Corporate Social Responsibility (CSR)

Corporate social responsibility is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment. CSR can help improve society and promote a positive brand image for companies. It refers to the approach that an organization takes in balancing its responsibilities toward different stakeholders when making legal, economical, ethical, and social decisions. CSR includes four categories: environmental impacts, ethical responsibility, philanthropic endeavors, and financial responsibilities.^[1]

What motivates companies to be “socially responsible”? We hope it’s because they want to do the right thing, and for many companies , “doing the right thing” is a key motivator. The fact is, it’s often hard to figure out what the “right thing” is: what’s “right” for one group of stakeholders isn’t necessarily “right” for another. One thing, however, is certain: companies today are held to higher standards than ever before. Consumers and other groups consider not only the quality and price of a company’s products but also its character. If too many groups see a company as a poor corporate citizen, it will have a harder time attracting qualified employees, finding investors, and selling its products. Good corporate citizens, by contrast, are more successful in all these areas.

Sustainable Development Goals

The United Nations' Sustainable Development Goals (SDGs) are a set of 17 goals that aim to achieve peace and prosperity for people and the planet. In September 2015, all of the United Nations Member States adopted a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. The 17 Sustainable Development Goals (SDGs) shown in Figure 6.1 are “an urgent call for action by all countries” — developed and developing — in a global partnership. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth, and address a range of social needs, including education, health, equality and job opportunities, while tackling climate change and working to preserve our ocean and forests.^[2]

The SDGs are as follows:

1. No poverty.
2. Zero hunger.
3. Good health and well-being.
4. Quality education.
5. Gender equality.
6. Clean water and sanitation.
7. Affordable and clean energy.
8. Decent work and economic growth.
9. Industry, innovation, and infrastructure.
10. Reduced inequalities.
11. Sustainable cities and communities.
12. Responsible consumption and production.
13. Climate action.
14. Life below water.
15. Life on land.
16. Peace, justice, and strong institutions.
17. Partnerships for the goals.

The 17 SDGs contain targets for building a better world for people and planet by 2030. Businesses, non-profits, NGOs, and educational institutions have developed their own frameworks to address the SDGs and meet individual targets. Sustainable development can be part of a company’s corporate social responsibility program.

On January 16, 2019, The Washington Post reported that Microsoft has pledged $500 million to address homelessness and build affordable housing units in the Seattle and Puget Sound area, a region that has grown prosperous as the technology industry has swelled but is increasingly plagued by an affordable housing crisis. This is an example of how a business such as Microsoft enacted progress on these SDG goals, serving to benefit society and, at the same time, acting in its own economic interest.

CSR and Various Stakeholders

Let’s look at some of the ways in which companies can be “socially responsible” in considering the claims of various stakeholders: Owners and Investors, Managers, Employees, Customers and Communities.

Owners and Investors

Owners invest money in companies. In return, the people who run a company have a responsibility to increase the value of owners’ investments through profitable operations. Managers also have a responsibility to provide owners (as well as other stakeholders having financial interests, such as creditors, suppliers, and government) with accurate, reliable information about the performance of the business. Some of the most notorious accounting fraud scandals in business include: WorldCom inflated revenue and assets, Lehman Brothers repurchasing agreements, Bernie Madoff’s Ponzi scheme, Saytam falsifying records, and Enron hiding debts.

Managers

Managers have what is known as a fiduciary responsibility to owners: they’re responsible for safeguarding the company’s assets and handling its funds in a trustworthy manner. Yet managers experience what is called the agency problem; a situation in which their best interests do not align with those of the owners who employ them. To enforce managers’ fiduciary responsibilities for a firm’s financial statements and accounting records, Ontario’s Keeping the Promise for a Strong Economy Act (Budget Measures) 2002, also known as Bill 198, (Canadian equivalent to Sarbanes-Oxley Act of 2002 in the United States) requires CEOs and CFOs to attest to their accuracy. The law also imposes penalties on corporate officers, auditors, board members, and any others who commit fraud. You’ll learn more about this law in your accounting and business law courses.

Employees

Companies are responsible for providing employees with safe, healthy places to work—as well as environments that are free from sexual harassment and all types of discrimination. They should also offer appropriate wages and benefits. In the following sections, we’ll take a closer look at these areas of corporate responsibility.

Wages and Benefits

At the very least, employers must obey laws governing minimum wage and overtime pay. A minimum wage is set by the provincial government. As of January 1, 2018, the Ontario rate is $14.00 with another increase to $15.00 set for January 1, 2019. By law, employers must also provide certain benefits—Canadian Pension Plan (CPP -retirement funds), unemployment insurance (protects against loss of income in case of job loss), and depending on the industry, workers’ compensation (covers lost wages and medical costs in case of on-the-job injury). Most large companies pay most of their workers more than minimum wage and offer broader benefits, including medical, dental, and vision care, as well as savings programs, in order to compete for talent.

Safety and Health

In Canada, workplace health and safety are governed by several key pieces of legislation designed to protect workers and ensure safe working environments: Canada Labour Code, provincial and territorial health and safety legislation, occupational health and safety regulations, and worker. There are fourteen jurisdictions in Canada – one federal, ten provincial and three territorial each having its own occupational health and safety legislation. For most people in Canada, the agency that you would contact is the provincial or territorial agency in the area where you work. There one exception – Federal legislation covers employees of the federal government including Crown agencies and corporations across Canada, regardless of location.^[3]

Federal Government of Canada reported a noticeable increase in work-related injuries in 2022, with 18,131 disabling injuries reported (an increase of 10%) from 2021 with 16,342 injuries reported.^[4]

In the United States, workplace health and safety are primarily regulated by the Occupational Safety and Health Act (OSHA) of 1970, along with additional state-specific laws and regulations. Here’s a breakdown of the key legislation: Occupational Safety and Health Act, state-specific health and safety legislation, workers’ compensation legislation, and other relevant laws.^[5]

Together, these laws aim to safeguard workers from injury and illness in the workplace, ensuring compliance through inspections, reporting systems, and penalties for non-compliance.

