BUSN 1200 - Chapter 3 PDF

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BUSN 1200Chapter 3 - Conducting Business Ethically & ResponsiblyWhat is Ethical Behaviour? — Ethics ◦ standards or moral values that dictate what is right and wrong ◦ culturally based ◦ formed upon society’s expectations ◦ vary by person, and by situation — Everyone develops their own “code ...

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BUSN 1200 Chapter 3 - Conducting Business Ethically & Responsibly

What is Ethical Behaviour?  Ethics ◦ standards or moral values that dictate what is right and wrong ◦ culturally based ◦ formed upon society’s expectations ◦ vary by person, and by situation  Everyone develops their own “code of ethics” Business Ethics - Ethical or unethical behaviours by a manager or employee of an organization

Influences on Ethical Behaviour:  Family – Until the age of 7 or 8, family is the main influencer of our ethical behavior.  Peer Group – As we grow older, our world starts to widen when we interact with other people such as other school students.  Experiences – When we get influenced by others like the media, work environment, etc.

Managerial Ethics:  Ethical behaviour conforms to individual beliefs and social norms  Behaviour toward employees o Firing, hiring, wages, privacy, etc. o Some decisions not illegal, but still unethical  Behavior toward the organization o Conflict of interest, confidentiality, honesty  Behavior toward other economic agents o Customers, competitors, shareholders, suppliers, unions Conflict of Interest - Occurs when an activity benefits the employee at the expense of the employer. Assessing Ethical Behavior: 1) Gather the relevant factual information. 2) Determine the most appropriate moral values. 3) Make an ethical judgement based on the rightness or wrongness of the proposed activity or policy.

Ethical Theories:  Utility – optimize benefits (sacrificing the few for the many)  Rights – individual rights supersede that of society  Justice – what is “fair” or if need to give a biased judgement, then it should be in favour of those who have historically been discriminated against.

Company Practices & Business Ethics:  Firms are creating ethical codes to guide employee decisions and whistleblowing.  Top management support is essential  Company policies are expanding to encompass e-mail and other forms of communication  Ethics Programs – educating employees

Written Codes of Ethics:  Increase public confidence in a firm or its industry  Help stem the tide of government regulation  Improve internal operations by providing consistent standards of both ethical and legal conduct  Help managers respond to problems that arise as a result of unethical or illegal behavior

Ethical Dilemma:  When faced with an ethical dilemma, it is helpful to ask yourself the following questions: o Is it legal? Are you violating any law or company policy? o Is it balanced? Am I acting fairly? Am I winning at someone else’s expense? o How will it make me feel about myself? How would my family and friends react if they knew?

Corporate Social Responsibility:  A business’s collective code of ethics towards its stakeholders  Focus of Social Responsibility: o the environment o its customers o its employees o its investors Fair Trade Movement - A movement designed to help workers in developing countries receive fair payments for their work.

Areas of Social Responsibility:  Responsibility Towards Environment  Responsibility Towards Customers  Responsibility Towards Investors  Responsibility Towards Employees

Environmental Responsibility Issues:  Air Pollution o Climate change, global warming & greenhouse gases o Created by chemical emissions in product manufacturing & the operation of motor vehicles o Legislation has been directed to controlling or eliminating polluting practices  Water Pollution o Water contamination due to years of releasing toxic chemicals into lakes, rivers, and streams o Chief offenders are businesses such as pulp and paper plants, and municipalities who dump raw sewage o Practices are being curbed by legislation, education, and affordable new technology  Land Pollution o Contamination of grounds and soil due to dumping of toxic waste and mishandling of landfills o Key issues today include curbing polluting practices and restoring contaminated lands o New developments include  emphasis on recycling  biomass – turning waste into energy  new forms of solid waste disposal  changes in forestry practices Customer Responsibility Issues:  Rights of Consumers  Consumer Rights Issues  Consumerism - Social movement that seeks to protect and expand the rights of consumers in their dealings with businesses  Consumer Rights  right to safe products  right to be informed  right to be heard  right to choose what they buy  The right to be educated about purchases

