Business Ethics and Corporate Social Responsibility A. Terminology Ethics
Standards or rules of conduct that help us distinguish between right and wrong. Can help individuals decide on the best course of action action in situations where they aren’t sure what to do. Help us get along with others, living with ourselves and living out good character. Based on individual beliefs, values, morals, and standards in society They may vary from person to person, situation to situation and culture to culture. • •
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Values
Tell us what we think is important which helps us make decisions about right and wrong. Examples include: trustworthiness, honesty, respect, responsibility, empathy, good citizenship, perseverance A person who values trustworthiness is unlikely to betray a friend. •
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Morals •
Rules we use to decide what’s good and what’s bad.
Examples: Stealing is bad because it harms the person you are stealing from Lying is bad because it breaks trust and harms relationships • •
Morals vs. Values
We tend to judge people more on their morals than their values Sometimes our values conflict with our morals and we make questionable decisions. • •
Example: You might place a high value on friendships and wanting people to like you You may believe that you don’t drink or drive or get into a car with someone who drinks and drives because irreparable harm and/or death may result Conflict – You are at a party and you get into a car with someone you want to like you and this person has been drinking. • •
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Ethical Behaviour •
Behaviour that conforms to ethics
Unethical Behaviour
When we make decisions that run counter to our values and/or morals and do things that our individual beliefs and social standards define as bad or wrong.
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B. The Role of Business Ethics
Consider: Individual ethics are personal; Society’s ethics are usually standards for decency and respect of others; Business ethics are tied both to society’s ethics and the ethics of the individuals own, work for and buy products from the company. • • •
So… How do you apply your personal beliefs in a business environment? Should you just do what your employer tells you to do – especially since s/he is paying you? • •
1. Business Code of Ethics/Conduct
Business Code of Ethics A document that outlines how employees and employers should respond in different situations •
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Stakeholders affected by business decisions include: Customers Employees Suppliers Competition Society Business owners (i.e. shareholders) Society at large The Environment – (including future generations)
Sometimes a business code of ethics/conduct is embodied in a company’s mission, vision, or credo statement. Google’s Code of Conduct http://investor.google.com/conduct.html •
Johnson and Johnson – Our Credo http://www.jnj.com/connect/about-jnj/jnj-credo/ •
Johnson and Johnson’s Ethical Code for the Conduct of Pharmaceutical Medicine http://www.investor.jnj.com/ethics.cfm •
Ethical Standards for the Teaching Profession http://www.oct.ca/standards/ethical_standards.aspx?lang=en-CA •
2. Mission Statement
Mission Statement A brief description of a company’s fundamental purpose. A mission statement answers the question, “Why do we exist?” It articulates the company’s mission for both those who work in the company and the public. • • •
Ward, Susan. “Mission Statement”. About.com: Small Business Canada, October 2009, [Online]. Available: http://sbinfocanada.about.com/od/businessplanning/g/missionstatemen.htm Canadian Tire’s Mission Statement: “Canadian Tire is a growing network of interrelated businesses... Canadian Tire continuously strives to meet the needs of its customers for total value by offering a unique package of location, price, service and assortment.” 3. Vision Statement
Sometimes called a picture of your company in the future The vision statement answers the question, “Where do we want to go?” It articulates the hopes and dreams for the business. It reminds those in the company of what you are trying to build. While a vision statement doesn’t tell you how you’re going to get there, it does set the direction for your business planning. A vision statement is for members of the company, not for the customers or clients. When writing a vision statement, the mission statement can be a valuable starting point for articulating company values. • • •
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Ward, Susan. “Vision Statement”. About.com: Small Business Canada, October 2009, [Online]. Available:http://sbinfocanada.about.com/od/businessplanning/g/visionstatement.htm
Example: Within the next five years, ZZZ Tours will become the premier eco-tour company in the world, increasing revenues to 3 million dollars in 2013 by becoming internationally known for the comfort and excitement of the whale-watching tours it offers. Business Code of Ethics Challenges Drawing the line between right and wrong is not always easy. •
For example: Giving a gift to a valued client – gift or bribery? A politician phones a bank on behalf of a friend who is seeking a loan – legitimate character reference or political influence for personal gain? • •
Code of Ethics will not necessarily address every possible situation.
C. Resolving Ethical Dilemma’s
Examples of Business Ethical Dilemmas: Disposal of toxic waste Pollution control Downsizing staff Depletion and allocation of scarce natural resources Changes in law and technology (privacy issues) Employee rights (i.e. workplace safety) Discrimination against women and minorities Product safety • • • • • • • •
Resolving Ethical Dilemma Requirements: Honesty The ability to work collaboratively or cooperatively Respect for others Pride’s in one’s work Willingness to learn and admit when you are “wrong” Dependability Responsibility for one’s actions Integrity Loyalty • • • • • • • • •
When the Code of Ethics is not clear or does not exist, consider the following questions: If I take this action: 1. Who are the stakeholders? 2. Who will be helped by what you do? How so? 3. Who will be hurt by what you do? How so? 4. What are the benefits and problems of such a decision? 5. Will the decision survive the test of time? D. The Law and Resolving Ethical Dilemmas
Actions may be considered unethical, but they still may be legal Consider Mayor Larry O’Brien Trial & The Global Economic Crisis Laws are created to address acceptable business practices, but a company can still behave unethically, without actually breaking the law. • • • •
Unethical and Illegal Business Practices - FRAUD
Fraud The crime of lying or pretending The Competition Act 2002 bans these type of deceptive business practices: 1. 2. 3.
