Unethical Business Practices (And How to Prevent Them)

Last updated on January 13th, 2024 at 06:56 pm

Businesses, large or small, run behind profits. That’s what they’re set up for. Many companies go to extreme lengths to maximize their revenues. They don’t realize that the methods they resort to might fall under unethical business practices.

Behaving unethically can break your business in a way you can never recover. Customers feel betrayed. They lose their trust in you.

So, in this article, I’m providing a list of 10 unethical business practices you need to stay away from. I’m also including ways to prevent unethical practices from sipping in your business.

Let’s dive in.

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What do Unethical Business Practices Mean

Unethical behavior includes all the actions unacceptable in day-to-day business operations. These actions don’t conform to the established standards of the ideal corporate world.

Unethical business practices lead to the mistreatment of people and animals. They can cause grave harm and even death due to negligence, directly or indirectly. Sometimes, the cause might be an individual act, and at other times, the entire company culture is responsible. Actions harming the environment are also considered unethical.

You can read Business Ethics: Ethical Decision Making & Cases book to learn more about the topic.

10 Common Unethical Practices in Businesses

Here are the most common unethical practices in businesses.

1. Misleading Consumers with False Claims

False advertising is the most prevalent unethical practice. Businesses use many tricks to improve sales, from inconsistent comparison to price-based deception. They pay influencers for endorsements and fake reviews.

Many companies inflate the claims while marketing, exaggerate the desirable features, and hide the side effects. Furthermore, some even portray harmful products as healthy to make them more saleable. They trick consumers by making statements without accurate scientific evidence.

These unethical practices continue until the consumers become aware of them.

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2. Bending Terms in User Agreements

Most users don’t go through the pages-long fine prints in the agreements. Thus, businesses slip into undesirable and complex conditions, which they can tap later to their advantage. Such acts lead to mass mistrust when they come to the surface.

They outline vague and dubious agreements to exploit users. Many businesses practice such questionable ethics with their investors, too.

They find gaps and swindle investors and their customers while being in the legal grey area. The documents are so complex that when investors doubt goodwill, the investment returns disappear.

3. Creating Unfair Competition

Businesses also occasionally get into creating unfair advantages over their competitors. They attack competitors without relevant facts to back them up in most cases.

Spreading lies on social media, defaming for all the wrong reasons, and infringing on trademarks fall under these practices. They try to create a false impression of their competitors in the minds of the consumers.

Now, it’s not wrong to use competitors’ names in promoting themselves. It’s also not right to make unjust claims about them and their practices.

Business owners can read Different: Escaping the Competitive Herd book by Youngme Moon to learn how to stand out from the crowd ethically.

4. Manipulating Financial Statements

Manipulating financial statements to show improved financial performance is another popular tactic in the business world. It makes a business seem more profitable while hurting the investors and end consumers.

Recording false transactions, overvaluing inventory and understating liabilities are many ways businesses manipulate their financial records.

By cooking their books and tweaking the reports, they trick everyone to their advantage. And in most cases, auditors may not detect the manipulation unless they go deep. Therefore, companies continue without hassle.

5. Bribing to Get a Favorable Deal

Bribery and corruption are common in many business dealings. They offer bribes in different forms like gifts, political support, and sponsorships. It isn’t limited to only money.

They do it to get favorable deals, an upper hand over competitors, or insider information they can use to their benefit. A bit of pampering speeds up the complicated administrative procedure and pleases the decision-makers involved.

Also, some companies bribe to bypass the rules and regulations. Due to such practices, the consumers have to suffer in many cases.

6. Using Customer Data Inappropriately

All businesses store customer data in one way or the other. They collect it to understand customers’ preferences, personalize the experience, and have relevant communications. The data is also used to optimize and maximize the results of marketing campaigns.

What many companies don’t disclose is if the data is shared with third-party services. Even if they mention it in their agreement, the usage rights are often vague. It leads to data misuse, which often surfaces when it goes out of hand.

Such use of information in a way it wasn’t intended falls under unethical behaviors. It can lead to costly lawsuits and potential loss of reputation.

7. Spamming Email List Subscribers

Spamming is probably the most common unethical business practice on the Internet. Many companies sign up customers to their email list without taking proper consent. Customers agree to receive email newsletters unknowingly.

Many companies also buy email databases and bombard the recipients with promotional messages. Consumers keep receiving unsolicited emails as long as they’re subscribed.

Companies also use AI tools to create fake images, fabricate phony social media profiles, and mass outreach to potential customers. Such tactics are unethical and can tarnish the image of the organizations using them.

8. Exploiting Employee Skills

Mistreating employees is a familiar scene in many companies. Sometimes, employees have to work long hours without getting paid for the overtime. In other situations, they need to handle multiple tasks outside the scope of their job.

Employing low-wage workers and hiring sweatshops for bulk work are also common. Such exploitation is widespread.

Big or small, public or private, you’ll find such unethical behaviors in all organizations. And when such practices are unearthed, people begin boycotting their products and services.

9. Harassing Staff Sexually

Sexual harassment is another common issue found in unethical companies. It’s not limited by gender. Anyone can be a victim.

What more? Companies try to dismiss or suppress any reports of sexual harassment. They want to keep such incidents hidden from public knowledge. Thus, such disgraceful acts continue unchecked unless someone speaks out loud.

