5.6: Identifying Ethical Issues, Lapses, and Dilemmas

Ethical issues are the difficult social questions that involve some level of controversy over what is the right thing to do. Environmental protection is an example of a commonly discussed ethical issue because there can be tradeoffs between ecological and economic factors.

An ethical lapse is a mistake or error in judgment that produces a harmful outcome. It is a failure to follow proper ethical principles. An ethical lapse can be viewed in two ways: as either a clearly unethical decision or a mistake that resulted in an unethical outcome. It is not considered a complete lack of integrity, just an oversight or an ethical blind spot.^[1] Ethical lapses often reflect a failure of leadership, culture, or systems that prioritize accountability and integrity. Maintaining robust ethics training and a strong corporate governance framework can help prevent such lapses.

Ethical dilemmas are situations in which it is difficult for an individual to make decisions either because the right course of action is unclear or because it carries some potential negative consequences for the person or people involved.

Make no mistake about it: when you enter the business world, you’ll find yourself in situations in which you’ll have to choose the appropriate behaviour. How, for example, would you answer questions like the following?

• Is it okay to accept a pair of sports tickets from a supplier?
• Can I buy office supplies from my brother-in-law?
• Is it appropriate to donate company funds to a local charity?
• If I find out that a friend is about to be fired, can I warn her?

Obviously, the types of situations are numerous and varied. Fortunately, we can break them down into a few basic categories: issues of honesty and integrity, conflicts of interest and loyalty, bribes versus gifts, and whistle-blowing. Let’s look a little more closely at each of these categories.

Issues of Honesty and Integrity

An ethical lapse in honesty and integrity occurs when an individual, organization, or company fails to uphold fundamental ethical principles, such as truthfulness, transparency, and adherence to moral standards. It typically involves actions or decisions that prioritize self-interest, convenience, or profit over fairness, accountability, and ethical responsibility.

A recent example of an ethical lapse involving honesty and integrity in a Canadian company is the case of PwC Canada. The accounting firm was found to have systemic answer-sharing among employees during mandatory internal training assessments between 2016 and 2020. These assessments were designed to evaluate professional competencies, but many employees, including senior associates and managers, participated in or facilitated widespread sharing of answers. This practice reflected a failure in fostering a culture of ethical integrity and ensuring independent completion of assessments. PwC Canada self-reported the issue, leading to fines totalling $1.45 million imposed by the Chartered Professional Accountants of Ontario. The incident undermined public trust in the firm and raised questions about its internal quality controls and ethical standards.^[2]

A recent example of a U.S. company facing an ethical lapse related to honesty and integrity involves the biotech company Illumina. In July 2023, the European Commission fined Illumina €432 million (approximately $476 million USD) for merging with the cancer detection company Grail without obtaining the necessary regulatory approval. The Commission called this action an “unprecedented and very serious infringement” of EU merger control rules. This lapse reflects ethical concerns over compliance with international regulations and transparency in business operations, as the company knowingly bypassed established legal procedures to expedite the merger.^[3]

If you work for a company that settles for its employees merely obeying the law and following a few internal regulations, you might think about moving on. If you’re being asked to deceive customers about the quality or value of your product, you’re in an ethically unhealthy environment.

Conflicts of Interest

Conflicts of interest occur when individuals must choose between taking actions that promote their personal interests over the interests of others or taking actions that don’t. A conflict can exist, for example, when an employee’s own interests interfere with, or have the potential to interfere with, the best interests of the company’s stakeholders (management, customers, and owners). Let’s say that you work for a company with a contract to cater events at your college and that your uncle owns a local bakery. Obviously, this situation could create a conflict of interest (or at least give the appearance of one, which is a problem in itself). When you’re called on to furnish desserts for a luncheon, you might be tempted to send some business your uncle’s way even if it’s not in the best interest of your employer. What should you do? You should disclose the connection to your boss, who can then arrange things so that your personal interests don’t conflict with the company’s.

By the same principle, an employee shouldn’t use private information about an employer for personal financial benefit. Say that you learn from a coworker at your pharmaceutical company that one of its most profitable drugs will be pulled off the market because of dangerous side effects. The recall will severely hurt the company’s financial performance and cause its stock price to plummet. Before the news becomes public, you sell all the stock you own in the company. What you’ve done is called insider trading—acting on information that is not available to the general public, either by trading on it or providing it to others who trade on it. Insider trading is illegal, and you could go to jail for it.

Conflicts of Loyalty

You may one day find yourself in a bind between being loyal to your employer or to a friend or family member. Perhaps you just learned that a coworker, a friend of yours, is about to be downsized out of his job. You also happen to know that he and his wife are getting ready to make a deposit on a house near the company headquarters. From a work standpoint, you know that you shouldn’t divulge the information. From a friendship standpoint, though, you feel it’s your duty to tell your friend. Wouldn’t he tell you if the situation were reversed? So, what do you do? As tempting as it is to be loyal to your friend, you shouldn’t tell. As an employee, your primary responsibility is to your employer. You might be able to soften your dilemma by convincing a manager with the appropriate authority to tell your friend the bad news before he puts down his deposit.

