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Submitted By
Sahil Sharma(A049)


Ethics are those rules and principles which are derived from good and bad
conducts. Business ethics is a form of applied ethics or professional ethics
that examines ethical principles and moral or ethical problems that arise in a
business environment. Business ethics applies to all aspects of business
conducts whether product segment or service, employer-employee
relationship or clients-organization relationship. For a sustainable business,
business ethics plays an as significant role as its financial statements.
There are a number of common ethical issues in businesses viz health &
safety issues, diversity issues, transparency, fair working conditions,
misleading customers, etc. This report discusses about the issue of
businesses misleading their customers.
Business ethics and customer stakeholders
A firm has several stakeholders but customers are one of the key
stakeholders that help establish the firm's reputation and identification. It is
imperative for a firm to understand customers needs and wants and provide
them with high-quality products and fair claims. Although a study has found
that ethical climate of the firm is positively associated with the customers
loyalty. However, intense competition has led to the emergence of several
unethical practices by the firms. For example, when Pizza Hut & Papa Johns
aggressively attacked each other in their advertisement campaigns, both
claimed that they provided the freshest ingredients. This matter was then
taken to court and was resolved through civil litigation. Thus several issues
like this have escalated the importance of ethical behavior by businesses
towards their customers.
Misleading claims and information by the businesses

This is one of the mostly adopted unfair practices by the firms. This is






information on packaging or misleading terms and conditions. In the

pursue of profits various companies have provided misleading or
incomplete information about their product. Some do it by appointing a
high-profile celebrity as their brand ambassador while some do it by
writing critical information in very small font size so that it escapes the
view of the customer. Financial companies that are involved in
providing loans and insurance often give a bunch of papers containing
terms and conditions. It is natural that most of the customers do not go
through all those pages. They would simply ask the agent they are
interacting with to clarify their concerns. That agent can then simply
twist the words written in order to satisfy customers needs and earn
his commission. Following part of the report will discuss about several
organizations that have been involved in such unethical practices and
also some initiatives that can be adopted to curb them.

False claims and stealth marketing

1) The McDonalds fake customers: In 2008, McDonalds launched a new
Quarter Pounder product in Japan and, at one of its chains in Osaka, it
hired around a thousand people to queue up outside the store to buy
one of the burgers. Seeing this a lot of real customers also joined the
queue to see what the excitement was all about. However the truth
was very soon revealed.
2) LOreal and false eyelashes: In 2007, the Advertising Standards
Authority (ASA) ruled that LOreal TV and press adverts which claimed
their mascara made eyelashes up to 60% longer could be misleading
to the public as the model (Penelope Cruz) was wearing false
eyelashes. The ASA instructed LOreal to include a disclaimer in future
adverts featuring models wearing false eyelashes and to ensure any

further campaigns for the product made clear that the "up to 60%"
claim referred only to the appearance of lashes
Financial Institutions
1) Lloyds Banking group: Towards the end of 2013 Lloyds Banking Group
were fined 28 million by the Financial Conduct Authority (FCA) for a
'sell or be demoted' incentive plan which, according to the FCA,
created a "culture of misselling". Under this scheme sales staff across
Lloyds, Bank of Scotland and Halifax were put under pressure to hit
targets in order to avoid being demoted, rather than focus on what
consumers needed. This abuse of the relationship between the
company and the customer is especially poignant when selling to
vulnerable customers, such as the elderly, the young or those unable
to make their own informed decisions
2) Homeserve: In February 2014 the FCA fined Homeserve which insures
more than 2 million people in Britain 30.6m for poor complaints
handling and mis-selling. The FCA said the firm had focused on the
"quantity not quality" of sales to the detriment of customers.
3) Fintech firm LendUp: LendUp has agreed to pay $3.63 million to
settle allegations by a







company didnt help customers get cheaper loans and build credit as
promised. The lender, affiliated with San Francisco-based Flurish Inc.,
didnt have lower priced loans available to consumers which they
advertised, misled customers about the true cost of the loans offered
and at times didnt provide borrowers information to credit reporting
Good practices
While there were various firms that engaged in bad practices, there were
also several firms which identified the bad practices going on in their
organizations and straight away took actions against them. Some of the
examples are:

1) Npower: In 2008, for example, NPower reported that it had terminated

the contracts of four staff in their sales department accused of using
dishonest methods to get customers to switch gas and electricity
2) Alstom: Alstom (the French maker of trains and power equipment)
stopped using external sales consultants to support their own
commercial teams. This was done to further reduce compliance risks
to the group and in line with Alstom achieving the highest ethical
business standards.
Proposed Initiative
Being a manager of the company, I would recommend following steps to
make sure that my organization is not, whether intentionally or
unintentionally, giving misleading information to my customers:
1) Make internal audit teams for different departments like quality control,
packaging, sales department, etc. These audit teams will have the
responsibility to check whether the product is safe, giving value for
money to customers, does not involve any misleading information at
any stage and is the sales team using right methods to distribute
products. The process can move further only after clearing these
audits. These audit team will be given enough autonomy to work
without any influence from any of the department.
2) In case of critical products, our organization can also consult a third
party auditing firm for clearance. These can be highly qualified and
reputed firms who have the experience in giving credible rating to

Impact: Above measures will ensure that there is no compromise on the

quality of the product and also on the information conveyed to the

Cost-Benefit: However the organization will incur additional costs in

deploying audit teams, but the long term benefit that the firm will earn in
terms of reputation and loyalty from the customers will lead to a sustainable
So we see that organizations which have been involved in unethical practices
had their reputation suffered a blow. It is extremely essential for a firm to









customers. A firm must have a concrete policy in place to ensure the

absence of such unethical practices if they want to have a sustainable
business in future.

1) JW G. May 16, 2011 Ethical Realism- Moral issues related to Consumers

2) O.C Ferrell 2004 Business ethics and customers stakeholders
3) Elizabeth D. September 27, 2016 Bloomberg news- Fintech
4) Neil K. n.d Common types of ethical issues within an organizations
5) ACCC n.d False or misleading claims
6) Melissa H. February 29, 2016 Investopedia- Why are business ethics
7) IBE March, 2014 Business Ethics briefing- Misleading Customers