Business Ethics andBusiness Ethics andSocial ResponsibilitySocial Responsibility

EthicsEthics

EthicsEthics• Standards or rules of conduct that help us Standards or rules of conduct that help us

distinguish between right and wrong.distinguish between right and wrong.

• Can help individuals decide on the best course of Can help individuals decide on the best course of action in situations where they aren’t sure what action in situations where they aren’t sure what to do.to do.

• Help us get along with others, living with Help us get along with others, living with ourselves and living out good character.ourselves and living out good character.

• Based on individual beliefs, values, morals, and Based on individual beliefs, values, morals, and standards in societystandards in society

• They may vary from person to person, situation to They may vary from person to person, situation to situation and culture to culture.situation and culture to culture.

ValuesValues

ValuesValues

• Tell us what we think is important which Tell us what we think is important which helps us make decisions about right and helps us make decisions about right and wrong.wrong.

• Examples include: trustworthiness, honesty, Examples include: trustworthiness, honesty, respect, responsibility, empathy, good respect, responsibility, empathy, good citizenship, perseverancecitizenship, perseverance

• A person who values trustworthiness is A person who values trustworthiness is unlikely to betray a friend.unlikely to betray a friend.

MoralsMorals

MoralsMorals• Rules we use to decide what’s good and Rules we use to decide what’s good and

what’s bad.what’s bad.

Examples:Examples:• Stealing is bad because it harms the Stealing is bad because it harms the

person you are stealing fromperson you are stealing from• Lying is bad because it breaks trust and Lying is bad because it breaks trust and

harms relationshipsharms relationships

Morals vs. ValuesMorals vs. Values

• We tend to judge people more on their morals We tend to judge people more on their morals than their valuesthan their values

• Sometimes our values conflict with our morals Sometimes our values conflict with our morals and we make questionable decisions.and we make questionable decisions.

Example:Example:• You might place a high value on friendships and You might place a high value on friendships and

wanting people to like youwanting people to like you

• You may believe that you don’t drink or drive or You may believe that you don’t drink or drive or get into a car with someone who drinks and get into a car with someone who drinks and drives because irreparable harm and/or death drives because irreparable harm and/or death may resultmay result

• Conflict – You are at a party and you get into a Conflict – You are at a party and you get into a car with someone you want to like you and this car with someone you want to like you and this person has been drinking.person has been drinking.

Ethical BehaviourEthical Behaviour

Ethical BehaviourEthical Behaviour• Behaviour that conforms to ethicsBehaviour that conforms to ethics

Unethical BehaviourUnethical Behaviour• When we make decisions that run When we make decisions that run

counter to our values and/or morals counter to our values and/or morals and do things that our individual and do things that our individual beliefs and social standards define as beliefs and social standards define as bad or wrong.bad or wrong.

The Role of Business EthicsThe Role of Business Ethics

Consider:Consider:

• Individual ethics are personal;Individual ethics are personal;

• Society’s ethics are usually standards for decency and Society’s ethics are usually standards for decency and respect of others;respect of others;

• Business ethics are tied both to society’s ethics and Business ethics are tied both to society’s ethics and the ethics of the individuals own, work for and buy the ethics of the individuals own, work for and buy products from the company.products from the company.

So…So…

• How do you apply your personal beliefs in a business How do you apply your personal beliefs in a business environment?environment?

• Should you just do what your employer tells you to do Should you just do what your employer tells you to do – especially since s/he is paying you?– especially since s/he is paying you?

Business Code of Ethics/ConductBusiness Code of Ethics/Conduct

Business Code of EthicsBusiness Code of Ethics• A document that outlines how employees and A document that outlines how employees and

employers should respond in different situationsemployers should respond in different situations

• Stakeholders affected by business decisions Stakeholders affected by business decisions include: include: CustomersCustomers EmployeesEmployees SuppliersSuppliers CompetitionCompetition SocietySociety Business owners (i.e. shareholders)Business owners (i.e. shareholders) Society at largeSociety at large The Environment – (including future generations)The Environment – (including future generations)

Code of Ethics/Conduct ExamplesCode of Ethics/Conduct Examples

• Sometimes a business code of Sometimes a business code of ethics/conduct is embodied in a ethics/conduct is embodied in a company’s mission, vision, or credo company’s mission, vision, or credo statement.statement.