Customers

The purpose of any business is to satisfy customers, who reward businesses by buying their products. Sellers are also responsible—both ethically and legally—for treating customers fairly. This means customers have rights:

• The right to safe products. A company should sell no product that it suspects of being unsafe for buyers. Thus, producers have an obligation to safety-test products before releasing them for public consumption. The automobile industry, for example, conducts extensive safety testing before introducing new models (though recalls remain common).
• The right to be informed about a product. Sellers should furnish consumers with the product information that they need to make an informed purchase decision. That’s why pillows have labels identifying the materials used to make them, for instance.
• The right to choose what to buy. Consumers have a right to decide which products to purchase, and sellers should let them know what their options are. Pharmacists, for example, should tell patients when a prescription can be filled with a cheaper brand-name or generic drug. Telephone companies should explain alternative calling plans.
• The right to be heard. Companies must tell customers how to contact them with complaints or concerns. They should also listen and respond.
  Companies share the responsibility for the legal and ethical treatment of consumers with several government agencies.

Consumer Protection Legislation in Canada

In Canada, consumer complaints are regulated by different levels of government, as well as non-government organizations. Finding the right place to direct your complaint is not always easy, but understanding your rights as a consumer is an important part of the complaint filing process.

Provincial and territorial consumer protection legislation

Many consumer complaints fall under provincial and territorial jurisdiction, including issues related to:

• buying goods and services;
• contracts;
• the purchase, maintenance or repair of motor vehicles;
• credit reporting agencies and the practices of collection agencies.

Federal consumer protection legislation

The Government of Canada has an important role in consumer awareness and protection.

Federal agencies and departments are responsible for enforcing legislation related to various issues, including:

• consumer product safety;
• food safety;
• consumer product packaging and labelling;
• anti-competitive practices, such as price fixing and misleading advertising;
• privacy complaints.

Additional resources to remember:

For more relevant areas where federal agencies and departments regulate consumer issues consult the Government of Canada website: Federal consumer protection legislation in Canada. In Ontario, customers have the added protection of the Consumer Protection Act.

Did you know protections for Ontario consumers includes a cooling off period for signed contracts? Which specific areas does the cooling off period cover?

• to buy a product or service from a door-to-door salesperson (also called a direct agreement)
• to pay in advance to join a fitness club or gym (also called a personal development contracts)
• to buy a newly-built condo (under the Condominium Act)
• to get a payday loan (under the Payday Loans Act)
• to purchase a time share

Communities

For obvious reasons, most communities see getting a new business as an asset and view losing one—especially a large employer—as a detriment. After all, the economic impact of business activities on local communities is substantial: they provide jobs, pay taxes, and support local education, health, and recreation programs. Both big and small businesses donate funds to community projects, encourage employees to volunteer their time, and donate equipment and products for a variety of activities. Larger companies can make greater financial contributions.

Many large corporations support various charities, an activity called philanthropy. Some donate a percentage of sales or profits to worthwhile causes. Retailer Target, for example, donates over $7 million each year to local communities where the company does business.^[6]

Loblaws, one of Canada’s largest grocery retailers, is involved in numerous community initiatives, especially focused on food security and environmental sustainability. Through its Loblaw’s Good Food Program, the company works to reduce food waste and help Canadians in need. They provide food donations to local charities and help fund nutrition programs. Additionally, Loblaws has worked to help communities during times of crisis, such as through their support for food banks and disaster relief efforts.^[7]

Telus is a prominent Canadian telecommunications company known for its commitment to social responsibility. Through its Telus Friendly Future Foundation, the company supports initiatives focused on education, healthcare, and community wellness. The foundation has invested in improving access to technology, especially for underserved communities, and has donated millions of dollars to support mental health programs, healthcare initiatives, and environmental sustainability.^[8]

These companies not only contribute financially but also engage in programs that benefit the broader community through direct action, volunteerism, and supporting local organizations.

Carroll’s Corporate Social Responsibility Pyramid

Carroll’s Pyramid is a well-respected resource for situating corporate social responsibility. In this model, the focus is on managers—not owners—as the principals involved in the company’s relationships with its stakeholders. Owners are the stakeholders who invest risk capital in the firm in expectation of a financial return. Other stakeholders include employees, suppliers, and the communities in which the firm does business. Proponents of this model hold that customers, who provide the firm with revenue, have a special claim on managers’ attention.

The pyramid shown in Figure 6.2 provides Carroll’s definition of CSR. The pyramid also helps businesses to understand their philanthropic – community outreach initiatives, donations to charities, or participation in social justice causes ethical responsibilities, legal responsibilities, and economic responsibilities.

Economic responsibilities

Economic corporate responsibility refers to the practice of making financial decisions based on a commitment to doing good. To uphold economic responsibility, business leaders are challenged to think past operational cost savings and instead put their obligation to corporate citizenship at the heart of all financial decisions.^[9]

As a fundamental condition or requirement of existence, businesses have an economic responsibility to the society that permitted them to be created and sustained. At first, it may seem unusual to think about an economic expectation as a social responsibility, but society expects business organizations to be able to sustain themselves and the only way this is possible is by being profitable and able to incentivize owners or shareholders to invest and have enough resources to continue in operation. In its origins, society views business organizations as institutions that will produce and sell the goods and services society needs and desires. As an inducement, society allows businesses to take profits. Businesses create profits when they add value, and in doing this they benefit all the stakeholders of the business.

Profits are necessary both to reward investors/owners and also for business growth when profits are reinvested back into the business. CEOs, managers, and entrepreneurs will attest to the vital foundational importance of profitability and return on investment as motivators for business success. Virtually all economic systems of the world recognize the vital importance to the societies of businesses making profits. While thinking about its’ economic responsibilities, businesses employ many business concepts that are directed towards financial effectiveness – attention to revenues, cost-effectiveness, investments, marketing, strategies, operations, and a host of professional concepts focused on augmenting the long-term financial success of the organization.

In today’s hypercompetitive global business environment, economic performance and sustainability have become urgent topics. Those firms that are not successful in their economic or financial sphere go out of business and any other responsibilities that may be incumbent upon them become moot considerations. Therefore, economic responsibility is a baseline requirement that must be met in a competitive business world and so economic responsibility is a critical part of corporate social responsibility.

