CHAPTER 2

ETHICS AND SOCIAL RESPONSIBILITY

Can businesses use whatever means, fair or foul, to make profits? May a business firm hire someone
to spy on a competitors planned moves? Will it be alright for a companys purchasing officer to receive gifts
from a supplier? May a company continue to manufacture products whose chemical residues harm the
environment? These and other similar business behaviors happen now and then, but should the propriety (true
nature) of such actions be the concern of business firms?

If allowing the foregoing actions become the norm (an authoritative standard or model) rather than the
exception (restrict), would be the best interest of everybody including business firms? Answers to such kind
of question permeate (to spread) a body of principles that modern business persons try to consider in the
pursuit of their goals.

Philosophers maintain the view that a society that has low regard (attention, consideration) for morals
(of or relating to principles of right and wrong behaviour) will disintegrate (to break or decompose or to be
destroy) after a period of time. To avoid chaos, and destruction, and to make life in society possible,
adherence (to give support) to the practice of moral principles regulating (to bring order) human relations
becomes necessary.

The above concerns direct our attention to the twin topics of business ethics and social responsibility,

WHAT IS BUSINESS ETHICS

To obtain a proper perspective (a picture in perspective) in defining business ethics, some basic terms
must be cleared first. Ethics refer to the study of morals (a conception of right behaviour) and moral choices
of human beings. The behaviour of individuals and groups which are governed by standards, rules, and codes
of conduct consist of the subjects covered by ethics. The moral principles defining right and wrong behavior
of business persons and their agents are called business ethics. It implores (to call) them to adhere (to give
support) to certain ethical conduct when dealing with anybody especially those affected by their business
activities.

AREAS OF CONCERN FOR BUSINESS ETHICS

Business ethics covers all areas encompassed (inclose) by business transactions. The ethical
conduct of business persons may be measured against how the following are adhered to.

Laws and regulations promulgated by the government; and

Specific ethical conduct not yet passed into law.

A list of concerns relating to laws and regulations requiring ethical behaviour is provided as
follows.

1. Product safety and quality

2. Fair employment practices
3. Fair marketing and selling practices
4. The use of confidential information for personal gain
5. Community involvement
6. Bribery and
7. Illegal payments to foreign governments to obtain business.

CURRENT ISSUES IN ETHICS

Reports on unethical practices of individuals and organizations appear every now and then in daily
newspaper. Even radio and television broadcast such reports on time to time. It is not surprising for the media
to provide information on any of the following concerns:
1. Owners of food stalls serving spoiled food to customers
2. Business owners making fictitious insurance claims
3. School awarding diplomas to underserving persons
4. A contractor bribing a government official to manipulate the bidding of contracts
5. A drug manufacturer making false claims regarding the efficacy of his product
6. A television station copying the format of a rival stations show

The foregoing examples constitute a small portion of the large number of violations of ethical
conduct. These are good starting points for executive and legislative action.

COVERAGE OF COMPANY SPONSORED ETHICS PROGRAM

A very important listing of problem areas which may be used as a basis for formulating company
policies on ethical conduct is as follows:

1. Drug and alcohol abuse

2. Employee theft
3. Conflict of interest
4. Quality control
5. Misuse of propriety information
6. Abuse of expense accounts
7. Plant closing and layoffs
8. Misuse of company asset
9. Environmental pollution
10. Methods of gathering competitors information
11. Inaccuracy of books and records
12. Receiving excessive gifts and entertainment
13. False or misleading advertising

THE IMPROVEMENT OF ETHICAL PERFORMANCE

Improvement in the ethical conduct of business and those involved in it may be made through any of
the following ways:

ETHICS TRAINING
If ethics is really an important aspect of managing a business, then its practice should be expected
from the firms management and rank-and-file employees. The acquisition of knowledge in ethics,
however, precedes (importance) effective implementation. Learning takes two forms: (1) through formal
classroom instruction, and (2) through actual hands-on experience and observation.

Formal training in ethics may be made in a shorter period than through actual hands-on experience.
When ethics training courses are carefully designed and administered, they make a positive contribution
to the company.

