Conducting Business Ethically and Responsibly

ADMN 201 — Ch3: Conducting Business Ethically and Responsibly

Learning Objectives Overview

LO	Objective	Key Concept Page
3.1	Describe the factors that influence individual ethical behaviour, including the relationship between values and ethics	BusinessEthics
3.2	Explain CSR and describe how organizations approach social responsibility toward various stakeholders	CorporateSocialResponsibility
3.3	Identify four general approaches to social responsibility and describe formal and informal activities to manage a program	CorporateSocialResponsibility
3.4	Explain how issues of social responsibility and ethics affect small businesses	CorporateSocialResponsibility

mindmap
  root((Ch3: Ethics & CSR))
    LO 3.1 Individual Ethics
      Values → Ethics
      Ethical vs Illegal Matrix
      Managerial Ethics
        Toward Employees
        Toward Organization
        Toward Other Agents
      PIPEDA
      Bribery / Conflict of Interest
      3-Step Assessment Model
        Utility · Rights · Justice · Caring
      3 Causes of Unethical Behaviour
      Encouraging Ethics
        Codes · Training · Leadership
    LO 3.2 Stakeholder CSR
      Customers
        6 Consumer Rights
        Consumerism
        Unfair Pricing / Collusion
        Ethics in Advertising
      Employees
        Non-discrimination
        Privacy / Monitoring
        Whistle-blowers
      Investors
        Improper Mgmt
        Misrepresentation
        Cheque Kiting
        Insider Trading
      Suppliers
        Partnership vs Pressure
      Communities
        Charitable Donations
      Environment
        Air / Water / Land Pollution
        Paris Agreement
        Carbon Tax
        Greenwashing
    LO 3.3 Approaches + Managing
      ODAP Spectrum
        Obstructionist
        Defensive
        Accommodative
        Proactive
      Formal Activities
        Policy → Plan → Director → Audit
        Triple-Bottom-Line Reporting
      Informal Activities
        Culture
        Whistle-blowing
    LO 3.4 Small Business
      Same Issues Different Scale
      Ethical Dilemmas
      CSR Affordability

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Opening Case: EpiPen

Mylan, the maker of the EpiPen allergy auto-injector, raised the price from under $100toover$600 — a more than 500% increase. The company argued it improved the product and provided support programs for low-income patients. Critics pointed out that manufacturing costs had not changed meaningfully. A class action lawsuit was filed. This case opens Ch3 because it illustrates how individual pricing decisions that are technically legal can still be unethical — and how individual ethics and organizational CSR interact.

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LO 3.1 — Individual Ethics

What Is Ethics?

Ethics refers to an individual’s personal beliefs about whether a behaviour, action, or decision is right or wrong. Business ethics is the application of ethical standards to the behaviour of people in business organizations.

Ethics are not the same as legality:

	Legal	Illegal
Ethical	Pay taxes, treat employees fairly	Civil disobedience (e.g., refusing to follow an unjust law)
Unethical	Firing a long-term employee for profit	Fraud, theft, bribery

The important insight: ethical and legal are not the same axis. Some things are legal but unethical; some things are illegal but arguably ethical. Business ethics focuses on the lower-left quadrant — catching unethical-but-legal behaviour.

Where Individual Ethics Come From

Personal ethics develop through:

• Family and culture during childhood
• Education and peer groups during adolescence
• Experience — hardship, role models, mistakes, mentors

Because individual values differ, workplaces need a code of ethics to establish shared standards.

Individual Values, Morals, and Workplace Behaviour

Your values are what you believe is important; your morals are the standards of right and wrong you apply. When personal values conflict with workplace pressures, unethical behaviour can result.

Managerial Ethics

Managerial ethics are the standards of behaviour that guide individual managers in their work. The textbook groups these into three categories:

Category	What It Covers	Example
Behaviour toward employees	Hiring, firing, pay, working conditions, privacy	Not monitoring employee social media without policy
Behaviour toward the organization	Conflicts of interest, confidentiality, honesty	Not accepting gifts from suppliers when you’re the buyer
Behaviour toward other economic agents	Advertising, customers, suppliers, competitors, government	Not bribing a government official to win a contract

PIPEDA

The Personal Information Protection and Electronic Documents Act (PIPEDA) governs how Canadian businesses can collect, use, and disclose personal information. It is relevant to both employee privacy and customer data. Employees have some privacy rights even from their employer — though the boundary is contested (e.g., computer monitoring, drug testing).

