Even if you have the best idea and the most committed employees, maintaining a successful business is going to be a challenge every day. It’s not uncommon for companies (large and small alike) to feel this pressure and wonder if there isn’t an easier way. Some may decide to work harder, whereas others turn to unethical business practices.
What Is the Definition of Unethical Business Practices?
Before we look at some unethical business practice examples, it’s important to know what we’re talking about. The unethical business practices definition encompasses anything that falls below minimum standards for business code of conduct. This includes any behaviors that are widely accepted as being morally wrong and lead to the mistreatment of people, animals, or the environment.
10 Common Unethical Business Practices
Businesses have found countless ways to act unethically, but most of these actions fall into four main categories: unethical practices toward customers, unethical practices toward employees, unfair competition, and legal but unethical practices.
Unethical Business Practices Toward Customers
Businesses use unethical practices that target customers, they hope consumers will fail to notice they’re being tricked. They rely on the fact that they’ll be able to make numerous sales without the word spreading that they’re being deceptive.
1. False Product Claims
There’s a huge difference between using marketing to paint a product or service in the best possible light and outright lying. With traditional advertising, it’s easier to monitor if companies are using misleading language to target customers. With digital advertising, anyone can run an ad and face minimal oversight.
To back up the claims they make in their ads, companies may use fake reviews or ask influencers to endorse their products. The good news is that many platforms are cracking down on fake reviews, requiring posts from influencers to specify that they’re promotional, and monitoring ads more closely.
2. Hidden Terms in User Agreements
Every time you sign up for a new service or download software (including free software), you need to click the “Agree” button on the user agreement. Almost no one reads these pages-long user agreements, which can enable businesses to slip in some undesirable requirements. For instance, you may be allowing a company to sell your data to a third party or you could be giving a social media platform the rights to your content.
Whereas companies can put anything they want into these terms of service, requirements that are not actually legal are unenforceable and can even result in lawsuits.
3. Unethical Accounting
Intentionally mismanaging accounts can make a company seem more profitable than it really is. This hurts investors, who may purchase shares in the company only to end up losing when the truth is revealed.
Unethical Business Practices Towards Employees
Another way for businesses to get ahead unethically is by treating employees unfairly. This can keep costs down and improve productivity.
4. Poor Working Conditions
Low-wage workers are often subject to long hours and may be refused overtime with the threat of being fired if they don’t comply. During the pandemic, the number of employees forced to work in unsafe conditions has also risen. For instance, workers may lack personal protective equipment or be unable to maintain social distancing.
The situation is even worse for undocumented workers, as well as immigrants with work visas who worried they will lose their permits if they complain. Unethical companies may also take advantage of the more lax regulations in developing countries and outsource manufacturing jobs or other work to benefit from cheap labor.
5. Sexual Harassment
Companies sometimes dismiss employee reports of sexual harassment or use gag orders to keep cases out of public knowledge (which often allows abuse to continue unchecked). In other cases, sexual abuse could come from the very top. The #MeToo movement has shown just how pervasive sexual harassment and abuse is in the business world.
One of the biggest threats to any business is its competitors. Some companies try to give themselves an unfair advantage by attacking their competition through a few different types of unethical business practices.
In the digital era, it’s easier than ever to spread false information. Businesses can create fake accounts on social media or post anonymously on blogs or forums to spread lies about a competitor. If the identity of the user is discovered, the business may receive a hefty fine.
7. Trade Secret Misappropriation
Trade secret infringement can be intentional or due to negligence. In either case, it can provide a company with information that gives it an unfair economic advantage.
Businesses may bribe government officials or industry leaders to secure better deals or gain a foothold in the market. The company may offer money or something else of value, such as political support or better deals on its products and services.
Legal But Unethical Business Practices
There are some unethical business practices that are legal but morally questionable. There’s nothing to stop businesses partaking in these activities, especially if they think that their products and services are desirable enough that customers will continue to purchase them anyway.
9. Selling Customer Data
As we saw above, companies may include the right to sell customer data in their agreement terms. Often, this is completely legal, especially if the data contains no personally-identifiable information. Usually, companies sell this data to advertisers or startups who want a database they can market to.
10. Complex Securities
By making investment structures so complex that even experts struggle to decipher them, companies are able to swindle investors while staying within the law. Examples of unethical business practices like this include credit default swaps, mortgage-backed securities, hedge funds, and special investment vehicles. Typically, the company offering the investment understates the risk, but the risk becomes apparent later when the portfolio or pension plan funds sink.
What Are the Consequences of Unethical Business Practices?
The consequences of practicing unethical business depends on two main factors: was the practice illegal and was the business caught? In the case the unethical practice was against the law, the business may suffer a fine — often in the millions of dollars. Sometimes, those responsible for the action will also receive prison time.
Of course, if the practice is never detected or cannot be proven, it is impossible to take legal action against the company. However, if consumers suspect wrongdoing, they may demand changes from the business or start 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 news stories.
1. Wells Fargo
There has been one massive scandal after another at Wells Fargo. In 1981, the bank was involved in one of the largest embezzlements in history. Then, with its shady mortgage practices, the company became a major player in the 2008 financial crisis. Shortly after, to help the business recover, Wells Fargo pressured employees to set up hidden accounts in customers’ names. This continued until the scheme’s discovery in 2016.
2. Ferrero USA
Ferrero USA is the company behind the brand Nutella. It was forced to pay a settlement of $3.05 million after settling a class action lawsuit for false advertising that its chocolate spread is a nutritious choice for children.
Almost everyone is familiar with one of the latest cases of corporate misconduct: the Volkswagen emissions scandal. The company admitted to having installed software that manipulated emissions readings to make its cars appear as if they were environmentally friendly.
For years, Foxconn has been accused of violating labor rights. Recent leaks revealed that the company employs children as young as 14 years old to work in its factories in China. The supplier provides products to both Apple and Amazon.
5. Coca Cola
Back in 2009, Coca-Cola promoted Powerade as having more electrolytes than Gatorade, the rival energy drink from Pepsi. In retaliation, Pepsi sued Coca-Cola on the grounds that its claim had no basis in science.
One of the largest oil companies in the world, Halliburton has been accused of a number of grave offenses. These include doing business with countries with which the US government has banned trade relations, overcharging the US army for supplies during the Iraq War in 2003, mismanaging waste, sexual assault, and exposing employees to hazardous chemicals.
The internet, and particularly social media, have given consumers a greater voice. Many people are choosing to speak out about what they consider to be unethical business practices. This can cause severe damage to a company’s image and damage brand loyalty. Consumers also understand that money speaks — that they have the purchasing power to buy from businesses they consider ethical.
Whereas we are still far from seeing an end to unethical behaviors, consumers’ actions are slowly making more of an impact. Plus, businesses now have a new way to beat the competition: show that they are the moral choice by engaging in ethical business practices.
Understanding some of the common unethical business practices should be just the start of your journey to become more ethical. You also need to be familiar with the most common ethical issues businesses face. Finally, to put everything into action, check out our list of ethical business practices to follow.