ETHICAL ADVOCATES

An ethical advocate is a person who is knowledgeable about business ethics, employed by the
company, and acts as the companys conscience. He sits at the board of directors and sees to it that every
policy adapted conforms (to act in accordance) with ethical standards.

As it is always possible for a group like the board to commit the groupthink (a pattern of thought
characterized by self-deception, forced manufacture of consent, and conformity to group values and
ethics) and blind conformity errors, the contribution of the ethical advocate cannot be discounted.
ETHICAL CODES

Codes of ethics are documents that specify practices that are unethical and which the company
expressly forbids. Example are kickbacks, payoffs, receiving gifts, falsification of records and false
claims about products. A code of ethics is a formal document that provides clear direction to management
and employees in the performance of their duties.

The effectiveness of ethical codes will depend on the support of top management. If it is implemented
partially or inconsistently, it will just be another piece of paper with very little value to the organization.

WHISTLE BLOWING
There are instances when employees are helpless that they cannot implement the right ethical conduct
required in specific situations. When almost everybody from top to lower management acts outside of
ethical norms, the employee who feels he must do something resorts to reporting the perceived unethical
practice to outsiders such as the press, government agencies like the Ombudsman and the Presidential
Anti-Graft Commission, or public interest groups. This action is referred to as whistle-blowing.

WHAT IS SOCIAL RESPONSIBILITY

Social responsibility refers to the concern of business for the welfare of the society. This definition
indicates that the firm must perform its function without harming the community, instead it must improve
the quality of life. It must produce goods or services that will not adversely affect any component of the
society. It can make profits but not to the detriment of society.

Movies, for example, may be produced and shown to the public but they must not be those that
devalue morals. Songs may be written, recorded, and sold to the public but not disregarding good taste.
Car may be manufactured and sold but they must not be harmful to people when they are used.

INTERESTED GROUPS

There are various groups with interests that are different from one another. These interests must be
properly considered by the business firm if it will have to be successful.

OWNERS

The interest of the owners (the sole proprietor, the partners, or stockholders) is expected to be of
highest priority. For some reasons, this does not always happen. The biggest incongruence lies in the
corporate form. Because the sole proprietor directly controls business operation, the highest possible
profits may be expected. This is not so in corporations because ownership and management have interests
that are not wholly similar.

CONSUMERS

Consumers constitute a very important group, which must be handled with some degree of
responsibility. Consumers, like any other group, have rights. The basic rights of consumers include those
concerning representation, information, a healthy environment, safety, basic goods and services, choice,
consumer education, and redress.

EMPLOYEES

Business firms should regard employees as among its greatest concerns. Employee welfare is of
utmost importance. Among the specific points of interest in caring about employees are:
1. Health and safety
 2. Appropriate salaries and employees benefits
3. Right to speak out
4. Right to privacy
5. Right to job security except when discipline is concerned

Management should be concerned with reducing incidents of work-related sickness and injury.
Workers in a factory, for instance, must be informed or properly trained in the use of certain equipment
and materials as some of these pose great risk of harm to the workers. Whenever necessary, workers must
be protected with masks or appropriate clothing. The factory and the office must be kept safe and free
from hazards.

Employees must be paid with salaries commensurate to their talents, skills, training, and education.
Managers are advised not to lay games with compensation. If they do not live to every written and oral
agreement, they risk losing respect.

The right to speak out is everyones right in a democracy. Employees are not deprived of this right by
virtue of their employment. Employees have the right to live their own private lives without interference
from their employers. Data on personal finances, health, travel abroad, affiliation with organizations and
other persons must not be the concern of employers regarding their employees.

Employees must be assured of security of tenure. They must not be threatened with dismissals unless
there are valid reasons.

MINORITY GROUPS

Various minority groups can be found all over the Philippine archipelago. The Aetas, the Igorots, the
Dumagats, and the Ibanags are examples. The denigration of these groups as second-class citizens or funny
looking people including their inclusion in demeaning scenes in the movies happens every now and then.
This attitude spilled over in business and is not proper. Management must avoid treating them outright as
inferior so as not to affect their employment and promotion chances.

