Business Ethics

1
Business Ethics

Ethics are rules that help us tell

the difference between right and
wrong. They encourage us to do
the right thing.

2
What is Ethical Behaviour?

Ethical behaviour is conduct that conforms to ethics—

individual beliefs and social standards about what is right and
good.

Values tell us what is important. They help us make decisions

about right and wrong.

Morals are rules we use to decide what is good or bad.

Business Ethics

What Role Should Ethics Play in

Business?
Business ethics are based on society’s
ethics and those of the people who work
for and buy from them.

4
A Code of Ethics
Some companies write a code of
ethics, a document that explains
specifically how employees should
respond in certain situations.
Canadian laws address acceptable
business behaviours. However,
businesses can still behave unethically
without breaking these laws.
Business Ethics
How Can Businesses Resolve Ethical
Dilemmas?
A dilemma is a situation where a difficult
choice must be made between two or
more options.

An ethical dilemma is a moral problem

with a choice between potential right and
wrong. Some questions to consider are
6
 Who will be helped by what you do?
Who will be hurt by what you do?
What are the benefits and problems of
such a decision?
Will the decision survive the test of time?

Whistle-blowing
Whistle-blowing happens when an
employee informs officials or the
public about an illegal or ethical
violation.
Business Ethics
What Happens When People Do Not
Behave Ethically?
When an individual acts unethically, his or
her behaviour will most likely harm others.
The individual could also be sent to jail for
his or her actions. Major ethical issues
include fraud, accounting scandals, and
insider trading.
8
Fraud
Fraud is a crime of lying or pretending.
Some businesses mislead consumers and
trick them to buy their products or
services. The Competition Act 2002 bans
such fraud and deceptive business
practices and defines these as
> false or misleading advertising
> “bait and switch” selling
> double ticketing items for sale
Business Ethics
Accounting Scandals
An accounting scandal occurs when accountants
or senior executives alter accounting records for
personal benefit.

Accounting information is used inside and outside

of the business to make decisions. When
accounting irregularities are uncovered, a forensic
accountant investigates legal and financial
documents to find evidence of tampering.

10
Embezzlement,
a type of accounting fraud, happens
when an accountant or senior executive
creates false accounts and redirects
money into them for personal gain.

Business owners rely on outside

accountants, auditors, to check and
report on the validity of financial
records.
Business Ethics
Insider Trading
Insider trading is buying or selling
shares of a company based on
confidential information. This type of
trading is illegal.

12
Prosecution for insider trading falls
under the provincial securities
commissions. Punishment includes
fining the individual(s) for up to $1
million
>turning over all profits from trading
>incarcerating the person(s) for up to
two years
>being banned from future trading in
securities
Ethics and Corporate
Social Responsibility
A business exhibits corporate social
responsibility (CRS) through their values,
ethics, and the contributions it makes to
communities. CRS is driven by a desire to
protect customers and to treat employees
and shareholders fairly.

14
CSR Principles
Businesses that practice CSR principles
support their employees and consumers
by
>providing a safe and healthy work
environment
>adopting fair labour polices
>protecting the environment
>being truthful in advertising
>avoiding price discrimination
donating to charity
Ethics and Corporate
Social Responsibility
Duty to Report
Corporations and their employees have a
duty to report, which means
they must disclose all important information
to shareholders, partners,
lenders, insurers, communities, regulators,
consumers, employees, and
investors.
16
Laws that Govern Corporate
Ethics

Workplace Safety
The Occupational Health and Safety Act (OHSA) of Ontario
defines the
rights and responsibilities of employees in their workplace to
ensure
their safety and health. These regulations were put in place to
remind
companies that it is not only important to focus on making
profits, but
also equally imperative to look after the safety and health their
Ethics and Corporate
Social Responsibility
Antidiscrimination Issues
Discrimination is denying a qualified individual
an interview, job, or promotion based on his or
her religion, gender, sexual orientation, or
physical disabilities.

