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 in situations where they
arent 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.

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.

Morals
Rules we use to decide whats good and whats 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 dont 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.

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.
B. The Role of Business Ethics

Consider:
Individual ethics are personal;
Societys ethics are usually standards for decency and respect of others;
Business ethics are tied both to societys 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

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 companys mission,

vision, or credo statement.

Googles 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 Johnsons 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 companys fundamental purpose.
A mission statement answers the question, Why do we exist?
It articulates the companys 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 Tires 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 doesnt tell you how youre 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.

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 Dilemmas

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
Prides in ones work
Willingness to learn and admit when you are wrong
Dependability
Responsibility for ones 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 OBrien 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. False or misleading advertising

2. Advertising merchandise for a bargain price, but not having a reasonable quantity
available for sale (bait and switch selling)
3. 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 dont 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
companys:

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,

shareholders reports.

1. Balance Sheet
Reports a companys 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 Owners Equity
For a corporation it is called Shareholders 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.

Revenues - Expenses = Net Income/Proft

R>E = Net Profit
R<E = Net Loss
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.

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

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

Cooking the Books

An common expression used to indicate corporate fraud

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.

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.

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?

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.
Earl Jones Financial Ponzi scheme in Quebec