Textbook Notes (362,842)
Canada (158,078)
RSM100Y1 (431)
Chapter 2

Chapter 2 Business Ethics and Social Responsibility.docx

10 Pages
Unlock Document

University of Toronto St. George
Rotman Commerce
Michael Khan

Chapter 2 Business Ethics and Social Responsibility Concern for Ethical and Societal Issues An organization that wants to do well over the long term should consider its business ethics. Business ethics refers to the standards of conduct and moral values that lead to our actions and decisions in the business environment. Business also must consider a wide range of social issues, including how a decision will affect the environment, employees, and customers. These issues are at the heart of corporate social responsibility (CSR). CSR’s primary objective is to enhance society’s well-being through philosophies, policies, procedures, and actions. In other words, businesses must find a balance between doing what is right and doing what is profitable. The Contemporary Ethical Environment This movement toward corporate social responsibility should benefit everyone- consumers, the environment, and the companies themselves. Most business owners and managers have built and maintained successful companies without breaking the rules. [Johnson & Johnson] Walmart: The company has grouped its social responsibility priorities into four broad categories: 1. Environment 2. People 3. Responsibility 4. The community Sarbanes-Oxley and Bill 198 In the States, the Sarbanes-Oxley Act of 2002 established new rules and regulations for securities trading and accounting practices. Companies are now required to publish their code of ethics, if they have one, and inform the public of any change made to it. The law may actually motivate even more firms to develop written codes and guidelines for ethical business behaviour. Sarbanes-Oxley Act of 2002: U.S federal legislation designed to deter and punish corporate and accounting fraud and corruption. It is also designed to protect the interests of workers and shareholders by requiring enhanced financial disclosures, criminal penalties for CEOs and CFOs who defraud investors, and safeguards for whistle-blowers. The act also established a new regulatory today for public accounting firms. Similar legislation has been enacted in Canada known as Bill 198 of 2003, which has come to be referred to as “C-SOX” or the Canadian version of Sarbanes-Oxley. Many companies now adopt a three-pronged approach to ethics and social responsibility: 1. Engaging in traditional corporate philanthropy, such as giving to worthy causes 2. Anticipating and managing risks 3. Identifying opportunities to create value by doing the right thing Individuals Make a Difference Ethical behaviour can be difficult to track or define in all situations. The evidence suggests that some individuals act unethically or illegally on the job. Their behaviour includes putting their own interests ahead of the organization, lying to employees, misreporting hours worked, internet abuse, and safety violations. Technology may have expanded the range and impact of unethical behavior. For example, one who has computer access to data may be able to steal or manipulate the data or shut down the system, even from a remote location. Development of Individual Ethics An individual’s moral and ethical development is the result of many factors. Experiences shape our responses to different situations. Our family, educational, cultural, and religious backgrounds also play a role, as does the environment within the firm. We also have different styles of deciding ethical dilemmas, no matter what our stage of moral development On-the-job Ethical Dilemmas Businesses sometimes refuse to purchase goods or services from a particular country because of civil rights abuses by that country’s government. Solving ethical dilemmas is not easy. Often, each possible decision can lead to both good and bad outcomes, which must be considered. Four of the most common ethical challenges that businesspeople face are: conflict of interest, honesty and integrity, loyalty versus truth, and whistle-blowing. Conflict of interest A conflict of interest occurs when a businessperson is faced with a situation where an action that benefits one person or group has the potential to harm another. Conflicts of interest may pose ethical challenges when they involve the businessperson’s own interests and the interests of a person or party to whom the businessperson has a duty. A real estate agent would face an ethical conflict by representing both the buyer and seller in a transaction. A conflict of interest may also occur when one person holds two or more similar jobs in two different workplaces. Conflicts of interest can be handled ethically by (1) avoiding them (2) disclosing them. Most businesses and government agencies have written policies that either prevent employees from accepting gifts or specify a maximum gift value. Honesty and Integrity An employee with integrity goes beyond truthfulness. Having integrity means behaving according to one’s deeply felt ethical principles in business situations. It includes doing what you say you will do and accepting responsibility for your mistakes. Integrity can help to build long-term relationships with customers, employers, suppliers, and the public. Employees, in turn, want their manager and the company as a whole to treat them honestly and with integrity. Violations of honesty and integrity are common. Some people misrepresent their academic standing and previous work experience on their resume or job application. Some employees steal from their employer by taking home supplies or products without permission or by carrying out personal business when they are being paid to work. Internet misuse during the workday is increasing. Loyalty versus Truth Businesspeople expect their employees to be loyal and to act in the best interests of the company. Individual employees may need to decide between loyalty to the company and truthfulness in business relationships. People resolve such dilemmas in various ways. Some place the highest value on loyalty, even at the expense of the truth. Others avoid volunteering negative information but answer truthfully when asked a direct question. Whistle-Blowing When an employee encounters unethical or illegal actions at work, the employee must decide what action to take. The person may conclude that the only solution is to “blow the whistle”. Whistle- blowing is usually an employee’s disclosure to company officials, government authorities, or the media of illegal, immoral, or unethical practices. In 2004, Bill C-25, The Public Servants Disclosure Protection Act, was introduced. This