CHAPTER 3
Conducting Business
Ethically & Responsibly
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-2
Learning Objectives
Explain how individuals develop their personal
codes of ethics and why ethics are important in
the workplace
Distinguish social responsibility from ethics,
identify organizational stakeholders, and
characterize social consciousness today
Show how the concept of social responsibility
applies both to environmental issues and to a
firm’s relationships with customers, employees,
and investors
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-3
More Learning Objectives
Identify four general approaches to social
responsibility and describe the four steps a
firm must take to implement a social
responsibility program
Explain how issues of social responsibility
and ethics affect small businesses
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-4
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, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-5
Influences on Ethical Behaviour
Family
Experiences
Personal Code of
Ethics
Peer
Group
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-6
Managerial Ethics
Ethical behaviour conforms to individual beliefs and
social norms
Behaviour toward employees
 Firing, hiring, wages, privacy, etc.
 Some decisions not illegal,
but still unethical
Behaviour toward the organization
 Conflict of interest, confidentiality, honesty
Behaviour toward other economic agents
 Customers, competitors, shareholders, suppliers, unions
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-7
Assessing Ethical Behaviour
Gather the
relevant factual
information
Analyze the facts
to determine the
most appropriate
moral values
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Make an ethical
judgment based on
the rightness or
wrongness of the
proposed activity
or policy
Copyright © 2008 Pearson Education Canada
3-8
Assessing Ethical Behaviour
Utility - optimize
Rights – individual rights
Justice - fair
Caring – responsibilities to others
“newspaper test”
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-9
Company Practices & Business Ethics
Firms are creating ethical codes to guide
employee decisions
Top management support
is essential
Company policies
are expanding to encompass
e-mail and other forms of communication
Ethics Programs – educating employees
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-10
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 behaviour
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-11
Core Principles and Organizational Values
Organizational Objectives
Changed Infrequently
Core Principles
Organizational Values
Unchanging
Strategies and Practices
Revised Frequently
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-12
Social Responsibility
A business’s collective
code of ethics towards its stakeholders
the environment
its customers
its employees
its investors
its suppliers
its community
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-13
The Evolution of Social
Responsibility in Canada
 Late 19th Century: laissez-faire attitude leads to
business strife and exploitation of labour
 Development of business law
 Great Depression (1930s): many feel that business
greed led to job loss and failure of financial institutions
 Enhanced protection to non-business stakeholders
 1960s-1970s: Business perceived as a negative social
force leading to increased activism
 More aggressive laws and labeling initiatives enhance
consumer protection
 Today: stress need for more social role for business
 More awareness and activism
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-14
Areas of Social Responsibility
Responsibility
Towards
Environment
Responsibility
Towards
Customers
Social
Responsibility
Responsibility
Towards
Employees
Responsibility
Towards
Investors
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-15
Environmental Responsibility Issues
Air Pollution
Water Pollution
Land Pollution
Toxic Waste Disposal
Recycling
Biomass
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-16
Air Pollution
Climate change,
global warming & greenhouse gases
Created by chemical emissions in product
manufacturing & the operation of motor vehicles
Legislation has been directed to controlling or
eliminating polluting practices
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-17
Water Pollution
Water contamination due to years of releasing toxic
chemicals into lakes, rivers, and streams
Chief offenders are businesses such as pulp and paper
plants, and municipalities who dump raw sewage
Practices are being curbed by legislation, education, and
affordable new technology
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-18
Land Pollution
Contamination of grounds and soil due to
dumping of toxic waste and mishandling of
landfills
Key issues today include curbing polluting
practices and restoring contaminated lands
New developments include
 emphasis on recycling
 biomass – turning waste into energy
 new forms of solid waste disposal
 changes in forestry practices
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-19
Customer Responsibility Issues
Rights of Consumers
Unfair Pricing
Ethics in Advertising
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-20
Consumer Rights Issues
Consumerism
Consumers rights
social movement
that seeks to
protect and
expand the rights
of consumers in
their dealings
with businesses
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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
Copyright © 2008 Pearson Education Canada
3-21
Unfair Pricing Issues
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-22
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-23
Employee Responsibility Issues
Human resource management issues
 Provide equal opportunity for rewards and advancement
without discrimination
Social responsibility issues
 Safe workplace, no abuse
Privacy issues
 Drug testing and computer monitoring
Encouraging ethical behaviour
 Whistle-blowers
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-24
Encouraging Ethical Employee
Behaviour
Top management support for ethical
behaviour is critical
“Whistle-blowers” are employees who call
attention to unethical behaviour
the company should support its
“whistle blowers” rather than
threatening them with
dismissal or other penalties
There is legislation to protect whistle-blowers
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-25
Responsibility Towards Investors
Improper Financial Management
Kiting Cheques
Insider Trading
Misrepresentation of Finances
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-26
Improper Financial Management
Doing a poor job of managing the
financial resources of a company
 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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-27
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
 Becoming difficult to do with modern-day computerized
banking
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-28
Insider Trading
Using confidential (non-public)
information to gain from the sale of stock
 Martha Stewart (ImClone shares)
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-29
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-30
Approaches to Corporate
Social Responsibility
Lowest Level of
Social Responsibility
Obstructionist – Defensive – Accommodative - Proactive
Highest Level of
Social Responsibility
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-31
Corporate
Charitable Donations
80% of Canadians think businesses
should donate some profits to social
causes
Corporations often donate goods when
disaster strikes
Many have clear procedures
for choosing where
and how much to donate
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-32
Social Responsibility
Social Audit
Appointment of a
Director
Strategic Planning
Managing
Social
Responsibility
Programs
Top Management
Support
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-33
Step 1: Top Management Support
Top management support is essential to
adopting a social responsibility program
Top managers must develop a policy
statement outlining their commitment to
more ethical behaviour
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-34
Step 2:Strategic Planning
Top managers develop a plan of the level
of company support toward goals of
social responsibility
percent of sales revenues to go to social
causes
promise to train chronically unemployed
people
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-35
Step 3: Appoint a Director
An executive-level administrator must be
appointed to oversee the social program
that the firm has created
This may be achieved through a partial
time work commitment on the part of
existing top managers
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-36
Step 4: The Social Audit
A systematic analysis of how the firm is
using funds designated specifically to
fund its social initiatives
Also addresses the effectiveness of the
monies that have been spent
Triple bottom line reporting =
financial reports, social audits and
sustainability reports
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
3-37
Social Responsibility and
the Small Business
A small business does not have the same impact
on society if it acts in an irresponsible way
Many entrepreneurs decide to conduct
themselves in a socially responsible manner
because they feel it is important to contribute to
society
Individual entrepreneurs make independent
decisions
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada