Ethical Dilemma

Updated on March 20, 2024
Article byShrestha Ghosal
Edited byShrestha Ghosal
Reviewed byDheeraj Vaidya, CFA, FRM

What Is An Ethical Dilemma?

An ethical dilemma is when individuals or institutions encounter conflicting choices involving moral considerations. Individuals may often have to decide between two morally sound alternatives. When an ethical dilemma in business occurs, decision-makers may aim to strike the right balance between the individual or organization’s financial objectives and their ethical responsibilities.

Ethical Dilemma

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This dilemma arises when financial decisions or actions impact the stakeholders, like investors, employees, or society. Resolving these dilemmas may require careful consideration of several factors. These factors include legal obligations, regulatory requirements, transparency, fairness, and long-term sustainability.

Key Takeaways

  • An ethical dilemma is a complex situation when an individual or an organization must choose between two alternatives involving moral considerations. These dilemmas usually involve two morally sound choices or two options, of which neither is ethical.
  • When such dilemmas occur in businesses, advisors or decision-makers try to balance the individual or organization’s financial goals and moral responsibilities.
  • These dilemmas impact the various stakeholders within the business, such as customers, clients, investors, creditors, employees, and even society.

Ethical Dilemma In Business Explained

An ethical dilemma is a complicated situation where individuals or organizations face conflicting choices that involve moral considerations. An ethical dilemma in business occurs when a financial decision may impact various stakeholders, including customers, clients, investors, and employees. These dilemmas can arise at different levels within the finance industry, such as investment management, corporate finance, accounting, and banking.

These dilemmas can result from several situations, like the conflict between maximizing profits and ensuring the well-being of stakeholders. Moreover, these dilemmas often involve the disclosure of sensitive information. Additionally, they may revolve around the balance between risk and return. Furthermore, they can emerge in the context of corporate governance and executive compensation.

Resolving the dilemmas may require a thoughtful and conscientious approach. Moreover, regulatory bodies and industry organizations often play a crucial role in shaping ethical conduct in finance. They may establish and enforce moral codes of conduct, promote transparency, and encourage responsible practices, which can mitigate these dilemmas and promote an ethical financial environment within the industry.

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Types

Some types of ethical dilemmas are as follows:

  • Conflicts of Interest: This occurs when individuals and entities have competing interests that could compromise their objectivity.
  • Accounting Manipulation: This dilemma occurs when individuals or companies use unethical practices to manipulate financial statements for personal gain or to deceive stakeholders.
  • Pay Disparities: These dilemmas arise when significant pay disparities within an organization or industry exist. It can occur when executive compensation is excessively high compared to employee wages or when there are gender or racial pay gaps.
  • Risk Management: Financial professionals often face dilemmas when managing risk. Balancing the desire for higher returns and the need to protect stakeholders from excessive risk can create conflicts.
  • Privacy and Data Security: With the increasing reliance on technology in finance, privacy, and data security dilemmas may emerge. Financial institutions must consider the ethical consequences of collecting, storing, and using customer data and protect sensitive information.

Examples

Let us study the following examples to understand the concept better:

Example #1

Suppose, Greta is a financial advisor. Mary is a potential client who approached her to seek investment advice. Greta discovers that Mary suffers from a severe medical condition and needs significant funds for treatment. Greta knows of a highly speculative investment opportunity that could yield substantial returns but carries a high risk of loss. The dilemma lies in deciding whether to recommend the high-risk investment to Mary, as a loss could further deteriorate her financial situation. It may impact her ability to afford her necessary medical treatment.

Example #2

Article Intelligence (AI) has been the driving force behind high-level science, technology, engineering, and mathematics (STEM) research for years. Consumers started getting aware of the technology’s potential and abilities through various internet platforms. AI has become essential in several industries, including healthcare, banking, retail, and manufacturing. However, it has inevitable negative consequences and may do more societal harm than economic good.

How To Solve?

Ethical dilemmas can be solved in the following ways:

  • Negate the dilemma: If a dilemma occurs, the decision-makers must deeply analyze the situation. They may find a pragmatic approach to negate the difficulty. In some cases, such dilemmas can be resolved with a logical understanding of the situation.
  • Value theory method: When such a dilemma occurs, the individuals or advisors may have to choose the option that offers the lesser evil or the greater good. This approach may help them make a decision that will be in the best interests of the relevant parties. Or, the decisions may help the appropriate parties suffer least from the negative consequences.
  • Find other options: In such dilemmas, the issues can be reconsidered, and decision-makers may find alternative ways to resolve the problem.