A notable example of a conflict of loyalty in Canadian business arose in the legal dispute involving Groupe Excellence, a Quebec-based insurance company. This case centred on two company directors who were also presidents of the company, who failed to inform the majority shareholders about a potential acquisition interest from Industrial Alliance Insurance. Instead, the directors secretly negotiated the deal, bought out the shareholders’ stakes, and sold them to Industrial Alliance at a significantly higher profit, depriving the shareholders of substantial financial benefits. The Supreme Court of Canada examined whether the directors breached their duties of loyalty, good faith, and disclosure to the shareholders. It concluded that while they did not owe a fiduciary duty directly to shareholders, they breached an implied obligation of good faith due to a separate compensation agreement that required them to act in the shareholders’ best interests. This lapse resulted in legal actions against the directors, highlighting the delicate balance of duties and conflicts in corporate governance​. This case illustrates how conflicts of loyalty can arise when individuals in leadership positions prioritize personal gains over their professional obligations, leading to ethical and legal repercussions.^[4]

Bribes Versus Gifts

It is not uncommon in business to give and receive small gifts of appreciation, but when is a gift unacceptable? When is it really a bribe?

There is often a fine line between a gift and a bribe. The following information may help to draw that line, because it raises key issues in determining how a gesture should be interpreted: the cost of the item, the timing of the gift, the type of gift, and the connection between the giver and the receiver. If you are on the receiving end, it is a good idea to refuse any item that is overly generous or given for the purpose of influencing a decision. Because accepting even small gifts may violate company rules, always check on company policy.

In both Canada and the U.S., companies have struggled to define clear distinctions between gifts and bribes. A gift intended to maintain goodwill or celebrate a partnership might be ethical if it’s modest and transparent. However, lavish or undisclosed gifts designed to influence decision-making cross the line into bribery. Policies like those of the FCPA emphasize transparency, proper recording, and adherence to anti-corruption laws to avoid such lapses.

An example of an ethical lapse involving bribes versus gifts in a Canadian company includes the high-profile case of SNC-Lavalin. The Montreal-based engineering firm faced allegations of bribery related to securing business in Libya. The accusations included millions of dollars in payments classified as bribes, disguised as legitimate business expenses, which raised ethical concerns about distinguishing acceptable corporate gifts from outright corruption. This led to legal actions under Canada’s Corruption of Foreign Public Officials Act and significant reputational damage​.^[5]

In the U.S., Walmart faced scrutiny for alleged bribery practices in Mexico, where executives were accused of paying off officials to expedite permits and construction approvals. The investigation revealed systemic issues in distinguishing ethical gifts or facilitation payments from bribes, ultimately resulting in a $282 million settlement under the U.S. Foreign Corrupt Practices Act (FCPA)​.^[6]

Both cases highlight the importance of robust compliance programs to ensure clear policies about what constitutes acceptable business conduct, emphasizing the need for transparency and adherence to anti-bribery laws.

Whistle-Blowing

A whistleblower is someone who reports waste, fraud, abuse, corruption, or dangers to public health and safety to someone who is in a position to rectify the wrongdoing. A whistleblower typically works inside the organization where the wrongdoing is taking place; however, being an agency or company “insider” is not essential to serving as a whistleblower. What matters is that the individual discloses information about wrongdoing that otherwise would not be known.^[7]

An example of whistleblowing in a Canadian company involves Coinsquare, a cryptocurrency trading platform. From 2018 to 2019, Coinsquare engaged in “wash trading,” where an algorithm created fake buy-and-sell orders to inflate trading volumes artificially. A whistleblower within the company, who discovered and reported this practice to senior management, faced significant retaliation, including threats to their employment and eventual termination after taking stress leave due to the issue. The Ontario Securities Commission (OSC) investigated and determined that Coinsquare’s actions violated securities laws and whistleblower protections. As part of a settlement, the company admitted to the reprisal and agreed to strengthen its whistleblower policies, while the former CEO faced fines and a ban on serving as an officer or director.^[8]

In the past few years, a notable whistleblower case in the USA involved BofI Federal Bank (now called Axos Bank), where an internal auditor, Charles Erhart, reported concerns about the bank’s risky business practices. He had raised alarms about high deposit concentrations and risky loans to potentially fraudulent entities. After Erhart reported these issues internally, he was fired, and the case progressed to a legal battle under the Sarbanes-Oxley Act (SOX) for whistleblower protection. In 2023, the jury sided with Erhart, awarding him significant compensation, and the court denied the bank’s attempt to overturn the decision. The case highlighted concerns over shareholder fraud and internal controls violations​.^[9]

Another example of a whistleblower case in the USA occurred at Donovan Salvage Works, a Delaware salvage yard. An employee, a smelter operator, reported a safety hazard involving a propane leak at the yard. After the employee refused to continue working under unsafe conditions, he was terminated by the company in retaliation for reporting the issue. Following an investigation by the Occupational Safety and Health Administration (OSHA), the company was found guilty of wrongful termination and was ordered to pay $40,000 in back wages and damages​.^[10]

Despite significant financial investment in its whistleblower protection framework, Canada has failed to adequately protect individuals reporting misconduct. Over 500 whistleblowers faced reprisals without sufficient remedies. This was highlighted in international assessments, which rated Canada’s legal framework for whistleblower protections as among the worst globally. The case underscores the challenges whistleblowers face in bringing attention to unethical practices without fearing retaliation​.^[11]

In the United States, a significant 2023 case involved a whistleblower under the False Claims Act. The individual, a doctor, accused a healthcare company of enabling Medicare fraud. The case reached the U.S. Supreme Court, which ruled the Department of Justice could dismiss such lawsuits even if initially allowed to proceed. This ruling reflects the complex interplay between whistleblower rights and government oversight in ensuring actionable claims move forward without undue burden​.^[12]

These examples highlight how whistleblowing plays a critical role in exposing corporate and institutional malpractice, as well as the legal and systemic barriers faced in both Canada and the U.S.

Media Attributions

“Compare, Comparison, Options image” by Tumisu, used under the Pixabay license.

“Selective Focus Photography of Woman Using Whistle” by Luis Quintero, used under the Pixabay license.