Lesson 2:

The Social
Function of
Business
Why Should Business be
Ethically Sensitive?
 What is ethics?
Ethics are moral
principles that guide
the conduct of
individuals.
The following are the four
reasons that may persuade
a business to act
ethically:
 01 03
legal reasons, of pragmatic reason,
which there are acknowledging that
The following are sometimes, acting
several different
the four reasons sorts; ethically might be
that may the most direct path
to business success
persuade a
and
business to act 02
ethically: public image
04
reasons, which
again, might moral lessons,
encompass a where it is affirmed
number of different that these reasons
types; are different from
each of other three
types.
 Tony Meloto's
Gawad Kalinga
-founder of Gawad Kalinga
- recipient of the 2006 Magsaysay
Award for Community Leadership
- recognized as "Social Entrepreneur
of the Year, Philippines" by the
Schwab Foundation in 2010
 Tony Meloto's
Gawad Kalinga
The achievements of Gawad Kalinga
have been remarkable, to say
atleast. Just 15 years after it started
in 1995, GK have built close to
200,000 houses in more than 2,000
GK villages in poor communities.
 Why Should Business
be Ethically Sensitive?
 Why Should Business be Ethically Sensitive?

• In 2002, all business worldwide produced more than US $40

trillion worth of goods and services.
• Business play a major role in keeping any economy alive.
• It is therefore necessary to ensure the proper and ethical
governance of business.
• Business people--managers and employees, but above all the
organizations leaders-- must have in an ethical manner in
managing and operating business. Otherwise, no one will be
willing to invest or loan money to the business
 Business' Role in Poverty Alleviation

Poverty Alleviation is one of the world's most important

challenges, and it is proposed the private sector has an
important role to play in creating the economic growth,
employment and purchasing options needed for significant
poverty reduction.

- means to reduce the poverty form urban and rural areas

through employment.
 Business' Role in Poverty Alleviation

• Poverty is experienced and understood differently

by different people in different regions.

Relative Poverty- is conceptualized as a defiency or

shortage of some sort, typically in comparison to the
living standards of others within the same society.
Absolute Poverty- universal measure of adequate
provision.
 Continuing Extreme Poverty in the Midst of Economic Growth

• Economic definition of poverty tend to concentrate on either

income, such as the US $1.25/day poverty line as of World Bank or
expenditure, such as the "basket of goods" assessment.
• Economic Growth an increase in the capacity of an economy to
produce goods and services, compared from one period of time to
another.
• Economic growth is rarely uniformly distributed across a country.
• Failure of government.
• It is cultural
 CONTINUING EXTREME
POVERTY IN THE MIDST
OF ECONOMIC GROWTH
Economic Growth - an
increase in amount of
goods and services
produced per head of the
population over a period
of time.
 Continuing Extreme Poverty in the Midst of Economic Growth

-Even among the poor countries in Asia that experienced marked

economic growth, extreme poverty often continues to afflict
significant parts of the population.

-Even when average economic growth is high, parts of a country

may be bypassed for years or decades.

-Another reason for persistent poverty is the failure of government.

-Growth may enrich households linked to good market opportunities,

but it may bypass the poorest of the poor even within the same
community.
 Continuing Extreme Poverty in the Midst of Economic Growth

•Social Expenditures - Cash benefits, direct in-kind provision of goods

and services, and tax breaks with social purposes.

A third possible reason for continued poverty in the midst of growth

is cultural. In many countries, women face extreme cultural
discrimination, whether or not those biases are embedded in legal
and political systems.
 BUSINESSES' ROLE IN
OVERCOMING THE POVERTY
TRAP
• When countries get their foot on the ladder of development, they are
generally able to continue the upward climb.

• Small and Medium Enterprises (SMEs) - businesses with up to 250

employees.

• Microfinance - the provision of savings, accounts, loans, insurance,

money transfers and other banking services to customers that lack
access to traditional financial services.
AREAS OF BUSINESS MOST
IN NEED OF ETHICAL
ATTENTION
• Authentic and sustainable development means working at the
real solutions in order to eradicate poverty.

The ultimate solutions are to be found in:

• countryside and rural infrastructures
• basic education for children of the poor Muslim area; especially
the education of women
• cash transfers to the poorest of poor
• primary health services
• microcredit and microenterprise programs
• technical skills training for secondary school students
• social housing such as that provided by Gawad Kalinga
• Food Security
• Inadequate Infrastructure
• Agricultural Productivity
Morality of Advertising
 Morality of advertising

Advertisements present several ethical issues, one of them being

Deceptive Advertisements also called False Advertising.

Deceptive ads are those that make false statements about or

misrepresent the product.

