Management of the Enterprise
Chapter 5: Ethics and Social Responsibility
Ethics is more than Legality
- It’s not just for-profit business people that exhibit unethical behaviour.
- To those who have broken the law need to be punished accordingly.
- Arresting business leaders and sending them to jail may seem harsh, but it is a first step toward
showing the public that it is time to get serious about legal and ethical behaviour in business.
- New laws making accounting records more transparent (easy to read and understand) and
more laws making business people and others more accountable may help.
- The danger in writing new laws to correct behaviour is that people may begin to think that any
behaviour that is within the law is also acceptable.
- Ethics reflects people’s proper relations with one another.
- Legality refers to laws we have written to protect ourselves from fraud, theft, and violence.
Ethical Standards are Fundamental
- Ethics standards of moral behaviour; that is, behaviour that is accepted by society as right
- They seem to think that what is right is whatever works best for the individual, that each person
has to work out for himself or herself the difference between right and wrong.
- In the past decade there has been a rising tide of criticism in Canada of various business
practices that many Canadians consider unacceptable.
- Basic moral values: integrity, respect for human life, self-control, honesty, courage, and self-
sacrifice are right; cheating, cowardice, and cruelty are wrong.
Ethics Begins with Each of Us
- We cannot expect society to become more moral and ethical unless we as individuals
commit to becoming more moral and ethical ourselves.
- Ethical dilemmas you must choose between equally unsatisfactory alternatives (doing
something unethical because you have no choice).
- Ask the following questions to yourself when facing an ethical dilemma:
o Is it legal?
Am I violating law or company policy?
o Is it balanced?
Am I acting fairly?
An ethical business person has a win-win attitude.
o How will it make me feel about myself?
Would I feel proud if my family learned of my decision?
Would I be able to discuss the proposed situation or action with my
immediate supervisor? Clients? Managing Businesses Ethically and Responsibly
- People learn their standards and values from observing what others do, not from hearing what
- 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.
- A growing number of people think that ethics have everything to do with management.
- Individuals do not usually act alone; they need the implied, if not direct, co-operation to
behave unethically in a corporation.
Setting Corporate Ethical Standards
- Compliance-Based ethics code Ethical standards that emphasize preventing unlawful
behaviour by increasing control and by penalizing wrongdoers.
- Integrity-based ethics code ethical standards that define the organization’s guiding values,
create an environment that supports ethically sound behaviour, and stress a shared
accountability among employees.
- The following six-step process can help improve business ethics:
o Top management must adopt and unconditionally support an explicit corporate code
o Employees must understand that expectations for ethical behaviour begin at the top
and that senior management expects all employees to act accordingly.
o Managers and others must be trained to consider the ethical implications of all business
o 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.
o 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.
o 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.
- Whistleblowers people who report illegal or unethical behaviour
- 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.
- While many ethics officers have backgrounds in law, it is more important that they have strong
communication skills than a background in specific rules, regulations, and risks.
- Effective ethics officers are people who can 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)
- The Sarbanes-Oxley Act established stronger standards to prevent misconduct and improve
corporate governance practices.
- Applies to all publicly-traded companies whose shares are listed on the stock exchanges
under the jurisdiction of the US Securities and Exchange Commission.
- The goal of the SOX is to ensure the accuracy and reliability of published financial information,
and therefore the main part of the legislation requirements deal with the proper administration
routines, procedures, and control activities.
- SOX also now protects whistleblowers from any company regarding accounting nad auditing
issues both confidentially and anonymously.
Whistleblowing Legislation in Canada
- Bill C-11: The Public Servants Protection Disclosure Act is Canada’s only national whistleblower
- Applies to almost the entire public sector.
- Provides for significant powers to investigate wrongdoing, it 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.
- Reforms include a 5-year lobbying ban on former ministers, their aides, and senior public
servants (i.e. to communicate in an attempt to influence), the elimination of corporate and
union donations to political parties and candidates, and protection for whistleblowers.
- Employees are informed that they will not be discharged, demoted, suspended, threatened
harassed or in any other manner discriminated against in the terms and conditions of
employment, or otherwise, because of any lawful act done by an employee in the provision of
information to superiors, or to appropriate government agencies regarding conduct that the
employee reasonably believes violates the applicable governmental laws, rules and
Corporate Social Responsibility
- Corporate social responsibility (CSR) A business’s concern for the welfare of society as a
- Based on a company’s concern for the welfare of all of its stakeholders, not just the owners. - Based on a commitment to such basic principles as integrity, fairness, and respect.
- Differences from country to country also contribute to varying perspectives on the same issue.
- Some critics of CSR believe that a manager’s sole role is to compete and win in the
- CSR critics believe that managers who pursue CSR are doing so with other people’s money –
money they invested to make more money, not to improve society.
- CSR defenders believe that businesses owe their existence to the society they serve.