Business Ethics and
Social Responsibility
Ethics
Ethics
• Standards or rules of conduct that help us distinguish
between right and wrong.
• Can help individuals decide on the best course of action
in situations where they aren’t sure what to do.
• Help us get along with others, living with ourselves and
living out good character.
• Based on individual beliefs, values, morals, and
standards in society
• They may vary from person to person, situation to
situation and culture to culture.
Values
Values
• Tell us what we think is important which helps
us make decisions about right and wrong.
• Examples include: trustworthiness, honesty,
respect, responsibility, empathy, good
citizenship, perseverance
• A person who values trustworthiness is unlikely
to betray a friend.
Morals
Morals
• Rules we use to decide what’s good and what’s
bad.
Examples:
• Stealing is bad because it harms the person you
are stealing from
• Lying is bad because it breaks trust and harms
relationships
Morals vs. Values
• We tend to judge people more on their morals than their
values
• Sometimes our values conflict with our morals and we
make questionable decisions.
Example:
• You might place a high value on friendships and wanting
people to like you
• You may believe that you don’t drink or drive or get into
a car with someone who drinks and drives because
irreparable harm and/or death may result
• Conflict – You are at a party and you get into a car with
someone you want to like you and this person has been
drinking.
Ethical Behaviour
Ethical Behaviour
• Behaviour that conforms to ethics
Unethical Behaviour
• When we make decisions that run counter
to our values and/or morals and do things
that our individual beliefs and social
standards define as bad or wrong.
The Role of Business Ethics
Consider:
• Individual ethics are personal;
• Society’s ethics are usually standards for decency and
respect of others;
• Business ethics are tied both to society’s ethics and the
ethics of the individuals own, work for and buy products
from the company.
So…
• How do you apply your personal beliefs in a business
environment?
• Should you just do what your employer tells you to do –
especially since s/he is paying you?
Business Code of Ethics/Conduct
Business Code of Ethics
• A document that outlines how employees and employers
should respond in different situations
• Stakeholders affected by business decisions include:
 Customers
 Employees
 Suppliers
 Competition
 Society
 Business owners (i.e. shareholders)
 Society at large
 The Environment – (including future generations)
Code of Ethics/Conduct Examples
• Sometimes a business code of ethics/conduct is
embodied in a company’s mission, vision, or
credo statement.
Google’s Code of Conduct
• http://investor.google.com/conduct.html
Johnson and Johnson – Our Credo
• http://www.jnj.com/connect/about-jnj/jnj-credo/
Johnson and Johnson’s Ethical Code for the Conduct of Pharmaceutical
Medicine
• http://www.investor.jnj.com/ethics.cfm
Ethical Standards for the Teaching Profession
• http://www.oct.ca/standards/ethical_standards.aspx?lang=en-CA
Mission Statement
Mission Statement
• A brief description of a company’s fundamental
purpose.
• A mission statement answers the question, “Why
do we exist?”
• It articulates the company’s mission for both
those who work in the company and the public.
Ward, Susan. “Mission Statement”. About.com: Small Business
Canada, October 2009, [Online]. Available:
http://sbinfocanada.about.com/od/businessplanning/g/missionstate
men.htm
Canadian Tire’s Mission Statement
“Canadian Tire is a growing network of
interrelated businesses... Canadian Tire
continuously strives to meet the needs of
its customers for total value by offering a
unique package of location, price, service
and assortment.”
Vision Statement
Vision Statement
• Sometimes called a picture of your company in the
future
• The vision statement answers the question, “Where
do we want to go?”
• It articulates the hopes and dreams for the
business. It reminds those in the company of what
you are trying to build.
• While a vision statement doesn’t tell you how you’re
going to get there, it does set the direction for your
business planning.
Vision Statement
• A vision statement is for members of the
company, not for the customers or clients.
• When writing a vision statement, the
mission statement can be a valuable
starting point for articulating company
values.
