Canadian Business and Society

ETHICS, RESPONSIBILITIES, AND SUSTAINABILITYAND

Fifth Edition

CHAPTER 6
Ethics of
Business:
Management
and Leadership
Prepared By:
Renée Majeau, NAIT

© 2020 McGraw-Hill Education Limited 6-1

 Learning Outcomes

1. Recognize appropriate ethical leadership.

2. Define and describe the pros and cons of a statement of
values.
3. Make the distinction between codes of conduct and
codes of ethics.
4. Appreciate the purpose of ethics training in an
organization.
5. Define an ethics audit and explain the role of ethics
officers and ethics committees.

© 2020 McGraw-Hill Education Ltd. 6-2

 Learning Outcomes Cont’d…
6. Understand how ethics reporting systems work and
define whistleblowing.
7. Know who is responsible for managing the ethics of
business.
8. Identify the approaches to ethics programs.
9. Evaluate ethics programs and list their benefits.
10. Recognize that ethical misbehaviour may occur despite
management efforts and the implementation of ethics
programs.

© 2020 McGraw-Hill Education Ltd. 6-3

 Ethical Leadership Forms
• Research on leadership identifies three possible forms
applicable to the ethics of business and corporate social
responsibility:
➢ Ethical → communicate ethical standards and encourage ethical
conduct
➢ Responsible → narrow orientation focused on financial
performance and extended orientation with stakeholder view
➢ Servant leadership → emphasizes concern for others, and
combines motivation to lead with the need to serve others
• Includes the design and implementation of corporate ethics
programs

© 2020 McGraw-Hill Education Ltd. 6-4

 Statement of Values
• A description of the beliefs,
principles, and basic assumptions
about what is desirable or worth
striving for in an organization.
• Key components to value
statements:
➢ Key stakeholder interests to be
satisfied and balanced
➢ Emphasis on quality
➢ Efficiency
➢ Work climate
➢ Observance of codes of conduct
© 2020 McGraw-Hill Education Ltd. 6-5
 Codes of Conduct
and Ethics
• Code of conduct → explicitly states what appropriate
behaviour is by identifying what is acceptable and
unacceptable
• Code of ethics → a statement of principles or values
that guide behaviour by describing the general value
system within which a corporation attempts to operate
in a given environment

© 2020 McGraw-Hill Education Ltd. 6-6

 Distinction between Codes of
Conduct and Codes of Ethics
Codes of Conduct
Enforced by an external power and
authority; convey rules that tell
people what they must or must not
do. Members of organizations must
obey or face penalties for failing to do
so.
Key characteristics:
•Imposed by others
•What must be done or what must
not be done
•Rules
Codes of Ethics
Codes of ethics suggest guidelines to
follow and empower individuals to act
according to their consciences.
Penalties are not imposed and writers
emphasize the qualities they think
members should have.
Key characteristics:
•Self-imposed
•Who we are
•What we stand for
•Guidelines or guiding principles

TABLE 6.1

© 2020 McGraw-Hill Education Ltd. 6-7

 Codes of Conduct and
Codes of Ethics Cont’d…
• Types of codes:
➢ Corporate or business enterprise
➢ Professional organizations
➢ Industry and sector
➢ Single issue
➢ Codes from national and international bodies
• Codes institutionalize ethical behaviour by:
➢ Increasing awareness
➢ Discouraging ethical apathy
➢ Facilitating ethical decision making
➢ Making it easier to refuse an unethical request
© 2020 McGraw-Hill Education Ltd. 6-8
 Content of Codes of
Conduct and Codes of Ethics
A general statement of ethics, values, or philosophies

Criteria for decision making and compliance with laws

Responsibility toward employees, including items such as health and safety, diversity, a respectful workplace,
and privacy
Conflicts of interest, their identification, and how to handle them
Protection of corporate assets, including accurate accounting and record keeping, security or property, and
insider information
Appropriate business practices, including honesty, fairness, obeying the law, and information disclosure
Appropriate conduct on behalf of the corporation; for example, relationships with customers, suppliers,
competitors, creditors, and government
Responsibilities to society at large, including contribution to political parties, lobbying government, responses
to media, treatment of communities, and concern for environmental protection
Implementation procedures, including familiarity with the code, reporting of violations, refusing unethical
requests, and seeking help on ethical matters
Specification of enforcement/compliance procedures and the penalties for inappropriate or illegal behaviour.

TABLE 6.2
© 2020 McGraw-Hill Education Ltd. 6-9
 Codes of Conduct and
Codes of Ethics Cont’d…
• Content of codes has evolved over time and through
five generations:
➢ First generation → conflict of interest
➢ Second generation → commercial conduct
➢ Third generation → employee rights and motivation of the
workforce
➢ Fourth generation → wider responsibility, with attention on
environment and respect for communities
➢ Fifth generation → international concerns, including human
rights, the rule of law and labour conditions

© 2020 McGraw-Hill Education Ltd. 6 - 10

 Criticisms
• Unenforceable standard
• Unnecessary, as most corporations operate at ethical level
above code
• Only necessary for the less scrupulous
• Penalties may be insignificant
• Convincing everyone to comply is not easy
• Often idealistic and written in meaningless generalities
• Merely to control competitive conduct among
corporations, designed to prevent government legislation
• Serve as a response to public criticism

© 2020 McGraw-Hill Education Ltd. 6 - 11

 Ethics Training

• Involves teaching employees about the values and

policies on ethics they should follow in their decision
making
• Teaching sessions can involve:
➢ Managers or outside consultants
➢ Addressed to all levels of employees, with emphasis on
management
➢ Online exercises
➢ Practical checklists and tests to evaluate actions

© 2020 McGraw-Hill Education Ltd. 6 - 12

 Checklists and Tests
• Nash → plainly worded questions should be used by
managers when examining ethics of a business decision
➢ Examples: Have you defined the problem accurately? How did this
situation occur in the first place? Etc.
• Pagano model (1987) → identifies six tests that provide
insights into the ethics of a business’ actions:
1. Is it legal
2. Benefit/cost test
3. Categorical imperative
4. Light of day test
5. Do unto others
6. Ventilation test
© 2020 McGraw-Hill Education Ltd. 6 - 13
 Understanding
Conflicts of Interest

• Conflict of interest → situation in which an individual

has a private or personal interest that is sufficient to
appear to influence the objective exercise of that
individual’s duties
• Three types of conflict:
1. Real
2. Apparent
3. Potential

© 2020 McGraw-Hill Education Ltd. 6 - 14

 Common Conflicts
of Interest
Self-dealing—Exists where a manager or employee takes an action in an official capacity that involves
dealing with oneself in a private capacity and that confers a benefit to oneself. Today this extends to
one’s spouse, family members, and business partners.
Accepting gifts or benefits—Involves the acceptance of some benefit.
Influence peddling—The practice of soliciting some form of benefit; for example, asking for a kickback
or gift from a supplier if a purchase is made.
Using employer’s property—The inappropriate use of an employer’s property; for example, taking
office supplies for home use.
Using confidential information—The use for personal or private purposes of confidential information
obtained from some other source, for example customers or suppliers, to gain some benefit.
Outside employment or moonlighting—The work or activity in which an employee engages outside
normal working hours for additional remuneration.
Post-employment—Subsequent or future employment where information or contacts obtained
during employment results in some benefit.
Personal conduct—The situation where an employee’s behaviour in private life may reflect adversely
on the employer.

TABLE 6.3
© 2020 McGraw-Hill Education Ltd. 6 - 15
 Ethics Audits,
Managers, and Committees

• Systematic effort to discover actual or potential

unethical behaviour in an organization
➢ Designed to uncover unethical behaviour and identify existing
opportunities for unethical behaviour
➢ Useful in conjunction with a code of ethics
➢ Conducted by consultants → advise management on how to
put “integrity” into corporate culture

© 2020 McGraw-Hill Education Ltd. 6 - 16

 Ethics Audits, Managers,
and Committees Cont’d…
• Ethics officer → independent manager who:
➢ Reports to the board of directors or CEO
➢ Reviews complaints or information from anyone in the
organization or any stakeholder
➢ Studies situation and recommends action if necessary
• Compliance officer → ensures all employees are familiar
with corporation’s policies and codes, and with government
laws and regulations
• Ethics committees → group of directors, managers or staff
formed to monitor ethical standards and behaviour

© 2020 McGraw-Hill Education Ltd. 6 - 17

 Ethics Reporting Systems
and Whistleblowing

• Corporations have established reporting systems so that

they can become aware of issues and concerns relating to
corporate ethical conduct
➢ Most common = hotlines
• Whistleblowing → act of voluntary disclosure of
inappropriate behaviour or decisions to persons in
positions of authority in an organization
➢ Many ethical issues related to whistleblowing have ethical
implications for whistleblowers and managers

© 2020 McGraw-Hill Education Ltd. 6 - 18

 Whistleblowing: Ethical
Implications
• Issues:
➢ Remain silent, quit, or disclose wrongdoing?
➢ Range of concerns from clearly illegal to maybe illegal to issue of
morality
➢ Does obligation to employer supersede obligation to self,
profession, or industry?
➢ Will the whistleblower be believed?
➢ Is the whistleblower a hero or a snitch?
➢ When and who to tell?
➢ What will the consequences be?