Newspapers abound with reports that cultural minorities are sometimes affected adversely by the
activities of business firms. The construction of dams, for instance, displaces people living in the affected
areas. Providing them with suitable sites for residence and livelihood is the step in the right direction.

WOMEN

Women constitute a potential force to make business progressive. In spite of findings that women are
less ambitious than men, less motivated to do a good job, and less qualified, they are still undertapped. Their
being females, most often, bar them from getting promoted.

The view that management must have is to regard women as a force with potentials to lead as much
as to follow.

OLDER PEOPLE

Older people, as a group, are slowly being recognized by the government. They are regarded as
senior citizen with privileges like discounts in many business establishments. Retirees from the armed
forces are hired by private companies as security officers. Some of them even become directors or
consultants of big corporations.

Older people have distinct needs that must be the concern of business. Many of them are highly
qualified and able to perform special tasks which younger persons cannot do.
THE HANDICAPPED

Handicapped persons may be made to contribute positively to the firms objective. As such, they must
not be discriminated against in any activity like hiring and promotion. The firms management must be
responsible for removing hazards and obstacles which prevent them from doing their jobs effectively.

Facilities that are especially designed for the handicapped are now utilized by the more progressive
companies. Example is special stairways and washroom.

The current trend that allows employees to do their work at home is a handicapped-friendly feature of
modern business.

COMMUNITY AT LARGE

People living in communities have problems in common. Some of these are related to pollution,
traffic, substandard products, unfair business practices, and others. As a result of these concerns, responsible
persons have formed groups to monitor and recommend appropriate actions to government agencies.

Companies that pollute are interesting cases in point. These negative actions become the subject of
criticisms regularly presented in press. If the concerned companies do not respond favourably the reasonably
request from the populace, they may find their products or services boycotted in the market.

Nowadays, managers can no longer operate as they did twenty or thirty years ago. There are business
activities that may affect any of the widely diverse interests of people. The modern manager must have
multiple and an open mind if he wants to succeed in his endeavor.

It is now not uncommon to find big corporations assisting rural communities through providing funds
for construction and equipment for school buildings.

BENEFITS AND COSTS OF SOCIAL ACTIONS

If business firms are socially responsible, will it be good for business? To properly answer this
question, the benefit and cost approach may be useful.

BENEFITS

Companies that are socially responsible reap (obtain) benefits which may be direct or indirect. Among
the possible benefits are as follows:

IMPROVED EMPLOYEE SATISFACTION AND MOTIVATION. A socially responsible

company is more likely to provide job satisfaction to its employees. They are also more motivated to
achieve the organizations goals. When employees know that the products they are manufacturing for
instance, may harm people, there will be some lingering (to be slow in parting or in quitting
something) doubts in their minds on whether or not it will be right for them to push through with their
assigned tasks. This will affect their concentration and ultimately, their production.

BECOMING MORE AWARE OF CHANGING CONSUMERS TASTE AND

PREFERENCES. When the firms research facility includes identifying social needs that can be
served, it will only be a step away from knowing any changes in what consumers really want in
buying products or services. For instance, a furniture manufacturing firm is looking for social projects
to sponsor and it was able to identify preservation of forests as one, it will be easier for them now to
surmise (a thought or idea based on [scanty limited or less than sufficient in degree, quantity or
extent.] evidence) that consumers would prefer to buy furniture with less or no wooden materials
used.
 GREATER DEMAND FOR THE COMPANYS PRODUCTS AND SERVICES. Nowadays
consumers are currently having better access to information. And where did they get this information
They get these from the broadcast and print media. This access to information enables them to
identify companies that are socially responsible. As information is used by consumers in their
purchasing decisions, socially responsible companies may find greater demand for their products and
services.

ELIMINATION OFLEGISLATIVE CONTROL ON BUSINESS ACTIVITY. When social

issues become the concern of legislative bodies, sanctions and other prohibitions may result to more
opportunities lost and lesser chances of profit-making for the firm. When the laws are not yet enacted,
it was easier to terminate the services of inefficient employees. Because of abuses, however, laws
were passed to protect the efficient ones. The unwanted effect is that it became difficult to dismiss
even the inefficient.

