Current Ethical Issues in Business

Table of Content

In today’s changing world of economical and social standings, individuals have to be aware of how ethical issues are of the utmost importance in the 21st century corporate world. The following paper will show the reader how a certain company deals with the ethical responsibilities and how actions of not following them of have consequences, not for just the company, but the consumers as well. The examination of which ethical theories should apply to this situation will be shown in order to broaden the insight of how this could have been avoided. The company with whom this issue is based upon involves H&R Block and fraudulent Express IRA accounts that have some states claiming these accounts cost more then what the customer earns. The basis of how this happened as well as the how their leadership handled this problem will be discussed throughout the course of this paper. First, we will be discussing what H&R Block does and what this situation dictates.

Basis of this Issue

H&R Block is a tax preparing service that has been notified of a potential lawsuit due to misleading customers into investing in a retirement account where customers lose money instead of profiting for retirement. In fact, customers are told of this program while having their taxes filled out and are about to receive a lump sum of cash. According to Maull, the lawsuit, filed in Manhattan’s state Supreme Court, says Block advised clients to buy an “unsuitable, fraudulently marketed, poorly performing, fee-ridden ‘retirement vehicle’ called the Express IRA,” an account that shrinks over time (Maull, 2006). These accounts have been reported to have interest so low, that over time the costs of fees and other expenses of maintaining the account costs more then being made in the interest; hence shrinking the account.

This essay could be plagiarized. Get your custom essay
“Dirty Pretty Things” Acts of Desperation: The State of Being Desperate
128 writers

ready to help you now

Get original paper

Without paying upfront

Additionally, H&R Block could be promoting this possibly spurious retirement plan in hopes of retaining those customers to keep coming back each year for H&R Block to maintain the accounts. While no decision has been made yet, H&R Block admits to no wrongdoing. H&R Block continues to stick behind their retirement plan mentioning they are preparing their customers for the future. In fact, Lammartino reports, “Out of all the Express IRA clients accounts opened between 2001 and 2005, 78% have experienced positive net tax savings benefits and interest earnings” (Lammartino, 2006). However, the issue here seems to be that H&R block may not be disclosing all the facts to their customers because they admit the accounts may shrink if they make small deposits or withdrawal their money from the account early. Organizational Leadership

In a 2002 email to Mark Ernst, the company CEO, a district manager complained about the impact of these accounts on customers: “I really don’t think maintenance fees should exceed the amount of interest that we are paying on these accounts. Clients won’t be happy seeing [their] investments decreasing…” (H&R Block exhibits, HRB-0090229) Mr. Ernst forwarded this email to the Express IRA product manager and added his own comments: “The attached note . . . reflects the general sense that I think exists – that Express IRA is the right thing for our clients, but the product is designed to nickel and dime clients to the point where our field people [don’t] feel as good about the product as they should…”(H&R Block exhibits, HRB-0090228)

Some conscientious H&R Block employees (including the person who brought the information to the Attorney General) refused to promote the product to clients. In fact, many employees made comments to the corporate offices concerning the product. “I won’t sell it [XIRA] because it pays almost nothing on the investment. I am familiar with various securities that are offered and I will not sell this. I would sooner tell someone to walk across the street to the bank before I tell them to invest in an XIA from Block.” “Block’s training of tax pros to provide advice on XIRA’s is woefully inadequate. In addition, I am suspicious of any product Block would offer because the company is purely in business to make a profit.

They do not care about the clients or the owners as long as we keep selling. I am not going to do that.” (H&R Block exhibits, HRB-0058597) An internal confidential email from the corporate headquarters stated, “Personally, I’d like to modify the message on this brochure as well e.g. the “great rates” message doesn’t seem to sit well with tax pros. I’d rather focus on convenience, security, and tax savings.” (HR Block exhibits, HRB-14241) So how did H&R Block get their tax professionals to push the XIRA? They gave them bonus incentives of $25 per customer up to a maximum of $100 per tax year. Aside from the high fees that H&R Block was receiving from the Express IRA product, they were receiving 1% interest on the monies collecting but only passing on .8% of the interest from the money market investment to the customer and according to an internal document.

This company planned to drop that rate to .55% by the end of 2004, eventually going as low as .1% interest being paid back to the client. What happens to the other .9%? It goes into H&R Block’s pocket while the .1% interest the customer received was not enough to pay the fees that Block was still charging to manage the accounts. (H&R Block exhibits, HRB-0042471) Therefore, these clients, many of them low income, put refunds and earnings into individual retirement accounts that were ”virtually guaranteed to lose money.” (H&R Block Incorporated) The statistics showed that almost 90% of the IRAs’ that were sold only came from approximately 10% of the tax professionals that H&R Block employs. This shows that while the upper management and some of the front-end employees knew about the account problems and did nothing, many of the tax professionals followed their ethics and refused to support the product. Ethical Developments

When dealing with this situation, with it, is the belief that this company used an ethical egoism approach when this company developed these IRA accounts. The company was acting only in their self-interest in order to lure customers back repeatedly. H&R Block refrained from taking the well-being of their consumers into consideration when this plan was developed. Many companies in today’s world have expressed this view of ethical behavior in order to get their profits up when they are low on customer sales. H&R Block has resorted to this type of ethical behavior simply because their customer rates were failing to due new products such as Turbo Tax. Individuals, in the year 2005, used these types of alternatives as opposed to the services at H&R block.

Therefore, as a ploy to get their customers coming back for their services, H&R Block developed these IRA accounts without regard to the customer. The other ethical behavior, which has been displayed in this situation by H&R Block, has been consequentialism. The consequences of their action have lead to this company being sued by the state of New York for fraud. As opposed to utilitarianism, consequentialism can have a good or bad effect on people or organizations. Consequentialism can be rephrased as, how their morally wrong action, is an action that has produced a bad consequence. This action has had a major negative impact on, not only their image, but also their business as a whole. This consequential action has lead to numerous backlashes with legal issues that have yet to be resolved.


In conclusion, the ethical standards of H&R block would be greatly improved if they were to revise from egoism in their business practice and start utilizing some deontological ethical behavior. One of the most important implications of deontology is that praiseworthy goals can never justify the immoral actions; as that, the ends do not justify the means. One way H&R Block can communicate these kinds of ethical standards throughout the organization is by re-evaluating their customer relations and making them an important part of their business just as this company has done in the past. The major problems with the IRA accounts are all those fees that H&R Block includes. They should be cut out if this company values the faith of their customers.


Lammartino, N. (2006). H&R block defends its express IRA product and delivers strong rebuttal to NEW YORK AG’s attack. Retrieved Mar. 25, 2006, from Press Center Web site: Maull, S. (2006). H&R block sued for fraud. Retrieved Mar. 25, 2006, from “H & R Block, Incorporated” International Directory of Company Histories, Vol. 29. St. James Press, 1999. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.: Gale Group. 2006. Spitzer, Eliot “H&R

Cite this page

Current Ethical Issues in Business. (2016, Nov 27). Retrieved from

Remember! This essay was written by a student

You can get a custom paper by one of our expert writers

Order custom paper Without paying upfront