Understanding
Canadian Business
Chapter 5
Ethics and Social Responsibility
Learning Goals
• After you have studied this chapter, you should
be able to:
1.
Explain why legality is only the first step in behaving
ethically and ask the three questions one should answer
when faced with a potentially unethical action.
2.
Describe management’s role in setting ethical standards
and distinguish between compliance-based and integritybased ethics codes.
3.
List the six steps in setting up a corporate ethics code.
4.
Define corporate social responsibility and examine
corporate responsibility to various stakeholders.
5.
Discuss the responsibility that business has to
customers, investors, employees, society, and the
environment.
Ethics
Standards of moral behaviour, that is,
behaviour that is accepted by society
as right versus wrong.
Ethics and Legality Are Two
Different Things
How
should
people
treat
others?
Laws we have
written to
protect
ourselves from
fraud, theft &
violence
What
responsibility
should they
feel to
others?
Ethics
Legality
Ethics is More Than Legality
• It is not uncommon to hear of instances where
business people are involved in unethical behaviour.
• After two years of denying accusations, WestJet
Airlines admitted to spying on Air Canada.
– WestJet was accessing a confidential Air Canada
website designated for reservations.
• As part of the settlement WestJet will pay Air
Canada’s investigation and litigation costs of $5.5
million and make a $10 million donation in the name
of both airlines to children’s charities across
Canada.
Ethics is More Than Legality
• Given that ethical lapses happen, what can be
done to restore trust in the free-market system
and leaders in general?
– People who break the law should be
punished. No one should be above the law.
• Laws don’t make people honest, reliable or
truthful. If laws were a big deterrent, there would
be much less crime.
Ethical Standards Are
Fundamental
Moral Values – Right
• Integrity
Moral Values - Wrong
• Cheating
• Respect for human life• Cowardice and
• Self-control
• Honesty
• Courage and
• Self-Sacrifice
• Cruelty
Ethics Begins with
Each of Us
• Ethical behaviour should be exhibited in
our daily lives, not just in a business
environment.
• The average annual donation in Canada is
$1,656.
– It is interesting that, as with volunteering, the
numbers of those who give are dropping but
those who do give are more generous.
Average Charitable Donation
$1,600
$1,437 $1,468
$1,400
$1,303 $1,308
$1,200
$1,098
$945 $965
$921
$901
$1,000
$754
$800
$600
$400
$200
$-
$532
$1,017
$1,338
Ethics Begins with Each of Us
• Young people learn from the behaviour of
others. In a study conducted on one college
campus, 80% of students surveyed admitted to
cheating.
• Downloading from the Internet is the most
common form of cheating today.
– One school reported that half of its plagiarism cases
involved students cutting and pasting information from
a website without crediting the source.
– To fight this problem, many instructors now use
services such as Turnitin.com, which scans students’
papers against 6 billion pages of documents and
provides evidence of copying in seconds.
Ethics Begins with
Each of Us
We cannot expect society to become more
moral and ethical unless we as individuals
commit to becoming more moral and ethical
ourselves.
Ethical Dilemma
No desirable alternative.
You must choose between equally
unsatisfactory alternatives.
Ethical Dilemma Questions
1. Is it legal?
2. Is it balanced?
3. How will it make
you feel about
yourself?
Ethical Dilemma Questions
1. Is it legal?
– Am I violating any law or company policy?
– Whether you are thinking about:
•
having a drink and then driving home
•
gathering marketing intelligence or
•
hiring or firing employees
– It is necessary to think about the legal
implications of what you do.
– This question is the most basic one in
behaving ethically in business.
Ethical Dilemma Questions
2. Is it balanced?
–
Am I acting fairly?
–
Would I want to be treated this way?
–
Will I win everything at the expense of another party?
–
Win-lose situations often end up as lose-lose situations.
–
•
There is nothing like a major loss to generate retaliation from the
loser. For example many companies that were merely suspected
of wrong doing have seen their stock drop dramatically.
•
Not every situation can be completely balanced, but it is important
to the health of our relationships that we avoid major imbalances
over time.
An ethical business person has a win-win attitude trying to benefit all
parties involved.
Ethical Dilemma Questions
3. How will it make me feel about myself?
–
Would I feel proud if my family or friends learned of my
decision?
–
Would I be able to discuss the proposed situation or action with
my immediate supervisor? The company’s clients?
–
How would I feel if my decision were announced on the news?
–
Will I have to hide my actions?
–
Am I feeling unusually nervous?
•
Decisions that go against our sense of right and wrong make us
feel bad – they corrode our self-esteem.