Pros And Cons

Some ethical dilemma pros are as follows:

  • Addressing these dilemmas promotes integrity, professionalism, and trust in the business. It displays a commitment to ethical conduct and responsible decision-making. Moreover, it enhances the reputation of the professionals and institutions.
  • Stakeholders’ interests can be safeguarded by considering the ethical implications of the decisions. It includes the investors, clients, employees, and society. Resolving these dilemmas helps prevent potential harm, unfair practices, and conflicts of interest.
  • Ethical decision-making boosts trust and long-term relationships with clients and stakeholders. When individuals and organizations act ethically, they cultivate a positive reputation and are more likely to attract and retain clients and investors.
  • Addressing these dilemmas ensures compliance with legal and regulatory requirements. By adhering to ethical principles, individuals and entities can avoid legal repercussions, penalties, and reputational damage.
  • Organizations that prioritize ethics and encourage employees to address these dilemmas create a positive work environment. When employees feel empowered to make ethically sound decisions, it boosts morale, engagement, and productivity.

Some cons are as follows:

  • These dilemmas are often complex and involve subjective judgment. Determining the most ethical course of action may have a vague solution, and individuals may have differing perspectives on what is ethically correct. This can lead to disagreements and challenges in reaching a consensus.
  • Resolving these dilemmas requires careful analysis, consideration of various factors, and consultation with relevant individuals. This process can be time-consuming, especially in fast-paced financial environments where quick decision-making is often expected. Additionally, dedicating resources to address the dilemmas may strain budgets or create competing priorities.
  • Financial decisions often involve balancing the interests of multiple stakeholders, and ethical considerations may conflict with financial goals. Balancing these competing interests can be challenging and may create tensions.

Ethical Dilemma vs Moral Dilemma

The differences are as follows:

  • Ethical Dilemma: This is a situation where individuals or entities face a choice between two or more conflicting ethical principles or values. It occurs when no clear or universally agreed-upon ethical solution exists, and individuals must carefully weigh each choice’s consequences and moral implications. Such dilemmas often arise in professional settings. In these cases, individuals must consider their obligations and responsibilities toward stakeholders, like clients and employees. These dilemmas can involve conflicting interests, values, or principles, making determining the most ethically appropriate course of action difficult.
  • Moral Dilemma: This is when individuals face a conflict between two or more moral principles or personal values. It involves a choice between different actions associated with moral consequences. Moral dilemmas usually arise within an individual’s private life or decision-making process instead of in a professional context. They often involve deeply held beliefs, values, and cultural norms that shape an individual’s moral compass. The conflicting choices in a moral dilemma can challenge one’s integrity and invoke a sense of moral responsibility towards oneself and others. Moral dilemmas are subjective and depend on an individual’s values and moral framework.

Frequently Asked Questions (FAQs)

1. How do ethical dilemmas complicate the workplace?

 Such dilemmas can complicate the workplace by adding conflicts and tension among employees, teams, and departments. When individuals face difficult choices with no clear ethical solution, it can lead to disagreements, strained relationships, and a loss of trust. Resolving the dilemmas may require extensive discussions, consultation, and decision-making processes, which can consume time and resources. Moreover, if these dilemmas are not appropriately addressed, they can negatively impact employee morale, organizational culture, and the company’s overall reputation.

2. How do ethical dilemmas in business affect the stakeholders?

These dilemmas may have significant impacts on stakeholders. They can create conflicts of interest, break trust, and damage relationships between the business and its stakeholders. When the dilemmas are not resolved effectively, stakeholders may perceive the company as unethical. It will lead to a loss of confidence, potential boycotts, and damage to reputation. Furthermore, stakeholders may suffer direct harm if unethical decisions result in financial losses, compromised safety, or unfair treatment.

3. Why do ethical dilemmas occur?

The causes of ethical dilemmas are the complexities and conflicting interests within the industry. Financial decisions usually involve balancing financial objectives with ethical considerations, like the well-being of stakeholders, transparency, and fairness. Factors such as profit maximization, conflicts of interest, and regulatory pressures can be the causes of ethical dilemmas.

This article has been a guide to what is Ethical Dilemma. We explain it with its examples, types, how to solve it, pros, cons, and comparison with moral dilemma. You may also find some useful articles here –

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