Chapter 5 Notes 1
Ethics and Social Responsibility
Ethics is More Than Legality:
Ethics and legality are two different things. Ethics reflects people’s proper
relations with one another: How should people treat others? Legality refers to
laws we have written to protect ourselves from fraud, theft, and violence.
Ethical Standards are Fundamental
Ethics are the standards of moral behavior; that is, behavior that is accepted
by society as right versus wrong.
Today, people seem to think that what is right is whatever works best for the
individual, and that each person has to work out for themselves the difference
between right and wrong.
Ethics Begins with Each of Us
When facing an ethical dilemma, we should ask ourselves:
o Is it Legal?
o Is it balanced?
o How will it make mefeelabout myself?
Managing Businesses 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
Ethics codes can be classified into two major categories: compliance-based
Compliance-based ethics codes are ethical standards that emphasize
preventing unlawful behavior by increasing control and by penalizing
wrongdoers. They are based on avoiding legal punishment.
Integrity-based ethics codes are ethical standards that define the
organization’s guiding values, create an environment that supports ethically
sound behavior, and stress a shared accountability among employees.
Six steps can help improve business ethics:
1. Top management must adopt and unconditionally support an explicit
corporate code of conduct.
2. Employees must understand that expectations for ethical behavior
begin at the top and that senior management expects all employees to
3. Managers and others must be trained to consider the ethical
implications of all business decisions. Chapter 5 Notes 2
4. 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 behavior) must
feel protected from retaliation as oftentimes this exposure can lead to
great career and personal cost.
5. 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 are.
6. 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.
FEATURES OF COMPLIANCE-BASED FEATURES OF INTEGRITY-BASED ETHICS
ETHICS CODES CODES
Conform to outside
Conform to outside standards (laws
Ideal: standards (laws Ideal: and regulations)
and regulations) and chosen internal
Avoid criminal Enable responsible
Objective: misconduct Objective: employee conduct
Managers with aid
Leaders: Lawyers Leaders: of lawyers and
Education, reduced leadership,
Methods: discretion, Methods: accountability,
controls, and decision processes,
An important factor in the success of enforcing an ethics code is the selection
of the ethics officer. The most effective ethics officers set a positive tone,
communicate effectively, and relate well with employees at every level of the
company. 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 company does.
The Sarbanes-Oxley Act of 2002 (SOX) Chapter 5 Notes 3
After the accounting scandals in the US in the early 2000s, it created the US
federal legislation known as the Sarbanes-Oxley Act (SOX).
It 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 US Securities and Exchange
Its goal is to ensure the accuracy and reliability of published financial
information, and thus the main part of the legislation requirements deal with
the proper administration routines, procedures, and control activities.
Whistleblowing Legislation in Canada
Bill C-11: The Public Servants Protection Disclosure Act provides for significant
powers to investigate wrongdoing, contains a clear legal prohibition of
reprisal against those who make good-faith allegations of wrongdoing and it
proposes measures to protect the identity of persons making disclosures.
Corporate Social Responsibility:
Corporate social responsibility (CSR) is a business’s concern for the welfare of
society as a w