•
An ethical business person does what is proper as well as what is
profitable.
Progress Assessment
• What is ethics?
• How does ethics differ from legality?
• When faced with ethical dilemmas, what
questions can you ask yourself that might
help you make ethical decisions?
Managing Businesses
Ethically & Responsibly
People learn their standards and values
from observing what others do, not from
what they say.
Managing Businesses
Ethically & Responsibly
• A business should be managed ethically for
many reasons to:
– Maintain a good reputation
– Keep existing customers
– Attract new customers
– Avoid lawsuits
– Reduce employee turnover
– Avoid government intervention
– Please customers, employees and society and
– Do the right thing
Setting Corporate Ethical Standards
• Although ethics codes vary greatly, they
can be classified into two major
categories:
– Compliance-based ethics codes
• ethical standards that emphasize preventing
unlawful behaviour by increasing control and by
penalizing wrongdoers.
– Integrity-based ethics codes
• ethical standards that define the organization’s
guiding values, create an environment that
supports ethically sound behaviour, and stress a
shared accountability among employees.
Help Improve Business Ethics
1. Top management must adopt and unconditionally
support an explicit corporate code of conduct.
2. Employees must understand that expectations for
ethical behaviour begin at the top and that senior
management expect all employees to act accordingly.
3. Managers and others must be trained to consider the
ethical implications of all business decisions.
4. An ethics office must be set up.
5. Outsiders such as suppliers, subcontractors, and
customers must be told about the ethics program.
6. The ethics code must be enforced.
Ethics Officers
• The most effective ethics officers:
– set a positive tone
– communicate effectively
– relate well with employees at every level of the
company
– equally comfortable serving as counsellors or as
investigators
– trusted to maintain confidentially
– can conduct objective investigations and ensure the
process is fair and
– can demonstrate to stakeholders that ethics is
important in everything the company does
The Sarbanes-Oxley Act
(SOX) of the United States
SOX requires all public corporations to
provide a system that allows employees to
submit concerns regarding accounting and
auditing issues both confidentially and
anonymously.
Whistle-blowing Legislation
in Canada
• Bill C-11 was passed in November
2005.
• It provides for significant powers to
investigate wrongdoing; it contains
clear legal prohibition of reprisal
against those who make good-faith
allegations of wrongdoing; and it
proposes measures to protect the
identity of persons making
disclosures.
Progress Assessment
• How are compliance-based ethics codes
different from integrity-based ethics
codes?
• What are the six steps to follow in
establishing an effective ethics program in
a business?
• What protection is being offered to whistleblowers in the public sector?
Corporate Social
Responsibility (CSR)
A business’s concern for the
welfare of society as a whole.
The Social Performance of a
Company:
Dimension
Description
Corporate
philanthropy
includes charitable donations to non-profit
groups of all kinds.
Corporate social
initiatives
include enhanced forms of corporate
philanthropy in that they are more directly
related to the company’s competencies.
Corporate
responsibility
includes everything from hiring minority
workers to making safe products, minimizing
pollution, using energy wisely, and providing a
safe working environment. Everything that
has to do with acting responsible within
society and toward employees.
Corporate policy
Refers to the position a firm takes on social
and political issues.
Corporate Responsibility in the
Twenty-first Century
• There are different views of corporate
responsibility to stakeholders:
1. The strategic approach requires that
management’s primary orientation be toward
the economic interests of shareholders.
2. The pluralist approach recognizes the special
responsibility of management to optimize
profits, but not at the expense of employees,
suppliers, and members of the community. This
view says that corporations can maintain their
economic viability only when they fulfill their
moral responsibilities to society as a whole.
Responsibility to Customers
• Customers prefer to do business with companies they
trust and, even more important, do not want to do
business with companies they don’t trust.
• One responsibility of business is to satisfy customers by
offering them goods and services of value.
• One of the surest ways of failing to please customers is
not being totally honest with them.
• The payoff of socially conscious behaviour could result in
new business as customers switch from rival companies
simply because they admire the company’s social efforts
– a powerful competitive edge.
Responsibility to Investors
• Ethical behaviour is good for shareholder
wealth.
• Unethical behaviour may seem to work for the
short term, but it guarantees eventual failure.
• In the 2005 Canada’s Most Respected
Corporations survey, 89% of Canadian CEOs
agreed with the statement that “companies that
are more respected by the public enjoy a
premium in their share price”.
Insider Trading
An unethical activity in which insiders use
private company information to further their
own fortunes or those of their family and
friends.
Responsibility of Employees
• Once a company creates, jobs, it has an obligation to ensure that
hard work and talent are fairly rewarded.
