Chapter Five (Ethic and social responsibility)
Ethics- Standards of moral behaviour; that is, behaviour that is accepted by
society as right versus wrong.
o Ethics begins with each of us. Ethical behaviour should be exhibited in our
daily lives, not just in a business environment.
It can be very difficult to maintain a balance between ethics and other goals
however it is helpful to ask the following questions:
o Is it legal? Am I violating any law or company policy?
o Is it balanced? Am I acting fairly? Would I want to be treated this way?
o How will it make me feel about myself? Would I feel proud if my family
learned of my decision?
Managing Business Ethically and Responsibly
Any trust and co-operation between workers and managers must be based on
fairness, honesty, openness, and moral integrity.
A business should be managed ethically for many reasons: to maintain a good
reputation; to keep existing customers; to attract new customers; to avoid
lawsuits; to reduce employee turnover; to avoid government intervention (the
passage of new laws and regulations controlling business activities); to please
customers, employees, and society; and simply to do the right thing.
Setting corporate ethical standards
o ethics codes can be classified into two major categories: compliance-based and
o Compliance-based ethics codes emphasize preventing unlawful behaviour
by increasing control and by penalizing wrongdoers
o are based on avoiding legal punishment
integrity-based ethics codes define the organization's guiding
values, create an environment that supports ethically sound
behaviour, and stress a shared accountability among employees
o Both codes have a concern for the law and use penalties as enforcement.
Integrity-based ethics codes move beyond legal compliance to create a
“do-it-right” climate that emphasizes core values such as honesty, fair
play, good service to customers, a commitment to diversity, and
involvement in the community.
six-step process can help improve business ethics:
Top management must adopt and unconditionally support an
explicit corporate code of conduct. Employees must understand that expectations for ethical
behaviour begin at the top and that senior management
expects all employees to act accordingly.
Managers and others must be trained to consider the ethical
implications of all business decisions.
An ethics office must be set up. Phone lines to the office
should be established so that employees who don't
necessarily want to be seen with an ethics officer can inquire
about ethical matters anonymously. Whistleblowers (people
who report illegal or unethical behaviour) must feel protected
from retaliation as oftentimes this exposure can lead to great
career and personal cost.
Outsiders such as suppliers, subcontractors, distributors,
and customers must be told about the ethics program.
Pressure to put aside ethical considerations often comes
from the outside, and it helps employees to resist such
pressure when everyone knows what the ethical standards
The ethics code must be enforced. It is important to back
any ethics program with timely action if any rules are broken.
This is the best way to communicate to all employees that
the code is serious.
Effective ethics officers are people who can be trusted to maintain confidentiality,
can conduct objective investigations and ensure that the process is fair, and can
demonstrate to stakeholders that ethics is important in everything that the
The sarbanes Oxley act
The major corporate and accounting scandals in the United Sates in the early
2000s gave rise to the implementation of U.S. federal legislation known as the
Sarbanes-Oxley Act (SOX).
The legislation established stronger standards to prevent misconduct and
improve corporate governance practices.
SOX applies to all publicly-traded companies whose shares are listed on the
stock exchanges under the jurisdiction of the U.S. Securities and Exchange
Whistle blowing in Canada Bill C-11: the public servant protection disclosure act is Canada’s only
national whistleblower legislation.
Applies to almost entire public sector
Gives significant powers to investigate wrongdoing, contains legal prohibition
of reprisal against those who make good faith allegations of wrongdoing and it
proposes measures to protect identity of person making disclosures
Federal accountability act was implemented to help strengthen accountability
and increase transparency and oversight in government operation
No provision to protect private-sector whistleblowers
Corporate social responsibility
Corporate social responsibility (CSR) AKA corporate responsibility: Business’s
concern for the welfare of society as a whole
o Based on company’s concerns for the welfare of all its stakeholders not
just the owners.
o Goes beyond merely being ethical- based on commitment to such basic
principles as integrity, fairness and respect
Not everyone think CSR is a good thing
o CSR critics believe manger’s role is to compete and win in the
o CSR critics believe managers who pursue CSR are doing with other
people’s money- money they invested to make more money, mot to
CSR defenders believe that business owe their existence to the societies they
o Given access to labour pool and natural resources
o Adam Smith (father of capitalism, believed self-interested pursuit of profit
o Argued benevolence was the highest virtue
o Acknowledge deep obligations to investors
o Argues makes more money for the investors in the long run
o Good ethical reputations attract and retain employees, draw more
customers and enjoy greater employee loyalty.
o Good business because it is what the society demand
Social performance of a company has several dimensions:
Corporate philanthropy – social responsibility that includes charitable donations
Corporate social initiatives include enhanced forms of corporate philanthropy that
are more directly related to the company's competencies. Corporate responsibility includes everything from hiring minority workers to
making safe products, minimizing pollution, using energy wisely, and providing a
safe work environment
Corporate policy refers to the position a firm takes on social and political issues.
Corporate responsibility in the twenty century
o Two type of corporate responsibility to stakeholders
o The Strategic Approach. The strategic approach requires that
management's primary orientation be toward the economic interests of
as owners, shareholders have the right to expect management to
work in their best interests; that is, to optimize profits. Furthermore,
Adam Smith's notion of the invisible hand suggests that the
maximum social gain is realized when managers attend only to
their shareholders' interests.
o The Pluralist Approach. This approach recognizes the special responsibility of
management to optimize profits, but not at the expense of employees, suppliers,
and members of the community.
o This approach recognizes the moral responsibilities of management that
apply to all human beings. Managers don't have moral immunity when
making managerial decisions.
o Insider trading - using private company information to further their own fortunes,
or those of their family and friends.
Responsibility to employees
o have a responsibility to create jobs if they want to grow.
o Once a company creates jobs, it has an obligation to ensure that hard work and
talent are fairly rewarded.
o Employees need realistic hope of a better future, which comes only through a
chance for upward mobility. People need to see that integrity, hard work,
goodwill, ingenuity, and talent pay off.
o Studies have shown that the factor that most influences a company's
effectiveness and financial performance is human resource management.
o If not treated with respect, people strike back
Responsibility to society
o Non-profit organizations play an important role in distributing the funds they
receive from donors, governments, and even their own investments in billions of
shares in publicly-held companies.
o As those stock prices increase, more funds are available to benefit society. o Responsible for promotin