Google’s Code of ConductGoogle’s Code of Conduct• http://investor.google.com/conduct.htmlhttp://investor.google.com/conduct.html

Johnson and Johnson – Our CredoJohnson and Johnson – Our Credo• http://www.jnj.com/connect/about-jnj/jnj-credohttp://www.jnj.com/connect/about-jnj/jnj-credo//

Johnson and Johnson’s Ethical Code for the Conduct of Johnson and Johnson’s Ethical Code for the Conduct of Pharmaceutical Medicine Pharmaceutical Medicine

• http://www.investor.jnj.com/ethics.cfmhttp://www.investor.jnj.com/ethics.cfm

Ethical Standards for the Teaching ProfessionEthical Standards for the Teaching Profession• http://www.oct.ca/standards/ethical_standards.aspx?lang=http://www.oct.ca/standards/ethical_standards.aspx?lang=

en-CAen-CA

Mission StatementMission Statement

Mission StatementMission Statement• A brief description of a company’s A brief description of a company’s

fundamental purpose.fundamental purpose.

• A mission statement answers the question, A mission statement answers the question, “Why do we exist?”“Why do we exist?”

• It articulates the company’s mission for both It articulates the company’s mission for both those who work in the company and the those who work in the company and the public.public.

Ward, Susan. “Mission Statement”. About.com: Small Business Ward, Susan. “Mission Statement”. About.com: Small Business Canada, October 2009, [Online]. Available:Canada, October 2009, [Online]. Available:http://sbinfocanada.about.com/od/businessplanning/g/missionshttp://sbinfocanada.about.com/od/businessplanning/g/missionstatemen.htmtatemen.htm

Canadian Tire’s Mission StatementCanadian Tire’s Mission Statement

“ “Canadian Tire is a growing network Canadian Tire is a growing network of interrelated businesses... of interrelated businesses... Canadian Tire continuously strives to Canadian Tire continuously strives to meet the needs of its customers for meet the needs of its customers for total value by offering a unique total value by offering a unique package of location, price, service package of location, price, service and assortment.” and assortment.”

Vision StatementVision Statement

Vision StatementVision Statement• Sometimes called a picture of your company Sometimes called a picture of your company

in the future in the future

• The vision statement answers the question, The vision statement answers the question, “Where do we want to go?” “Where do we want to go?”

• It articulates the hopes and dreams for the It articulates the hopes and dreams for the business. It reminds those in the company of business. It reminds those in the company of what you are trying to build. what you are trying to build.

• While a vision statement doesn’t tell you how While a vision statement doesn’t tell you how you’re going to get there, it does set the you’re going to get there, it does set the direction for your business planning. direction for your business planning.

Vision StatementVision Statement

• A vision statement is for members of A vision statement is for members of the company, not for the customers or the company, not for the customers or clients. clients.

• When writing a vision statement, the When writing a vision statement, the mission statement can be a valuable mission statement can be a valuable starting point for articulating company starting point for articulating company values. values.

• Ward, Susan. “Vision Statement”. About.com: Small Business Ward, Susan. “Vision Statement”. About.com: Small Business Canada, October 2009, [Online]. Available:Canada, October 2009, [Online]. Available:http://sbinfocanada.about.com/od/businessplanning/g/visionstathttp://sbinfocanada.about.com/od/businessplanning/g/visionstatement.htmement.htm

Vision StatementVision Statement

Example:Example:

Within the next five years, ZZZ Tours will Within the next five years, ZZZ Tours will become the premier eco-tour company in become the premier eco-tour company in the world, increasing revenues to 3 million the world, increasing revenues to 3 million dollars in 2013 by becoming dollars in 2013 by becoming internationally known for the comfort and internationally known for the comfort and excitement of the whale-watching tours it excitement of the whale-watching tours it offers. offers.

Business Code of Ethics Business Code of Ethics ChallengesChallenges

• Drawing the line between right and wrong is not Drawing the line between right and wrong is not always easy.always easy.

For example:For example:• Giving a gift to a valued client – gift or bribery?Giving a gift to a valued client – gift or bribery?

• A politician phones a bank on behalf of a friend A politician phones a bank on behalf of a friend who is seeking a loan – legitimate character who is seeking a loan – legitimate character reference or political influence for personal gain?reference or political influence for personal gain?

Code of Ethics won’t necessarily address every Code of Ethics won’t necessarily address every possible situation.possible situation.

