Conducting Business Ethically and Responsibly
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03 Conducting Business Ethically and Responsibly LEARNING OBJECTIVES After reading this chapter you should be able to: 1 Explain how individuals develop 3 Show how the concept of social 5 Explain how issues of social their personal codes of ethics and responsibility applies both to responsibility and ethics affect why ethics are important in the environmental issues and to a small businesses. workplace. firm’s relationships with custom- 2 Distinguish corporate social ers, employees, and investors. responsibility from ethics, identify 4 Identify four general approaches organizational stakeholders, to social responsibility and and characterize social describe the four steps a firm consciousness today. must take to implement a social responsibility program. 2 M03_GRIF1998_08_SE_C03.indd 2 9/28/12 4:04 PM Ethical Lapses DURING the last decade there have been sev- top executives also resigned: Rebekah Brooks hacking the phone of the kidnapped teenager; eral high-profile examples of ethical lapses (CEO of News International) and Les Hinton actor Jude Law received just over $200 000. at business firms. These include a hacking (CEO of News Corp.’s Dow Jones & Co., which scandal at the British tabloid News of the publishes The Wall Street Journal). Shortly after Cinar World, financial misrepresentation at Livent, the scandal broke, it was announced that News and fraud at Cinar. Here are the stories. of the World would cease publication. In March 2011, four individuals were arrested When Rupert Murdoch and his son James and charged with multiple counts of fraud (the CEO) appeared before the Culture, and forgery as part of a multi-million dollar Media, and Sport Committee of the British scandal at Cinar Corp., the Montreal-based Parliament, they both apologized for what had animation company. The individuals were happened, but denied knowledge of the hack- Ronald Weinberg (former co-CEO of Cinar), ing. Rupert Murdoch said that his company Hasanaim Panju (chief financial officer), Lino was so big that he couldn’t know about all Matteo (former president of Mount Real, who the details of what was going on. He said was accused of using his company to cover that he wasn’t much involved in the paper’s up the scam), and John Xanthoudakis (the management because it was such a small alleged mastermind behind the scheme and News Corp. part of his media empire. He admitted that former CEO of Norshield Financial Group, which News Corp. is a media giant headed by Rupert he had not looked closely enough into the went bankrupt in 2005). The co-CEO of Cinar, Murdoch. One of its more controversial pub- activities of some of the paper’s staff, but he Micheline Charest (wife of Ronald Weinberg), lications was a tabloid called News of the denied responsibility for what had happened died in 2004. As of mid-2012, the trial had not World, which reported on all sorts of gossip because subordinates that he trusted had lied yet taken place. about individuals. The tabloid was Britain’s to him. The issue of how much responsibility The alleged frauds took place in 2000. At best-selling Sunday paper until it was revealed top managers have for the actions of their that time, Cinar was an immensely successful that some of its reporters had hacked into subordinates was also debated in the press, producer of popular children’s shows like the cellphones of private citizens. The public with some commentators defending Murdoch Arthur, Caillou, The Adventures of Paddington was particularly outraged about the case of and others condemning him. Bear, and Wimzie’s House. The key drivers a 13-year-old girl who was kidnapped and In the aftermath of the scandal, allega- in the company were Charest and Weinberg, murdered. While she was missing, a reporter tions were made that Andy Coulson, an editor who tirelessly promoted their company to the at News of the World hacked into her voicemail at the tabloid when the hacking took place, media and to financial markets. But in March and deleted messages. This led her parents to knew that illegal payments of CDN$185 000 2000, they both resigned as co-chief execu- think that she was still alive. The cellphones of had been made to police officers who provided tives of the company amid allegations that military personnel who had been killed in Iraq information to reporters for stories they were (1) over $100 million had been invested with- and Afghanistan were also hacked. writing. The story then took on strong political out proper approval from Cinar’s board of The scandal caused the market value of overtones, since Coulson had been appointed directors; (2) Cinar had fraudulently obtained News Corp. to drop more than $5 billion. As as the Prime Minister’s communications direc- Canadian tax credits by putting the names of well, a planned takeover of television network tor after he resigned from the paper. In