• Ward, Susan. “Vision Statement”. About.com: Small Business
Canada, October 2009, [Online]. Available:
http://sbinfocanada.about.com/od/businessplanning/g/visionstatem
ent.htm
Vision Statement
Example:
Within the next five years, ZZZ Tours will become
the premier eco-tour company in the world,
increasing revenues to 3 million dollars in 2013
by becoming internationally known for the
comfort and excitement of the whale-watching
tours it offers.
Business Code of Ethics Challenges
• Drawing the line between right and wrong is not
always easy.
For example:
• Giving a gift to a valued client – gift or bribery?
• A politician phones a bank on behalf of a friend who
is seeking a loan – legitimate character reference or
political influence for personal gain?
Code of Ethics won’t necessarily address every possible
situation.
Resolving Ethical Dilemma’s
Ethical Dilemma
• Moral problem with potential right or
wrong answers
Morals and
Values
Profitability and
Competitiveness
Business Ethical Dilemma’s
•
•
•
•
•
•
•
•
Disposal of toxic waste
Pollution control
Downsizing staff
Depletion and allocation of scarce natural
resources
Changes in law and technology (privacy issues)
Employee rights (i.e. workplace safety)
Discrimination against women and minorities
Product safety
Resolving Ethical Dilemma Requirements
•
•
•
•
•
•
•
•
•
Honesty
The ability to work collaboratively or cooperatively
Respect for others
Pride’s in one’s work
Willingness to learn and admit when you are
“wrong”
Dependability
Responsibility for one’s actions
Integrity
Loyalty
Resolving Ethical Dilemma
When the Code of Ethics is not clear or does not
exist, consider the following questions:
If I take this action:
1. Who are the stakeholders?
2. Who will be helped by what you do? How so?
3. Who will be hurt by what you do? How so?
4. What are the benefits and problems of such a
decision?
5. Will the decision survive the test of time?
The Law and Resolving Ethical
Dilemmas
• Actions may be considered unethical, but they
still may be legal
• Consider Mayor Larry O’Brien Trial &
• The Global Economic Crisis
• Laws are created to address acceptable business
practices, but a company can still behave
unethically, without actually breaking the law.
Unethical and Illegal Business Practices
FRAUD
Fraud
The crime of lying or pretending
The Competition Act 2002 bans these type of deceptive
business practices:
1.
False or misleading advertising
2.
Advertising merchandise for a bargain price, but not
having a reasonable quantity available for sale (bait
and switch selling)
3.
Placing two different price tags on a product and
selling it to the consumer at the higher price (double
ticketing)
Common Fraud Examples
Bank Fraud
• A bank officer makes a fraudulent loan to a non-existent
business and then pockets the money.
Consumer Fraud
• A business tricks customers into buying goods or
services they don’t really need through unethical
advertising or false claims.
Contract Fraud
• A business or individual uses temptations, such as bribes
or kickbacks, to create a contract.
Common Fraud Examples
Insurance Fraud
• A business or individual falsely claims lost, damaged, or
stolen property in order to receive insurance settlements
Mail Fraud
• An individual uses the postal service for fraudulent
purposes, such as mailing phony job opportunities, chain
letters, or inheritance scams.
Pyramid Scheme Fraud
• A person participating in the scheme recruits others in
order to receive more money than she or he invested in
the scheme.
Common Fraud Examples
Stock Market Fraud
• An individual uses insider trading or other techniques to
buy and sell stocks at artificial values.
Telemarketing Fraud
• A company uses high-pressure phone calls to get
customers to buy now or to donate funds to bogus
charitable causes.
Welfare Fraud
• An individual receives benefits without being eligible.
Accounting Scandals
Some Accounting Background…
Accounting Defined
• The process of identifying, measuring,
classifying and communicating financial
information about a business so that
informed judgments and decisions can be
made based on that information.
Accounting Information
Three formal statements that report financial
information of a company are a company’s:
1. Balance Sheet
2. Income Statement or Statement of
Operations
3. Cash Flow Statement
These statements will be found in corporations’
annual reports also called, shareholder’s reports.