Resolving Ethical Dilemma’sResolving Ethical Dilemma’s

Ethical DilemmaEthical Dilemma

• Moral problem with potential right or Moral problem with potential right or wrong answerswrong answers

Morals and Values Profitability

and Competitivene

ss

Business Ethical Dilemma’sBusiness Ethical Dilemma’s

• Disposal of toxic wasteDisposal of toxic waste

• Pollution controlPollution control

• Downsizing staffDownsizing staff

• Depletion and allocation of scarce natural Depletion and allocation of scarce natural resourcesresources

• Changes in law and technology (privacy Changes in law and technology (privacy issues)issues)

• Employee rights (i.e. workplace safety)Employee rights (i.e. workplace safety)

• Discrimination against women and minoritiesDiscrimination against women and minorities

• Product safetyProduct safety

Resolving Ethical Dilemma Resolving Ethical Dilemma RequirementsRequirements

• HonestyHonesty• The ability to work collaboratively or The ability to work collaboratively or

cooperativelycooperatively• Respect for othersRespect for others• Pride’s in one’s workPride’s in one’s work• Willingness to learn and admit when you are Willingness to learn and admit when you are

“wrong”“wrong”• DependabilityDependability• Responsibility for one’s actionsResponsibility for one’s actions• IntegrityIntegrity• LoyaltyLoyalty

When the Code of Ethics is not clear or does When the Code of Ethics is not clear or does not exist, consider the following questions:not exist, consider the following questions:

If I take this action:If I take this action:

1.1. Who are the stakeholders?Who are the stakeholders?

2.2. Who will be helped by what you do? How Who will be helped by what you do? How so?so?

3.3. Who will be hurt by what you do? How so?Who will be hurt by what you do? How so?

4.4. What are the benefits and problems of What are the benefits and problems of such a decision?such a decision?

5.5. Will the decision survive the test of time?Will the decision survive the test of time?

Resolving Ethical DilemmaResolving Ethical Dilemma

The Law and Resolving Ethical The Law and Resolving Ethical Dilemma’sDilemma’s

• Actions may be considered unethical, but Actions may be considered unethical, but they still may be legalthey still may be legal

• Consider Mayor Larry O’Brien Trial &Consider Mayor Larry O’Brien Trial &

• The Global Economic CrisisThe Global Economic Crisis

• Laws are created to address acceptable Laws are created to address acceptable business practices, but a company can still business practices, but a company can still behave unethically, without actually behave unethically, without actually breaking the law.breaking the law.

Unethical and Illegal Business Unethical and Illegal Business PracticesPracticesFRAUDFRAUD

FraudFraudThe crime of lying or pretendingThe crime of lying or pretending

The Competition Act 2002 bans these type of deceptive The Competition Act 2002 bans these type of deceptive business practices:business practices:

1. False or misleading advertising1. False or misleading advertising

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

3. Placing two different price tags on a product and selling it 3. Placing two different price tags on a product and selling it to the consumer at the higher price (double ticketing)to the consumer at the higher price (double ticketing)

Common Fraud ExamplesCommon Fraud Examples

Bank FraudBank Fraud• A bank officer makes a fraudulent loan to a non-A bank officer makes a fraudulent loan to a non-

existent business and then pockets the money.existent business and then pockets the money.

Consumer FraudConsumer Fraud• A business tricks customers into buying goods or A business tricks customers into buying goods or

services they don’t really need through unethical services they don’t really need through unethical advertising or false claims.advertising or false claims.

Contract FraudContract Fraud• A business or individual uses temptations, such as A business or individual uses temptations, such as

bribes or kickbacks, to create a contract.bribes or kickbacks, to create a contract.

Common Fraud ExamplesCommon Fraud Examples

Insurance FraudInsurance Fraud• A business or individual falsely claims lost, damaged, or A business or individual falsely claims lost, damaged, or

stolen property in order to receive insurance settlementsstolen property in order to receive insurance settlements

Mail FraudMail Fraud• An individual uses the postal service for fraudulent An individual uses the postal service for fraudulent

purposes, such as mailing phony job opportunities, chain purposes, such as mailing phony job opportunities, chain letters, or inheritance scams.letters, or inheritance scams.

Pyramid Scheme FraudPyramid Scheme Fraud• A person participating in the scheme recruits others in A person participating in the scheme recruits others in

order to receive more money than she or he invested in order to receive more money than she or he invested in the scheme.the scheme.

