Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 3 Conducting Business Ethically & Responsibly

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-2 Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors Learning Objectives

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-3 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 issues of social responsibility and ethics affect small businesses

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-4 What is Ethical Behaviour? Ethics  standards or moral values that dictate what is right and wrong  culturally based  formed upon society’s expectations  vary by person, and by situation Everyone develops their own “code of ethics”

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-5 FamilyExperiences Personal Code of Ethics Peer Group Influences on Ethical Behaviour

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-6 Managerial Ethics Ethical behaviour conforms to individual beliefs and social norms Behaviour toward employees  Firing, hiring, wages, privacy, etc.  Some decisions not illegal, but still unethical Behaviour toward the organization  Conflict of interest, confidentiality, honesty Behaviour toward other economic agents  Customers, competitors, shareholders, suppliers, unions

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-7 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-8 Assessing Ethical Behaviour Utility - optimize Rights – individual rights Justice - fair Caring – responsibilities to others “newspaper test”

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-9 Company Practices & Business Ethics Firms are creating ethical codes to guide employee decisions Top management support is essential Company policies are expanding to encompass and other forms of communication Ethics Programs – educating employees

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-10 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-11 Core Principles and Organizational Values Core Principles Organizational Values Unchanging Organizational Objectives Changed Infrequently Strategies and Practices Revised Frequently

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-12 Social Responsibility A business’s collective code of ethics towards its stakeholders  the environment  its customers  its employees  its investors  its suppliers  its community

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-13 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  Today: stress need for more social role for business  More awareness and activism

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-14 Responsibility Towards Customers Social Responsibility Towards Investors Responsibility Towards Environment Responsibility Towards Employees Areas of Social Responsibility

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-15 Air Pollution Water Pollution Land Pollution  Toxic Waste Disposal  Recycling  Biomass Environmental Responsibility Issues

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-16 Air Pollution Climate change, global warming & greenhouse gases Created by chemical emissions in product manufacturing & the operation of motor vehicles Legislation has been directed to controlling or eliminating polluting practices

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-17 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-18 Land Pollution Contamination of grounds and soil due to dumping of toxic waste and mishandling of landfills Key issues today include curbing polluting practices and restoring contaminated lands New developments include  emphasis on recycling  biomass – turning waste into energy  new forms of solid waste disposal  changes in forestry practices

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-19 Customer Responsibility Issues Rights of Consumers Unfair Pricing Ethics in Advertising

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-20 Consumer Rights Issues Consumerism social movement that seeks to protect and expand the rights of consumers in their dealings with businesses Consumers rights right 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-21 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 Price gouging during shortages

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-22 Ethics in Advertising Truth in Advertising Claims Advertising of Counterfeit Brands Stealth (Undercover) Advertising  Paying individuals to speak well of a product, but not admit they are being paid to do so Morally Objectionable Advertising

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-23 Employee Responsibility Issues Human resource management issues  Provide equal opportunity for rewards and advancement without discrimination Social responsibility issues  Safe workplace, no abuse Privacy issues  Drug testing and computer monitoring Encouraging ethical behaviour  Whistle-blowers

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-24 Encouraging Ethical Employee Behaviour Top management support for ethical behaviour is critical “Whistle-blowers” are employees who call attention to unethical behaviour  the company should support its “whistle blowers” rather than threatening them with dismissal or other penalties  There is legislation to protect whistle-blowers

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-25 Responsibility Towards Investors Improper Financial Management Kiting Cheques Insider Trading Misrepresentation of Finances

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-26 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-27 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-28 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-29 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-30 Approaches to Corporate Social Responsibility Obstructionist – Defensive – Accommodative - Proactive Lowest Level of Social Responsibility Highest Level of Social Responsibility

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-31 Corporate Charitable Donations 80% of Canadians think businesses should donate some profits to social causes Corporations often donate goods when disaster strikes Many have clear procedures for choosing where and how much to donate

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-32 Social Responsibility Social Audit Appointment of a Director Strategic Planning Top Management Support Managing Social Responsibility Programs

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-33 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-34 Step 2:Strategic Planning Top managers develop a plan of the level of company support toward goals of social responsibility  percent of sales revenues to go to social causes  promise to train chronically unemployed people

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-35 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

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-36 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 Triple bottom line reporting =  financial reports, social audits and sustainability reports

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 3-37 Social Responsibility and the Small Business 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