It encompasses opposite-sex harassment as well as unwanted physical contact and advances by the same sex. Implicit or explicit promises of preferential treatment in return for sexual favors are also considered acts of harassment.

10. Causing Harm to the Environment

Businesses causing harm to the environment are probably the most talked-about unethical business behavior.

Many companies dump their waste in water instead of treating and disposing of their waste the right way. Some also release chemical pollutants into the air without proper filtering.

It also happens that some companies unknowingly indulge in unethical practices that harm the environment. They adhere to the norms set by the government but try to skip the expenses associated with a suitable setup.

Such acts, even if performed unknowingly, lower the repute of the organization.

5 Examples of Unethical Business Practices

Here are five examples of businesses that tossed their ethical standards in the bin:

1. Huawei

Huawei has been in the limelight for copying the design of Apple’s iPhone. From mirroring its form factor to camera placement style, it has constantly reproduced iPhone models. It even designed screws similar to the ones in iPhone devices.

2. United Airlines

United Airlines has received massive backlash for dragging a passenger off an overbooked flight. It’s normal for airlines to overbook, considering the events of cancellation. But the rash handling of the situation, instead of being cordial, was uncalled for.

3. Wells Fargo

Wells Fargo has been found involved in creating 2+ million unauthorized customer accounts. The employees did so to hit their sales quotas. Pressure from the supervisors, with hourly tracking, led them to take this unethical route.

4. Toyota

Toyota ignored passengers’ safety even when the management knew about the fault in their vehicles. Instead of solving issues with the faulty brakes and pedals, they tried covering up their mess by attributing it to human error.

5. Coca-Cola

Coca-Cola has been blamed for its unethical behavior in multiple areas. These accusations involve concerns about environmental impacts, poor working conditions, and severe abuse of human rights. Its products, too, have remained questionable regarding health concerns.

Consequences of Unethical Behaviour in Businesses

Following are some of the consequences of businesses acting unethically:

1. Damages company credibility

When the lack of ethical behavior comes out in public, the business loses credibility. The customers, business partners, and employers may break ties.

2. Increases the Number of Legal Issues

Businesses that operate without proper ethics often have to pay a hefty fine. In case of severe unethical behavior, executives might even face criminal charges and possible jail time.

3. Disrupts Employee Relations

When executives portray a lack of business ethics, it leads to stress among employees. They can no longer trust anyone in their workplace, thus affecting their daily operations.

What Causes Unethical Behaviour in Businesses

Following are some of the primary reasons a business can be unethical.

1. Poor Leadership

Employees incorporate the ethics of top-level managers of the organization. When leaders deviate from ethical business practices, everyone finds unethical behavior rational. Poor, unethical leadership projects the image that ethics don’t matter.

2. Personal Greed

In many cases, an ethical dilemma arises due to money. The reason might be to minimize taxes, cut production costs, or pocket extra income in return for something. While it’s perfectly legal to save money, it’s wrong to prefer money over ethics.

3. Unclear Company Policies

Company policies usually outline what’s ethical and what’s unethical. When the policies are unclear, vague, or inconsistent, ethics aren’t rightly enforced. Individual differences over ethics are bound to happen.

How to Prevent Unethical Business Practices

Following are the different ways you can avoid unethical behavior in your organization.

1. Establish Clear Guidelines

A documented code of conduct specifies the type of conduct and behavior expected in the workplace. It provides an overview of what’s acceptable and what’s not.

2. Build a Transparent Culture

An open company culture with transparent communication ensures that everyone knows what is going on all the time. It also gives employees the confidence to call out any wrongdoing.

3. Monitor Employee Behavior

A review system by employees for employees will ensure that the established codes are being followed. Regular reporting and auditing will discourage employees from being unethical.

4. Appreciate the Right Behaviour

When you value the hard work of your workers, you’ll notice higher ethics in the workplace. Better treatment of employees instills loyalty in them.

5. Lead by Example

When the top management and executives behave responsibly, employees walk in the same direction. It inspires the staff at all levers to be ethical in all regards.

FAQs about Unethical Business Practices

Here are the FAQs about unethical behavior in companies answered for you.

1. Are Unethical Business Practices the Same as Illegal Practices?

Unethical business practices aren’t the same as illegal practices. Unethical practices are those that are morally wrong. They may or may not be illegal.

2. What are Illegal Business Practices?

Illegal business practices are ones against the law. Such practices are always unethical. Discrimination or harassment in the workplace, low payments to employees, and theft of money are examples of illegal practices.

3. What is the Difference Between Unethical and Illegal Business Practices?

Unethical practices are governed by the code of ethics and someone’s own principles. Illegal practices are determined and regulated by the law. A clear line between unethical and illegal business practices, however, doesn’t exist. The areas overlap.

4. What are Some Results of Unethical Business Practices?

Unethical behavior in a company has a broad range of consequences. Some of them are:

Damage to company credibility
Rise in the legal issues
Bitter employee relations

5. What are the Three Main Reasons Unethical Business Practices Happen?

The three main reasons behind unethical business practices are:

Poor leadership
Personal greed
Unclear company policies

Wrapping it up

Big and small businesses both can be stirred by unethical behavior. And when they’re, it can cause severe damage. So, a clear understanding of the common unethical business practices can help keep such behavior in check and follow ethical business practices.

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