Common Fraud ExamplesCommon Fraud Examples

Stock Market FraudStock Market Fraud• An individual uses insider trading or other An individual uses insider trading or other

techniques to buy and sell stocks at artificial values.techniques to buy and sell stocks at artificial values.

Telemarketing FraudTelemarketing Fraud• A company uses high-pressure phone calls to get A company uses high-pressure phone calls to get

customers to buy now or to donate funds to bogus customers to buy now or to donate funds to bogus charitable causes.charitable causes.

Welfare FraudWelfare Fraud• An individual receives benefits without being An individual receives benefits without being

eligible.eligible.

Accounting ScandalsAccounting Scandals

Some Accounting Background…Some Accounting Background…

Accounting DefinedAccounting Defined

• The process of identifying, The process of identifying, measuring, classifying and measuring, classifying and communicating financial information communicating financial information about a business so that informed about a business so that informed judgments and decisions can be judgments and decisions can be made based on that information.made based on that information.

Accounting InformationAccounting Information

Three formal statements that report financial Three formal statements that report financial information of a company are a company’s:information of a company are a company’s:

1. Balance Sheet1. Balance Sheet 2. Income Statement or Statement of2. Income Statement or Statement of

Operations Operations 3. Cash Flow Statement3. Cash Flow Statement

These statements will be found in corporations’ These statements will be found in corporations’ annual reports also called, shareholder’s annual reports also called, shareholder’s reports.reports.

Balance SheetBalance Sheet

• Reports a company’s Assets, Liabilities and Equity.Reports a company’s Assets, Liabilities and Equity.• States the financial position of a company on a certain States the financial position of a company on a certain

date.date.

Assets – Items that a business owns Assets – Items that a business owns - (building, land, equipment, supplies, cash,- (building, land, equipment, supplies, cash,

money owed by customers called receivables.) money owed by customers called receivables.)

Liabilities – Debts/money owed by the business to otherLiabilities – Debts/money owed by the business to other businesses including banks businesses including banks

Equity – For a company it is called Owner’s Equity Equity – For a company it is called Owner’s Equity - For a corporation it is called Shareholder’s - For a corporation it is called Shareholder’s

EquityEquity and Retained Earnings and Retained Earnings

- For an individual it is called Net Worth- For an individual it is called Net Worth

ASSETS – LIABILITIES = NET WORTHASSETS – LIABILITIES = NET WORTH

Income Statement/Statement of Income Statement/Statement of OperationsOperations

• Financial statement that shows all the revenues Financial statement that shows all the revenues coming into a business and all the expenses coming into a business and all the expenses associated with earning those revenues over a associated with earning those revenues over a specific period of time.specific period of time.

• Between January 1 and December 31 of 2008 Between January 1 and December 31 of 2008 total revenues were $1 million and total expenses total revenues were $1 million and total expenses were $500,000.were $500,000.

Revenues - Expenses = Net Income/ProftRevenues - Expenses = Net Income/ProftR>E = Net ProfitR>E = Net ProfitR<E = Net LossR<E = Net Loss

Cash Flow StatementCash Flow Statement

• Financial statement that outlines Financial statement that outlines where all the cash that is coming into where all the cash that is coming into the business is coming from and;the business is coming from and;

• where all the cash that is leaving the where all the cash that is leaving the business is going to over a specific business is going to over a specific period of time.period of time.

Accounting InformationAccounting Information

Users of Financial InformationUsers of Financial Information

• EmployeesEmployees

• ManagementManagement

• BanksBanks

• Creditors – businesses who extend credit Creditors – businesses who extend credit (short term loans) to other businesses(short term loans) to other businesses

• ShareholdersShareholders

• Potential investorsPotential investors

• The governmentThe government

Accounting ScandalsAccounting Scandals

Accounting ScandalAccounting Scandal• Crime involving accountants and/or senior Crime involving accountants and/or senior

executives of an organization who alter executives of an organization who alter accounting records for personal benefit. accounting records for personal benefit.

• Type of fraudType of fraud

Forensic AccountantForensic Accountant• An independent person brought in from An independent person brought in from

outside a company to investigate the legal outside a company to investigate the legal and financial documents of a company and and financial documents of a company and find out what happened if a scandal has find out what happened if a scandal has been uncovered.been uncovered.

Accounting ScandalsAccounting Scandals

EmbezzlementEmbezzlement

• Is a type of accounting fraud in which Is a type of accounting fraud in which an accountant or senior executive an accountant or senior executive invents phony accounts and redirect invents phony accounts and redirect money into them for personal gainmoney into them for personal gain

• Often occurs in smaller businessesOften occurs in smaller businesses

Accounting ScandalsAccounting Scandals

““Cooking the Books”Cooking the Books”• An common expression used to indicate An common expression used to indicate

corporate fraudcorporate fraud

• Often involves Often involves misusing or misdirecting fundsmisusing or misdirecting funds overstating revenuesoverstating revenues understating expensesunderstating expenses overstating the value of corporate assets to overstating the value of corporate assets to

the public shareholdersthe public shareholders under-reporting liabilities under-reporting liabilities

AuditorsAuditors

• Individuals whose job is to check the Individuals whose job is to check the financial records of a company to financial records of a company to determine if the information presented is determine if the information presented is accurate, reliable, and fairaccurate, reliable, and fair

• Ensure the company is following the Ensure the company is following the correct accounting procedures set up to correct accounting procedures set up to help ensure that theft, fraud, and help ensure that theft, fraud, and embezzlement does not occurembezzlement does not occur

AuditorsAuditors

• Big corporations often have their own Big corporations often have their own internal auditorsinternal auditors

• All public and crown corporations, All public and crown corporations, however, are required by law to be however, are required by law to be audited annually by outside, independent audited annually by outside, independent auditors to ensure public accountabilityauditors to ensure public accountability

• It is often the outside auditors who It is often the outside auditors who stumble upon and/or discover accounting stumble upon and/or discover accounting irregularities and call in a forensic irregularities and call in a forensic accountant.accountant.

Case: Canadian Sponsorship ScandalCase: Canadian Sponsorship Scandal

Insider TradingInsider TradingInsider TradingInsider Trading• Occurs when someone makes an investment decision Occurs when someone makes an investment decision

based on confidential information that is not available based on confidential information that is not available yet to the general public thereby giving themselves an yet to the general public thereby giving themselves an advantage over all other investors.advantage over all other investors.

Example:Example:You learn from a friend who works for a corporation in You learn from a friend who works for a corporation in

which you own shares, that an accounting scandal which you own shares, that an accounting scandal about the company is going to hit the papers about the company is going to hit the papers tomorrow. When the news becomes public, frightened tomorrow. When the news becomes public, frightened shareholders will want to sell of their shares and shareholders will want to sell of their shares and consequently the price of the shares will drop. consequently the price of the shares will drop.

To avoid losing money on the shares you own, you sell off To avoid losing money on the shares you own, you sell off your shares the day before this public announcement is your shares the day before this public announcement is made.made.

Case: Consider Martha StewartCase: Consider Martha Stewart

Detecting Insider TradingDetecting Insider TradingProvincial Securities Commission is the organization Provincial Securities Commission is the organization

that regulates the Stock Market to ensure fair and that regulates the Stock Market to ensure fair and legal trading.legal trading.

Computers programs are used to search for Computers programs are used to search for abnormal patterns of the sale or purchase of abnormal patterns of the sale or purchase of stocks.stocks.

Insider trading violations are prosecuted by the Insider trading violations are prosecuted by the Provincial Securities Commission and those Provincial Securities Commission and those convicted may face fines up to $1 miliion, be convicted may face fines up to $1 miliion, be forced to turn over their profits, face jail forced to turn over their profits, face jail sentences and could be banned from furture sentences and could be banned from furture stock market trading.stock market trading.

Whistle-BlowingWhistle-Blowing

The decision of an The decision of an employee employee to inform officials to inform officials or the or the public about a public about a legal or ethical legal or ethical violation.violation.

• Is it right? Ethical? If so, how should it be Is it right? Ethical? If so, how should it be done?done?

• Will/Should the whistle-blower be Will/Should the whistle-blower be rewarded or punished or protected?rewarded or punished or protected?

Case StudiesCase Studies

• EnronEnron• Canadian Sponsorship ScandalCanadian Sponsorship Scandal• Bre-xBre-x• Canadian victims of disgraced New York Canadian victims of disgraced New York

financier Bernard Madoff, who admitted to financier Bernard Madoff, who admitted to stealing billions from hundreds of clients. stealing billions from hundreds of clients. In June, 2009 he was sentenced to 150 In June, 2009 he was sentenced to 150 years in prison. years in prison.

• Earl Jones Financial Ponzi scheme in Earl Jones Financial Ponzi scheme in QuebecQuebec