Corporate citizenship is the extent to which a business meets its legal, ethical, and economic responsibilities. Investors are increasingly looking for companies with socially responsible orientations, which can lead to positive stock returns and increased confidence by investors.^[10]

Legal responsibilities

Businesses have legal responsibilities to comply with laws and regulations at the local, national, and international levels. Society has not only sanctioned businesses as economic entities, but it has also established the minimal ground rules under which businesses are expected to operate and function. These ground rules include laws and regulations and in effect reflect society’s view of “codified ethics”. They articulate fundamental notions of fair business practices as established by lawmakers at federal, provincial/state and local levels. Businesses are expected and required to comply with these laws and regulations as a condition of operating. It is not an accident that compliance officers now occupy an important and high-level position in company organization charts.

While meeting these legal responsibilities, managers must do the following:

• Perform in a manner consistent with expectations of government and law
• Comply with various federal, provincial/state, and local regulations
• Conduct themselves as law-abiding corporate citizens
• Fulfill all their legal obligations to societal stakeholders
• Provide goods and services that at least meet minimal legal requirements

Operating a business in Canada involves adhering to various laws, regulations, and acts at the federal, provincial/territorial, and municipal levels.  Business law refers to rules, statutes, codes, and regulations established to provide a legal framework within which business may be conducted. Businesses are subject to many laws; some pertain to operations while others pertain to human resources and sustainable practices. Legal compliance refers to conducting a business within the boundaries of all the legal regulations of that industry. Legislation governing business practice includes (but is not limited to) the following:

• Income Tax Act, Excise Tax Act
• Bankruptcy and Insolvency Act
• Companies’ Creditors Arrangement Act
• Consumer Protection Act
• Consumer Packaging and Labelling Act
• Food and Drug Act
• Weights and Measures Act
• Contract law
• Textile Labelling Act
•  Hazardous Product Act
• Consumer Product Safety Act
• Motor Vehicle Safety Act
• Aeronautics Act
• Employment Standards Act
• Workplace Health and Safety Act
• Canada Labour Code
• Sales of Goods Act
• Intellectual property law (i.e., patents, copyrights, trade secrets, and trademarks)
• Personal Information Protection and Electronic Documents Act (PIPEDA)
• Competition Act
• Canadian Code of Advertising Standards
• Canadian Business Corporations Act (i.e., incorporation)

Employment-related legislation covers the following subjects: employment standards, human rights, federal and provincial privacy, occupational health and safety, workers’ compensation, and labour regulations legislation.

The Employment Equity Act states that no person shall be denied employment opportunities or benefits for reasons unrelated to ability. It seeks to improve the employment conditions experienced by women, Indigenous peoples, persons with disabilities, and visible minorities.^[11]

The Canadian Charter of Rights and Freedoms is a binding legal document that protects the basic human rights of all Canadians, such as fundamental freedoms, democratic rights, mobility rights, legal rights, equality rights, and language rights. The Charter is often cited in legal cases pertaining to human rights issues. While the Charter allows all Canadians to express their thoughts and opinions freely it also protects everyone’s right to be treated fairly, without discrimination.

The Canadian Human Rights Act extends the law to ensure equal opportunity to individuals who may be victims of discriminatory practices based on a set of prohibited grounds: race, colour, religion, national or ethnic origin, age, sex, sexual orientation, marital status, family status, disability, or conviction for an offence for which a pardon has been granted.^[12] It applies to all federally regulated activities, but each province and territory has its own anti-discrimination laws that apply to non-federally regulated activities.

Federally regulated organizations must comply with the Canada Labour Code, while other organizations are subject to the Employment Standards and Labour Codes of the individual provinces and territories. For example, in Ontario, under the Employment Standards Act (ESA), you can learn about your employee rights and obligations in this Employment Standards Act guide which describes the rules about minimum wage, hours of work limits, termination of employment, public holidays, pregnancy and parental leave, severance pay, vacation and more.

In the United States there are similar laws pertaining to those listed above. One example is the U.S. Department of Labor website for Wages and the Fair Labor Standards Act, or visit the USA government website for a list of labor laws and worker protection.

Ethical responsibilities

The normative expectations of most societies hold that laws are essential but not sufficient. In addition to what is required by laws and regulations, society expects businesses to operate and conduct their affairs in an ethical fashion. Businesses have ethical responsibilities to ensure fair practices and treat customers, employees, and stakeholders with respect.

Taking on ethical responsibilities implies that organizations will embrace those activities, norms, standards and practices that even though they are not codified into law, are expected, nonetheless. Part of the ethical expectation is that businesses will be responsive to the “spirit” of the law, not just the letter of the law. Another aspect of the ethical expectation is that businesses will conduct their affairs in a fair and objective fashion even in those cases when laws do not provide guidance or dictate courses of action. Thus, ethical responsibilities embrace those activities, standards, policies, and practices that are expected or prohibited by society even though they are not codified into law. The goal of these expectations is that businesses will be responsible for and responsive to the full range of norms, standards, values, principles, and expectations that reflect and honor what consumers, employees, owners and the community regard as consistent with respect to the protection of stakeholders’ moral rights. The distinction between legal and ethical expectations can often be tricky. Legal expectations certainly are based on ethical premises. But ethical expectations carry these further. In essence, then, both contain a strong ethical dimension or character and the difference hinges upon the mandate society has given business through legal codification.

While meeting these ethical responsibilities, managers must do the following:

• Performing in a manner consistent with expectations of societal mores and ethical norms
• Recognizing and respecting new or evolving ethical/moral norms adopted by society
• Preventing ethical norms from being compromised in order to achieve business goals
• Being good corporate citizens by doing what is expected morally or ethically
• Recognizing that business integrity and ethical behaviour go beyond mere compliance with laws and regulations

As an overlay to all that has been said about ethical responsibilities, it also should be clearly stated that in addition to society’s expectations regarding ethical performance, there are also the great, universal principles of moral philosophy such as rights, justice, and utilitarianism that also should inform and guide company decisions and practices.

Philanthropic responsibilities

Corporate philanthropy includes all forms of business giving. Corporate philanthropy embraces business’s voluntary or discretionary activities. Philanthropic responsibility is a business’s commitment to improving society through charitable activities, community support, and social initiatives. It’s a key aspect of corporate social responsibility (CSR), and it emphasizes that businesses should not only focus on profit-making.