 The right to courteous service  Unfair Pricing  Illegal pricing practices may occur due to the intentional (illegal) limiting of competition  Collusion  a group of companies conspiring to fix prices results in inflated prices and a lack of competition  Price gouging during shortages  Ethics in Advertising  Truth in Advertising Claims  Advertising of Counterfeit Brands  Stealth (Undercover) Advertising  Paying individuals to speak well of a product, but not admit they are being paid to do so  Morally Objectionable Advertising

Employee Responsibility Issues:  Human resource management issues o Provide equal opportunity for rewards and advancement without discrimination  Social responsibility issues o Safe workplace, no abuse  Privacy issues - Drug testing and computer monitoring  Encouraging ethical behaviour o Whistle-blowers - An individual who calls attention to an unethical, illegal, and/or socially irresponsible practice on the part of a business or other organization. Encouraging Ethical Employee Behaviour:  Top management support for ethical behaviour is critical  “Whistleblowers” are employees who call attention to unethical behaviour o the company should support its “whistle blowers” rather than threatening them with dismissal or other penalties

Responsibility Towards Investors:  Improper Financial Management  Kiting Cheques  Insider Trading  Misrepresentation of Finances

Improper Financial Management:  Doing a poor job of managing the financial resources of a company o payment of high salaries, lavish expense accounts, & other perks with little control over how money is spent  May be legally unpunishable because no law has been broken  It may be difficult to replace management because unrest in the firm may devalue its stock Cheque Kiting:  Illegal practice of writing cheques against money that has not yet arrived in the bank account  A creative “cheque kiter” can write cheques from account to account with very little money to back it up  The assumption is that the money will arrive before the cheque needs to clear o Becoming difficult to do with modern-day computerized banking Insider Trading:  Using confidential (non-public) information to gain from the sale of stock  Involves gaining knowledge of inside information about the company prior to making the purchase  Can involve the collusion of investors buying and selling stock at the appropriate time to make huge profits

Misrepresenting Financial Information:  Companies must conform to accounting guidelines called “Generally Accepted Accounting Principles” (GAAP)  Failure to follow GAAP in order to inflate expected profit figures can mislead investors

Approaches to Corporate Social Responsibility:

 Obstructionist Stance - a company does as little as possible to solve social or environmental problems. Profit maximization is the sole concern, even if illegal (just don’t get caught!).  Defensive Stance - profit maximization is still the prime objective. The organization does only what is legally required and nothing more.  Accommodative Stance - a company meets all legal obligations and, in some cases, goes beyond what is required.  Proactive Stance - an organization seeks opportunities to be socially responsible (overcomes problems before they even occur). This effort may be at the expense of profits, but the organization deems it “the right things to do”.

Approaches to Social Responsibility:  Obstructionist – the company does whatever it needs to do. If breaking the law, then it will make the effort to conceal (but laws will not deter behaviour).  Defensive – stays within the law but not more.  Accommodative – company goes beyond minimum by law but needs to be prodded to do so (either externally or internally).  Proactive – company views itself as citizen in society and seeks opportunities to give back. Corporate Charitable Donations:  80% of Canadians think businesses should donate some profits to social causes  Corporations often donate goods or funds when disaster strikes  Research has shown that being socially responsible “pays off”. Consumers are attracted to the positive image.

Managing Social Responsibility Programs:  Top Management Support o Top management support is essential to adopting a social responsibility program o Top managers must develop a policy statement outlining their commitment to more ethical behaviour

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Strategic Planning o Top managers develop a plan of the level of company support toward goals of social responsibility. Examples are:  percent of sales revenues to go to social causes  promise to train chronically unemployed people Appointment of a Director o An executive-level administrator must be appointed to oversee the social program that the firm has created o This may be achieved through a partial time work commitment on the part of existing top managers Social Audit o A systematic analysis of how the firm is using funds designated specifically to fund its social initiatives o Also addresses the effectiveness of the monies that have been spent o Triple bottom line reporting = financial reports, social audits and sustainability reports Social Responsibility

Videos to Watch:  Whistleblowing – Snowden ◦ https://www.youtube.com/watch?v=Flej-73VLW8  Toms Shoes and Social Responsibility ◦ https://www.youtube.com/watch?v=0mRuNSI3-LA...