How to improve Business Ethics

how business ethics can be used to increase efficiency and how business ethics affect stakeholders and how business ethics is considered as a management discipline
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Dr.FlynnHanks,United States,Teacher
Published Date:26-07-2017
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Business Ethics and 3 Social Responsibility SPECIFIC EXPECTATIONS After completing this chapter, you will be explain controversial business issues able to from a local, national, and international perspective explain the concepts of ethics and social responsibility as they apply to business describe the impact of business on a local community assess ethical dilemmas in the workplace 72 UNIT 1 Business Fundamentals NEL CHAPTERPROFILE Kicking Horse Coffee Co. Leo Johnson and Elana Rosenfeld are the husband and wife team responsible for the creation and production of Canada’s number one organic and fair-trade coffee company, Kicking Horse Coffee Co. Founded in 1996 and located in the Canadian Rockies in the British Columbia town of Invermere (population 3600), the company employs fifteen people. Even though the location is remote, and the number of staff is small, Kicking Horse Coffee Co. manages to sell more than 10 000 kg of coffee each week to grocery stores throughout Canada, the United States, and Holland. Revenue projections for 2006 are 10 million from the company’s sales of thirty different blends of organic and fair-trade coffee, organic and fair-trade teas, and organic chocolate. (Organic products are produced naturally, without pesticides or additives. Fair-trade products come from farmers in disadvantaged countries. These products are brought to European and North American markets through aid organizations or co-operatives, not middlemen, ensuring that the farmers do not have to accept unfair prices in order to sell their products internationally.) In 2003, the couple was awarded purchased and operated a café. The fair-trade feature means the Young Entrepreneurship In fact, the idea of Kicking Horse that Kicking Horse Coffee Co. Award for British Columbia by Coffee Co. came about because purchases their organic coffee the Business Development Bank the couple had difficulties beans from small business co- of Canada in recognition of the obtaining organic coffee, which operatives (co-ops). As explained success of Kicking Horse Coffee they wanted to serve in their in previous chapters, co-ops Co. So, what is the secret to café. Specifically, Elana and Leo are businesses that are both (and story of) the Kicking Horse wanted to remain true to their owned and operated by the Coffee Co.’s success? ethical principles while providing individuals who supply the Elana (born in Toronto) coffee to their customers. product. Members of the co- and Leo (born in Fredericton) So began the Kicking Horse ops (such as the coffee-bean first met in British Columbia. Coffee Co., a company founded farmers) are able to negotiate for Together and separately, they on ethical beliefs that included prices that give them a higher had worked in restaurants, promoting market interest in standard of living. In addition opened a fruit stand, and organic and fair-trade coffee. to providing individuals with NEL CHAPTER 3 Business Ethics and Social Responsibility 73a better standard of living, uphold their ethical beliefs the fair-trade requirements for without compromise and select coffee production state that a market niche that had yet to certain environmental standards, be saturated with competing which include restricting the entrepreneurs. Indeed, the use of potentially harmful couple spotted an opportunity agrochemicals, must be followed. for organic and fair-trade coffee Elana and Leo not only import in the grocery-store market their raw, organic coffee beans and pursued it. Now, they are from countries such as Sumatra, represented in distribution Nicaragua, and Cuba, they also outlets including Thrifty Foods, visit their producers’ plantations Canada Safeway Ltd., IGA, to see for themselves the Save-On Foods, Urban Fare, and benefits that fair trade can bring Loblaws. In addition to grocery to farmers. stores, Kicking Horse coffee is In choosing to operate in the also available for online purchase Two of Kicking Horse’s fair-trade coffees organic fair-trade coffee market, directly from the Kicking Horse the founders were able to both Coffee Co. website. QUESTIONS 1. How is Kicking Horse Coffee Co. different from its competitors? Why is it important to Elana and Leo that these differences be incorporated into their business operation? 2. What benefits has Kicking Horse Coffee Co. gained from its decision to sell organic and fair-trade products? Who else benefits from this decision? How? 74 UNIT 1 Business Fundamentals NELKeep in Mind Business Ethics 1. what is ethical behaviour? 2. what role should ethics play in What would you do in each of the following situations? business? 1. Your friend asks you to add a few extra hours to a work 3. how can businesses resolve time sheet for him, but you know that he did not put in ethical dilemmas? 4. what happens when people don’t the time. behave ethically? 2. A salesperson in an electronics store offers to sell you an iPod after hours at a discounted price. 