Business gifts are considered a form of bribery when they are given by someone who could benefit from having influence on a decision maker. Soliciting, accepting, offering, or giving a bribe is illegal-even if your offer is refused, you are committing a crime. Bribery can take place in many different venues.

Pharmaceutical companies attempt to persuade doctors to prescribe their products by buying them meals and giving them pens and other trinkets as well as trips to medical conventions. If you are the buyer of electronics at Wal-Mart, you are not able to accept any gifts from vendors or prospective vendors as it might appear to influence your buying decisions for the chain.

A noncompete agreement (sometimes called a covenant not to compete, or CNC) prevents an employee from entering into competition with the employer once his job has ended.

It prevents you from taking a job with a competitor after you’ve quit or been fired. If you don’t sign a noncompete agreement, you may be asked to sign a nondisclosure agreement (confidentiality agreement) or your company may have a nondisclosure or confidentiality policy that requires you to protect your former employer’s trade secrets; you may not exploit that information in future employment. [8]

Noncompete agreements are generally upheld by the courts as long as they contain reasonable limits as to the time period and geographical space-that is, for example, that you may not compete in the state for two years after your termination.

Noncompete agreements are not legal in the US state of California, although there are still measures in place in that state to protect trade secrets. [7]

Not every job will ask you to sign a noncompete agreement, and if you haven’t signed one, then there are no restrictions on your future employment. This is one reason it’s so important to read and understand anything you sign.

Nondisclosure Agreements

A trade secret is “any kind of information that allows you to make money because it is not known.” [9]

For example, Coca-Cola’s signature formula is a trade secret, as is the recipe for Kentucky Fried Chicken.

Information about the internal workings of a company that could only plausibly be gained by working for that company is usually a trade secret.

Whistle-blowing, is the act of publicly exposing the misconduct of a company or organization.

Jeffrey Wigand, former head of research and development for Brown & Williamson Tobacco Corporation (the third-largest tobacco company in the United States), is one of the most famous whistle-blowers. He says of himself, “The word whistle-blower suggests that you’re somehow disloyal. But I wasn’t disloyal in the least bit. People were dying. I was loyal to a higher order of ethical responsibility.” [11]

Wigand’s testimony against the tobacco industry, his claims that executives at Brown & Williamson knew that cigarettes were addictive, lied about it under oath, and destroyed documents related to that fact, led directly to the lawsuit brought by forty state attorneys general against tobacco companies.

Wigand’s reputation was destroyed by a punitive smear campaign conducted by the industry he spoke out against, and the stress resulting from that and the trial destroyed his marriage. Brown & Williamson filed a lawsuit against him for revealing confidential company information (the suit was dismissed as a condition of the $368 billion settlement against the tobacco industry). [12] Wigand blew the whistle in order to save thousands of lives.

Only limited protection existed for whistle-blowers until recently; today, the best protection they have (unless they work for the US federal government) is the Sarbanes-Oxley Act of 2002, mentioned earlier, which states that “whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than ten years, or both.” [13]

It’s important to bear in mind that you have no obligation to blow the whistle; you can simply refuse to take part in any unethical or illegal activity.

Entrepreneurial Selling
The ever-changing landscape of technology has created new opportunities to test ethics.

Spammers, scam artists, and identity thieves have created the need to clearly define legal, and in some cases, ethical behavior online. An increasing number of cases of fraud committed via social networking sites have taken place. There have been cases of people who create Twitter profiles in the names of other, real people.

One of the best examples of laws being enacted in response to unethical business practices is the Robinson-Patman Act. In 1914, the Clayton Act became the first US federal statute to expressly prohibit price discrimination. Large chain grocery stores used their buying power to negotiate lower prices than smaller independent stores were offered. The Robinson-Patman Act was passed in 1936, as a direct response to that unfair business practice, closing the loophole. [15]

Buyers for the big chain stores weren’t breaking the law when they used their influence to get better prices than small stores could, but they were behaving unethically and the law caught up with them in the end.

News anchor Keith Olbermann and Tony La Russa, manager of the US baseball team the St. Louis Cardinals, have both been victims of twitter profile hoaxes. [14]

If tempted to such behavior yourself, remember: you are what you tweet. Your reputation will be affected by all the things that you do, make sure that you’re making yourself look good.

Another example of ways in which it can take the law some time to catch up to reality is the US CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography And Marketing Act) of 2003. [16] CAN-SPAM purports to take on spam-that is, unsolicited marketing e-mails, often with sexual or “STAY AT HOME, EARN $$$!!!”-type messages.

Perhaps the most famous arrest of a spammer came in 2005, when Anthony Greco was arrested at Los Angeles Airport and charged with violating CAN-SPAM by sending more than 1.5 million messages to users of the MySpace instant messaging service that advertised pornography and mortgage-refinancing services. [17]

Culture and Ethics
When you are working in a different country, or with professionals from other cultures, there may be different ideas as to what is appropriate and ethical.

The Japanese have a culture of corporate gift giving; kosai hi (literally “expense for friendly relations”) [18], refers to the business practice of maintaining expense accounts for entertaining and nurturing professional relationships. In Middle Eastern countries, there is a custom of baksheesh, a word that encompasses everything from tipping, to bribery. If you are working in the Middle East, there may be an expectation that you will help to grease the wheels; your supervisor should be able to brief you on company policy in such situations. [19]

When you come face-to-face with these different customs, it is important not to be insulting, but you also cannot ignore your company’s policies.

