Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. CHAPTER 5 Conducting Business Ethically & Responsibly

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-2 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 to both environmental issues and to a firm’s relationships with customers, employees, and investors Learning Objectives

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-3 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 social responsibility and ethics affect small businesses

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-4 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-5 FamilyExperiences Personal Code of Ethics Peer Group Influences on Ethical Behaviour

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-6 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-7 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-8 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 5-9 Core Principles and Organizational Values Core Principles Organizational Values Unchanging Organizational Objectives Changed Infrequently Strategies and Practices Revised Frequently

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Social Responsibility A business’s collective code of ethics towards the environment its customers its employees its investors

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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Responsibility Towards Customers Social Responsibility Towards Investors Responsibility Towards Environment Responsibility Towards Employees Influence on Business Social Responsibility

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Air Pollution Water Pollution Land Pollution Toxic Waste Acid Rain Environmental Responsibility Issues

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

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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 new forms of solid waste disposal changes in forestry practices

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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Customer Responsibility Issues Rights of Consumers Unfair Pricing Ethics in Advertising

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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Employee Responsibility Issues Human resource management issues Social responsibility issues Privacy issues Encouraging ethical behaviour Whistle-blowers

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Human Resource Management Issues Fair treatment of all employees without discrimination based upon sex, race, or other factors Recruiting Hiring Training Promoting Compensating

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Social Responsibility Towards Employees Safe workplaces socially and emotionally - not abuse or harassment physically - safe work environment

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

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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Responsibility Towards Investors Improper Financial Management Kiting Cheques Insider Trading Misrepresentation of Finances

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Approaches to Corporate Social Responsibility Obstructionist – Defensive – Accommodative - Proactive Lowest Level of Social Responsibility Highest Level of Social Responsibility

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Social Responsibility Social Audit Appointment of a Director Strategic Planning Top Management Support Managing Social Responsibility Programs

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

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

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