Ethics and Social Responsibility in Business

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Ethics and Social Responsibility

Introduction to Ethics

Ethics are the standards of moral behaviour that distinguish right from wrong as accepted by society. In business, ethics go beyond legal requirements and involve doing what is right, even when not mandated by law.

Ethics: Standards of moral behaviour accepted by society as right versus wrong.
Ethics reflect proper relations among people and guide how individuals should treat one another.
Laws are narrower than ethics and are designed to protect against fraud, theft, and violence.
Some actions may be legal but still unethical.

Personal Responsibility in Ethics

Ethical behaviour should be practiced in all aspects of life, not just in business. Individual commitment to ethics is essential for a more ethical society.

Academic dishonesty can predict unethical behaviour in the workplace.
Society's ethical standards improve only when individuals commit to ethical conduct.

Making Ethical Decisions

When facing ethical dilemmas, individuals should ask themselves key questions to guide their actions:

Is my proposed action legal?
Is it balanced?
How will it make me feel about myself?
Who are the stakeholders?
What information am I missing?
What are the short- and long-term consequences?
Is my decision in line with my company's core values?
What would my family or respected peers think about this decision?

Ethical Standards and Principles

Ethical Standards

Ethical standards are not universal; they can vary across cultures and societies.
Situational ethics: The belief that what is right depends on the situation and what works best for the individual.
Common moral values include integrity, respect for human life, self-control, honesty, courage, and self-sacrifice.
Cheating, cowardice, and cruelty are universally considered wrong.

12 Ethical Principles

Honesty: In all communications and actions.
Integrity: Earn the trust of others through integrity.
Promise-keeping: Make every reasonable effort to fulfill promises.
Loyalty: To the organization and colleagues.
Fairness: Strive to be fair and just in all dealings.
Caring: Demonstrate compassion and concern.
Respect for others: Treat everyone with respect for autonomy, privacy, rights, and interests.
Law abiding: Follow the law.
Commitment to excellence: Stay well-informed and prepared.
Strategic leadership: Become a role model in conduct.
Reputation and morale: Build the reputation and morale of employees.
Accountability: Accept responsibility for decisions and omissions.

Corporate Scandals and Ethics

Examples of Corporate Scandals

OLG & ALC: Retailers collected millions in jackpots without proper oversight.
WE Charity/Canada Student Service Grant: Provided with government funds amid process abuses.
Volkswagen: $290.5 million settlement for emissions cheating.
Tesla: Attempted to defy lockdown orders during COVID-19.
Twitter: High-profile accounts compromised in a crypto scam.

Managing Businesses Ethically and Responsibly

Organizational Ethics

Ethics begin at the top with leadership and example from managers.
Unethical behaviour often requires cooperation among individuals.
Reward systems must be monitored to avoid unintended unethical consequences.

Reasons for Ethical Management

Maintain reputation
Retain and attract customers
Avoid lawsuits
Reduce employee turnover
Prevent government intervention
Satisfy stakeholders
It is the right thing to do

Setting Corporate Ethical Standards

Compliance-based ethics codes: Focus on preventing unlawful behaviour through control and penalties.
Integrity-based ethics codes: Define guiding values, support ethical behaviour, and stress shared accountability.

Features of Compliance-Based Codes	Features of Integrity-Based Codes
Conform to outside standards (laws and regulations)	Conform to outside standards and chosen internal standards
Avoid criminal misconduct	Enable responsible employee conduct
Lawyers lead	Managers with lawyers and others lead
Education, scenarios, controls, penalties	Education, leadership, accountability, decision processes, controls, penalties

Corporate Codes of Ethics: Example

Hershey Company’s Code of Ethics includes commitments to consumers, the marketplace, stockholders, and the global community.
What-if scenarios help employees navigate ethical dilemmas (e.g., handling gifts from customers or vendors).

Improving Business Ethics: Six Steps

Top management must support a code of conduct.
Employees must understand expectations for ethical behaviour.
Ethics must be included in training.
An ethics office should be established.
Outside stakeholders must be informed about the ethics program.
Ethics codes must be enforced and followed.

Corporate Ethical Standards and Legislation

Sarbanes-Oxley Act (SOX)

Enacted in response to major corporate scandals (e.g., Enron, Tyco, WorldCom).
Establishes stronger standards for corporate governance and financial reporting.
Applies to all publicly traded companies under U.S. SEC jurisdiction, including many Canadian companies operating in the U.S.

Protection for Whistleblowers

Whistleblowers: Individuals who report illegal or unethical behaviour.
SOX protects whistleblowers from retaliation in the U.S.
Canada lacks comprehensive national legislation for whistleblower protection, though some provincial laws exist.

Sustainable Development and Corporate Social Responsibility (CSR)

Sustainable Development

Sustainable development integrates environmental, economic, and social considerations (ESG: Environmental, Social, Governance) into decision-making for the benefit of current and future generations.

UN Sustainable Development Goals (SDGs) provide a framework for global progress.

Corporate Social Responsibility Dimensions

Corporate Social Responsibility (CSR): A business’s concern for the welfare of society.
Corporate Philanthropy: Charitable donations.
Corporate Social Initiatives: Enhanced forms of philanthropy related to company competencies.
Corporate Responsibility: Includes hiring practices, product safety, etc.
Corporate Policy: The stance a firm takes on social and political issues.

Levels of Corporate Responsibility

Employees: Create jobs, reward talent, respect.
Customers: Right to safety, to be informed, to choose, to be heard.
Investors: Avoid harm, no insider trading for personal gain.
Society & Environment: Foster well-being, build communities, sustainability.

Firms of Endearment Strategy

Stakeholder analysis is used to assess the broader impact of a company on society, environment, partners, investors, employees, and customers.

Triple Bottom Line (TBL)

The triple-bottom line framework measures corporate performance against economic, social, and environmental parameters.

People, Planet, Profit: Companies focus on economic value, as well as social and environmental value added or destroyed.

Responsibility at Work: Patagonia Case Study

Environmental Responsibility: Donations to environmental causes, sustainable materials, climate action investments.
Ethical Supply Chain: Fair labour practices, transparency, living wages.
Corporate Governance & Activism: Nonprofit ownership, activism campaigns.
Community & Employee Engagement: Employee activism, volunteerism, work-life balance initiatives.

Environmental Issues and Mitigation

Issues	Mitigation
Pesticides, Waste disposal, Energy consumption, Water consumption, Deforestation, CO2 emissions, Habitat/species at risk	Using green materials, Waste reduction (reuse, recycle), Energy controls, Planting trees/nature offsets, Technology to reduce water requirements

Social Auditing

Social audit: Systematic evaluation of an organization’s progress toward socially responsible goals.
Triple-bottom line reporting is used to measure and report economic, social, and environmental performance.
Watchdog groups include investors, research organizations, environmentalists, union officials, and customers.

Mini Cases and Discussion Questions

McDonalds: CEO fired for unethical conduct; issues of transparency, accountability, and regaining employee confidence.
GreenClean Chemicals: Should the company voluntarily reformulate its product? What role should transparency play?
Discussion: Is it ethical for coaches to accept payments from equipment makers? Is it ethical for companies to offer such payments?