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Ethical Issues in Business

Accounting (Year 12) - Insolvency & CSR

Christian Bien

Ethical Issues Between Business Owners and Employees

Issue #1: Pressure for Employees to work unpaid overtime: Business owners may pressure their employees to work additional unpaid overtime hours or be required to find a new job. A recent industrial action has required law firms to record overtime hours in an industry that is common for junior lawyers to consistently exceed their base hours.

Issue #2: Paying Below Minimum Wage: Business owners may illegally pay their employees below what is required by law. Those often exploited included migrant workers on visas who could work only a defined number of hours. A common exploitation was with international students who can only work a maximum of 20 hours. Bosses on paper would allocate 20 hours at a legal wage, however, would require the worker to complete additional unrecorded hours, lowering their real wage worked and exceeding their legal work hours.

Ethical Issues Between Business Owners and Clients

Issue #1: Big Clients Holding Power Over Businesses: It is important to diversify your customer base. If you had one customer that held a large stake of revenue in your business, they can use their power to act unethically. For example a large customer can demand an unreasonably low contract price, requiring lower wages to be paid below the legal limit.

Issue #2: Gifts for Customers: Gift giving is common practice for business to please their client base. However, ethical lines can be crossed to secure business. For example, consider you are a builder called Tom's Builders and are competing with a Sarah's Builders for a $200M contract to build an apartment. In order to secure the contract, you gift the potential contractors a steak dinner, a television and a holiday package.

Is this ethical? Potentially, as the gifts could cloud judgement and give Tom's builders an unreasonable advantage over Sarah's Builders. The value of the gift and the potential for that gift to distort the decision are important ethical considerations.

Ethical Issues Between Business Owners and Investors

Issue #1: Misleading Investors to Secure Funds: Imagine you are a shareholder for Coles Ltd. You invest money into the business but you have no knowledge or the time to assess the operations of the business. All you are given is the high-level overview provided in the annual reports. This is the same situation for investors of a small or large business. Investors often do not have a deep insight into the operations that a business owner has. It is important that business owners communicate honestly about the operations of their business. For example, imagine you owned a fishmonger business that isn't doing too well. You need an additional $200,000 to keep next month, however, you know that your investor will be hesitant to put more money if you report the low sales this month. An unethical action would be to mislead the investor and ask for the $200,000 for another purpose, such as a new plant and equipment to grow the business.

Issue #2: Using Investor Funds for Personal Use: When funds are placed in the business, the business owner may be able to draw money out of the business for personal use. It is important that business owners ensure that funds raised are used for business purposes.

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