Philanthropy or business giving may not be a responsibility in a literal sense, but it is normally expected by businesses today and is a part of the everyday expectations of the public. Certainly, the quantity and nature of these activities are voluntary or discretionary. They are guided by business’s desire to participate in social activities that are not mandated, not required by law, and not generally expected of business in an ethical sense. Having said that, some businesses do give charitable partly based on ethical motivation. That is, they want to do what is right for society. The public does have a sense that businesses will “give back,” and this constitutes the “expectation” aspect of the responsibility. When one examines the social contract between business and society today, it typically is found that the citizenry expects businesses to be good corporate citizens just as individuals are. To fulfill its perceived philanthropic responsibilities, companies engage in a variety of giving forms – gifts of monetary resources, product and service donations, volunteerism by employees and management, community development and any other discretionary contribution to the community or stakeholder groups that make up the community.

Although there is sometimes an altruistic motivation for business giving, most companies engage in philanthropy as a practical way to demonstrate their good citizenship. This is done to enhance or augment the company’s reputation and not necessarily for noble or self-sacrificing reasons. The primary difference between the ethical and philanthropic categories in the four-part model is that business giving is not necessarily expected in a moral or ethical sense. Society expects such gifts, but it does not label companies as “unethical” based on their giving patterns or whether the companies are giving at the desired level. As a consequence, the philanthropic responsibility is more discretionary or voluntary on business’s part. Hence, this category is often thought of as good “corporate citizenship.” Having said all this, philanthropy historically has been one of the most important elements of CSR definitions and this continues today.

In summary, the four-part CSR definition forms a conceptual framework that includes the economic, legal, ethical, and philanthropic or discretionary expectations that society places on businesses at a given point in time. And, in terms of understanding each type of responsibility, it could be said that the economic responsibility is “required” of business by society; the legal responsibility also is “required” of business by society; the ethical responsibility is “expected” of business by society; and the philanthropic responsibility is “expected/desired” of business by society. As time passes what exactly each of these four categories means may change or evolve as well.

The pyramid should not be interpreted to mean that business is expected to fulfill its social responsibilities in some sequential, hierarchical fashion, starting at the base. Rather, business is expected to fulfill all responsibilities simultaneously. The positioning or ordering of the four categories of responsibility strives to portray the fundamental or basic nature of these four categories to business’s existence in society. As said before, economic and legal responsibilities are required; ethical and philanthropic responsibilities are expected and desired. The representation being portrayed, therefore, is that the total social responsibility of business entails the concurrent fulfillment of the firm’s economic, legal, ethical, and philanthropic responsibilities. Stated in the form of an equation, it would read as follows: Economic Responsibilities + Legal responsibilities + Ethical Responsibilities + Philanthropic Responsibilities = Total Corporate Social Responsibility. Stated in more practical and managerial terms, the CSR driven firm should strive to make a profit, obey the law, engage in ethical practices and be a good corporate citizen. When seen in this way, the pyramid is viewed as a unified or integrated whole.

Measuring CSR

CSR reporting has evolved from relatively simple environmental statements to comprehensive triple-bottom-line (people, planet, profit) reporting which is used as a framework for measuring and reporting corporate performance against economic, social, and environmental parameters. Corporate Social Responsibility (CSR) is typically measured through a combination of quantitative and qualitative metrics that assess how well a company is meeting its social, environmental, and ethical obligations. Different organizations use various frameworks, tools, and reporting standards to evaluate CSR performance. Some of the most common methods include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Key Performance Indicators (KPI), Dow Jones sustainability index (DJSI), stakeholder feedback, and benchmarking.

ESG stands for Environmental, Social, and Governance. It refers to a set of standards used by businesses to evaluate and address their impact on the world, beyond just financial performance. The FTSE4Good Index Series is designed to measure the performance of companies demonstrating specific Environmental, Social and Governance (ESG) practices. Transparent management and clearly defined ESG criteria make FTSE4Good indices suitable tools to be used by a wide variety of market participants when creating or assessing sustainable investment products.^[13]

There has been an increasing focus on corporate sustainability and reporting and a question often asked is what is the difference between CSR and ESG? CSR and ESG are different frameworks that companies use to assess sustainability. In short, CSR may be used as an internal framework, while ESG provides a measure of assessment for investors. It could be argued that ESG is currently overtaking CSR as a measure of sustainability in the corporate world.^[14]

The Boston College Center for Corporate Citizenship helps companies advance and elevate their corporate citizenship to deliver both business and social value, no matter where they are in their corporate citizenship journey. As the leading corporate citizenship membership community, The Boston College Center for Corporate Citizenship uses research-based knowledge, best-in-class learning opportunities, and dynamic peer network to help ALL companies know more about the global landscape of corporate citizenship; do more to optimize performance and value through the environmental, social, and governance (ESG) dimensions of firm performance—and thus achieve more as effective corporate citizens.^[15]

Morningstar Sustainalytics provides high-quality, analytical environmental, social and governance (ESG) research, ratings and data to institutional investors and companies. For more than 30 years, this firm has focused on delivering innovative solutions that have enabled the world’s leading institutional investors to identify, understand, and manage ESG-driven risks and opportunities.^[16]

Greenwashing

Greenwashing refers to the practice of misleading consumers or stakeholders into believing that a company, product, or initiative is more environmentally friendly or sustainable than it actually is. Companies engage in greenwashing by exaggerating, omitting, or fabricating claims about their environmental practices to enhance their reputation or market appeal.

An example of a Canadian company accused of greenwashing is Shell Canada. The company launched its “Drive Carbon Neutral” program in 2020, claiming that the carbon emissions from fuel sold at its gas stations would be offset through investments in forest conservation projects. However, Greenpeace Canada raised concerns about the reliability of these claims, stating that the offsets were overstated or ineffective. They argued the program distracted from the need for Shell to reduce fossil fuel usage directly. Following these criticisms, Shell Canada discontinued the program in 2023​.^[17]

In the United States, Suncor Energy has faced allegations of greenwashing due to its CEO’s statements about decarbonization efforts. Critics, including Members of Parliament, questioned the company’s commitment to climate change initiatives, suggesting that its strategies and public communications did not align with substantive action on emissions reduction​.^[18]

These cases highlight the importance of transparency and verifiable claims in corporate environmental initiatives.

