Ethics of Workplace Fraud: A Multi-Framework Analysis

Introduction: A False Dilemma

The employee at the center of this scenario faces a choice between letting a substandard product pass inspection — which would require her to falsify her report — and escalating the issue above her supervisors' heads, which would damage her working relationships with them. Because no available option is without some negative consequence, this has the surface appearance of a true ethical dilemma (McConnell, 2014). The situation resembles the prisoner's dilemma in structure, yet there are subtle but important differences that allow it to be resolved with considerably less ambiguity.

The basic ethical issue is that the company has a contractual obligation to its client. Moreover, depending on the nature of the defect, approving a failing product could put human lives at risk. Most directly, the two supervisors are asking the employee to commit fraud. Unlike in the prisoner's dilemma, she has not yet committed a crime, so there is still an opportunity to avoid negative consequences entirely. She must file her report honestly and let the consequences follow. If her supervisors then choose to pass along the product she has rejected, she has a duty of care to the company's shareholders — and to the public — to inform senior management.

Stakeholder Analysis

There are numerous stakeholders in this scenario. The employee, her two supervisors, senior management, and the client are all stakeholders, but so too are the end users who will ultimately use the product. Depending on the nature of the defect, end users may be the most at risk. Shareholders of both companies, regulators, and employees are also affected. The most important stakeholders, however, are those who are either directly affected or stand to be directly harmed: the employee herself, the client, and any end users who might suffer injury from the defect.

The two supervisors are somewhat lower on this hierarchy as stakeholders, because the consequences they face result from their own choices rather than the employee's. If senior management takes action against them, it is because they violated company policy. Senior management occupies the next tier — important but not the primary concern. Most other stakeholders are more tangential. While the employee does owe a duty of care to shareholders in principle, the larger picture is the one that matters: a significant product defect that management concealed, and that eventually causes injury, is far more destructive to all stakeholders than insisting that the engineering team meet specifications, or approaching the client transparently about the current test results.

Ethical Frameworks Applied

This scenario involves a potentially illegal act — fraud — so in a strict sense, examining ethical frameworks is almost a formality. If the employee is found to have committed fraud, she could face criminal prosecution and civil liability. The scenario is framed as a dilemma because each available choice carries some negative outcome, but in practice it is rarely a dilemma to choose between breaking the law for self-interested reasons and complying with it.

The utilitarian perspective points fairly clearly in one direction given the facts. If the employee approves the product, the end user, the client, and ultimately the shareholders of both companies face real risk of harm — to say nothing of the employee's own legal exposure. The trade-off is marginal at best: she preserves a comfortable relationship with her supervisors. A utilitarian calculus recognizes almost no upside in that choice, because both companies are likely to suffer the moment someone is harmed by the defective product.

The rights approach holds that human beings must be treated as ends in themselves, never merely as means. Approving a product known to be defective would expose end users to risk purely as a mechanism for protecting profit, which is entirely incompatible with this framework (Velasquez et al., 2014). The risks imposed on end users and the client are untenable under this philosophy.

The justice approach seeks to resolve ethical questions by treating equals equally — that is, it is fundamentally about fairness. One could try to rationalize that bending the rules "a little" is fair, but that reasoning fails on examination. The contract terms with the client were reached through negotiation, and fairness demands that those terms be honored. The employee's role is precisely to verify that products meet contractual specifications; upholding those specifications is what fairness requires.

The common good approach positions individuals as members of a shared community rather than isolated actors (Velasquez et al., 1996). Viewed through this lens, the employee's actions affect not only herself but everyone in that community. She therefore owes a duty of care to the other members — a duty to perform her job as she is contractually and professionally obligated to do, which means rejecting the product. More information about this framework is available through the Markkula Center for Applied Ethics.

Finally, virtue ethics holds that there are certain ideals toward which human beings should strive, ideals that allow for our fullest development. Identifying those ideals is itself a challenge, but it is reasonably safe to say that greed and covering for poor workmanship — or for supervisors who condone it — are not among them. Honesty, even at personal cost, is a much stronger candidate for the kind of virtue this framework invokes. It is certainly closer to that standard than the alternative being proposed here.

Conclusion

The employee should file her report honestly, with her findings unadulterated. If necessary, she should escalate above her supervisors to prevent the defective product from reaching the market — though that step represents an independent judgment call in its own right. All five ethical frameworks support this as the correct course of action. Furthermore, because approving the product would constitute fraud, the so-called "dilemma" is, in reality, a choice between doing her job and breaking the law because her supervisors instructed her to. That is not much of a dilemma at all.

References

Kuhn, S. (2014). The prisoner's dilemma. Stanford Encyclopedia of Philosophy. Retrieved November 23, 2015, from http://plato.stanford.edu/entries/prisoner-dilemma/

McConnell, T. (2014). Moral dilemmas. Stanford Encyclopedia of Philosophy. Retrieved November 23, 2015, from http://plato.stanford.edu/entries/moral-dilemmas/

Velasquez, M., Andre, C., Shanks, T., & Meyer, M. (1996). Thinking ethically: A framework for moral decision making. Markkula Center for Applied Ethics. Retrieved November 23, 2015, from http://www.scu.edu/ethics/practicing/decision/thinking.html

Velasquez, M., Andre, C., Shanks, T., & Meyer, M. (2014). Rights. Markkula Center for Applied Ethics. Retrieved November 23, 2015, from http://www.scu.edu/ethics/practicing/decision/rights.html