Conflict of Interest

A conflict of interest occurs when an activity benefits the employee at the employer’s expense. Example: a shoe buyer for a retail chain who accepts an all-expenses-paid ski vacation from a supplier is creating a conflict of interest — their purchasing decisions may now favour that supplier over better alternatives.

Behaviour Toward Other Economic Agents — Bribery

Bribery is offering money, property, or favors to gain an unfair advantage. Real examples:

• Samsung — Lee Jae-yong was convicted of bribery in South Korea in 2017
• SNC-Lavalin — fined $280 million in 2019 for bribery related to Libyan contracts
• Bombardier — under investigation in 2020 for alleged improper payments in international deals
• The OECD found that 40% of global managers see corruption as widespread in their industries; only 20% of Canadian managers said the same

Assessing Ethical Behaviour — The 3-Step Model

When evaluating whether an action is ethical, the textbook proposes a three-step model:

1. Gather the facts about the behaviour or situation
2. Analyze the facts using these four ethical norms (Figure 3.1):
   • Utility: Does it maximize benefit and minimize harm for the greatest number of people?
   • Rights: Does it respect the rights of all individuals involved?
   • Justice: Is it fair and equitable — would it be applied consistently across groups?
   • Caring: Does it reflect care and concern for the well-being of those affected?
3. Make a judgement about whether the behaviour is ethical

These four norms often conflict. A decision can maximize utility (benefit most people) but violate individual rights. Managers must weigh all four.

Why People Behave Unethically — 3 Causes

Even people with strong personal ethics sometimes behave unethically at work. Three factors explain this:

1. Pressure — deadlines, financial targets, or performance expectations that push people to cut corners
2. Opportunity — lack of oversight, weak controls, or absence of accountability
3. Rationalization — convincing yourself it’s OK (“everyone does it,” “it’s a small amount,” “I had no choice”)

Encouraging Ethical Behaviour — The Three Levers

Lever	What it looks like
Top management commitment	Leaders model ethical behaviour visibly. Example: MEC required all suppliers to meet labour and environmental standards. Google’s early motto was “Don’t Be Evil.”
Written code of ethics	A formal statement of the firm’s values and prohibited behaviours. Canada Deposit Insurance Corporation requires all deposit-taking institutions to have one. Violating it has consequences — e.g., Boeing’s failure to enforce its code contributed to the 737 MAX crisis.
Ethics training	Teaching employees how to handle real ethical dilemmas. Mary Gentile’s research found that employees generally know right from wrong — the problem is they struggle to resist peer and organizational pressure. Former executives who served prison time for fraud now teach ethics seminars.

Core Principles Model (Figure 3.2)

The textbook presents a three-ring model of organizational values:

• Inner ring (core principles/values): Rarely or never change. These are foundational beliefs about what the organization stands for.
• Middle ring (organizational objectives): Change infrequently — revised as strategy evolves.
• Outer ring (strategies and practices): Change regularly as market conditions shift.

The key insight: ethical lapses happen when outer-ring strategy decisions override inner-ring core principles.

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LO 3.2 — Social Responsibility Toward Stakeholders

Corporate Social Responsibility (CSR) is the attempt of a business to balance its commitments to relevant groups and individuals in its social environment — not just investors. The full stakeholder model includes:

1. Customers
2. Employees
3. Investors
4. Suppliers
5. Local communities
6. The natural environment

B Corp certification: A B Corp (Benefit Corporation) is a for-profit company certified by the non-profit B Lab for meeting rigorous standards of social and environmental performance. It is a signal that the company has formalized its CSR commitments.

SROI: Social Return on Investment measures the social value generated per dollar of investment in CSR activities.

TELUS ranked #54 on the Corporate Knights Global 100 most sustainable corporations in 2021.

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Responsibility Toward Customers

Consumerism is a social movement dedicated to protecting the rights of consumers in their dealings with businesses. Consumers have six core rights:

Right	What it means
Safe products	Products should not harm physical or mental health. Example: 20 people died from listeria-contaminated Maple Leaf Foods products.
Be informed	All relevant product information must be disclosed. Food labels must list ingredients; banks must disclose interest rates.
Be heard	Businesses should provide feedback channels (e.g., Procter & Gamble toll-free numbers; money-back guarantees).
Choose	Free competition must be preserved. Illegal for companies in an industry to divide up a market.
Be educated	Detailed product information must be provided. All prescription drugs must include dosage, side effects, and interactions.
Courteous service	Hard to legislate, but increasingly enforced via consumer hotlines and public pressure.