Personal and Business Ethics

Ethics is the philosophical discipline concerned with what is morally good and bad, and morally right and wrong. Ethics, morals, and values – these are complex principles. Depending on the person, culture, time, situation, age, gender, business, or context these concepts can change. People’s morals or ethics are shaped when they are relatively young and are influenced not only by our parents but by society, our culture, and in some cases by our religion as well. Ethics can present challenges, dilemmas, and lapses of judgment. These challenges occur because these influences complicate how people make ethical decisions or think about ethics personally or professionally.

Ideally, prison terms, heavy fines, and civil suits would discourage corporate misconduct, but, unfortunately, many experts suspect that this assumption is a bit optimistic. Whatever the condition of the ethical environment in the near future, one thing seems clear: the next generation entering business—which includes most of you—will find a world much different than the one that waited for the previous generation. Recent history tells us in no uncertain terms that today’s business students, many of whom are tomorrow’s business leaders, need a much sharper understanding of the difference between what is and isn’t ethically acceptable. As a business student, one of your key tasks is learning how to recognize and deal with the ethical challenges that will confront you. Asked what he looked for in a new hire, Warren Buffet, the world’s most successful investor, replied: “I look for three things. The first is personal integrity, the second is intelligence, and the third is a high energy level.” He paused and then added: “But if you don’t have the first, the second two don’t matter”.^[19]

As business students, it is important to begin to understand how ethics affects you – what are your ethics like? If you had a compass, where would you fall? Studying ethics will help you understand this.

From a business perspective, ethics is even more complex. How do organizations know how to do the right thing? How do they know how to be socially responsible or how to practice effective corporate social responsibility? Part of this knowledge has to do with the leaders and culture of the organization. Part of the challenge is that things like conflicts occur, such as conflicts of interest, when individuals must choose between taking actions that promote their personal interest over the interests of others or conflicts of loyalty, when individuals have a responsibility to be loyal to a friend, family member, or employer and that conflicts with their ability to act ethically. These types of conflicts present real ethical dilemmas that make it very challenging to figure out how to do what’s right.

It’s in the best interest of a company to operate ethically. Trustworthy companies are better at attracting and keeping customers, talented employees, and capital. Those tainted by questionable ethics suffer from dwindling customer bases, employee turnover, and investor mistrust. Acting ethically in business means more than simply obeying applicable laws and regulations. It also means being honest, doing no harm to others, competing fairly, and declining to put your own interests above those of your company, its owners, and its workers. If you’re in business, you obviously need a strong sense of what’s right and wrong. You need personal conviction to do what’s right, even if it means doing something that’s difficult or personally disadvantageous.

Identifying Ethical Issues, Lapses, and Dilemmas

Ethical issues are the difficult social questions that involve some level of controversy over what is the right thing to do. Environmental protection is an example of a commonly discussed ethical issue, because there can be tradeoffs between environmental and economic factors.

An ethical lapse is a mistake or error in judgment that produces a harmful outcome. It is a failure to follow proper ethical principles. An ethical lapse can be viewed in two ways, as either a clearly unethical decision or a mistake that resulted in an unethical outcome. It is not considered a complete lack of integrity, just an oversight or an ethical blind spot.^[20] Ethical lapses often reflect a failure of leadership, culture, or systems that prioritize accountability and integrity. Maintaining robust ethics training and a strong corporate governance framework can help prevent such lapses.

Ethical dilemmas are situations in which it is difficult for an individual to make decisions either because the right course of action is unclear or carries some potential negative consequences for the person or people involved.

Make no mistake about it: when you enter the business world, you’ll find yourself in situations in which you’ll have to choose the appropriate behavior. How, for example, would you answer questions like the following?

• Is it OK to accept a pair of sports tickets from a supplier?
• Can I buy office supplies from my brother-in-law?
• Is it appropriate to donate company funds to a local charity?
• If I find out that a friend is about to be fired, can I warn her?

Obviously, the types of situations are numerous and varied. Fortunately, we can break them down into a few basic categories: issues of honesty and integrity, conflicts of interest and loyalty, bribes versus gifts, and whistle-blowing. Let’s look a little more closely at each of these categories.

Issues of Honesty and Integrity

An ethical lapse in honesty and integrity occurs when an individual, organization, or company fails to uphold fundamental ethical principles, such as truthfulness, transparency, and adherence to moral standards. It typically involves actions or decisions that prioritize self-interest, convenience, or profit over fairness, accountability, and ethical responsibility.

A recent example of an ethical lapse involving honesty and integrity in a Canadian company is the case of PwC Canada. The accounting firm was found to have systemic answer-sharing among employees during mandatory internal training assessments between 2016 and 2020. These assessments were designed to evaluate professional competencies, but many employees, including senior associates and managers, participated in or facilitated widespread sharing of answers. This practice reflected a failure in fostering a culture of ethical integrity and ensuring independent completion of assessments. PwC Canada self-reported the issue, leading to fines totaling $1.45 million imposed by the Chartered Professional Accountants of Ontario. The incident undermined public trust in the firm and raised questions about its internal quality controls and ethical standards.^[21]

A recent example of a U.S. company facing an ethical lapse related to honesty and integrity involves the biotech company Illumina. In July 2023, the European Commission fined Illumina €432 million (approximately $476 million USD) for merging with the cancer detection company Grail without obtaining the necessary regulatory approval. The Commission called this action an “unprecedented and very serious infringement” of EU merger control rules. This lapse reflects ethical concerns over compliance with international regulations and transparency in business operations, as the company knowingly bypassed established legal procedures to expedite the merger.^[22]

If you work for a company that settles for its employees merely obeying the law and following a few internal regulations, you might think about moving on. If you’re being asked to deceive customers about the quality or value of your product, you’re in an ethically unhealthy environment.

Conflicts of Interest

Conflicts of interest occur when individuals must choose between taking actions that promote their personal interests over the interests of others or taking actions that don’t. A conflict can exist, for example, when an employee’s own interests interfere with, or have the potential to interfere with, the best interests of the company’s stakeholders (management, customers, and owners). Let’s say that you work for a company with a contract to cater events at your college and that your uncle owns a local bakery. Obviously, this situation could create a conflict of interest (or at least give the appearance of one—which is a problem in itself). When you’re called on to furnish desserts for a luncheon, you might be tempted to send some business your uncle’s way even if it’s not in the best interest of your employer. What should you do? You should disclose the connection to your boss, who can then arrange things so that your personal interests don’t conflict with the company’s.

