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Chapter 5

Chapter 5 notes.docx

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Ethics is more than Legality
Ethics reflects people’s proper relation with one another: how should people treat other?
What responsibility should they feel for others?
E.g. Canadian company caught in an unethical behavior scandal: WestJet Airlines
vs. Air Canada (page 142).
Legality refers to laws we have written to protect ourselves from fraud, theft and
Ethics Standards are Fundamental
Ethics is defined as the standards of moral behavior, that is, behavior that is accepted by
society as right versus wrong.
Many decide situationally whether it is okay to steal, lie or drink and drive.
They seem to think that what is right is whatever works best for the individual,
and that each person has to work out for himself or herself the difference between
right and wrong. This kind of thinking = scandals.
Ethics begins with each of us
Plagiarizing material from the Internet is the most common form of cheating in schools
today. Students tend to justify it as everyone else is doing it.
When facing an ethical dilemma, ask yourself:
1. Is it legal? Am I violating any law or company policy?
2. Is it balanced? Am I acting fairly?
3. How will it make me feel about myself? Would I feel proud if my family learned
of my decision?
Managing Businesses Ethically and Responsibly
People learn their standards and values from observing other others; organizational Ethics
begins at the top, and the leadership and strong managers should help instill corporate
values in employees.
A business should be managed ethically for reason including:
To maintain a good reputation
To keep existing customers and attract new one
To avoid law suits
To reduce employee turnover
To avoid government intervention in the form of new legislations controlling
business activities
To please customers, employees, and society
To simply do the right thing
Setting Corporate Ethical Standards
More and more companies have adopted written codes of conduct.
Ethics codes can be:
Compliance based ethics codes: emphasize preventing unlawful behavior by increasing
control and by penalizing wrongdoers. They are based on avoiding legal behavior.
Integrity based ethics codes: define the organizations guiding values, create an
environment that supports ethically sound behavior, and stress shared accountability
among employees.
Features of Compliance
based Ethics Codes Features of Integrity based
Ethics Codes
Ideal Conforms to outside
standards (laws and
Conforms to outside
standards and chosen
internal standards
Objective Avoid criminal misconduct Enable responsible
employee conduct
Leaders Lawyers Managers with aid of
Methods Education, reduced
employee discretion,
controls and penalties
Education, leadership,
accountability, decision
processes, controls, and
The six step process that can help improve business ethics:
1. Top management support corporate code of conduct
2. Expectations begin at the top
3. Ethics imbedded in training
4. Ethics office set up- Whistle blower=people who report illegal or unethical
5. External Stakeholders must be told about company ethics code
6. There must be enforcement
An ethics officer can be appointed to enforce the ethics code by setting a positive
tone, effective communication and relate well to employees at entry level.
The Sarbanes Oxley Act of 2002 (SOX)
Legislation establishing stronger standards to prevent misconduct and improve
governance practices in the US.
The goal of SOX is to ensure the accuracy and reliability of published financial
Protects whistleblowers from any company retaliation, as it requires all public
corporations provide a system that allows employees to submit concerns both
confidentially and anonymously.
Whistleblower Legislation in Canada
There is no legislation in place to protect all worker, both public sector and private sector.
However, for public sector employees, a third party independent officer is set up for those
who have concerns.
The Federal Accountability Act protects federal government employees who come
forward so they do not have to face reprisal.
Democracy Watch: a citizen group – much more needs to be done to protect
whistleblowers (page 150)
Corporate social responsibility: is the concern businesses have for welfare to society,
not just for their owners.
Critics of CSR believe that the role of a corporation is to compete and win in the
marketplace and make money for its shareholders. Shareholders investments should only
be used to make more money for them, not to improve society.
CSR defendants believe that businesses owe their existence to the societies they serve
and cannot succeed in societies that fail.
Corporate philanthropy: includes charitable donations to non-profit groups of
all kinds
oCanadian tire has given over 417,000 financially disadvantaged children
the chance to participate in organized recreational activities
Corporate social initiatives: includes enhanced forms of corporate philanthropy
in that they are more directly related to the company’s competencies
oE.g. in response to the 2004 Asian tsunami, FedEx shipped emergency
relief supplies for free from all over the world
Corporate responsibility: acting responsibly with company and toward society
oE.g. hiring minority workers to making safe products, minimizing
pollution, using energy wisely, and providing a safe work env.
Corporate policy: position on social and political issues
Concepts of Social responsibility
There are two different views of corporate responsibility to stake holders:
The Strategic Approach: requires the management’s primary orientation be
toward the economic interests of shareholders. The rationale is: as, owners,
shareholders have the right to expect management to work in their best interests;
that is, to optimize profits. Invisible hand: maximum social gain is realized when
managers attend only to their shareholders interests. Others argue that
corporations are only responsible to their shareholders not society as a whole.
Corporations should obey the laws of the countries within which they work but
they have no obligation to society.
The Pluralist Approach: recognizes the special responsibility of management to
optimize profits, but not at the expense of employees, suppliers, and members of
the community.
Corporations Responsibility to Customers
Consumers have four basic rights