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Legal behaviour refers to the variations in the degree of governmental social control of one's behaviour for instance not obeying the traffic laws. On the other hand, ethical behaviour is being in accordance with the accepted principles of right and wrong which govern the conduct of a profession, for example, dealing badly with your female employees is unethical but not illegal. In an ideal society however legal and ethical standards/laws should be the same.
Legal and Regulatory Behaviour
How do you address any adverse impacts on society of your products and operations? How do you anticipate public concerns with current and future products and operations? How do you prepare for these impacts and concerns in a proactive manner, including conserving natural resources and using effective supply-chain management processes, as appropriate? What are your key compliance processes, measures, and goals for achieving and surpassing regulatory and legal requirements, as appropriate? What are your key processes, measures, and goals for addressing risks associated with your products and operations?
Laws can change behaviour by adjusting incentives and sanctions for those covered by them, but laws have a difficult time reaching basic ethical values. These questions propose that an organisation has a social responsibility to public society to be a good citizen. Also, because the Baldrige Award is given for quality management and performance excellence in business, the inclusion of these questions suggests that by meeting CSR obligations a company will be practicing quality management and reaching for performance excellence. This set of questions suggests that it is in a company's best interest to be proactive and strategic about its CSR initiatives.
An organisation needs to specific in explaining how your approach is more systematic and responsible than is required by law, and is superior to your competitors. Mc Donald's, for example, has always been a pioneer in addressing these issues before any of its competitors. Mc Donald was the first to offer recyclable packaging, outlaw smoking in all its restaurants, offer healthier food choices, and eliminate the super size items from menus.
Car manufacturers such as Volvo prepare for these impacts by conserving natural resources by using carbon neutral energy sources for example, hydroelectricity and wind power for their electrical needs. Modern capable equipment and industrial processes are utilized during the whole manufacturing process. Energy efficient engines have been devised and developed to diminish pollution and CO2 emissions. Efficient engines require less fuel; decreasing adverse impacts on the environment. Around 85% of the parts and materials of Volvo cars can be recycled, with many components are recovered for reuse and steel, rubber, plastics and glass are reclaimed.
Furthermore you should acknowledge the impact of risk assessment on organisational results. Legal and regulatory risks assessments are a snapshot of the organisation's vulnerability to legal and regulatory noncompliance. A risk assessment can be an essential management tool in setting priorities for the compliance program and measuring compliance effectiveness.
A fundamental part of performance management and improvement is proactively addressing the need for ethical behaviour, legal and regulatory requirements, and risk factors. Dealing with these issues requires establishing appropriate measures and/or indicators which senior leaders trace in their overall performance review. It is important to anticipate potential problems the public may have with both current and future products.
Good societal responsibility entails going beyond minimum compliance with laws and regulations. Top-performing companies frequently serve as role models of responsibility and provide leadership in areas to business success. An example is a manufacturing company might go beyond the requirements of the environmental protection regulations and develop innovative and award-winning system to protect environment and reduce pollution. This has a double benefit.
Note 7: Non-profit organizations should report in 1.2b (1), as appropriate, how they address the legal and regulatory requirements and standards that govern fundraising and lobbying activities.
How does your organisation promote and ensure ethical behaviour in all interactions? What are your key processes and measures or indicators for enabling and monitoring ethical behaviour in your governance structure, throughout your organization, and in interactions with customers, partners, suppliers, and other stakeholders? How do you monitor and respond to breaches of ethical behaviour?
Ethics is defined by Stahl and Grigsby (1997) as doing the right thing right the first time. Some individual are morally autonomous and always behave in a way which is considered good enough by the society. Others follow a code of ethical conduct, or standard as they believe it is the right thing to do or because they are required to. Still what is the right thing for one person or group, might not be the right thing for others.
Standards of ethical behaviour should be defined (preferably in measurable terms) and everyone in the organisation should understand and follow the standards. The organisation should systematically control ethical behaviour throughout the organisation and with key suppliers, partners and collaborators, and within the governance structure. Failing to follow the standards of ethical behaviour should have rapid and severe consequences for every governing board member, leader, manager, employee, supplier, partner and collaborator.
Ensuring ethical business practices are followed by all staff reduces the organisation's risk of adverse public reaction and criminal prosecution. Programs to ensure ethical business practices normally seek to prevent actions which might be seen as criminal or near criminal. Examples of unethical business practices include falsifying, expense reports or quality control data, accepting plentiful gifts from a contractor or seeking bribes.
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From this table the results of the 2002 Sustainability Survey shows that senior executives are starting to identify the link between ethical behavior and corporate viability. Ninety percent of those surveyed indicated that their company had adopted "sustainable practices" - a business approach creating long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments - so as to enhance corporate reputation. Seventy-five percent indicated that they had done so as a way of gaining a competitive advantage. Customer demand, revenue growth, shareholder demand, and access to capital also figured prominently in responses. This study supports the confidence that institutionalizing corporate conscience is increasingly a compulsory task for senior leaders. A failure to integrate ethical values into decisions and actions taken at all levels of an organisation potentially puts the entire enterprise at risk, endangering relationships with stakeholders whose cooperation is required for long-term business success.
The criteria in the second question ask about how you measure the effectiveness of your ethics/governance system. Leading indicators might include metrics like test scores from ethics training, the percentage of employees who "passed" ethics training, or employee knowledge of rules and policies. Lagging indicators could include number of calls to a phone line to report unethical behaviour, the seriousness of the violations reported, and amount of evidence supporting allegations. Other metrics might be the number of employees disciplined or fired for unethical behaviour, or number of receiving rewards/recognition for behaviour which is consistent with ethics with ethics guidelines.
The last question is about dealing with breaches of ethical behavoiur, that is, what do you do when someone is caught behaving inappropriately? The typical answer will be a progressive disciplinary process staring with a verbal warning, and then a series of more severe consequences. It is important to address how this system is used for executives, who are often immune from punishment for unethical behaviour.
Note 4: Measures or indicators of ethical behaviour (1.2b ) might include the percentage of independent board members, measures of relationships with stockholder and nonstockholder constituencies, instances of ethical conduct breaches and responses, survey results on workforce perceptions of organisational ethics, ethics hotline use, and results of ethics reviews and audits. They also might include evidence that policies, workforce training, and monitoring systems are in place with respect to conflicts of interest and proper use of funds.