Compliance Glossary

Gray Area

Individuals and organizations adopt ethical standards and moral frameworks to help them guide decision-making and differentiate between right and wrong. While this practice is generally helpful, the reality of business is that ethical decisions aren’t always black and white, and ethical standards fall short of being perfectly prescriptive of how individuals should act in a given situation. 

When our ethical standards fall short of clearly differentiating between right and wrong in a given situation, we find ourselves in a moral gray area where the lack of a clear solution makes it difficult to door even recognizethe right thing.

What is a Gray Area?

An ethical gray area describes a situation, problem, or ethical dilemma that cannot be resolved through the simple application of ethical standards or which is not adequately addressed by ethical guidelines that exist within the organization.

In most business situations that demand ethical decision-making, entities can use their existing ethical standards and moral framework to clearly differentiate between right and wrong. A gray area may exist when those ethical standards either:

  1. Do not cover or fail to adequate address the situation at hand, or
  2. Conflict with each other without addressing how to resolve such a conflict

Ethical gray areas can challenge organizations in many ways. Humans have a natural tendency to make emotional decisions, then justify those decisions later using ad-hoc reasoning. This makes us susceptible to ethically gray situations where the individual stands to benefit from pushing the boundaries of acceptable business ethics.

What Does it Mean to be in a Gray Area?

Being in an ethical gray area usually means that:

  1. The entity is in the process of making a decision that has ethical implications.
  2. The entity’s ethical standards do not prescribe a clear course of action or the entity’s ethical standards prescribe conflicting courses of action based on the specific context of the decision.
  3. As a result, it is unclear how the entity should evaluate the decision and whether the entity’s preferred course of action will be considered ethically permissible. 

What is an Example of a Gray Area in Business?

Consider the following example of an ethical gray areas in business:

Employee Caught Stealing

You are a supervising manager at a manufacturing plant in a foreign nation with a strict penal code. You catch a worker stealing products from the plant. You know the worker is poor and desperate to support his family. Company policy requires you to report the incident to local authorities, but you know the worker will face harsh corporal punishment if convicted of the theft. Do you make the report?

Gray Area Explained: This is a case of an ethical gray area caused by conflicting ethical standards. One standard might tell you that following company policy is the right thing to do, suggesting that you should report the thief. However, you may hold a separate ethical standard which tells you that corporal punishment is an unethical punishment for property-related crimes, suggesting that you should find an alternative solution that does not involve the local authorities.

How to Resolve an Ethical Gray Area

Gray area issues are not always easily resolved, but they do represent opportunities for an entity to evaluate, update, and redefine its ethical standards.

The evaluation of gray area issues should begin with a thorough exploration of the entity’s legal duties, contractual obligations, and compliance requirements, which take precedence over personal and organizational values. Following that, strong business leaders deal with the challenges of gray-area issues by soliciting feedback from others, collecting and analyzing data, and evaluating their own perspectives to find the best course of action that preserves organizational integrity while advancing business objectives.

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