The same principle holds that an employee shouldn’t use private information about an employer for personal financial benefit. Say that you learn from a coworker at your pharmaceutical company that one of its most profitable drugs will be pulled off the market because of dangerous side effects. The recall will severely hurt the company’s financial performance and cause its stock price to plummet. Before the news becomes public, you sell all the stock you own in the company. What you’ve done is called insider trading—acting on information that is not available to the general public, either by trading on it or providing it to others who trade on it. Insider trading is illegal, and you could go to jail for it.

Conflicts of Loyalty

You may one day find yourself in a bind between being loyal either to your employer or to a friend or family member. Perhaps you just learned that a coworker, a friend of yours, is about to be downsized out of his job. You also happen to know that he and his wife are getting ready to make a deposit on a house near the company headquarters. From a work standpoint, you know that you shouldn’t divulge the information. From a friendship standpoint, though, you feel it’s your duty to tell your friend. Wouldn’t he tell you if the situation were reversed? So, what do you do? As tempting as it is to be loyal to your friend, you shouldn’t tell. As an employee, your primary responsibility is to your employer. You might be able to soften your dilemma by convincing a manager with the appropriate authority to tell your friend the bad news before he puts down his deposit.

A notable example of a conflict of loyalty in Canadian business arose in the legal dispute involving Groupe Excellence, a Quebec-based insurance company. This case centered on two directors and presidents of the company, who failed to inform the majority shareholders about a potential acquisition interest from Industrial Alliance Insurance. Instead, the presidents secretly negotiated the deal, bought out the shareholders’ stakes, and sold them to Industrial Alliance at a significantly higher profit, depriving the shareholders of substantial financial benefits. The Supreme Court of Canada examined whether the directors breached their duties of loyalty, good faith, and disclosure to the shareholders. It concluded that while they did not owe a fiduciary duty directly to shareholders, they breached an implied obligation of good faith due to a separate compensation agreement that required them to act in the shareholders’ best interests. This lapse resulted in legal actions against the directors, highlighting the delicate balance of duties and conflicts in corporate governance​. This case illustrates how conflicts of loyalty can arise when individuals in leadership positions prioritize personal gains over their professional obligations, leading to ethical and legal repercussions.^[23]

Bribes Versus Gifts

It is not uncommon in business to give and receive small gifts of appreciation, but when is a gift unacceptable? When is it really a bribe?

There is often a fine line between a gift and a bribe. The following information may help to draw that line, because it raises key issues in determining how a gesture should be interpreted: the cost of the item, the timing of the gift, the type of gift, and the connection between the giver and the receiver. If you are on the receiving end, it is a good idea to refuse any item that is overly generous or given for the purpose of influencing a decision. Because accepting even small gifts may violate company rules, always check on company policy.

In both Canada and the U.S., companies have struggled to define clear distinctions between gifts and bribes. A gift intended to maintain goodwill or celebrate a partnership might be ethical if it’s modest and transparent. However, lavish or undisclosed gifts designed to influence decision-making cross the line into bribery. Policies like those of the FCPA emphasize transparency, proper recording, and adherence to anti-corruption laws to avoid such lapses.

An example of an ethical lapse involving bribes versus gifts in a Canadian company includes the high-profile case of SNC-Lavalin. The Montreal-based engineering firm faced allegations of bribery related to securing business in Libya. The accusations included millions of dollars in payments classified as bribes, disguised as legitimate business expenses, which raised ethical concerns about distinguishing acceptable corporate gifts from outright corruption. This led to legal actions under Canada’s Corruption of Foreign Public Officials Act and significant reputational damage​.^[25]

In the U.S., Walmart faced scrutiny for alleged bribery practices in Mexico, where executives were accused of paying off officials to expedite permits and construction approvals. The investigation revealed systemic issues in distinguishing ethical gifts or facilitation payments from bribes, ultimately resulting in a $282 million settlement under the U.S. Foreign Corrupt Practices Act (FCPA)​.^[26]

Both cases highlight the importance of robust compliance programs to ensure clear policies about what constitutes acceptable business conduct, emphasizing the need for transparency and adherence to anti-bribery laws.

Whistle-Blowing

A whistleblower is someone who reports waste, fraud, abuse, corruption, or dangers to public health and safety to someone who is in the position to rectify the wrongdoing. A whistleblower typically works inside of the organization where the wrongdoing is taking place; however, being an agency or company “insider” is not essential to serving as a whistleblower. What matters is that the individual discloses information about wrongdoing that otherwise would not be known.^[27]

An example of whistleblowing in a Canadian company involves Coinsquare, a cryptocurrency trading platform. From 2018 to 2019, Coinsquare engaged in “wash trading,” where an algorithm created fake buy-and-sell orders to inflate trading volumes artificially. A whistleblower within the company, who discovered and reported this practice to senior management, faced significant retaliation, including threats to their employment and eventual termination after taking stress leave due to the issue. The Ontario Securities Commission (OSC) investigated and determined that Coinsquare’s actions violated securities laws and whistleblower protections. As part of a settlement, the company admitted to the reprisal and agreed to strengthen its whistleblower policies, while the former CEO faced fines and a ban on serving as an officer or director.^[28]

In the past few years, a notable whistleblower case in the USA involved BofI Federal Bank (now called Axos Bank), where an internal auditor, Erhart, reported concerns about the bank’s risky business practices. He had raised alarms about high deposit concentrations and risky loans to potentially fraudulent entities. After Erhart reported these issues internally, he was fired, and the case progressed to a legal battle under the Sarbanes-Oxley Act (SOX) for whistleblower protection. In 2023, the jury sided with Erhart, awarding him significant compensation, and the court denied the bank’s attempt to overturn the decision. The case highlighted concerns over shareholder fraud and internal controls violations​.^[29]

Another example of a whistleblower case in the USA occurred at Donovan Salvage Works, a Delaware salvage yard. An employee, a smelter operator, reported a safety hazard involving a propane leak at the yard. After the employee refused to continue working under unsafe conditions, he was terminated by the company in retaliation for reporting the issue. Following an investigation by the Occupational Safety and Health Administration (OSHA), the company was found guilty of wrongful termination and was ordered to pay $40,000 in back wages and damages​.^[30]

Despite significant financial investment in its whistleblower protection framework, Canada has failed to adequately protect individuals reporting misconduct. Over 500 whistleblowers faced reprisals without sufficient remedies. This was highlighted in international assessments, which rated Canada’s legal framework for whistleblower protections as among the worst globally. The case underscores the challenges whistleblowers face in bringing attention to unethical practices without fearing retaliation​.^[31]

In the United States, a significant 2023 case involved a whistleblower under the False Claims Act. The individual, a doctor, accused a healthcare company of enabling Medicare fraud. The case reached the U.S. Supreme Court, which ruled the Department of Justice could dismiss such lawsuits even if initially allowed to proceed. This ruling reflects the complex interplay between whistleblower rights and government oversight in ensuring actionable claims move forward without undue burden​.^[32]

These examples highlight how whistleblowing plays a critical role in exposing corporate and institutional malpractice, but also the legal and systemic barriers faced in both Canada and the U.S.