Gender discrimination is treating an employee

differently based on their sex (male or female).

The glass ceiling refers to invisible barriers

that may affect the career path of senior leaders
in corporate positions.
18
Harassment

Many businesses have policies and procedures

for dealing with harassment: behaviour that is
threatening, disturbing, or makes others feel
uncomfortable.
Environmental Responsibility
Environmental concerns for business include the Earth’s air, land,
and water. These issues affect Canadian businesses and others in the
world

Environmental Protection Act

The Canadian Environmental Protection Act 1999 was the response
of Environment Canada to the environmental disaster of the Exxon
Valdez.

Kyoto Protocol
Canada signed the Kyoto Protocol in 1998 that states countries must
reduce carbon dioxide emissions by 2012 (five percent less than in
1990).
Ethics and Corporate
Social Responsibility
Business and the Environment
The way businesses respond to
environmental concerns and laws tells us
about their ethics or commitment to doing
what is right.  Problem:
Corporate
Business is like a three-legged stool:resources
each spent on
leg stands for a different goal. (See environmental and
social goals never
illustration on page 101 in the text.) equal what is spent
trying to generate
profits (financial
21
goals).
Business Goals
:First leg: financial
goals

:Second leg:
environmental goals

:Third leg: social

goals
Social Responsibility
Labour Practices
In Ontario, the Employment Standards Act addresses
the minimum employment conditions including
• hours of work
• overtime pay
• minimum wage
• holidays

23
>vacations
>equal pay for male and
female >employees
>employee benefit plans
>pregnancy, parental, and
other >leaves of absence
>notice of termination of
>employment
>severance and termination
pay
Ethics and Corporate Social
Responsibility
Pay Equity
Although pay equity legislation has changed
considerably since its establishment in 1978,
it still does not always deliver equal pay for
work of equal value. The legislation prohibits
employers from paying employees of one sex
differently than from the other when the same
or substantially the same work is done.
25
Ethics and Corporate
Social Responsibility
Fair Trade

Fair trade is the voluntary practice of helping

producers in developing countries bypass
expensive middlemen so they can sell their
goods in other countries for a fair profit.

26
 Variation of Employee
Conduct...
10% of employees follow their own values and
beliefs
40% try to follow company rules and policies
40% go along with the work group
10% take advantage of the situation if the penalty
is low and risk of being caught is low
 Implications of
Employee Conduct...
employees use different approaches to
making ethical decisions
a large percentage of employees (50%)
will either go along with coworkers or
take advantage of the situation
organizations must provide
communication and control mechanisms
to maintain an ethical climate
 Opportunity Creates Ethical
Dilemmas...
• opportunity is the set of conditions that limits
unfavorable behavior or rewards favorable
behavior
• a person who behaves unethically and is
rewarded (or not punished) is likely to
continue to act unethically
 Business Ethics...

• comprises principles and standards that

guide behavior in the world of business
• is right or wrong, acceptable or
unacceptable behavior within the
organization
• is determined by key stakeholders
 Why do companies develop
ethics programs?
• to allow employees and stakeholders to
understand the values of the business
• to comply with policies and codes of conduct
• to create the ethical climate of the business
 Top Ten Unethical Behaviors Reported
by Employees...

• sexual harassment • drug or alcohol

• lying on reports or abuse
falsifying records • improper accounting
• conflicts of interest procedures

• theft • violation of
environmental laws
• lying to supervisors
• gift/entertainment
• discrimination violations
 Code of Ethics...

• formal statement of what an organization

expects in the way of ethical behavior (what
behaviors are acceptable or unacceptable)
• reflects senior management’s organizational
values, rules, and policies
Six Steps in Implementing a Code
of Ethics...

• distribute internally & externally

• assist employees in understanding
• specify management’s role
• make employee’s responsible for understanding
the code
• establish grievance procedures
• provide a concluding statement
Six Steps in Implementing a Code
of Ethics...

