Have you ever faced an ethical dilemma? Maybe you found someone’s wallet on the ground or witnessed someone cheating during a test or competition. In these scenarios, the right answer isn’t always clear.
In business, you’re bound to encounter ethical dilemmas, especially as a leader. Behaving unethically can be illegal—for instance, stealing money or harming employees. In these situations, making the right choice is clearer. Sometimes, it’s not a question of legality but of weighing potential outcomes.
“Many of the decisions you face will not have a single right answer,” says Harvard Business School Professor Nien-hê Hsieh in the online course Leadership, Ethics, and Corporate Accountability. “Sometimes, the most viable answer may come with negative effects. In such cases, the decision is not black and white. As a result, many call them ‘gray-area decisions.’”
When facing ambiguity, how do you make the most ethical decision? Here’s a primer on ethical leadership and four examples of leaders who faced the same question.
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Ethical leadership is the practice of making decisions that balance stakeholders’ best interests with your company’s financial health, and empowering others to do the same.
As a leader, you have ethical responsibilities to four stakeholder groups—customers, employees, investors, and society—which Leadership, Ethics, and Corporate Accountability breaks down.
Responsibilities to Customers and Employees
Employees have a fifth category—fairness—which comprises three types to consider:
Responsibilities to Investors
Your responsibilities to investors are known as fiduciary duties. The four types are:
Responsibilities to Society
In addition to creating value for your business, you’re responsible for making a positive, or at least neutral, impact on society and the environment.
One framework to conceptualize this is the triple bottom line, also called the “three P’s”:
Even business leaders with the best intentions can make unethical decisions. In a Harvard Business Review article, HBS Professor Max Bazerman describes the concept of motivated blindness, in which you become unaware of unethical decisions when they benefit you or your company.
“Even when the right thing to do seems clear from an outsider’s perspective, factors like time, social pressures, and the need for self-preservation can complicate things,” Hsieh says in the course.
Learning about ethical leadership can enable you to be aware of unintended negligence and make more conscious, ethical decisions.
Here are four examples of business leaders who faced ethical dilemmas, how they handled them, and what you can learn from their experiences.
A classic case of ethical leadership in business is “the Chicago Tylenol poisonings.” On September 9, 1982, a Chicago-area 12-year-old girl woke up with a cold. Her parents gave her a tablet of extra-strength Tylenol to ease her symptoms and, within hours, she died.
Six more deaths followed—the connecting factor between them was having taken extra-strength Tylenol shortly before passing away. It was later discovered that the tablets were laced with cyanide, a chemical that interferes with the body’s ability to use oxygen.
Johnson & Johnson, Tylenol’s parent company, had an ethical dilemma and a public relations disaster to contend with.
Baffled as to how the cyanide got in the tablets, Johnson & Johnson’s leaders acted quickly and pulled all Tylenol products off the shelves—31 million bottles worth over $100 million—and stopped all production and advertising.
The swiftness of their decision, although incredibly costly, put customers’ well-being at the forefront and saved lives.
Johnson & Johnson partnered with the Chicago Police, the Federal Bureau of Investigation (FBI), and the Food and Drug Administration (FDA) to track down the perpetrator who added cyanide to the medication. The company offered a $100,000 reward and provided detailed updates on its investigation and product developments following the crisis.
When it became clear that the killer had bought the product, laced it with cyanide, and returned it to store shelves undetected, Johnson & Johnson developed the first-ever tamper-resistant packaging. The “safety seal” that now covers the opening of most food and drug products was born.
“Our highest responsibility has always been the health and safety of our consumers,” a Johnson & Johnson representative wrote in a statement to the Chicago Tribune. “While this tragic incident remains unsolved, this event resulted in important industry improvements to patient safety measures, including the creation of tamper-resistant packaging.”
The Tylenol brand recovered from the incident, largely because of Johnson & Johnson’s leadership team’s swift action and transparent care for customers.
On Valentine’s Day, 2007, at the John F. Kennedy International Airport, JetBlue Airlines sent nine planes from the gate to the runway during a snowstorm, hoping conditions would rapidly improve—but it had no such luck.
The misstep caused the planes to sit on the tarmac for more than five hours with disgruntled passengers inside. The issue snowballed from there.
Since JetBlue employees had to work overtime to deal with the delays, few had enough allowable flight time to handle upcoming departures. JetBlue was left with no choice but to cancel 1,096 flights over the following five days.