Unfair Pricing

Collusion — companies agreeing to fix prices — is illegal in Canada. Examples:

• Loblaw admitted in 2017 to conspiring with other grocers to fix bread prices from 2001–2016
• Price gouging during COVID-19 (hand sanitizer, cleaning products, toilet paper) prompted enforcement
• Maximum prison sentence for price fixing is now 14 years; maximum fine is **$25million\ast \ast (tripledfrom$10M)

Ethics in Advertising

Type	Description
Truth in advertising	Claims must be demonstrably true. Example: a fake movie critic created by Sony to review its own films.
Stealth advertising	Paying individuals to secretly promote products. Example: models posing as tourists and talking up camera phones to real tourists.
Morally objectionable advertising	Ads that offend consumers’ sense of decency — e.g., targeting youth with tobacco/alcohol ads, vaping companies mimicking old cigarette playbooks.
Counterfeit brands	Fake goods (perfumes, luggage, pharmaceuticals, designer clothing). Louis Vuitton sued Dr. Flea’s Flea Market in Etobicoke; Pacific Mall in Markham flagged by the U.S. government for pervasive counterfeit sales.

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Responsibility Toward Employees

Socially responsible companies:

• Hire and promote without regard to race, sex, or other irrelevant factors
• Provide safe, non-bullying, harassment-free workplaces
• Promote work-life balance and employee mental health
• Pay a living wage
• Respect employee privacy

Privacy controversy: Drug testing and computer monitoring are contested. Warehouse workers at Amazon’s Brampton, Ontario facility are monitored by AI algorithms tracking their pick-rate in real time.

Whistle-Blowers

A whistle-blower is an individual who calls attention to an unethical, illegal, or socially irresponsible practice by a business or other organization.

Process: employee observes problem → reports to boss → if ignored, escalates to management or ethics committee → if still ignored, goes to regulatory agency or media.

Risks: About half of all whistle-blowers are eventually fired; about half of those lose their homes and/or families. Federal legislation provides some protection. The IIROC (Investment Industry Regulatory Organization of Canada) opened a whistle-blower hotline to address securities fraud such as Ponzi schemes.

COVID-19 context: Whistle-blowers during the early weeks of the pandemic flagged critical PPE shortages in long-term care facilities — workers at some facilities were given garbage bags as protection and were reusing gloves.

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Responsibility Toward Investors

Managers can be irresponsible toward investors (the owners) by misusing financial resources. Four types of investor-related misconduct:

Type	Description	Real Example
Improper financial management	Outlandish salaries, bonuses, or personal spending of company funds	Bombardier’s 5 top executives received ~50% salary increases in 2017 while the company received government aid and had significant financial problems
Misrepresentation of finances	Falsifying financial records or running Ponzi schemes	QuadrigaCX (Gerald Cotten died in 2018; $215Mdisappeared;OntarioSecuritiesCommissionconfirmedPonzischeme);BernieMadof{f}^{\prime }s$50B fraud (died in prison 2021)
Cheque kiting	Writing a cheque from one account, depositing it in another, and spending the float before the first cheque clears	Bank of Montreal sued several businesspeople alleging a cheque kiting scheme that cost BMO $20 million
Insider trading	Using confidential information to gain from buying or selling stock before it becomes public	Raj Rajaratnam (Galleon Group) — 11 years; Mathew Martoma (SAC Capital) — 9 years; Grande Cache Coal case in Alberta

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Responsibility Toward Suppliers

Socially responsible companies:

• Keep suppliers informed about plans
• Negotiate delivery schedules and prices that work for both sides
• May give suppliers access to internal records to improve service
• Toyota and Amazon are cited as companies with exemplary supplier relationships

In contrast, some large retailers pressure suppliers to lower prices to the point where the supplier cannot cover costs — a CSR failure that gets passed off as competitive business.

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Responsibility Toward Local and International Communities

Companies can demonstrate CSR through:

• Corporate charitable donations and employee volunteer time
• Canada Goose: pays for Arctic community shipments and donates materials to Inuit sewers
• TELUS “Celebration of Giving”: generated millions in charity donations; employees donated thousands of volunteer hours
• AltaGas: employees get two paid days off per year to volunteer at a charity of their choice

International businesses must address CSR across all countries where they operate — different laws, wages, working conditions, and norms apply. ExxonMobil has helped build hospitals and schools in Angola and supports a local anti-malaria program.