Encouraging Ethics in the Workplace

When organizations are ethical and practice CSR consumer and employee rights will be highly considered and handled with integrity and ethics. For employee’s health and safety, privacy, wages, and benefits, along with the right to not be harassed or discriminated against are all-important ethical considerations. Consumers have rights too; consumers expect that the products they buy will be safe, in terms of production, consumption, and/or use. Consumers also have the right to be made aware of how the product is made or what the service involves. The choice is their right too – they can buy whatever products or services that they want; and it’s the responsibility of businesses to let consumers know about alternatives or information that they need to be aware of regarding the product or service they are buying.

A recent survey found that 38% of employees consider “ethical standards” to be the first or second-most important workplace attribute (Refer to Figure 6.3).^[33] People spend much of their lives at work. An ethical workplace is key because it allows employees to feel a sense of purpose and integrity on the job.

Create an Ethical Work Environment

For a business to be considered an ethical organization, it must demonstrate integrity, transparency, and accountability in all aspects of its operations. Creating an ethical business environment involves adherence to laws and regulations, strong corporate governance, and proactive efforts to ensure the well-being of employees, customers, and the community. For example, a few of the companies that do this well include those listed on the 2024 “100 Best Corporate Citizens” list which, to name a few, included HP Inc., Johnson & Johnson, PepsiCo Inc., Ford Motor Company, and The Hershey Company.^[34] 

Key factors in creating an ethical business environment include:^[35]

1. Strong leadership and ethical governance. Create a clear code of ethics that outlines acceptable behaviour and decision-making practices. This should cover areas like anti-corruption, diversity, privacy, and fairness. Have a board of directors that ensures accountability and guides ethical strategy. Be transparent. Disclose financial, operational, and social responsibility data regularly, fostering trust with stakeholders. Many Canadian companies, such as TELUS and RBC, publish Corporate Social Responsibility (CSR) or Environmental, Social, and Governance (ESG) reports that highlight their ethical initiatives.
2. Compliance with laws and standards. Follow relevant laws, in Canada these might include the Competition Act, Corruption of Foreign Public Officials Act (CFPOA), Canadian Human Rights Act, and Occupational Health and Safety Regulations. For businesses operating internationally, compliance with international standards like ISO 26000 (Social Responsibility) or the UN Global Compact can enhance ethical standing. For example, Companies like Bombardier have frameworks for compliance with Canadian anti-corruption and labor laws.
3. Ethical workplace practices. Protect employee rights and create a diverse and inclusive workplace. Provide a safe working environment. Encourage reporting of unethical behaviour without fear of retaliation. For example, Shopify promotes inclusivity and diversity through initiatives like “Diversity and Belonging”.
4. Commitment to social responsibility. Invest in community development through volunteering, donations, and partnerships. Reduce carbon footprints, manage waste responsibility, and invest in sustainable practices. Loblaw’s efforts to combat food waste and reduce plastic use reflect a strong commitment to sustainability.
5. Proactive risk management. Regularly train employees in ethical decision-making and compliance requirements. Conduct internal audits to ensure adherence to policies. Actively engage with stakeholders to understand and address their concerns.

By focusing on these elements, businesses can build a reputation as ethical organizations while ensuring long-term success and trust from stakeholders.

Sexual Harassment

Sexual harassment occurs when an employee makes “unwelcome sexual advances, requests for sexual favours, and other verbal or physical conduct of a sexual nature” to another employee. It’s also considered sexual harassment when “submission to or rejection of this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance or creates an intimidating, hostile or offensive work environment.” In Canada, the legal framework for addressing sexual harassment includes protections under the Canadian Human Rights Act (CHRA), provincial human rights codes, and the Canada Labour Code for federally regulated workplaces.^[36][37][/footnote]

Sexual harassment rocketed to the top of news reports and social media when on October 5, 2017, The New York Times broke the story of Harvey Weinstein’s decades of harassment in Hollywood. In March of 2018, CBC News collated the allegations of sexual harassment against prominent Canadians. The list, including only those allegations reported by CBC, highlight the prevalence of this issue.

Government of Canada reported that in 2020 one in four women and one in six men reported having experienced inappropriate sexualized behaviours at work in the previous year.^[38] Indigenous women and members of the LGBTQ+ community are disproportionately affected, with much higher likelihoods of experiencing sexual violence.^[39] Federally regulated sectors such as transportation, banking, and communication account for a significant proportion of harassment incidents. In 2022, 31% of reported sexual harassment occurrences were from the road transportation sector, 17% from air transportation, and 15% from banking.^[40]

To prevent sexual harassment—or at least minimize its likelihood—a company should adopt a formal anti-harassment policy describing prohibited conduct, asserting its objections to the behaviour, and detailing penalties for violating the policy. Employers also have an obligation to investigate harassment complaints. Failure to enforce anti-harassment policies can be very costly.

Workforce Diversity | Inclusive Workplaces

In addition to complying with equal employment opportunity laws, many companies make special efforts to create an inclusive workforce by recruiting employees who are underrepresented in the workforce according to sex, race, or some other characteristic. In helping to build more inclusive workforces, such initiatives contribute to competitive advantage for two reasons:

1. People from diverse backgrounds bring new talents and fresh perspectives to an organization, typically enhancing creativity in the development of new products.
2. By more accurately reflecting the demographics of the marketplace, a diverse workforce improves a company’s ability to serve an ethnically diverse population.