CEO David Neeleman responded by writing an apology letter to customers and crafting a “customer bill of rights” that the airline still abides by. The document outlined customers’ rights to information about flights, as well as how they’d be compensated in the event of delays or cancellations.
Neeleman also went on a public apology tour, taking full responsibility for the incident rather than blaming it on the weather.
This response stands in contrast to the 2022 Southwest Airlines incident that played out similarly but with less accountability from leaders. Initially caused by bad weather and then exacerbated by Southwest’s outdated booking systems, the 16,700 canceled flights left thousands stranded between December 21 and 31.
In contrast to Neeleman’s apologies and emphasis on customer rights, Southwest CEO Bob Jordan took a defensive stance, explaining in a video the impact that “record bitter cold” had on all airlines and that Southwest was doing everything it could to remedy the issue. While those points may have been true, the response didn’t go over well with customers who wanted to feel respected and understood.
Each leader's choices highlight the importance of being transparent and championing customer rights when facing similar issues.
If one of your employees made a critical decision based on racial bias, how would you respond? That was the question Kevin Johnson, then-CEO of coffee shop chain Starbucks, had to answer in April 2014.
One day, two Black men entered a Starbucks in Philadelphia and asked to use the bathroom. The manager on duty told them the restroom was for paying customers only, so they sat down to wait for their friend to arrive before ordering.
The manager called the police, who arrested the men for trespassing. Although no charges were filed, the arrest went viral and sparked protests throughout the United States.
Starbucks, which prides itself on being an ethical brand, has one of the most diverse leadership groups in corporate America—five of the board’s 14 members are women, and five are from racial minority groups. This racially motivated incident clashed with its values.
Johnson fired the manager who called for the arrest, apologized to the two men, and announced racial bias training for all Starbucks employees.
To emphasize the training’s importance, Johnson closed 8,000 locations on May 29, 2018, to educate 175,000 employees. This cost Starbucks an estimated $12 million in lost profit but spread the message that it cares about its customers, employees, and society.
Ethical dilemmas often aren’t public scandals—even quiet, internal decisions can have enormous impacts. Kathryn Minshew, CEO and co-founder of The Muse, faced one such scenario in the early days of growing the online career platform.
She’d just signed a company to use The Muse’s recruiting platform. It was a major deal, and the young startup desperately needed revenue. But during the onboarding process, Minshew noticed the client’s representatives were talking down to her junior staff members. While they respected her, how they treated her team didn’t sit well.
She spoke with the client about it, effectively providing a warning and a chance to start the relationship on a better note. Still, the poor treatment of her team continued.
Minshew had a decision to make: Take the revenue despite the mistreatment or part ways with the client to support her team. She went with the latter.
“I told them nicely that it didn’t make sense to work together anymore and refunded the unused balance of their money,” Minshew says in an interview with Fast Company. “They tried to argue, but at that point, my mind was made up. I didn’t realize how relieved my team was—and how much they appreciated it—until after it was all done.”
By cutting ties with the client, Minshew fulfilled her ethical responsibility to create an environment that supported her employees’ well-being and right to be treated respectfully. In doing so, she built a strong foundation of trust and demonstrated that she’d have their best interest in mind—even at the business’s expense.
“I think backing your team in situations like that is really important,” Minshew says in the same interview, “but it’s not always easy, especially when you’re early-stage.”
While these scenarios likely differ from those you face at your organization, ethical leadership’s guiding principles ring true.
To build your ethical leadership skills, consider taking an online business ethics course. In Leadership, Ethics, and Corporate Accountability, Hsieh presents several real-world examples of ethical dilemmas, prompts you to consider how you’d respond to them, and then lets business leaders share how they handled each.
In the course, you also learn how to use frameworks and tools to conceptualize your responsibilities to stakeholders, make judgment calls in gray-area situations, and act decisively to reach optimal outcomes.
By learning from the challenges and triumphs of those who came before you, you can equip yourself to handle any ethical dilemmas that come your way.
Are you interested in learning how to navigate difficult decisions as a leader? Explore Leadership, Ethics, and Corporate Accountability—one of our online leadership and management courses—and download our free guide to becoming a more effective leader.
Catherine Cote is a marketing coordinator at Harvard Business School Online. Prior to joining HBS Online, she worked at an early-stage SaaS startup where she found her passion for writing content, and at a digital consulting agency, where she specialized in SEO. Catherine holds a B.A. from Holy Cross, where she studied psychology, education, and Mandarin Chinese. When not at work, you can find her hiking, performing or watching theatre, or hunting for the best burger in Boston.