3. You are aware that the teller gave you back too much Before You Begin money when completing a banking transaction. What do the terms values, Ethics are the rules that help us tell the difference between morals, and ethics mean to right and wrong and encourage us to do the right thing. They you? Share your thoughts with can help people decide on the best course of action in situations a partner and record your opinions so that you can reflect where they aren’t sure what to do. on them later. What Is Ethical Behaviour? Ethical behaviour is behaviour that conforms to ethics— individual beliefs and social standards about what is right and good. Ethics are important for getting along with others, living with yourself, and having a good character. Ethical behaviour is based on values such as trustworthiness, respect, responsibility, caring, justice, and good citizenship, and on adherence to moral rules. Our values tell us what we think is important and this, in turn, helps us make decisions about right and wrong. For example, a person who values trustworthiness is unlikely to betray a friend. Morals are the rules we use to decide what’s good and what’s bad. For example, one moral rule might be that stealing is bad because it harms the person you steal from. As a society, we tend to judge people more on their morals Stretch Your Thinking than their values. In fact, some of the most difficult decisions to make are the ones in which our personal values conflict with Author Isaac Asimov once stated, “Never let your sense of our moral rules. When we make decisions that run counter to morals get in the way of doing our values and morals, and do things that our individual beliefs what’s right.” State in your own and social standards define as being bad or wrong, we are words what you think Asimov meant. demonstrating unethical behaviour. Let’s examine the first situation described earlier—adding a few extra hours to your friend’s time sheet. In this situation, there are two choices—either to add the extra hours or not to add them. If you add a few hours to a time sheet, your friend will get paid for work that he did not perform. Who wins and who loses with this choice? Would a decision like that bother you? NEL CHAPTER 3 Business Ethics and Social Responsibility 75A shopper reads nutrition information in order to decide on the best product. What happens if your friend asks you to do the same thing again in the future? On the other hand, if you don’t add the hours to the time sheet, your friend may be angry with you. Is that important to you? What are the possible consequences? Your values and morals both tell you that dishonesty is wrong. Consider the amount of harm that could result from your decision. If you add the hours, the company will be harmed because it has to pay money without receiving any benefit in return. There will also be harm to you or your friend if someone finds out what you did. You could lose your jobs Is it worth the risk? Ethical behaviour is all about doing the right thing. What Role Should Ethics Play in Business? Ethics are based on both individual beliefs and standards in society. They vary from person to person, situation to situation, and culture to culture. Society’s ethics are usually minimum standards for decency and respect of others. Individual ethics are 76 UNIT 1 Business Fundamentals NELpersonal beliefs about what is good and bad. Business ethics are tied to both society’s ethics and the ethics of the individuals who work for, and buy products from, the company. For example, suppose you work for a company that makes cyanide gas. You know this gas can be harmful to people. Is it unethical that you make this gas? After all, you aren’t using it to poison people. Should you do it because it will help the company make a profit? Should you be concerned that workers might be exposed to toxic effects from working with the gas? In this situation, you must decide whether this work is unethical and whether you are willing Stretch Your Thinking to expose yourself to trouble with your boss by opposing it. What are some products that How do you apply your personal beliefs in a business could be considered unethical environment? Shouldn’t you just do exactly what you are told to and morally wrong? Select one of these products and give do? After all, the employer is paying you. Shouldn’t the employer reasons why you think this get to decide what you do? Would guidelines be helpful for product is unethical. making these decisions? A Code of Ethics Businesses face ethical questions every day concerning the products or services they sell and the way they deal with people inside and outside the company. Many companies choose to operate according to a code of ethics—a document that explains specifically how employees should respond in different situations. A code of ethics is especially useful when problems arise. For The World of Business DVD example, in the Chicago area in 1982, someone contaminated “Raging Bull” several bottles of Tylenol with poison, and seven people died from The World of Business DVD as a result. This was the first case of product tampering of its kind. Johnson & Johnson, the manufacturer of Tylenol, followed its code of ethics and immediately pulled every package of the product off the shelves throughout North America, even though