Ethical Issues from Business Scandals: Fraud, Insider Trading & More

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  • 0:00 Bad Business Practices
  • 0:42 Fraud
  • 1:27 Insider Trading
  • 2:09 Cover-ups and Bribery
  • 3:36 Disasters and the Environment
  • 4:36 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

While many people prefer to focus on the good that a company can do for society through philanthropy, corporate social responsibility, providing jobs or simply making a good product, the fact is that companies often make unethical decisions. Learn about some of the ways a company can find itself in hot water.

Bad Business Practices

When you're running a business, you've got a lot of people trying to either give you advice or flat out tell you what to do. The government is pressing you for taxes, stockholders for increased profits, workers for increased pay, and that's just the start of it! Whether it's because of all of these responsibilities or due to just plain greed, some executives fall for the temptation to do things that are less than ethical in order to make money. In this lesson, we're going to take a look at some of the biggest examples of bad business practice over the past few decades and see how, while they may have led to short-term profits, there were much longer-lasting, negative consequences.

Fraud

Sometimes a little bit of misleading can help a company save money - that is, until they are found out. Fraud describes circumstances in which a company obscures the truth from public knowledge. As you'd imagine, fraud can happen on a lot of different levels. It could be as simple as a sandwich maker advertising 10-inch submarine sandwiches as being a foot-long or as complicated as making changes to accounting practices that result in more competitive interest rates and lower taxes. In any event, once a fraud is discovered, it will have severe costs for the company perpetrating the fraud. From public mistrust to official investigations of legal wrongdoing, any allegation of fraud can wreak havoc with a company's stock price and its future.

Insider Trading

Speaking of stock prices, let's say that you had some inside information about what was about to happen to a company's stock price. For example, maybe you have a brother who works at the lab of a pharmaceutical company, and he's been told that their latest drug has been approved. That will mean that the stock value will rise, and you could buy some now before anyone else knows and make money off the profits. Tempting, isn't it? However, insider trading, or using private knowledge for private financial gain in financial markets, is illegal. Even famous people can get in big trouble for this, like consumer goods mogul Martha Stewart, who spent months in prison after having been found guilty of insider trading.

Cover-ups and Bribery

When the public purchases a product, it has the right to expect it to be safe. Unfortunately, that's not always the case. Of course, accidents happen, and companies that are proactive in addressing such concerns are well regarded. However, even the most trusted company can fall when faced with allegations that it did not act in the best interest of public safety. Take Toyota, for example. The world's largest car manufacturer once had a reputation in the United States for making cars that were reliable, safe, well priced, and mechanically sound. However, instead of taking steps to quickly address a sticky gas pedal that made cars speed up uncontrollably, they tried to cover it all up. This caused the company to lose much of its reputation for safety.

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