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Business Ethics and Profitability

Business ethics refers to the moral principles (trustworthiness, respect, fairness, and caring) that guide the day-to-day operations of a company, which should be important to every business. They are constantly changing and evolving world-wide due to changing laws and society’s concerns. Some ethical requirements have been written into law over time by governments as minimum standards, such as employer-employee relations including minimum wage and discrimination, insider trading restrictions, bribery, collusion, money laundering and social responsibility.

The 1960’s was a first wave of significant changes in business ethics, when more companies started embracing social responsibility. Rapid population growth, pollution and resource depletion were some of society’s main concerns that were impacting our environment. The USA also experienced a growing protest culture with a focus on civil rights and anti-war movement. Protests put pressure on companies that had direct links to war, such as Dow Chemical Company which produced napalm (a mixture of thickening agent and petroleum) used in the Vietnam War and faced constant protests and accusations.

During the 1970s and 1980s, business ethics shifted from pure authoritarian business policies and Human Resource practices, mission statements and codes of conduct towards more collaboration and values.

In recent years, important ethical considerations are centered on cybercrimes (such as identity theft) and maintaining consumer privacy while businesses are data mining for their marketing segmentation strategies. Banks and insurance companies also need to operate ethically when analyzing transactions, patterns, and financial data as part of their anti-fraud detection systems.

Words and actions of business leaders are important to the long-term success and profitability of their businesses. Ethical accounting practices, treatment of employees, interactions with the public, and information distributed to shareholders can have a significant impact on the overall profitability of a company. Unethical practices can distract employees and impact productivity, morale, turnover and ultimately profitability. Unethical behaviour can also impact the trust of its customers, suppliers, shareholders, and investors.

On January 22, 2020, Volkswagen (a German automaker) was ordered to pay a record $196.5 million fine to the Canadian government for secretly importing cars that violated our emissions standards.

Volkswagen admitted that they imported 128,000 Volkswagen and Audi vehicles, as well as 2,000 Porsches that violated Canadian emission standards. The Crown prosecutor noted that certain supervisors and other employees at Volkswagen knew a software was used to cheat the testing process.

The fine was paid to the Federal Environmental Damages Fund and distributed to Provinces to combat emissions, based on how many affected vehicles were sold in each jurisdiction.

Volkswagen already agreed to a $17.5 million penalty for misleading advertising from the Competition Bureau and made settlements of $2.39 billion to consumers who purchased their rigged vehicles.

Volkswagen also paid billions in other jurisdictions, such as United States where payments reached about $15 billion including class action lawsuits.

For a review of accounting practices, please contact K & E Professional Accounting Associates at .


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