this was very expensive for the company. Johnson & Johnson also changed its packaging so it would be much more difficult for someone to contaminate the product in the future. The recall and repackaging effort cost the corporation about US100 million, but it also showed customers that the company cared about their safety. A code of ethics helps different people approach problems in the same way. Many companies have gone beyond simply writing a code and have established educational programs to help employees learn to behave more ethically. Program topics range from making personal calls during business hours to handling employee layoffs. NEL CHAPTER 3 Business Ethics and Social Responsibility 77 The problem with creating and applying a code of ethics is that drawing a line between right and wrong isn’t always easy. Is it wrong for a businessperson to give a client a gift because that client has been a valued customer over the past year? Or is this bribery? Is it wrong for a politician to make a phone call to a bank manager to help a friend obtain a business loan? Is this using political influence for personal purposes? Rogers Communications Inc. Code of Ethics and Conduct The Board of Directors (the “Board”) of Rogers Communications Inc. (the “Company”, which for the purpose of this Code includes its subsidiaries) has adopted this code of conduct and ethics for directors and officers of the Company (the “Code”) to: 1. endorse and promote the Company’s commitment to honest and ethical conduct, including fair dealing and ethical handling of conflicts of interest; 2. promote full, fair, accurate, timely, and understandable disclosure; 3. promote compliance with applicable laws and governmental rules and regulations; 4. ensure the protection of the Company’s legitimate business interests, including corporate opportunities, assets, and confidential information; 5. deter wrongdoing. All directors and officers of the Company are expected to be familiar with the Code and to adhere to those principles and procedures set forth in the Code that apply to them. The Company’s more detailed policies and procedures that apply to all employees of the Company set forth in the Company’s Business Conduct Guidelines are separate requirements and are not part of this Code. For purposes of this Code, the “Code of Ethics Contact Person” will be the Chair of the Corporate Governance Committee of the Board. 78 UNIT 1 Business Fundamentals NELA group of colleagues trying to work through a dilemma Instead of referring to a written guideline, you can ask Stretch Your Thinking yourself, “If I take this action, will anyone suffer as a result?” For How can businesses end up example, if a salesperson knowingly sells an item that does not with a bad reputation? Are have a return guarantee without informing the customer, the bad reputations always the business’s fault? What can customer (and the business) could suffer. You don’t need a code a company do to change a of ethics to decide if it is wrong. negative public image? In Canada, the law details acceptable business behaviour, but companies can still behave unethically without actually breaking the law. Like the law, no code of ethics can provide guidance for every possible situation. Although codes of ethics sometimes help people make decisions, they are not conclusive guides to distinguishing between right and wrong, and they are not necessary for every company. As a result, some would say that people should rely on their own judgment first. How Can Businesses Resolve Ethical Dilemmas? A dilemma is a situation where there is a difficult choice between two or more options. Dilemmas have good points and bad points on both sides. But not all dilemmas are right-versus- wrong scenarios. For example, a business decision about where to locate is a decision and may even be a dilemma if there are a lot of issues to consider. But it is not an ethical dilemma because it is not a right-versus-wrong decision. NEL CHAPTER 3 Business Ethics and Social Responsibility 79An ethical dilemma is a moral problem with potential Oops right or wrong answers. It occurs in business when a business The label on the soft drink 7-Up has a decision to make that weighs values and morals against claims that it is 100% natural. profitability and competitiveness. Suppose you are the manager According to the company, 7-Up no longer has artificial ingredients and of a business that has no really good place to dispose of its preservatives. It now has five natural toxic waste, so the company has been simply dumping it. If you ingredients and a lower sodium stop dumping it, you will hold up production until you find a content than before. However, the proper place to dispose of it. But what if that turns out to be second ingredient on the label is a high-fructose corn syrup, an industrial very expensive? Should you inform the business owners that the processed sweetener. This “natural” company is violating an environmental code? Or should you just bottle of 7-Up contains 62 grams ignore the problem? of processed sugar. To add to the confusion, Agri-Foods Canada and Some ethical dilemmas facing society and business include the United States Food and Drug downsizing of staff, pollution control, disposal of toxic waste, Administration do not have an official depletion and