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Responsibility Toward the Environment

Pollution = the introduction of harmful substances into the environment. Air, water, and land pollution are the three main areas.

Air Pollution

In Canada, air quality has improved since 1979:

• Ground-level ozone: −27%
• Sulphur dioxide: −92%
• Nitrogen dioxide: −74%
• Carbon monoxide: −90%

Despite this progress, Health Canada estimated in 2021 that air pollution causes ~15,300 premature deaths and costs $120 billion annually in Canada.

Paris Agreement (2015): Signed by 196 countries. Goal: keep global temperature rise to under 2°C by reducing carbon dioxide. The United States was the only country to refuse to sign (though the Biden administration re-engaged). Critics note no enforcement mechanism.

Carbon tax and cap-and-trade:

• Ontario’s “cap and trade” system put emissions caps on large industrial operations, declining 4% per year; companies that exceeded their cap bought carbon credits
• Federal carbon price: $20/tonne(2019)\to$40/tonne (2021) → $50/tonne(2022target)\to$170/tonne (2030 target)
• Critics argue carbon taxes slow growth, raise costs, and reduce competitiveness

Water Pollution

New legislation and awareness have improved water quality in many places. Ships — both cargo and passenger — cause more air pollution than all the cars in the world combined.

Land Pollution

Toxic wastes are dangerous chemical and radioactive by-products of manufacturing.

Recycling = the reconversion of waste materials into useful products. Example: MET Fine Printers in Vancouver reduced waste disposal costs from $3,000/monthto$300/month after introducing recycling. Keurig Canada now makes all coffee pods from recyclable material.

Fracking — injecting water and chemicals into rock formations to extract petroleum — increases oil supply but is associated with groundwater contamination and increased earthquake frequency.

Greenwashing

Greenwashing = falsely claiming environmental benefits for a product. TerraChoice, an environmental marketing firm, found at least one misleading green claim on 95.6% of 5,296 products examined. 100% of toy manufacturers and 99.2% of baby-product makers were guilty of greenwashing. Meanwhile, 78% of Canadians are unwilling to pay the higher price often associated with genuinely green products.

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LO 3.3 — Approaches to Social Responsibility + Managing CSR Programs

The ODAP Spectrum (Figure 3.4)

The four approaches fall on a continuum from lowest to highest social responsibility:

Stance	Behaviour	Real Example
Obstructionist	Do as little as possible; deny or cover up problems	Volkswagen falsifying diesel emissions test results
Defensive	Follow the law — nothing more	Tobacco companies including required health warnings but aggressively marketing in countries without such laws
Accommodative	Go beyond legal minimums when asked by stakeholders	Donating to community hockey teams or Girl Guides when solicited; does not proactively seek opportunities
Proactive	Actively seek to contribute to social good	Calgary Foundation (manages >$750M in assets; earnings disbursed to charities); Patagonia; MEC

Note: Organizations do not always fit cleanly into one category. McDonald’s runs the Ronald McDonald House program (proactive) but has also been criticized for misleading consumers about nutritional content (defensive/obstructionist).

Managing a CSR Program — Formal Activities

At the formal level, managing CSR requires:

1. Policy statement and top management commitment — CSR must be a strategic priority, not just PR. A specific executive is given authority as director of the firm’s social agenda. Example: Levi Strauss gives 2.4% of pretax earnings to worthy causes.
2. Detailed plan — some companies appoint a committee of top managers to develop plans specifying support levels for CSR initiatives
3. Social audit — a systematic analysis of how a firm is using funds earmarked for CSR goals and how effective those expenditures have been
4. Sustainable development — pursuing activities that meet current needs without disadvantaging future generations. Canada has adopted the UN’s 17 Sustainable Development Goals. Example: Agrium Inc. reported to stakeholders on seven of those goals.
5. Triple-bottom-line reporting — measuring the social, environmental, and economic performance of a company together. Example: Vancouver City Savings Credit Union (Vancity) uses triple-bottom-line reporting and has set a goal of net-zero carbon emissions by 2040.

Global 100 Most Sustainable Corporations (2021 ranking): Schneider Electric SE (France) #1, Ørsted A/S (Denmark) #2, Banco do Brasil SA #3. Top Canadian entries: Stantec (#5), Canadian National Railway (#10), Cascades (#17).

