Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc....

Business Fifth Canadian edition, Griffin, Ebert & Starke

© 2005 Pearson Education Canada Inc.

CHAPTER 5CHAPTER 5

Conducting BusinessEthically & Responsibly

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Explain how individuals develop their personal codes of ethics and why ethics are important in the workplaceDistinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness todayShow how the concept of social responsibility applies to both environmental issues and to a firm’s relationships with customers, employees, and investors

Learning Objectives

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More Learning Objectives

Identify four general approaches to social responsibility and describe the four steps a firm must take to implement a social responsibility program

Explain how social responsibility and ethics affect small businesses

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What is Ethical Behaviour?

Ethicsstandards or moral values that dictate what is right and wrongculturally based formed upon society’s expectations vary by person, and by situation

Everyone develops their own “code of ethics”

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Family ExperiencesPersonal Code of

Ethics

Peer Group

Influences on Ethical Behaviour

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Assessing Ethical Behaviour

Gather the relevant factual

information

Analyze the facts to determine the most appropriate

moral values

Make an ethical judgment based on

the rightness or wrongness of the proposed activity

or policy

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Company Practices & Business Ethics

Firms are creating ethical codes to guide employee decisions

Top management support is essential

Company policies are expanding to encompass e-mail and other forms of communication

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Written Codes of Ethics

Increase public confidence in a firm or its industry

Help stem the tide of government regulation

Improve internal operations by providing consistent standards of both ethical and legal conduct

Help managers respond to problems that arise as a result of unethical or illegal behaviour

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Core Principles and Organizational Values

Core PrinciplesOrganizational ValuesUnchangingOrganizational Objectives

Changed Infrequently

Strategies and PracticesRevised Frequently

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Social Responsibility

A business’s collective code of ethics towards

the environment

its customers

its employees

its investors

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The Evolution of Social Responsibility in Canada

Late 19th Century: laissez-faire attitude leads to business strife and exploitation of labour

• Development of business law

Great Depression (1930s): many feel that business greed led to job loss and failure of financial institutions

• Enhanced protection to non-business stakeholders

1960s-1970s: Business perceived as a negative social force leading to increased activism

• More aggressive laws and labeling initiatives enhance consumer protection

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Responsibility Towards Customers Social

Responsibility

Responsibility TowardsInvestors

Responsibility Towards Environment

Responsibility Towards Employees

Influence on Business Social Responsibility

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Air Pollution

Water Pollution

Land Pollution

Toxic Waste

Acid Rain

Environmental Responsibility Issues

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Air Pollution

Unsuitable air quality can affect the health of all

citizens, with immediate effects on those who

have pre-existing medical conditions or allergies

Created by chemical emissions in product

manufacturing & the operation of motor vehicles

Legislation has been directed to controlling or

eliminating polluting practices

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Acid Rain

Contaminated rainfall created by emissions of sulphur by power and manufacturing plants

Affects eastern Canada and the United States

Can seriously damage forests and streams

Can be controlled by existing technology but at tremendous cost to business

Costs could force a firm into losses, or outright bankruptcy

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Water Pollution

Water contamination due to years of releasing toxic chemicals into lakes, rivers, and streams

Chief offenders are businesses such as pulp and paper plants, and municipalities who dump raw sewage

Practices are being curbed by legislation, education, and affordable new technology

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Land Pollution

Contamination of grounds and soil due to dumping of toxic waste and mishandling of landfillsKey issues today include curbing polluting practices and restoring contaminated landsNew developments include

emphasis on recyclingnew forms of solid waste disposalchanges in forestry practices

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Toxic Waste

Release of toxic chemicals or radioactive by-products of the manufacturing process

Contaminates land, air and water

Such substances cannot be rendered harmless and must be carefully stored

Pressure on businesses to “clean up” from many sources

Greenpeace

Banks refusing financing

Consumer and social interest groups

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Customer Responsibility Issues

Rights of Consumers

Unfair Pricing

Ethics in Advertising

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Consumer Rights Issues

Consumerism

social movement that seeks to protect and expand the rights of consumers in their dealings with businesses

Consumers rightsright to safe products

right to be informed

right to be heard

right to choose what they buy

The right to be educated about purchases

The right to courteous service

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Unfair Pricing Issues

Illegal pricing practices may occur due to the intentional (illegal) limiting of competition

Collusion a group of companies conspiring to fix prices

results in inflated prices and a lack of competition

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Employee Responsibility Issues

Human resource management issues

Social responsibility issues

Privacy issues

Encouraging ethical behaviourWhistle-blowers

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Human Resource Management Issues

Fair treatment of all employees without discrimination based upon sex, race, or other factorsRecruitingHiringTrainingPromotingCompensating

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Social Responsibility Towards Employees

Safe workplacessocially and emotionally - not abuse or harassment

physically - safe work environment

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Privacy of Employees

How much control is acceptable in the workplace?

drug testing

video monitoring

Employees may not be aware or may not know when they are being monitored

Results in increased job stress

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Encouraging Ethical Employee Behaviour

Top management support for ethical behaviour is critical

“Whistle-blowers” are employees who report unethical behaviour

the company should support its “whistle blowers” rather than threatening them with dismissal or other penalties

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Responsibility Towards Investors

Improper Financial Management

Kiting Cheques

Insider Trading

Misrepresentation of Finances

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Improper Financial Management

Doing a poor job of managing the financial resources of a company

payment of high salaries, lavish expense accounts, & other perks with little control over how money is spent

May be legally unpunishable because no law has been broken

It may be difficult to replace management because unrest in the firm may devalue its stock

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Cheque Kiting

Illegal practice of writing cheques against money that has not yet arrived in the bank account

A creative “cheque kiter” can write cheques from account to account with very little money to back it up

The assumption is that the money will arrive before the cheque needs to clear

Becoming difficult to do with modern-day computerized banking

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Insider Trading

Using confidential (non-public) information to gain from the sale of stock

Martha Stewart (ImClone shares)

Involves gaining knowledge of inside information about the company prior to making the purchase

Can involve the collusion of investors buying and selling stock at the appropriate time to make huge profits

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Misrepresenting Financial Information

Companies must conform to accounting guidelines called “Generally Accepted Accounting Principles” (GAAP)

Failure to follow GAAP in order to inflate expected profit figures can mislead investors

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Approaches to Corporate Social Responsibility

Obstructionist – Defensive – Accommodative - Proactive

Lowest Level of


Highest Level ofSocial Responsibility

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Social Audit

Appointment of a Director

Strategic Planning

Top Management Support

Managing Social

ResponsibilityPrograms

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Step 1: Top Management Support

Top management support is essential to adopting a social responsibility program

Top managers must develop a policy statement outlining their commitment to more ethical behaviour

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Step 2:Strategic Planning

A committee of top managers must develop a plan that describes the level of company support that will be given to meeting goals of social responsibility

percent of sales revenues to go to social causes

promise to train chronically unemployed people

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Step 3: Appoint a Director

An executive-level administrator must be appointed to oversee the social program that the firm has created

This may be achieved through a partial time work commitment on the part of existing top managers

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Step 4: The Social Audit

A systematic analysis of how the firm is using funds designated specifically to fund its social initiatives

Also addresses the effectiveness of the monies that have been spent

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Small Business Ethics

A small business does not have the same impact on society if it acts in an irresponsible way

Many entrepreneurs decide to conduct themselves in a socially responsible manner because they feel it is important to contribute to society

Individual entrepreneurs make independent decisions

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc....

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