allocation of scarce resources, cost containment, definition for “natural” food. So is changes in law and technology, employee rights, discrimination 7-Up 100% natural? Is this an ethical claim? against women and minorities, and product safety. Resolving ethical dilemmas requires honesty, the ability to work co-operatively, respect for others, pride in one’s work, willingness to learn, dependability, responsibility for one’s actions, integrity, and loyalty. It may help to respond to the following questions when seeking a resolution: Stretch Your Thinking 1. Who will be helped by what you do? 2. Who will be hurt? Select one ethical issue mentioned in the timeline and 3. What are the benefits and problems of such a decision? find an example of an event 4. Will the decision survive the test of time? that illustrates this issue. Who The types of ethical dilemmas people encounter in suffered or benefitted because of this issue? Did business business, and the approaches used to resolve them, are practices or laws change as a continually changing and developing. This timeline (Figure 3.1) result? If so, in what way? shows some of the changes that have occurred over the last 50 years. Whistle-blowing Whistle-blowing is the decision of an employee to inform officials or the public about a legal or ethical violation. The employee discovers unethical, immoral, or illegal actions at the workplace and has to make a decision about what to do. Is it the right thing to inform someone else about these actions and, if so, how should that be done? Will the whistle-blower be rewarded or punished? In the United States, the year 2002 became known as the “Year of the Whistle-blower,” and Time Magazine named three This police officer is “blowing the female whistle-blowers as their “Persons of the Year.” whistle.” 80 UNIT 1 Business Fundamentals NELFigure 3.1 Ethical Dilemmas and Developments Over Time 2000s Legislation to incorporate ethics because of corporate scandals, cyber crime and privacy issues surface, emphasis on corporate social responsibility, evaluation of the importance of ethics programs 2000 1990s Corporate ethics officers hired, increased corporate liability, class action lawsuits, business ethics well established in the education field, business reporting on ethical performance 1990 1980s Business ethics books appear on the market, fraudulent practices/deceptive advertising, ethical training for employees, codes of ethics for businesses and government 1980 1970s Labour issues and unsafe practices, values movement gains popularity, business ethics appears in writings and teachings, businesses avoid dealing with ethical dilemmas 1970 1960s Environmental concerns, shift to big businesses, social responsibility programs started, changes in work ethic, introduction of codes of conduct 1960 Examples of issues that a whistle-blower might report include ■ someone submitting false information on an expense report ■ a business that’s ignoring hiring procedures for minorities ■ a business that’s knowingly ignoring workplace safety codes ■ a business that’s not observing mandated health codes NEL CHAPTER 3 Business Ethics and Social Responsibility 81What Happens When People Don’t Business Fact Behave Ethically? The City of Toronto adopted a corporate fraud policy in Imagine that you handle the bookkeeping for your company. 2001. This policy prohibits Sounds boring? For day-to-day activities, it’s probably not too any business operating in the city from bribing or otherwise exciting. But what if your boss asks you to alter some of the influencing City employees. accounts to hide sums of money that seem to have disappeared? The policy also includes laws Or what if you come across some interesting figures about the to protect whistle-blowers from losing their jobs or being company’s future plans, and you decide to buy some shares in punished by their employers. the company as a result of seeing these figures? Suddenly, you There is also a hotline for are dealing with important ethical issues—and not simply ethical employees to report violations so that their employers don’t know issues either These types of actions can land you in jail. who blew the whistle. Table 3.1 shows some examples of situations in which people don’t behave in an ethical way, and others are harmed as a result. Fraud, accounting scandals, and insider trading are some of the major ethical issues that have become associated with businesses. Fraud Fraud is the crime of lying or pretending. Some businesses mislead consumers and try to trick them into buying something in order to maximize their profits. The Competition Act 2002 bans these types of fraud and deceptive business practices: 1. false or misleading advertising 2. advertising a bargain price for merchandise that is unavailable for sale in a reasonable quantity (“bait and switch” selling) In the News Did you know that the film industry makes many movies about unethical practices? Movies that turn whistle-blowers into heroes have included the following: 1. An Inconvenient Truth (impact of global warming) 2. The Insider (secrets of the cigarette industry) 3. Open Heart (medical care in hospitals) 4. Quiz Show (ethical dilemma concerning cheating) 5. Erin Brockovich (industrial poisoning of a water supply) 6. All the President’s Men (political cover-up) 7. The China Syndrome (nuclear accident) 8. Silkwood (safety concerns) 9. Serpico (police corruption) 10 . Roger & Me and The Big One (corporate downsizing) 82 UNIT 1 Business Fundamentals NEL 3. placing two different prices on a product and selling it to the consumer at the higher price (double ticketing) Several types of fraud can involve consumers and businesses. c E-ACTIVITY Fraud offences are constantly changing and can vary in their Visit www.nelson.com/WOB and level of sophistication. Here’s an alphabetical list of the more follow the links to learn more about common frauds with examples. telemarketing scams and how consumers can protect themselves. 