Understanding Canadian Business

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Understanding Canadian Business

• Chapter 5
• Ethics and Social Responsibility

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Learning Goals

• After you have studied this chapter, you should
  be able to
• 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.
• Describe managements role in setting ethical
  standards and distinguish between
  compliance-based and integrity-based ethics
  codes.
• List the six steps in setting up a corporate
  ethics code.
• Define corporate social responsibility and
  examine corporate responsibility to various
  stakeholders.
• Discuss the responsibility that business has to
  customers, investors, employees, society, and the
  environment.

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Ethics

• Standards of moral behaviour, that is, behaviour
  that is accepted by society as right versus wrong.

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Ethics and Legality Are Two Different Things
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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
  Canadas investigation and litigation costs of
  5.5 million and make a 10 million donation in
  the name of both airlines to childrens charities
  across Canada.

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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 dont make people honest, reliable or
  truthful. If laws were a big deterrent, there
  would be much less crime.

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Ethical Standards Are Fundamental

• Moral Values Right

• Moral Values - Wrong

• Integrity
• Respect for human life
• Self-control
• Honesty
• Courage and
• Self-Sacrifice

• Cheating
• Cowardice and
• Cruelty

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Ethics Begins withEach 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.

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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.

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Ethics Begins withEach of Us

• We cannot expect society to become more moral and
  ethical unless we as individuals commit to
  becoming more moral and ethical ourselves.

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Ethical Dilemma

• No desirable alternative.
• You must choose between equally unsatisfactory
  alternatives.

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Ethical Dilemma Questions

1. Is it legal?
2. Is it balanced?
3. How will it make you feel about yourself?

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Ethical Dilemma Questions

• 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.

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Ethical Dilemma Questions

• 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.

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Ethical Dilemma Questions

• 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
  companys 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.

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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?

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Managing Businesses Ethically Responsibly

• People learn their standards and values from
  observing what others do, not from what they say.

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Managing BusinessesEthically 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

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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 organizations
  guiding values, create an environment that
  supports ethically sound behaviour, and stress a
  shared accountability among employees.

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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.

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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

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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.

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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.

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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
  whistle-blowers in the public sector?

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Corporate Social Responsibility (CSR)

• A businesss concern for the welfare of society
  as a whole.

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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 companys 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.
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Corporate Responsibility in the Twenty-first
Century

• There are different views of corporate
  responsibility to stakeholders
• The strategic approach requires that managements
  primary orientation be toward the economic
  interests of shareholders.
• 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.

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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 dont 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
  companys social efforts a powerful competitive
  edge.

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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 Canadas 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.

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Insider Trading

• An unethical activity in which insiders use
  private company information to further their own
  fortunes or those of their family and friends.

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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 theyve been treated
  unfairly, they often strike back.
• How do you think employees would strike back
  against the company?

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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
  value-laden 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.

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Responsibility to the Environment

• Businesses are often criticized for their role in
  destroying the environment.
• The Sydney Tar Ponds are North Americas 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.

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Social Auditing

• A social audit is a systematic evaluation of an
  organizations 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
• Socially conscious investors who insist that a
  company extend its own high standards to all its
  suppliers.
• Environmentalists who apply pressure by naming
  names of companies that dont abide by the
  environmentalists standards.
• Union officials who hunt down violations and
  force companies to comply to avoid negative
  publicity.
• Customers who take their business elsewhere if a
  company demonstrates unethical or socially
  irresponsible practices.

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Progress Assessment

• What is corporate social responsibility, and how
  does it relate to each of a businesss 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?

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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 Earths
  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 Canadas
  climate change policy.

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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 system.

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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 childrens 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.

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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.

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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 managements 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.