• Part of treating employees well is ensuring that employers of all
sizes provide a safe work environment.
– The Canadian Labour Congress (CLC) believes that there are
well over 1,000 workers who die annually from workplace causes
and there are more than one million who suffer workplace
injuries.
• When employees feel they’ve been treated unfairly, they often strike
back.
– How do you think employees would strike back against the
company?
Responsibility of Society
• Businesses need to develop long-term
profitable relationships with their customers
by establishing repeat business.
– Repeat business is based on buying safe and valueladen products, at reasonable prices.
• Many companies believe business has a role
in building a community that goes well
beyond giving back.
– Their social contributions include cleaning up the
environment, building community toilets, providing
computer lessons, caring for the elderly, and
supporting children from low-income families.
Responsibility to the Environment
• Businesses are often criticized for their
role in destroying the environment.
– The Sydney Tar Ponds are North America’s
largest hazardous waste site.
• More than 80 years of discharges from the steel-producing
coke ovens near the harbour have filled Muggah Creek with
contaminated sediments.
• Two decades later, there have been several attempts and
more than $100 million spent to clean up this toxic site.
• In May 2004, the governments of Canada and Nova Scotia
committed $400 million to the cleanup. It is expected that
this cleanup will take ten years.
Social Auditing
• A social audit is a systematic evaluation of an
organization’s progress toward implementing programs
that are socially responsible and responsive.
• There are four types of groups that serve as watchdogs
regarding how well companies enforce their ethical and
social responsibility policies:
1.
Socially conscious investors who insist that a company extend
its own high standards to all its suppliers.
2.
Environmentalists who apply pressure by naming names of
companies that don’t abide by the environmentalists’
standards.
3.
Union officials who hunt down violations and force companies
to comply to avoid negative publicity.
4.
Customers who take their business elsewhere if a company
demonstrates unethical or socially irresponsible practices.
Progress Assessment
• What is corporate social responsibility, and
how does it relate to each of a business’s
major stakeholders?
• How does the strategic approach differ
from the pluralist approach?
• What is a social audit, and what kinds of
activities does it monitor?
International Ethics and Social
Responsibility
• Prime Minister Stephen Harper introduced legislation to
make the government more honest and transparent
through the Federal Accountability Act.
– This Act promises to end undue influence on government by big
business, unions, and industry lobbyists.
• The former Liberal federal government supported the
Kyoto Protocol
– The first global agreement that established legally binding
targets for cutting greenhouse gas emissions believed to upset
the Earth’s climate and temperature, and committed to decrease
gas emissions between 2008 and 2012.
– The election of a Conservative government in early 2006 brought
about a reversal in Canada’s climate change policy.
International Ethics and Social
Responsibility
• Many businesses are demanding socially responsible
behaviour from their international suppliers by ensuring
that suppliers do not violate domestic human rights and
environmental standards.
• In contrast to companies that demand their suppliers
demonstrate socially responsible behaviour are those
that have been criticized for exploiting workers in less
developed countries.
– Nike, has been accused by human rights and labour groups of
treating its workers poorly while lavishing millions of dollars on
star athletes to endorse its products.
– Nike is working to improve its reputation, in part by joining forces
companies and six leading anti-sweatshop groups to create a
single set of labour standards with a common factory-inspection
International Ethics and Social
Responsibility
• The justness of requiring international suppliers to adhere to
domestic ethical standards is not as clear-cut as you might
think.
– Is it always ethical for companies to demand compliance with the
standards of their own countries?
– What about countries in which child labour is an accepted part of the
society and families depend on the children’s salaries for survival?
– What about foreign companies doing business in Canada – should
these companies comply with Canadian ethical standards? What about
multinational corporations?
• The International Standards Organization (ISO) developed a
new standard on social responsibility that includes guidelines
on product manufacturing, fair pay rates, appropriate
employee treatment, and hiring practices.
– These standards are advisory only and will not be used for certification
purposes.
International Ethics and
Social Responsibility
The formation of a single set of international rules
governing multinational corporations is unlikely in
the near future.
In many places, “Fight corruption” remains just a
slogan, but even a slogan is a start.
Summary
1. Explain why legality is only the first step in behaving
ethically and ask the three questions one should
answer when faced with the potentially unethical action.
2. Describe management’s role in setting ethical
standards and distinguish between compliance-based
and integrity-based ethics codes.
3. List the six steps in setting up a corporate ethics code.
4. Define corporate social responsibility and examine
corporate responsibility to various stakeholders.
5. Discuss the responsibility that business has to
customers, investors, employees, society, and the
environment.