1. Bank fraud—A bank officer makes a fraudulent loan to a non-existent business and then pockets the money. 2. Consumer fraud—A business tricks customers into buying goods or services they don’t really need through unethical advertising or false claims. 3. Contract fraud—A business or individual uses temptations, such as bribes or kickbacks, to create a contract. 4. Insurance fraud—A business or individual falsely claims lost, damaged, or stolen property in order to receive insurance settlements. 5. Mail fraud—An individual uses the postal service for fraudulent purposes, such as mailing phony job opportunities, chain letters, or inheritance scams. 6. 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. 7. Stock market fraud—An individual uses insider trading or other techniques to buy and sell stocks at artificial values. 8. Telemarketing fraud—A company uses high-pressure phone calls to get customers to buy now or to donate funds to bogus charitable causes. 9. Welfare fraud—An individual receives benefits without being eligible. Bre-X One famous fraud case was the story of the Canadian mining company Bre-X. Bre-X came to the attention of the general public when it was reported that the company was sitting on an enormous gold deposit in Indonesia. In 1995, Bre-X announced that significant amounts of gold had been discovered and, as a result, its stock price went up. How much? Bre-X stock went from less than a dollar per share, known as a penny stock, to a high of 286.50 per share. If an owner or investor had bought NEL CHAPTER 3 Business Ethics and Social Responsibility 83in at the beginning and sold when the stock reached its peak, he or she would have made about 286.00 on each and every share. A thousand dollar investment could have turned into 286 000 for that investor However, it was a massive fraud because there was no gold. Once doubt about the gold find started growing, people began selling off their shares. Bre-X went bankrupt in 2002, and the investors who still had stock lost every penny they had invested. Table 3.1 Examples of Unethical Behaviour in Business Unethical Behaviour Consequence Fraud: A method used to deceive someone for harm to the person who is deceived personal gain loss of job and/or jail time Forgery: A form of fraud that could involve passing harm to the people whose signatures are forged or bad cheques by forging someone else’s name who accept bad cheques loss of job and/or jail time Theft: Stealing someone’s property harm to the victim loss of job and/or jail time Employer Theft: Could involve taking advantage of harm to the employees that could result in people employees by not paying for overtime worked quitting loss of job and/or jail time Embezzlement: A form of fraud where a person harm to the person or company whose funds are violates a trust by moving funds into their account stolen instead of the correct account loss of job and/or jail time Misuse of Funds: Moving monies from one account harm to the person or company whose funds are to another without permission or direction misused loss of job and/or jail time Discrimination: Not hiring a person because of an harm to company because new employees aren’t issue not related to the person’s ability to do the job always the best people for the job (e.g., race, religion, gender, or disability) loss of job Environmental Violations: A company ignoring laws harm to the environment and possibly to people and regulations that involve toxic waste and animals fine and/or decrease in market value of stock Concealing Information: Not disclosing data that harm to customers or employees, for example, should be shared, for example, about defective because of unsafe products or working conditions products fine and/or decrease in market value of stock Tampering with Records: A form of fraud where harm to the people who are being deceived records are altered in some way to deceive other loss of job and/or fine and/or jail time persons 84 UNIT 1 Business Fundamentals NELBre-X Minerals Group in Indonesia Ethical, Moral & Legal Considerations “I consider my past immoral, movie Catch Me If You Can was unethical, and illegal. It is based on Abagnale’s life. After something I am not proud of,” being caught and serving time in said Frank W. Abagnale Jr., the prison, Frank Abagnale became youngest person to ever make a consultant for the FBI where the FBI’s most-wanted list. Begin- he worked on white-collar crime. ning at the age of 16, Abagnale How would a business take care wrote bad cheques totalling of a bad cheque that they may 2.5 million over a six-year period have received from a con artist in 26 countries. As a con