January Canadians on television scripts actually writ- BSkyB was abandoned. Many well-known com- 2012, News Corp. settled most of the civil ten by Americans; and (3) Cinar had breached panies (Ford, Lloyd’s of London, Cadbury, and lawsuits it was facing by paying damages to securities rules with its financial statements Vauxhall) announced that they were pulling individuals whose phones were hacked. The and other disclosure documents. These alle- their advertising from News of the World. Two company agreed to pay 3 million pounds for gations caused the company’s stock to drop 3 M03_GRIF1998_08_SE_C03.indd 3 9/28/12 4:04 PM 4 PART ONE Introducing the Contemporary Business World sharply in value, and Cinar was eventually del- During the trial, prosecutors called sev- Krashinsky, “Bad News for News of the World,” isted from both NASDAQ and the Toronto Stock eral witnesses who admitted that they had The Globe and Mail, July 7, 2011, p. A11; Exchange. In 2002, Charest and Weinberg were participated in the financial manipulations, Kate Holton and Jodie Ginsberg, “Murdoch fined $1 million each by the Quebec Securities but said they had done so at the direction of Will Co-operate with Hacking Inquiry; Faces Commission (QSC). They were also required to Drabinsky and Gottlieb. Drabinsky and Gottlieb boycotts,” National Post, July 7, 2011, p. A13; resign from the board of directors, and were denied any wrongdoing and claimed that the “Cinar Corp. Reaches Agreement with Company banned from holding directorships or voting for financial manipulations were carried out by founder to Settle Lawsuit,” www.canada.com/ directors of publicly held companies in Canada. subordinates without their knowledge. Their story_print.html?id=8e57cda7--91f-48f2- It was assumed that the QSC ruling would attorneys repeatedly attacked the credibility aade-7574efc41d0b&sp, accessed May 18, prevent Charest and Weinberg from influenc- of the witnesses and argued that account- 2011; “Cookie Jar Group,” www.en.wikipedia. ing who would be appointed to Cinar’s board ing staff had circumvented the accounting org/wiki/Cookie_Jar_Group, accessed May 18, of directors. But the QSC settlement did allow controls that Drabinsky had put in place. The 2011; “Ex-Cinar CEO Hasanain Panju Arrested,” them to appoint a trustee who could nominate defence presented no witnesses and Drabinsky www.hollywoodreporter.com/news/cinar- ceo- or vote for directors, and at Cinar’s next annual and Gottlieb did not testify. hasanain-panju-arrested-163383, accessed shareholders’ meeting, trustee Robert Despres In 2009, Drabinsky and Gottlieb were May 18, 2011; Rheal Seguin, “Suspected Player used his new-found voting clout to install found guilty of fraud and forgery. Drabinsky was in Alleged Cinar Fraud Arrested,” The Globe and directors he wanted instead of the company’s sentenced to seven years in jail and Gottlieb to Mail, March 16, 2011, p. B9; Jacquie McNish, proposed slate. Despres claimed that he did six years. In 2011, the Ontario Court of Appeals “Convictions Seen as Much-Needed Regulatory not represent Charest and Weinberg, and was reduced their sentences by two years each. The Win,” The Globe and Mail, March 26, 2009, simply interested in getting a board of directors Institute of Chartered Accountants of Ontario p. B4; Janet McFarland, “ICAO Appeal Panel in place that would move the company forward also found three senior Deloitte & Touche LLP Upholds Deloitte Decision,” The Globe and Mail, and increase shareholder value. auditors guilty of making errors during an audit February 19, 2009, p. B9; Janet McFarland, When problems originally arose at Cinar, of Livent’s financial statements. The three were “Ex-Livent Official Tells of ‘Absurd’ Plan,” The Richard Finley, chairman of the Centre for fined $100 000 each. Globe and Mail, September 3, 2008, p. B5; Janet Corporate and Public Governance, offered the Sources: ; Paul Sonne and Cassell Bryan-Low, McFarland, “Livent Staff Dodged Drabinsky’s view that Cinar’s top management and board “News Corp. Settles Phone-Hacking Cases,” Controls, Lawyer Says,” The Globe and Mail, structure were rather peculiar and likely contrib- The Wall Street Journal, January 20, 2012, July 18, 2008, p. B2; Janet McFarland, “Ad uted to Cinar’s difficulties. The husband–wife B4; Kit Cheliel, “Lawsuits Against News Corp. Firms Helped Livent, Ex-Official Says,” The team of Charest and Weinberg functioned as Escalate,” National Post, October 5, 2011, Globe and Mail, July 16, 2008, p. B7; Janet co-CEOs and both reported to the board. The FP12; “Livent Founders Get Reduced Sentences McFarland, “All His Time Spent on Fraud: corporate governance guidelines of the Toronto as Court Upholds Fraud Convictions,” Winnipeg Ex-Livent Official,” The Globe and Mail, July Stock Exchange call for a non-executive and Free Press, September 14, 2011, D2; Terence 15, 2008, p. B4; Allan Swift, “Cinar Chairman’s independent director as chairperson of the board.