A typical example of deceptive advertising is one where the pictures

from the box do not look the same as the contents of the product.
Deceptive ads.
Deceptive ads.
Deceptive ads.
 Morality of advertising

Types of False Advertising

• Mislabeling

• Failure to Disclose

• Bait- and – Switch

 Morality of advertising

Article 108 of the Consumer Act of the Philippines

(Republic Act No. 7394) declares that “The State shall
protect the consumer from misleading advertisements
and fraudulent sales promotions practices.”
 Basic Employee Rights, Job
Discrimination, Other Labor-
Related Ethical Issues
 Basic Employee Rights, Job Discrimination, Other Labor-
Related Ethical Issues

• Labor Code of the Philippines (Presidential Decree No. 442) lays down
the rights of workers in relation to wages, rights to self-
organization, collective bargaining, security of tenure, and just and
humane conditions of work.

• Republic Act No. 6727 (Wage Rationalization Act) mandates the fixing
of the minimum wages applicable to different industrial sectors.
 Basic Employee Rights, Job Discrimination, Other Labor-
Related Ethical Issues

• Book Four of the Labor Code of the Philippines lays down the
“Health, Safety, and Social Welfare Benefits” accorded to workers.
• Book Five of the Labor Code of the Philippines entitled “Labor
Relations” lays down the policies of the State with regard to labor.
 Basic Employee Rights, Job Discrimination, Other Labor-
Related Ethical Issues

Policies of Labor Relations

1. To promote and emphasize the primacy of free collective bargaining

and negotiations, including voluntary arbitration, mediation, and
conciliation, as modes of settling labor disputes;

2. To promote free trade unionism as an instrument for the

enhancement of democracy and the promotion of social justice and
development;

3. To foster free and voluntary organization of a strong and united

labor movement;
 Basic Employee Rights, Job Discrimination, Other Labor-
Related Ethical Issues

Policies of Labor Relations

4. To promote the enlightenment of workers concerning their rights and

obligations as union members and as employees;

5. To provide an adequate administrative machinery for expeditious

settlement of labor or industrial disputes;

6. To ensure a stable but dynamic and just industrial peace; and

7. To ensure participation of workers in decision and policy-making

processes affecting their rights, duties, and welfare.
Insider Trading
 Insider trading

Insider Trading is characterized as buying or selling

of shares of stock on the basis of information known
only to the trader (an “insider”, somebody belonging
to a company or to a few persons)

It is reward without risk, wealth generated ad injury

done to others by an unfair advantage in information.
Pollution and Resource
Depletion
Whistle Blowing
Codes of Ethics
 Specific Philippine examples

Ayala Corporation
Code of Business Conduct and Ethics
Ayala adopts as part of its basic operating principles, the
primacy of the person, shared values, and the empowerment of
people.

Guided by four core values: integrity, long-term vision,

empowering leadership, and commitment to national
development.
 Code of ethical behavior

-Outlines the general expectations and standards for

employees.
-In accord with the company’s human resources
policies, which includes the Code of Conduct that
prescribes standards by which employees are expected
to conduct themselves.
Corporate Culture
 Corporate culture

-Has a profound influence on all aspects of human behavior.

-Impact may be subtle or pronounced, direct or oblique, or
enduring or ephemeral.
-Cultural influences change and culture evolves as political,
social, economic, and technological forces reshape the cultural
Landscape (Usunier and Lee, 2005; Craig and Douglas, 2006).
 Corporate culture

The economic and physical environments (populations, climate,

geography, etc.) are important issues for business organizations;
however, the cultural environment (communications, religions,
values and ideologies, education, social structure) has special
importance and relevance.

-Culture is continuatio naturae.

-Culture comes from colere.
 The Need for Ethical
Organizational Culture
 The need for ethical organizational culture

 The economics of organization has to subject itself to ethics and needs

 Ensure the positive learning in the organizational members and the

formation of their character through the virtues.

 The Theory of Human Action in Organizations explains that the human

person in business organizations is capable of having transcendent motives

 The ethical influences of business organizations have quite immediate and

individual impact.

 Ethics does not consist only in some rules invented or formulated out of
more or less conventional or relative motives that vary from culture to
culture
Creating Corporate
Codes of Ethics
 Creating an ethical corporate culture

A culture of character is the type of organizational culture in which

positive moral values are ingrained throughout the organization. Pastin
(1986) describes organizations exhibiting what we call a culture of
character as those that possess the following four stylistic markers:
 They are at ease interacting with diverse internal and external
stakeholder groups
 They are obsessed with fairness.
 Responsibility is in individual than collective, with individuals
assuming personal responsibility for actions pf organization.
 They see their activities in terms of purpose
 Creating corporate codes of ethics

Sauser and Sims (2013) give the following suggestions for creating Codes
of Ethics in business organizations:
1. Adopt a code of ethics
2. Provide ethics training
3. Hire and promote ethical people
4. Correct unethical behavior
5. Take a proactive strategy
6. Conduct a social audit
7. Protect whistle-blowers
8. Empower the guardians of Intergrity
9. Assure commitment from the top