artist, like Frank? What can a business he impersonated a doctor, a employee do to detect a con lawyer, and an airline pilot. His artist? How can companies career in crime lasted six years protect themselves from con from 1963 to 1969. The 2002 artists and fraud artists? NEL CHAPTER 3 Business Ethics and Social Responsibility 85Accounting Scandals Willie Sutton, a famous bank robber whose crimes were committed in the 1920s, 30s, and 40s, was once asked why he robbed banks. His response was: “Because that’s where the money is.” Today, money is in accounts, which are paper and computer documents tracing money in banks and investments. Accounting is the process of identifying, measuring, and communicating financial information about a business so that informed judgments and decisions can be made based on that information. An accounting scandal is a publicly exposed crime involving accountants or senior executives who alter accounting records for personal benefit. Accounting scandals typically take place in large corporations. Chapter 9 deals with the subject of accounting and provides more details about accounting procedures. When an accounting scandal is uncovered in a business, outside accountants are appointed to find out what happened. A forensic accountant is an accountant who investigates legal and financial documents, looking for evidence of tampering. (See Chapter 9 for more information on forensic accounting.) In small businesses, accounting crimes often involve embezzlement. Embezzlement is a type of accounting fraud in which an accountant or senior executive invents phony accounts and redirects company money into them for personal gain. Business owners sometimes do not pick up on embezzlement activities until they have gone on for a long time. In large businesses, fraud often involves “cooking the books” regarding assets and liabilities. Assets are items that a business owns, such as buildings, land, equipment, cash, and receivables. Liabilities, on the other hand, are debts that a business owes. Corporate fraud often involves misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets to the public shareholders, or under-reporting liabilities. Auditors are outside accountants who check the financial records of companies. The owners and shareholders rely on auditors to make sure that these frauds do not occur. But if a highly experienced accountant is committing the fraud, even an auditor may have difficulty detecting it. Enron is an example of a public corporation that was involved in an accounting scandal. 86 UNIT 1 Business Fundamentals NELFraud exposed Enron The biggest accounting scandal that has ever taken place involved an American energy company called Enron. In the late 1990s, Enron was considered one of the world’s leading electricity, natural gas, and communications companies. It also had the label of being “America’s Most Innovative Company” for six consecutive years. But in 2001, Enron went bankrupt. An audit revealed that the assets and the profits of Enron had NEL CHAPTER 3 Business Ethics and Social Responsibility 87been grossly inflated and in some cases were even non-existent. Enron was accused of inflating its income figures by US586 million over a four-year period. The collapse of the company had a tremendous impact on employees and investors. Over 20 000 people lost their jobs, and at the same time, millions of investors lost US60 billion dollars. Moreover, the accounting company that had been auditing Enron’s books for decades— Arthur Andersen Inc.—also went bankrupt. Several senior executives of both companies faced criminal charges and jail sentences. Insider Trading Wouldn’t it be great to have access to the winning lottery numbers before they are drawn? In business, corporate executives normally do have access to winning lottery numbers—in the form of confidential information about the business and its future plans. A quick investment in the right company could make you a lot of quick money But buying or selling shares in a company based on this type of confidential information is known as insider trading, and it’s illegal. For example, if you are an executive and you learned in a meeting that an accounting scandal about the company is going to hit the newspapers tomorrow, you also know that the price of the company’s shares will drop as the wary public sells off their shares. You might decide to quietly sell your shares now, before the price drops. However, authorities at the stock exchange watch for these timing issues and will likely discover that you have committed the crime of insider trading. Stock markets operate on the premise that everyone learns about the same information at the same time and therefore no one gets an unfair advantage. Insider trading occurs when someone makes an investment decision based on confidential information that is not available to the general public. For example, Martha Stewart of Martha Stewart Living Omnimedia Inc. allegedly received insider information from someone about the company ImClone, and she dumped her stock in ImClone before the price dropped, thus saving a potential loss. However, there is some debate whether Stewart was given confidential information or simply an insider’s best guess at what was going to happen. But because she tried to hide the truth about what she had