Northwestern University

College of Business Education

Laoag City

Good Governance and Social Responsibility

CHAPTER 1: ETHICS AND BUSINESS

Business – a regular process of earning a profit by satisfying consumer’s needs through the
manufacturing of goods, reselling of products, providing services or carrying out all three together.

Nature of Business

a) Regular Process – it is an activity which is performed repeatedly to generate profit.

b) Economic Activity – the whole sole purpose is maximizing wealth.
c) Creates Utility – the goods or service must be such that it creates form utility – conversion of
products in a consumable form; time utility – making the goods and services available when
needed; and place utility – availability of goods or services wherever required, for the
consumers.
d) Capital Requirement – any venture requires fund depending on the size and its type.
e) Deals in Goods and Services – it is related to manufacturing and offering goods for sale or
catering services.
f) Risk – all businesses have a risk factor or uncertainties of failure and loss.
g) Profit Earning Motive – the initial motive of a businessman is making a profit out of his venture.
h) Satisfaction of Consumer’s Need – it is concerned with the fulfilment of consumer’s demands
and needs.
i) Involves Buyer and Seller – there are majorly two parties involved, the customer and the
merchandise.
j) Social Obligations – it has some social responsibilities, like creating job opportunities, dealing
with licensed products, etc.

Type of Business

1. Service – an activity performed to earn money through customer satisfaction. It involves

professional skills and expertise.
2. Merchandising – means procurement of goods from manufacturers or wholesalers, at a low
price and selling it at a higher price to make a profit. It is also known as a retail business.
3. Manufacturing – making profit through production or creation of goods from raw material in
such a way that it derives some utility to the consumer.
4. Hybrid – a business which involve all the three activities.

Importance of Business

a) Revenue Generation – it is the key to revenue generation for the business owner since it brings
in profit and proves to be a source of income for the owner.
 b) Economic Growth – it is essential for the economic growth of a country since high revenue
means higher tax collection.
c) Improves Standard of Living – a country with more industrial units and companies experience a
higher rate of employment and better living standards.
d) Bulk Production – manufacturing units involve large-scale production, which ultimately reduces
the cost of production, and people get a continuous supply of goods at a reasonable price.
e) Innovation – it involves brainstorming and generation of new ideas which opens up the way for
innovation and creativity.
f) Generates Employment – it is a long-term process which requires the human resource to
function correctly. Therefore, it creates job opportunities.
g) Market Expansion – a good strategy and high customer satisfaction lead to a strong customer
base aiming at market expansion.

Business Ethics – by definition, business ethics are the moral principles that act as guidelines for the way
a business conducts itself and its transactions. In many ways, the same guidelines that individuals use to
conduct themselves in an acceptable way – in personal and professional settings – apply to businesses
as well.

Sources of Business Ethics

Ethics in general refers to a system of good and bad, moral and immoral, fair and unfair. It is a
code of conduct that is supposed to align behaviors within an organization and the social framework.
But the question that remains is, where and when did business ethics come into being?

a. Religion
It is one of the oldest foundations of ethical standards. Religion wields varying
influences across various sects of people. It is believed that ethics is a manifestation of
the divine and so it draws a line between the good and the bad in the society.
b. Culture
Culture is a pattern of behaviors and values that are transferred from one generation to
another, those that are considered as ideal or within the acceptable limits. No wonder
therefore that it is the culture that predominantly determines what is wrong and what is
right. It is the culture that defines certain behavior as acceptable and others as
unacceptable.
c. Law
Laws are procedures and code of conduct that are laid down by the legal system of the
state. They are meant to guide human behavior within the social fabric. The major
problem with the law is that all the ethical expectations cannot be covered by the law
and especially with ever changing outer environment the law keeps on changing but
often fails to keep pace. In business, complying with the rule of law is taken as ethical
behavior, but organizations often break laws by evading taxes, compromising on quality,
service norms, etc.

Importance of Business Ethics

1. Satisfying Basic Human Needs

 Being fair, honest and ethical is one the basic human needs. Every employee desire to
be such himself and to work for an organization that is fair and ethical in its practices.
2. Creating Credibility
An organization that is believed to be driven by moral values is respected in the society
even by those who may have no information about the working and the businesses or
an organization. Infosys, for example is perceived as an organization for good corporate
governance and social responsibility initiatives. This perception is held far and wide even
by those who do not even know what business the organization is into.
3. Uniting People and Leadership
An organization driven by values is revered by its employees also. They are the common
thread that brings the employees and the decision makers on a common platform. This
goes a long way in aligning behaviors within the organization towards achievement of
one common goal or mission.
4. Improving Decision Making
A man’s destiny is the sum total of all the decisions that he/she takes in course of his
life. The same holds true for organizations. Decisions are driven by values. For example,
an organization that does not value competition will be fierce in its operations aiming to
wipe out its competitors and establish a monopoly in the market.
5. Long Term Gains
Organizations guided by ethics and values are profitable in the long run, through in the
short run they may seem to lose money. Tata group, one of the largest business
conglomerates in India was seen on the verge of decline at the beginning of 1990’s,
which soon turned out to be otherwise. The same company’s Tata NANO car was
predicted as a failure, and failed to do well but the same is picking up fast now.
6. Securing the Society
Often ethics succeeds law in safeguarding the society. The law machinery is often found
acting as a mute spectator, unable to save the society and the environment.
Technology, for example is growing at such a fast pace that the by the time law comes
up with a regulation we have a newer technology with new threats replacing the older
one. Lawyers and public interest litigations may not help a great deal but ethics can.

 What are the advantages of business ethics?

Business ethics offer companies a competitive advantage. Consumers learn to trust
ethical brands and remain loyal to them, even during difficult periods.
Society benefits from business ethics because ethical companies recognize their social
responsibilities.
 What are the disadvantages of business ethics?
Business ethics reduce a company’s freedom to maximize its profit.
For example, a multinational company may move its manufacturing facility to a
developing country to reduce costs. Practices acceptable in that country, such as child
labor, poor health and safety, poverty-level wages and coerced employment, will not be
tolerated by an ethical company. Improvements in working conditions, such as a living
wage and minimum health and safety standards reduce the level of cost-savings that
 the company generates. However, it could be argued that the restrictions on company
freedom benefit wider society.
 What is the need of business ethics?
Ethics concern an individual’s moral judgements about right and wrong. Decisions taken
within an organization may be made by individuals or groups, but whoever makes them
will be influenced by the culture of the company.

CHAPTER II: THE DIFFERENT NORMATIVE ETHICAL THEORIES COMMONLY USED IN DECISION MAKING

A. KOHLBERG’S STAGES OF MORAL DEVELOPMENT