• distribute internally & externally

• assist employees in understanding
• specify management’s role
• make employee’s responsible for understanding
the code
• establish grievance procedures
• provide a concluding statement
 Morality and Ethics

Morality Ethics
stems from latin: stems from greek:
mores ethos
means character, means character
custom, habit
frequently used in frequently used in
reference to shared reference to the
beliefs about the systematic study of
norms of right and moral values and
wrong. beliefs.
 Global Ethical Issues...
• sexual & racial discrimination
• human rights
• price discrimination
• bribery
• harmful products
• pollution
• telecommunications issues
 How CEOs Support Ethics
Initiatives...
• communicate directly with employees
• use their own “phraseology”
• tout successes and condemn failures
• use one standard for all employees (regardless of
level)
• acknowledge & promote ‘ethically aware’
managers
• survey employees about the program
 Ethics & Performance
Correlations...

• intrafirm trust
• commitment to quality
• customer satisfaction
• employee commitment
• profitability
 Factors Influencing Organizational
Ethical Behavior...
• Ethical Issue Intensity +
• Individual Factors +
• Corporate Culture (including significant others
and opportunity)
• = Ethical or Unethical Behavior
 Corporate Culture...

• a set of values, beliefs, goals, norms, and ways

to solve problems that an organization’s
members share.
• What is unique about the corporate cultures of
Wal-Mart, McDonald’s, Hershey Foods, and
Southwest Airlines?
 Social Responsibility...

• is the obligation a business assumes toward

society
• is designed to maximize the positive influence
& minimize the negative
• includes economic, legal, ethical, and
philanthropic dimensions
 Common Unethical Acts...

• lying to supervisors
• falsifying records
• alcohol and drug abuse
• conflict of interest
• stealing
• gift/entertainment receipt in violation of
company policy
– 1997 Society for Human Resource Management/ Ethics
Resource Center, Business Ethics Survey.
• Honesty

• Integrity

• Courage

• Impartiality
 Ethical Considerations
• Honesty/Transparency
– Is the director of facilities engaging in dishonest
business practices?
• Loyalty
– W.R. Best long relationship with Midwestern
– They have consistently performed well
• Conflicts of Interest
– Is the relationship between Gwen and W.R. Best
inappropriate?
– Should she avoid making endorsements of
contractors?
– Is there ever a justification for nepotism?
• Ensure Objectivity in Bidding Process.
– Openness/Transparency

• Integrity

• Personal Responsibility

• Authenticity
 Integrating Ethics...
• “The curriculum is under so many pressures
—to do technology, the Internet,
globalization, the environment…ethics is
competing with so many other things. The
curriculum is finite. You can’t put
everything in it.”
– David Vogel, University of California—
Berkeley
Developing Trust & Confidence
in Business...
• Individuals alone did not cause our current
crisis
• Many stakeholders were involved in
supporting deception, fraud & destruction
– Board members – Regulators
– Top management – Politicians
– Attorneys – Mass media
– Accounting firms – Investors
– Securities analysts – Colleges of business
 How does ethical decision
making occur in organizations?
• The #1 influencer of ethical/unethical
behavior is the influence of significant others
& the corporate culture
• Business ethics in an organization relates to a
corporate culture of values, programs,
enforcement & leadership
• Stakeholders must support organizational
ethics initiatives—it’s good business
– Stop focusing on the short term!!!
 Key Causes of Unethical
Behavior...

• meeting overly aggressive financial or business

objectives
• meeting schedule pressures
• helping the organization survive
• rationalizing that others do it
• resisting competitive threats
• saving jobs
– 1997 Society for Human Resource Management/ Ethics
Resource Center, Business Ethics Survey.
 The Main Point...
• “You can’t necessarily teach morality…but,
it’s possible to point out behavior that’s over
the line. Your mother did not teach you
about off-balance-sheet entities and how to
grapple with them.