done, and because she 88 UNIT 1 Business Fundamentals NELwanted to prevent further scandal, Martha Stewart went to jail all the same. But not all insider trading is illegal. It is perfectly legal for people who work for a company to buy and sell stock in that company, as long as they inform the stock exchange that they are doing it. Insider trading only becomes illegal if someone purchases or sells stock based on information that has not yet been made public, thereby giving themselves an advantage over all other investors. For example, having prior knowledge of an upcoming take-over of a company could give a person an unfair advantage when buying or selling shares of a corporation. It is not easy to detect insider-trading practices, so regulators use sophisticated computer programs to search for abnormal patterns of the sale of stocks. This unethical and illegal practice, when noticed, is prosecuted by provincial Traders working the floor of the New York securities commissions. Even though the penalties vary from Stock Exchange province to province, those guilty of insider trading could face fines of up to 1 million, be forced to turn over their profits, face jail sentences for up to two years, and could be banned from future trading in securities. Review Questions 1. What does the term ethics mean? 2. Do most people practise good ethical behaviour? Should they? 3. How can a business convey its ethics and values to its employees, customers, and owners? 4. Use an example to describe what is meant by “ethical dilemma.” 5. a) Define whistle-blowing. b) Describe a hypothetical job situation in which you might be a whistle-blower 6. What is an accounting scandal? 7. Is insider trading always illegal? Explain. NEL CHAPTER 3 Business Ethics and Social Responsibility 89Keep in Mind Ethics and Corporate Social 1. CSR principles Responsibility 2. duty to report 3. laws that govern corporate Businesses exhibit corporate social responsibility (CSR) ethics (i.e., workplace safety, antidiscrimination issues, through their values, their ethics, and the contributions that they accessibility issues, environmental make to their communities. In other words, CSR has to do with responsibility, labour practices) “What you do, how you do it, and when and what you say.” 4. fair trade A socially responsible business provides goods and services in line with society’s values. Socially responsible businesses are concerned about how they protect customers and treat employees and shareholders. For example, a business may discover that it can make a higher profit by closing a plant in one town and Business Fact opening a new plant one hundred miles away. What should the According to a GlobeScan study, people who run the business consider as they decide whether 56% of shareholders believe that or not to open the new plant? What obligations do they have socially responsible companies to their employees, to their shareholders, or to the community are more profitable and 18% say they have bought or sold shares where their old plant is located? Will the new plant result in because of the company’s social harm or benefit to people in the community where it is going or environmental performance. to be built? Training employees to work safely is very important. 90 UNIT 1 Business Fundamentals NELCSR Principles CSR companies believe that it is important for businesses to be socially responsible to their employees, their customers, and their communities. These are the companies that actively support community projects, that provide money for children’s sports teams, or that develop innovative programs to keep their employees happy and healthy. Businesses that practise CSR make every effort to support their beliefs by adhering to the following CSR principles. Business ethics and corporate social responsibility concepts have been around for some time. So haven’t most, if not all, businesses already adopted these guidelines? No. The news is filled with examples of unethical and illegal business practices. The sad truth is that too many businesspeople believe that normal business procedures mean dealing with ethics only when necessary, or not dealing with ethics at all. Figure 3.2 CSR Principles 1. Providing a safe and healthy 2. Adopting fair labour policies work environment a business could choose to a business could choose to invest in an employee wellness pay more than minimum wage and offer flexible hours of program that offers on-site employment for workers daycare or fitness facilities 6. Donating to charity 3. Protecting the environment a business could make it easy for a business could help fund employees to contribute to charities environmental programs in CSR Principles their community and could through payroll plans, and could host an event that donates proceeds to themselves become more charitable causes in the community environmentally responsible 5. Avoiding price discrimination 4. Being truthful in advertising a business could base its pricing a business could ensure that structure on one price, such as the their advertising does not contain manufacturer’s suggested list price, inaccurate or deceptive claims, to avoid confusing consumers statements, or illustrations NEL CHAPTER 3 Business Ethics and Social Responsibility 91

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