Managing a CSR Program — Informal Activities

At the informal level, organizational culture is what determines whether CSR is real or performative. Leaders who model ethical behaviour embed it in the culture without requiring formal enforcement.

Whistle-blowing is also an informal activity — it typically does not become formal until an employee exhausts internal channels (boss → senior management → ethics committee) and finally goes to a regulator or the media.

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LO 3.4 — Social Responsibility and the Small Business

Small businesses face the same ethical and CSR issues as large firms, but the differences are primarily differences of scale.

Small business ethical dilemmas (examples from the textbook):

• A building inspector hints that a cash payment would “expedite” a permit application
• A nightclub manager faces a customer with a forged ID
• A medical lab owner considers contracting with an unlicensed waste disposal company
• A manufacturing firm owner considers overcharging a customer whose purchasing agent is inattentive
• A small computer services company owner considers padding the income statement to secure a bank loan

CSR affordability questions for small businesses:

• Should we sponsor the local hockey team?
• Should we donate to the United Way?
• Should we join the Better Business Bureau?

Most of these decisions have financial implications, and small firm owners often feel they lack the flexibility to pursue them. But smaller firms also have stronger community ties and more direct stakeholder relationships — making CSR more visible and potentially more impactful per dollar spent.

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Key Terms

Term	Definition
Ethics	An individual’s personal beliefs about whether a behaviour, action, or decision is right or wrong
Business ethics	Application of ethical standards to business behaviour
Managerial ethics	Standards of behaviour guiding individual managers in their work
PIPEDA	Personal Information Protection and Electronic Documents Act — governs collection and use of personal data
Conflict of interest	Activity that benefits an employee at the expense of the employer
Whistle-blower	Individual who calls attention to unethical, illegal, or socially irresponsible business practices
Insider trading	Using confidential information to gain from the purchase or sale of stock
Cheque kiting	Writing a cheque from one account and spending the float before it clears
Corporate Social Responsibility (CSR)	Attempt of a business to balance its commitments to all stakeholder groups
Consumerism	Social movement dedicated to protecting the rights of consumers
Pollution	Introduction of harmful substances into the environment
Recycling	Reconversion of waste materials into useful products
Greenwashing	Falsely claiming environmental benefits for a product
Sustainable development	Meeting current needs without putting future generations at a disadvantage
Social audit	Systematic analysis of how a firm is using funds earmarked for CSR and how effective those expenditures have been
Triple-bottom-line reporting	Measuring social, environmental, and economic performance together
B Corp	For-profit company certified by B Lab for meeting rigorous social and environmental standards
SROI	Social Return on Investment — measures social value generated per dollar of CSR spending

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Exam Nuggets & Mnemonics

• Ethics = Individual. CSR = Organizational. E is for individual ethics. SR is for the organization’s social responsibility. They are distinct but connected — individual ethical failures scale into organizational CSR failures (the 2008 financial crisis being the classic case).

• ODAP (CSR spectrum, lowest to highest):

  • Obstructionist — Deny, cover up, do as little as possible
  • Defensive — Follow the law, nothing more
  • Accommodative — Respond to pressure beyond legal minimums
  • Proactive — Actively seek social good

• 3 causes of unethical behaviour: P.O.R. — Pressure · Opportunity · Rationalization

• 4 ethical norms (Figure 3.1): U.R.J.C. — Utility · Rights · Justice · Caring

• 6 consumer rights: Safe products · Be informed · Be heard · Choose · Be educated · Courteous service

• 4 types of investor misconduct: Improper financial management · Misrepresentation · Cheque kiting · Insider trading

• Formal CSR management sequence: Policy statement → Detailed plan → Assign a director → Social audit → Triple-bottom-line reporting

• Small business ethics: Same issues as large firms — the differences are differences of scale, not kind.

• Price-fixing penalties in Canada: Up to 14 years in prison; fines up to $25 million.

• Greenwashing stat worth knowing: TerraChoice found misleading green claims on 95.6% of 5,296 products studied.

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Connections to PHIL 252

• Argument-BusinessEthics — ethical decision-making is applied argument construction; rationalization is a cogency failure
• ClassificationSystems-CSR — the ODAP scale is a classification system; applying classification rules reveals its limits

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Related Pages

BusinessEthics, CorporateSocialResponsibility, OrganizationalStakeholders, SustainableDevelopment, Argument-BusinessEthics, ClassificationSystems-CSR