One excellent example of the ethical struggles unique to international business can be found in Michael Crichton’s book Rising Sun, which deals with the clash of Japanese and American business practices. At one point, two police officers are discussing how often they are offered gifts by the Japanese:

“Giving gifts to ensure that you will be seen favorably is something the Japanese do by instinct. And it’s not so different from what we do, when we invite the boss over for dinner, it’s just goodwill. The same with the Japanese. They believe you should give the gift early, because then it is not a bribe. It is a gift. A way of making a relationship with you before there is any pressure on the relationship.” [20]


Your company will make available to you their policies on various ethical issues in the employee handbook; it is your responsibility to read the materials provided and remain familiar with their contents.

There are four different types of conflicts of interest: family interests, gifts,private use of employer property, and moonlighting.

Bribery, the use of gifts to influence someone, is both unethical and illegal.

Many employers will require you to sign a noncompete agreement; be sure that you understand the details.

A company’s trade secrets should never be disclosed.

Whistle-blowing, the exposure of a company’s wrongdoing to the public, is never your ethical obligation-you are obligated only to refuse to participate. However, it can be a deeply noble act. You must analyze the situation yourself and decide what is called for.

Sarbanes-Oxley Act of 2002 regulates corporate financial practices and provides protection for whistle-blowers. While different cultures have different ideas about what is ethical, working in a different country or with a client from another culture does not excuse you from following company policies regarding gifts, and so on.


Describe what is meant by confidentiality. What does a company expect when a company policy states that employees are bound by confidentiality?

Describe the difference between unethical and illegal behavior. Is unethical behavior always illegal?


[1] “Fortune Global 500,” CNN.com,http://money.cnn.com/magazines/fortune/global500/2008/snapshots/2255.html(accessed September 1, 2009).

[2] Starbucks, Business Ethics and Compliance: Standards of Business Conduct,http://assets.starbucks.com/assets/sobc-fy09-eng.pdf (accessed September 1, 2009).

[3] Starbucks, Business Ethics and Compliance: Standards of Business Conduct,http://assets.starbucks.com/assets/sobc-fy09-eng.pdf (accessed September 1, 2009).

[4] Milton Snoeyenbos, Robert Almeder, and James Humber, Business Ethics (Amherst, NY: Prometheus Books, 2001), 133.
[5] Michael McDonald, “Ethics and Conflict of Interest,” University of British Columbia Centre for Applied Ethics,http://web.archive.org/web/20071103060225/http://www.ethics.ubc.ca/people/mcdonald/conflict.htm (accessed September 1, 2009).

[6] “Bribe,” Merriam-Webster Online Dictionary, http://www.merriam-webster.com/dictionary/bribe (accessed September 1, 2009).

[7] “California Non-compete Agreements,” Lawzilla,http://lawzilla.com/content/noncompete.shtml (accessed September 2, 2009).

[8] Gene Quinn, “What Is a Confidentiality Agreement?” IPWatchdog,http://www.ipwatchdog.com/2008/01/03/what-is-confidentiality-agreement/id=31(accessed September 2, 2009).

[9] “What Is a Trade Secret and How Is It Different from a Patent or Copyright?” HowStuffWorks, April 30, 2001, http://www.howstuffworks.com/question625.htm#(accessed February 14, 2010).
[10] Russell Beck, “Noncompete Agreements That Don’t Mean What They Say,” Journal of New England Technology, September 5, 2008,http://www.masshightech.com/stories/2008/09/01/focus4-Noncompete-agreements-that-dont-mean-what-they-say.html (accessed February 14, 2010).

[11] Chuck Salter, “Jeffrey Wigand: The Whistle-Blower,” Fast Company, December 19, 2007, http://www.fastcompany.com/articles/2002/05/wigand.html (accessed February 14, 2010).

[12] Jeffrey Wigand, “Biography,” http://www.jeffreywigand.com/bio.php (accessed September 2, 2009).

[13] Cornell University Law School, “Retaliating against a Witness, Victim, or Informant,”http://www.law.cornell.edu/uscode/18/1513.html#e (accessed September 2, 2009).

[14] Danielle Citron, “Twitter Fraud,” Concurring Opinions, June 10, 2009,http://www.concurringopinions.com/archives/2009/06/twitter-fraud.html (accessed September 2, 2009).
[15] Donald S. Clark, “The Robinson-Patman Act: General Principles, Commission Proceedings, and Selected Issues,” Federal Trade Commission Web site, June 7, 1995,http://www.ftc.gov/speeches/other/patman.shtm (accessed September 2, 1010).

[16] Federal Trade Commission, “The CAN-SPAM Act: A Compliance Guide for Business,” September 2009, http://www.ftc.gov/bcp/edu/pubs/business/ecommerce/bus61.shtm(accessed February 14, 2010).

[17] Paul Roberts, “Arrest, but No Relief from IM Spam,” InfoWorld, February 22, 2005,http://www.infoworld.com/d/security-central/arrest-no-relief-im-spam-863 (accessed September 2, 2009).

[18] Boye Lafayette de Mente, Japan’s Cultural Code Words (North Clarendon, VT: Tuttle Publishing, 2004), 225.

[19] S. E. Smith, “What Is Baksheesh?” wiseGEEK, http://www.wisegeek.com/what-is-baksheesh.htm (accessed February 14, 2010).
[20] Michael Crichton, Rising Sun (New York: Ballantine Books, 1992), 136.