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
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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