The Tylenol Crisis

On September 30, 1982, twelve-year-old Mary Kellerman of Chicago died after her parents gave her Extra-Strength Tylenol. That same morning, twenty-seven-year-old Adam Janus, also of Chicago, died after taking Tylenol for minor chest pain. That night, when family members came to console his parents, Adam’s brother and his wife took Tylenol from the same bottle and died within forty-eight hours. Over the next two weeks, four more people in Chicago died after taking Tylenol. The actual connection between Tylenol and the series of deaths wasn’t made until an off-duty fireman realized from news reports that every victim had taken Tylenol. As consumers panicked, Johnson & Johnson (J&J) company pulled Tylenol off Chicago-area retail shelves. Researchers discovered Tylenol capsules containing large amounts of deadly cyanide. Because the poisoned bottles came from batches originating at different J&J plants, investigators determined that the tampering had occurred after the product had been shipped.^[41]

So, J&J wasn’t at fault. But CEO Burke was still faced with an extremely serious dilemma: Was it possible to respond to the tampering cases without destroying the reputation of a highly profitable brand?

Burke had two options:

1. He could recall only the lots of Extra-Strength Tylenol that were found to be tainted with cyanide. In 1991, Perrier executives recalled only tainted products when they discovered that cases of their bottled water had been poisoned with benzine. This option favoured J&J financially but possibly put more people at risk.
2. Burke could order a nationwide recall—of all bottles of Extra-Strength Tylenol. This option would reverse the priority of the stakeholders, putting the safety of the public above stakeholders’ financial interests.

Burke opted to recall all 31 million bottles of Extra-Strength Tylenol on the market. The cost to J&J was $100 million, but public reaction was quite positive. Less than six weeks after the crisis began, Tylenol capsules were reintroduced in new tamper-resistant bottles, and by responding quickly and appropriately, J&J was eventually able to restore the Tylenol brand to its previous market position. When Burke was applauded for moral courage, he replied that he’d simply adhered to the long-standing J&J credo that put the interests of customers above those of other stakeholders. His only regret was that the perpetrator was never caught.^[42]

If you’re wondering what your thought process should be if you’re confronted with an ethical dilemma, you might wish to remember the mental steps listed here—which happen to be the steps that James Burke took in addressing the Tylenol crisis:

1. Define the problem: How to respond to the tampering case without destroying the reputation of the Tylenol brand.
2. Identify feasible options: (1) Recall only the lots of Tylenol that were found to be tainted or (2) order a nationwide recall of all bottles of Extra-Strength Tylenol.
3. Assess the effect of each option on stakeholders: Option 1 (recalling only the tainted lots of Tylenol) is cheaper but puts more people at risk. Option 2 (recalling all bottles of Extra-Strength Tylenol) puts the safety of the public above stakeholders’ financial interests.
4. Establish criteria for determining the most appropriate action: Adhere to the J&J credo, which puts the interests of customers above those of other stakeholders.
5. Select the best option based on the established criteria: In 1982, Option 2 was selected, and a nationwide recall of all bottles of Extra-Strength Tylenol was conducted.

The Individual Approach to Ethics

How can you make sure that you do the right thing in the business world? How should you respond to the kinds of challenges that you’ll be facing? Because your actions in the business world will be strongly influenced by your moral character, let’s begin by assessing your current moral condition. Which of the following best applies to you (select one)?

1. I’m always ethical.
2. I’m mostly ethical.
3. I’m somewhat ethical.
4. I’m seldom ethical.
5. I’m never ethical.

Now that you’ve placed yourself in one of these categories, here are some general observations. Few people put themselves below the second category. Most of us are ethical most of the time, and most people assign themselves to category number two— “I’m mostly ethical.” Why don’t more people claim that they’re always ethical?

Apparently, most people realize that being ethical all the time takes a great deal of moral energy. If you placed yourself in category number two, ask yourself this question: How can I change my behaviour so that I can move up a notch? The answer to this question may be simple. Just ask yourself an easier question: How would I like to be treated in a given situation?^[43]

Unfortunately, practicing this philosophy might be easier in your personal life than in the business world. Ethical challenges arise in business because companies, especially large ones, have multiple stakeholders who sometimes make competing demands. Making decisions that affect multiple stakeholders isn’t easy even for seasoned managers; and for new entrants to the business world, the task can be extremely daunting. You can, however, get a head start in learning how to make ethical decisions by looking at two types of challenges that you’ll encounter in the business world: ethical dilemmas and ethical decisions.

Make Ethical Decisions

Ask yourself the following five questions as a test to help you improve your chances of making ethical decisions. If you answer, yes, to any of them, then you probably should not do it.

1. Is the action illegal?
2. Is it unfair to some stakeholders? (Also, if it were happening to you, then would it be unfair?)
3. If I do it, will I feel bad about it?
4. Will I be ashamed to tell my family friends, coworkers, or boss?
5. Will I be embarrassed if my action is written up in the newspaper?

Some ethical problems are fairly straightforward. Others, unfortunately, are more complicated, but it will help to think of our five-question test as a set of signals that will warn you that you’re facing a particularly tough decision— that you should think carefully about it and perhaps consult someone else. The situation is like approaching a traffic light. Red and green lights are easy; you know what they mean and exactly what to do. Yellow lights are trickier. Before you decide which pedal to hit, try posing the five questions. If you get a single yes, you’ll almost surely be better off hitting the brake.^[44]

Refuse to Rationalize

Despite all the good arguments in favour of doing the right thing, why do many reasonable people act unethically (at least at times)? Why do good people make bad choices? According to one study, there are four common rationalizations (excuses) for justifying misconduct:^[45]

1. My behaviour isn’t really illegal or immoral. Rationalizers try to convince themselves that an action is OK if it isn’t downright illegal or blatantly immoral. They tend to operate in a gray area where there’s no clear evidence that the action is wrong.
2. My action is in everyone’s best interests. Some rationalizers tell themselves: “I know I lied to make the deal, but it’ll bring in a lot of business and pay a lot of bills.” They convince themselves that they’re expected to act in a certain way.[46]
3. No one will find out what I’ve done. Here, the self-questioning comes down to “If I didn’t get caught, did I really do it?” The answer is yes. There’s a simple way to avoid succumbing to this rationalization: always act as if you’re being watched.
4. The company will condone my action and protect me. This justification rests on a fallacy.

If you find yourself having to rationalize a decision, it’s probably a bad one.

 Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)