False or misleading advertising Advertising merchandise for a bargain price, but not having a reasonable quantity available for sale (bait and switch selling) Placing two different price tags on a product and selling it to the consumer at the higher price (double ticketing)
Common Fraud Examples Bank Fraud A bank officer makes a fraudulent loan to a non-existent business and then pockets the money. •
Consumer Fraud A business tricks customers into buying goods or services they don’t really need through unethical advertising or false claims. •
Contract Fraud A business or individual uses temptations, such as bribes or kickbacks, to create a contract. •
Insurance Fraud A business or individual falsely claims lost, damaged, or stolen property in order to receive insurance settlements •
Mail Fraud An individual uses the postal service for fraudulent purposes, such as mailing phony job opportunities, chain letters, or inheritance scams. •
Pyramid Scheme Fraud A person participating in the scheme recruits others in order to receive more money than she or he invested in the scheme. •
Stock Market Fraud An individual uses insider trading or other techniques to buy and sell stocks at artificial values. •
Telemarketing Fraud A company uses high-pressure phone calls to get customers to buy now or to donate funds to bogus charitable causes. •
Welfare Fraud An individual receives benefits without being eligible. •
E. Accounting Scandals
Accounting Defined The process of identifying, measuring, classifying and communicating financial information about a business so that informed judgments and decisions can be made based on that information. •
Accounting Information
Three formal statements that report financial information of a company are a company’s: 1. Balance Sheet 2. Income Statement or Statement of Operations 3. Cash Flow Statement These statements will be found in corporations’ annual reports also called, shareholder’s reports. 1. Balance Sheet • •
Reports a company’s Assets, Liabilities and Equity. States the financial position of a company on a certain date.
Assets Items that a business owns (building, land, equipment, supplies, cash, money owed by customers called receivables.) •
Liabilities Debts/money owed by the business to other businesses including banks •
Equity For a company, other than a coporation, it is called Owner’s Equity For a corporation it is called Shareholder’s Equity and Retained Earnings For an individual it is called Net Worth • • •
ASSETS – LIABILITIES = NET WORTH
2. Income Statement/Statement of Operations
Financial statement that shows all the revenues coming into a business and all the expenses associated with earning those revenues over a specific period of time. Between January 1 and December 31 of 2008 total revenues were $1 million and total expenses were $500,000. •
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Revenues - Expenses = Net Income/Proft R>E = Net Profit R
3. Cash Flow Statement
Financial statement that outlines where all the cash that is coming into the business is coming from and; Where all the cash that is leaving the business is going to over a specific period of time. •
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Users of Financial Information • • • • • • •
Employees Management Banks Creditors – businesses who extend credit (short term loans) to other businesses Shareholders Potential investors The government
Accounting Scandals
Accounting Scandal Crime involving accountants and/or senior executives of an organization who alter accounting records for personal benefit. Type of fraud •
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Forensic Accountant An independent person brought in from outside a company to investigate the legal and financial documents of a company and find out what happened if a scandal has been uncovered. •
Embezzlement Is a type of accounting fraud in which an accountant or senior executive invents phony accounts and redirect money into them for personal gain Often occurs in smaller businesses •
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“Cooking the Books” An common expression used to indicate corporate fraud •
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Often involves misusing or misdirecting funds overstating revenues understating expenses overstating the value of corporate assets to the public shareholders under-reporting liabilities
Auditors – Help to detect fraud and/or accounting scandals Individuals whose job is to check the financial records of a company to determine if the information presented is accurate, reliable, and fair Ensure the company is following the correct accounting procedures set up to help ensure that theft, fraud, and embezzlement does not occur Big corporations often have their own internal auditors All public and crown corporations, however, are required by law to be audited annually by outside, independent auditors to ensure public accountability It is often the outside auditors who stumble upon and/or discover accounting irregularities and call in a forensic accountant. •
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Case: Canadian Sponsorship Scandal Insider Trading Occurs when someone makes an investment decision based on confidential information that is not available yet to the general public thereby giving themselves an advantage over all other investors. •
Example: You learn from a friend who works for a corporation in which you own shares, that an accounting scandal about the company is going to hit the papers tomorrow. When the news becomes public, frightened shareholders will want to sell of their shares and consequently the price of the shares will drop. To avoid losing money on the shares you own, you sell off your shares the day before this public announcement is made. Case: Consider Martha Stewart Detecting Insider Trading Provincial Securities Commission is the organization that regulates the Stock Market to ensure fair and legal trading. Computers programs are used to search for abnormal patterns of the sale or purchase of stocks. Insider trading violations are prosecuted by the Provincial Securities Commission and those convicted may face fines up to $1 million, be forced to turn over their profits, face jail sentences and could be banned from furture stock market trading. •
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Whistle-Blowing The decision of an employee to inform officials or the public about a legal or ethical violation. Is it right? Ethical? If so, how should it be done? Will/Should the whistle-blower be rewarded or punished or protected? •
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Case Studies Enron Canadian Sponsorship Scandal Bre-x Canadian victims of disgraced New York financier Bernard Madoff, who admitted to stealing billions from hundreds of clients. In June, 2009 he was sentenced to 150 years in prison. • • • •
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Earl Jones Financial Ponzi scheme in Quebec