© 2020 McGraw-Hill Education Ltd. 6 - 19

 Ethics: Who is Responsible?
• Boards of directors have two tasks in relation to ethics:
➢ To collectively identify values that determine acceptable
behaviour in the firm
➢ Put in place a process that ensures values are reflected in action

• Success of any ethics programs depends on commitment

of top management:
➢ Announce the program
➢ Champion its development and implementation
➢ Aspire to lead in an ethical manner

© 2020 McGraw-Hill Education Ltd. 6 - 20

 Management and Leadership
Models
Immoral
• A posture or approach that is devoid
of ethical principles and actively
opposed to what is moral
• Management’s motives are selfish
and it cares only about the
individual’s or the organization’s
gains
• Management to some degree knows
right from wrong and chooses to do
wrong
• May be motivated by greed and
profitability, and organizational (or
personal) success is the goal to be
achieved at any price
• Do not care about claims or
expectations of others
• The law is regarded as a barrier to
be overcome and will circumvent if
it will achieve their ends
• Do not make good corporate citizens
© 2020 McGraw-Hill Education Ltd.
Amoral
• A posture or approach that is without
ethics, but not actively immoral
• Two types: intentionally or
unintentionally amoral
• Intentionally amoral leaders do not
consider ethics, as they believe
business activity lies outside of moral
judgments; neither moral nor
immoral, as different rules apply to
business
• Unintentionally amoral leaders are
morally careless, unaware of or
inattentive to impact of their
decisions on others
• They lack ethical perception,
sensitivity, or awareness
• May be well-intentioned but unaware
of harms from their actions
• “Ethical gears in neutral”
• Use letter of the law instead of spirit
• Cannot make good corporate citizens
Moral
• Conform to high
standards of ethical
behaviour or professional
standards
• Aspire to succeed only
within confines of ethical
principles; for example
fairness, justice, and due
process
• Concerned with letter
and spirit of the law
• Prefer standards that are
higher than the minimum
set by the law
• Assume leadership when
ethical dilemmas arise
• Make ethics a driving
force of the organization
TABLE 6.4
6 - 21
 Ethics Programs: Approaches

• Classification of programs:
➢ Formal approach → based on organizational norms that are
written as a code of conduct
➢ Monological approach → allows organizational managers and
employees to determine for themselves what is right or
wrong
➢ Dialogical approach → emphasizes communication before
decisions are made and implemented

© 2020 McGraw-Hill Education Ltd. 6 - 22

 Compliance versus
Values-based Programs
Compliance-based Values-based
Rules, laws, policies Values, ethics, guiding principles
Conformity with externally imposed standards Self-governance to chosen standards; self-imposed
Prevent criminal misconduct Enable responsible conduct
Lawyer-driven Management-driven
Educational approach: policies and rules, Educational approach: policies and rules, but also
legalistic guidelines/awareness through leadership
Employee discretion: limited Employee discretion: increased
Control: auditing, penalties Control: accountability, systems, decision processes
Code of Conduct: Code of Ethics:
•Specific •General
•Prescriptions/directives •Values/principles
•Uniformity •Judgment
•Enforceable statements of specific behaviour •“Empowering” and “aspirational”
TABLE 6.5
© 2020 McGraw-Hill Education Ltd. 6 - 23
 Ethics Programs: Evaluation

• Implicit ethics programs are implemented through:

➢ Organization’s culture, reward systems, valued behaviour,
promotion policies, management example, general practice and
performance measures
• Criteria for an effective ethics program:
➢ Visibility
➢ Ownership
➢ Fit
➢ Balance