bill was intended to protect people who expose problems in the government’s bureaucracy. The government said this act will help ensure “transparency, accountability, financial responsibility, and ethical conduct.” How Organizations Shape Ethical Conduct Most ethical lapses in business reflect the values in the firm’s corporate cultures. A corporate culture that supports business ethics develops on four levels: 1. Ethical awareness 2. Ethical reasoning 3. Ethical action 4. Ethical leadership If any of these four factors is missing, the ethical climate in an organization will weaken. Ethical Awareness The foundation of an ethical climate is ethical awareness. Ethical dilemmas occur frequently in the workplace. Employees need help in identifying ethical problems when they occur. They also need guidance about how the firm expects them to respond. One way for a firm to provide this support is to develop a code of conduct. This formal statement defines how the organization expects its employees to resolve ethical questions. At the most basic level, a code of conduct may simply be the ground rules for acceptable behaviour, such as the laws and regulations that employees must obey. Other companies use their code of conduct to identity key corporate values and provide frameworks that guide employees as they resolve moral and ethical dilemmas. Other firms incorporate similar codes in their policy manuals or mission statements; some issue a code of conduct or statement of values in the form of small card that employees and managers can carry with them. Ethical Education A code of conduct can provide an overall framework, but it does not have a solution for very ethical situation. Businesses must provide the tools employees need to evaluate the options and arrive at suitable decisions. Many firms have started their own ethics training programs. Other firms have hired organizations such as the Skald Group, based in Hamilton, Ontario, which provides outsourced ethics programs to businesses. Other organizations, such as SAI Global, host employee-reporting services that offer an anonymous hotline and an ethics case management system. Ethical Action Codes of conduct and ethics training help employees to recognize and reason through ethical problems. In addition, firms must provide structures and approaches that allow decisions to be turned into ethical actions. Businesses often set goals for the whole business and for individual departments and employees. In today’s internet economy, a high value is often placed on speed. But valuing speed can lead to climate where ethical behaviour is challenged. Some companies encourage ethical action. These companies provide support for employees faced with dilemmas. One common tool is an employee hotline, which is a telephone number that employees can call anonymously for advice or to report unethical behaviour they have seen. Some firms have ethics compliance officers, who guide employees through difficult ethical issues. Ethical Leadership Executives must not just talk about ethical behaviour; they also need to show it in their actions, employees need to be personally committed to the company’s core values, and they must be willing to base their actions on those values. Ethical mavericks follow a moral code with there simple characteristics: 1. Use clear, explicit language rather than euphemisms for corrupt behaviour 2. Encourage behaviour that generates and fosters ethical values 3. Practise moral absolutism, insisting on doing right, even if it proves financially costly However, ethical leadership should also go one step further. Each employee at every level should be charged with the responsibility to be an ethical leader. Everyone should be aware of problems and be willing to defend the organization’s standards. The damage from ethical misconduct can powerfully affect a firm’s stakeholders- customers, investors, employees, and the public- businesses are pressured to act in acceptable ways. But when businesses fail, the law must step in to enforce good business practices. Acting Responsibly to Satisfy Society A second major issue affecting business is the question of social responsibility. In a general sense, social responsibility is management’s acceptance of its obligation, when evaluating firm performance, to consider profit to be equal value as qualitative indicators, such as employee satisfaction, consumer satisfaction, and societal well-being. Businesses may exercise social responsibility for many reasons” because such behavior is required by law, because, it enhances the company’s image, or because management believes it is the ethical course of action. A business is often judged by its interactions with the community. To demonstrate their social responsibility, many corporations highlight their charitable contributions and community service in their annual reports and on their websites. Some firms measure social performance by conducting social audits, formal procedures that identify and evaluate all company activities that relate to social issues, such as conservation, employment practices, and philanthropy. The social audit tells management how well the company is performing in these areas. After seeing this information, management may decide to revise its current programs or develop new ones. Outside groups may do their own evaluations of businesses. Various environmental, religious, and public-interest groups have created standards of corporate performance. Reports on many of these evaluations are available to the general public. Business’s social responsibilities can be divided by their relationships to the general public, customers, employees, investors, and other members of the financial community. Many of these relationships extend beyond national borders. Responsibility to the General Public The responsibilities of business to the general public include dealing with public health issues, protecting the environment, and developing the quality of the workforce. Businesses should give back to the communities in which they earn profits. Such efforts are called corporate philanthropy. Public Health Issues As business addresses its ethical and social responsibilities to the general public, one of its most complex issues is public health. Rates of heart disease, diabetes, and obesity have been increasing. These three conditions are now major public health issues. Substance abuse is another serious public health problem worldwide. Many of the drugs used by athletes are similar to chemicals that are naturally present in the body. As a result knowing whether a
More Less

Related notes for RSM100Y1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.