1. Copyright © 2006 Pearson Education Canada Inc. 4-1 Chapter 4 Conducting Business Ethically and Responsibly

2. Copyright © 2006 Pearson Education Canada Inc. 4-2 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

3. Copyright © 2006 Pearson Education Canada Inc. 4-3 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

4. Copyright © 2006 Pearson Education Canada Inc. 4-4 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”

5. Copyright © 2006 Pearson Education Canada Inc. 4-5 Influences on Ethical Behaviour Personal Code of Ethics Family Peer Group Experiences

6. Copyright © 2006 Pearson Education Canada Inc. 4-6 Managerial Ethics Behaviour toward employees Behaviour toward the organization Behaviour toward other economic agents

7. Copyright © 2006 Pearson Education Canada Inc. 4-7 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

8. Copyright © 2006 Pearson Education Canada Inc. 4-8 Company Practices & Business Ethics Firms are creating ethical codes of conduct to guide employee decisions Top management support is essential Adopting written codes Instituting ethics programs

9. Copyright © 2006 Pearson Education Canada Inc. 4-9 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

10. Copyright © 2006 Pearson Education Canada Inc. 4-10 Core Principles and Organizational Values Core Principles Organizational Values Unchanging Organizational Objectives Changed Infrequently Strategies and Practices Revised Frequently

11. Copyright © 2006 Pearson Education Canada Inc. 4-11 Social Responsibility A business’s collective code of ethics towards The environment Its customers Its employees Its investors

12. Copyright © 2006 Pearson Education Canada Inc. 4-12 Organizational Stakeholders Groups, individuals, and organizations that are directly affected by the practices of an organization and that therefore have a stake in its performance

13. Copyright © 2006 Pearson Education Canada Inc. 4-13 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

14. Copyright © 2006 Pearson Education Canada Inc. 4-14 Responsibility Towards Customers Social Responsibility Towards Investors Responsibility Towards Environment Responsibility Towards Employees Areas of Social Responsibility

15. Copyright © 2006 Pearson Education Canada Inc. 4-15 Air pollution Water pollution Land pollution Toxic waste Acid rain Environmental Responsibility Issues

16. Copyright © 2006 Pearson Education Canada Inc. 4-16 Air Pollution Unsuitable air quality can affect the health of all citizens Created by chemical emissions in product manufacturing & the operation of motor vehicles Legislation has been directed to controlling or eliminating polluting practices

17. Copyright © 2006 Pearson Education Canada Inc. 4-17 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

18. Copyright © 2006 Pearson Education Canada Inc. 4-18 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

19. Copyright © 2006 Pearson Education Canada Inc. 4-19 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

20. Copyright © 2006 Pearson Education Canada Inc. 4-20 Toxic Waste Emission of chemicals and/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 Environmental Protection Acts

21. Copyright © 2006 Pearson Education Canada Inc. 4-21 Customer Responsibility Issues Rights of consumers Unfair pricing Ethics in advertising

22. Copyright © 2006 Pearson Education Canada Inc. 4-22 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

23. Copyright © 2006 Pearson Education Canada Inc. 4-23 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

24. Copyright © 2006 Pearson Education Canada Inc. 4-24 Ethics in Advertising Issues Increased attention to ethics in advertising and product information Words and phrases such as “light”, “diet”, “low fat” Concerns about advertising that is considered morally objectionable Ad campaigns by tobacco and alcohol companies

25. Copyright © 2006 Pearson Education Canada Inc. 4-25 Employee Responsibility Issues Human resource management issues Social responsibility issues Privacy issues Encouraging ethical behaviour Whistle-blowers

26. Copyright © 2006 Pearson Education Canada Inc. 4-26 Human Resource Management Issues Fair and equitable treatment of all employees without discrimination based upon sex, race, or other factors Recruiting Hiring Training Promoting Compensating

27. Copyright © 2006 Pearson Education Canada Inc. 4-27 Social Responsibility Towards Employees Safe workplaces Socially and emotionally - no abuse or harassment Physically - safe work environment

28. Copyright © 2006 Pearson Education Canada Inc. 4-28 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

29. Copyright © 2006 Pearson Education Canada Inc. 4-29 Encouraging Ethical Employee Behaviour Top management support for ethical behaviour is critical “Whistle-blowers” are employees who report unethical, illegal, and/or socially irresponsible behaviour The company should support its “whistle blowers” rather than threatening them with dismissal or other penalties

30. Copyright © 2006 Pearson Education Canada Inc. 4-30 Responsibility Towards Investors Improper financial management Cheque kiting Insider trading Misrepresentation of finances

31. Copyright © 2006 Pearson Education Canada Inc. 4-31 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

32. Copyright © 2006 Pearson Education Canada Inc. 4-32 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

33. Copyright © 2006 Pearson Education Canada Inc. 4-33 Insider Trading Using confidential (non-public) information to gain from the purchase or sale of stock Martha Stewart (ImClone shares) Involves gaining knowledge of inside information about the company prior to making the purchase

34. Copyright © 2006 Pearson Education Canada Inc. 4-34 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

35. Copyright © 2006 Pearson Education Canada Inc. 4-35 Approaches to Corporate Social Responsibility Obstructionist – Defensive – Accommodative - Proactive Lowest Level of Social Responsibility Highest Level of Social Responsibility

36. Copyright © 2006 Pearson Education Canada Inc. 4-36 Social Responsibility Social Audit Appointment of a Director Strategic Planning Top Management Support Managing Social Responsibility Programs

37. Copyright © 2006 Pearson Education Canada Inc. 4-37 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

38. Copyright © 2006 Pearson Education Canada Inc. 4-38 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

39. Copyright © 2006 Pearson Education Canada Inc. 4-39 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

40. Copyright © 2006 Pearson Education Canada Inc. 4-40 Step 4: The Social Audit A systematic analysis of how the firm is using funds designated specifically to fund its social responsibility goals Also addresses the effectiveness of the monies that have been spent

41. Copyright © 2006 Pearson Education Canada Inc. 4-41 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