© 2020 McGraw-Hill Education Ltd. 6 - 24

 Ethics Programs: Evaluation
and Benefits Cont’d…
• Benefits of programs to manage ethics:
➢ Business practices more beneficial to society
➢ Increased awareness of ethics
➢ Alignment of corporate behaviour with values
➢ Heightened ethical sensitivity of employees and managers
➢ Sensitizes managers and employees to legal requirements
➢ Avoidance of criminal acts
➢ Integration of values with quality and strategic management
➢ Implications of management decisions on stakeholders
➢ More favourable public image

© 2020 McGraw-Hill Education Ltd. 6 - 25

 Ethics Programs: Evaluation
and Benefits Cont’d…

• Four types of executive ethical leadership:

➢ Hypocritical leader = strong moral manager and weak moral
person
➢ Unethical leader = weak moral manager and weak moral
person
➢ Ethical leader = strong moral manager and strong moral person
➢ Ethically silent leader = weak moral manager and either a weak
or strong moral person

© 2020 McGraw-Hill Education Ltd. 6 - 26

 Ethics Programs: Evaluation
and Benefits Cont’d…
• Guidelines for effective ethics management:
FIRST: Understand the Existing Ethical Culture
SECOND: Communicate the Importance of Ethical Standards
THIRD: Focus on the Reward System
FOURTH: Promote Ethical Leadership Throughout the Firm
• Corporate culture → complex set of values, beliefs,
assumptions and symbols that define the way in which an
organization conducs its business
➢ Ethical corporate culture → “subset” of the organizations
broader culture

© 2020 McGraw-Hill Education Ltd. 6 - 27

 Why Ethical Leadership
and Programs Fail
• Managers are morally imperfect
• Self-interest
• Rationalization and self-delusion
• Threat of formal sanctions
• Threat of informal sanctions
• Tolerance to risk-taking behaviour
• Pressure in particular situations

© 2020 McGraw-Hill Education Ltd. 6 - 28

 Summary

• Corporations must take deliberate actions to reinforce

the importance by considering ethical implications in
decision making. Key to this is the appropriate form of
ethical leadership. (LO 6.1)

• The components of a corporation’s ethics program to

accomplish are described. The initial stage should be a
statement of values or the equivalent that states in
general terms the behaviours expected. These values
become the foundation for the corporation’s ethics
program. (LO 6.2)
© 2020 McGraw-Hill Education Ltd. 6 - 29
 Summary Cont’d…

• A code of ethics reflects the values of an organization.

A distinction should be made from a code of conduct,
which focuses on compliance to rules or regulations
instead of values. (LO 6.3)

• Today, corporations are not leaving an understanding of

morality to chance and are engaged in a variety of
training for everyone in the organization. (LO 6.4)

© 2020 McGraw-Hill Education Ltd. 6 - 30

 Summary Cont’d…

• Ethics audits are becoming more common as an approach

to assessing the ethical implications of a corporation’s
practices. Usually such audits are conducted by outside
consultants, who can also provide a range of advice about
ethics programs. In larger corporations, there is a trend
toward an ethics officer of some type being responsible for
all aspects of compliance and morality in the organization.
Ethics committees in many corporations facilitate the
implementation of ethics programs. (LO 6.5)

© 2020 McGraw-Hill Education Ltd. 6 - 31

 Summary Cont’d…
• Ethics reporting systems are being established. Several
complicated issues are associated with whistleblowing and
whistleblowers. Managers must carefully monitor the
practice to make sure its benefits outweigh the drawbacks.
(LO 6.6)

• Someone must take responsibility for the development and

implementation of ethics programs. The board of directors
and top management must signal their commitment to any
program if it is to be successful. A “moral” leadership model
is necessary to achieve this. (LO 6.7)
© 2020 McGraw-Hill Education Ltd. 6 - 32
 Summary Cont’d…

• Approaches to ethics programs are described. The formal

approach is most common; the dialogical the least. Most
corporations have programs that are a combination of these
approaches. Also, the components of programs can be identified
as being compliance-based versus values-based. (LO 6.8)

• The components of an ethics program are either compliance-

based, following rules and requiring conformance, or values-
based, emphasizing values as a way to influence behaviour. In
most corporations today, a combination of these approaches is
used and referred to as integrity management. (LO 6.9)

© 2020 McGraw-Hill Education Ltd. 6 - 33

 Summary Cont’d…

• There are several explanations for why ethical leadership

and programs fail despite the best efforts and intentions of
the corporation and its managers. An ethical corporate
culture is necessary for ethics programs to be successful.
(LO 6.10)

© 2020 McGraw-Hill Education Ltd. 6 - 34