COSTS

Even if socially responsible actions have benefits, they are not derived without the attendant costs.
These are mentioned on the succeeding page.

MONEY SPENT IN SUPPORT OF SOCIAL PROJECTS. To support social projects, funds have
to be taken from whatever source is available within the firm. Most often, this will reduce whatever
amount is available for capital spending. If media reports are true, the money spent by some big
corporations for socially related projects are substantial (important, essential) and could have been
used for other purposes.
REDUCTION OF COMPETITIVE POWER. When part of available funds is used by the
company to finance social projects, this will reduce the funds that could be used for competitive
purposes. For instance, the company has the money to buy additional delivery equipment to serve its
growing number of customers. If the money is diverted instead, to financing a social project, the result
is that some customers will not be served. Competitors who are not involved in funding social
projects will be happy to note that the firms competitive power is reduced.

When a firm is not able to keep its competitive stance, it cannot provide assurance that it will
be operating for a long time. Layoffs become a possibility and when it does, no amount of social
concern for society will bring it back to its feet.

GOVERNMENT REGULATIONS MAY ALSO BE IMPOSED. Even if a company is acting,

socially responsible, there is still a chance that the government will step in (to intervene in an affair or
dispute) and impose regulations even along areas covered by the companys social actions.

COMPARING COSTS AND BENEFITS

Aware of the costs and benefits of social actions, the company can compare one to the other. The
management can, then, decide whether or not to push through with their social projects. Various factors
may be considered when comparing costs with benefits. The factors may be expressed in quantitative
terms like sales and profits, or non-quantitative like moral values.

SOCIAL RESPONSIBILITY STRATEGIES

If the company has already decided on becoming socially responsible, it can do so by adapting (to
make fit as for a new use often by modification) systematic approach. The approaches are expressed in
four basic social responsibility strategies as follows:
 REACTION STRATEGY

In using reaction strategy, the company allows a condition or potential problems to go unresolved
until the public finds out about it. When a problem is brought before the company, the firm reacts by
denying responsibility, and then attempts to resolve the problem, deal (take action) with its
consequences (effect), then continue doing business to minimize the negative impact.

DEFENSE STRATEGY

Under the defense strategy, the company tries to minimize or avoid additional obligations. Among the
tactics used are legal maneuvering (an evasive movement) and seeking the support of groups that
prefer the companys way of doing business.

ACCOMODATION STRATEGY

When business assumes responsibility for its actions, it uses the accommodation strategy. These is
done when special interest groups are taking the side of the opposition, or when the business
perceives (to attain awareness or understanding) that if it does not react, a law will be passed by
Congress to ensure compliance (the act or process of complying). This means that the company is
forced to accept its economic, legal, and ethical responsibilities.

PROACTIVE STRATEGY

In using a proactive strategy, the firm goes beyond what is legally and ethically required. There are a
number of companies using the proactive (acting in anticipation of future problem) strategy. This is
undertaken through sponsorship of cultural shows offered free to the public, scholarship to financially
handicapped but deserving students, providing financial support to the upkeep (the act of maintaining in
good condition )endangered animal species, and many other similar concerns.

SOCIAL AUDIT

When the organization wants to measure (an estimate of what is to be expected) its performance
regarding corporate social responsiveness, it does so by the use of social audits. A social audit refers to
the systematic examination of all the activities involved in achieving society goals such as employment of
the handicapped and those belonging to the cultural minorities, adaption of anti-pollution campaign,
improvement of working conditions, community development, donations to worthy causes, and various
consumer issues.

A social audit may be done through the preparation of the following:

1. A summary of program areas, such as consumer affairs, as well as the reasons for undertaking
certain social activities and not others.
2. A report of specific programs and the priorities for each set of activities.
3. A listing of objectives for each priority activity and a description of how the organization is
striving to reach the objective.
4. A summary report of costs of each program area and activity to the company.
5. A summary using quantitative measures, whenever possible, of the extent of achievement of each
social objective.