Balance Sheet
• Reports a company’s Assets, Liabilities and Equity.
• States the financial position of a company on a certain
date.
Assets – Items that a business owns
- (building, land, equipment, supplies, cash,
money owed by customers called receivables.)
Liabilities – Debts/money owed by the business to other
businesses including banks
Equity – For a company it is called Owner’s Equity
- For a corporation it is called Shareholder’s Equity
and Retained Earnings
- For an individual it is called Net Worth
ASSETS – LIABILITIES = NET WORTH
Income Statement/Statement of
Operations
• Financial statement that shows all the revenues coming
into a business and all the expenses associated with
earning those revenues over a specific period of time.
• Between January 1 and December 31 of 2008 total
revenues were $1 million and total expenses were
$500,000.
Revenues - Expenses = Net Income/Proft
R>E = Net Profit
R<E = Net Loss
Cash Flow Statement
• Financial statement that outlines where all
the cash that is coming into the business
is coming from and;
• where all the cash that is leaving the
business is going to over a specific period
of time.
Accounting Information
Users of Financial Information
• Employees
• Management
• Banks
• Creditors – businesses who extend credit (short
term loans) to other businesses
• Shareholders
• Potential investors
• The government
Accounting Scandals
Accounting Scandal
• Crime involving accountants and/or senior
executives of an organization who alter
accounting records for personal benefit.
• Type of fraud
Forensic Accountant
• An independent person brought in from outside
a company to investigate the legal and financial
documents of a company and find out what
happened if a scandal has been uncovered.
Accounting Scandals
Embezzlement
• Is a type of accounting fraud in which an
accountant or senior executive invents
phony accounts and redirect money into
them for personal gain
• Often occurs in smaller businesses
Accounting Scandals
“Cooking the Books”
• An common expression used to indicate
corporate fraud
• Often involves
misusing or misdirecting funds
overstating revenues
understating expenses
overstating the value of corporate assets to the
public shareholders
 under-reporting liabilities




Auditors
• Individuals whose job is to check the financial
records of a company to determine if the
information presented is accurate, reliable, and
fair
• Ensure the company is following the correct
accounting procedures set up to help ensure
that theft, fraud, and embezzlement does not
occur
Auditors
• Big corporations often have their own internal
auditors
• All public and crown corporations, however, are
required by law to be audited annually by
outside, independent auditors to ensure public
accountability
• It is often the outside auditors who stumble
upon and/or discover accounting irregularities
and call in a forensic accountant.
Case: Canadian Sponsorship Scandal
Insider Trading
Insider Trading
• Occurs when someone makes an investment decision
based on confidential information that is not available
yet to the general public thereby giving themselves an
advantage over all other investors.
Example:
You learn from a friend who works for a corporation in
which you own shares, that an accounting scandal
about the company is going to hit the papers tomorrow.
When the news becomes public, frightened shareholders
will want to sell of their shares and consequently the
price of the shares will drop.
To avoid losing money on the shares you own, you sell off
your shares the day before this public announcement is
made.
Case: Consider Martha Stewart
Detecting Insider Trading
Provincial Securities Commission is the organization that
regulates the Stock Market to ensure fair and legal
trading.
Computers programs are used to search for abnormal
patterns of the sale or purchase of stocks.
Insider trading violations are prosecuted by the Provincial
Securities Commission and those convicted may face
fines up to $1 million, be forced to turn over their profits,
face jail sentences and could be banned from furture
stock market trading.
Whistle-Blowing
The decision of an employee
to inform officials or the
public about a legal or ethical
violation.
• Is it right? Ethical? If so, how should it be
•
done?
Will/Should the whistle-blower be rewarded or
punished or protected?
Case Studies
•
•
•
•
•
Enron
Canadian Sponsorship Scandal
Bre-x
Canadian victims of disgraced New York
financier Bernard Madoff, who admitted to
stealing billions from hundreds of clients. In
June, 2009 he was sentenced to 150 years in
prison.
Earl Jones Financial Ponzi scheme in Quebec