ROMBLON STATE UNIVERSITY

San Fernando Campus

San Fernando, Romblon

BUSINESS ADMINISTRATION AND MANAGEMENT DEPARTMENT

Mgt. 1a (Organization and Management)
1ST SEMESTER SY: 2020-2021

______________________________________________________________________________

Subject Teacher: Lect. Gittelle Rafol

Cellphone#: 0955-341-9520
Email Address: grafol1021@yahoo.com
Textbook: Business Organization and Management by Roberto G. Medina

ETHICS AND SOCIAL RESPONSIBILITY

Objectives:
At the end of this chapter, the students are expected to:
1. Describe the nature and concept of business ethics;
2. Explain the need for ethical behavior in business;
3. List the areas of concern for business ethics;
4. Assess ways to improve ethical performance;
5. Discuss the meaning of social responsibility;
6. Identify the various interest groups in business;
7. Determine the costs and benefits of social actions;
8. Choose appropriate social responsibility strategies; and
9. Recognize the nature and importance of social audits.

WHAT IS BUSINESS ETHICS?

To obtain the proper perspective in defining business ethics, some basic terms must be
cleared first. Ethics refers to the study of morals and moral choices of human begins. The subjects
covered by ethics include the behavior of individuals and groups, which are governed by standards,
rules, and codes of conduct. The moral principles defining right and wrong behavior of
businessperson and their agents are called business ethics. It implores them to adhere to certain
ethical conduct when dealing with people especially those affected by their business activities.

THE NEED FOR ETHICAL BEHAVIOR

People in highly behavior developed economics were the first to experience and to be aware
of unethical behavior of business firms. Many of them pushed for changes in the way
businessperson pursue their trade. Some of their ideas found their way in the legislative bodies,
which later accommodated them by passing law in support of their agenda on business ethics. A
long process is undertaken before an issue on ethics becomes a law, even if many of these concern
remain discretionary on the part of the businessperson (see Figure 8).

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 PUBLIC OPINION

Issues on Business Ethics

Some Issues are Considered Some Issues are Left to the

by Congress Businessperson to Consider

A few issues Some issues A few issues Some issues

are passed into are are considered are
law disregarded disregarded

Figure 8
Ethics and the Lawmaking Process

As many less developed countries like the Philippines look up to the highly developed ones
as some sort of model, the concern about business ethics will be replicated. Proponents of business
ethics abroad became important sources of patterns of conduct for concerned local residents. The
concern for the disclosure of certain facts of business transactions, which became a practice in the
United States many years ago, became a requirements in the Philippines some years later. An
example is the “Truth in Lending Act” requiring financial institutions to take some ethical actions
“to protect citizens from lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of
the national economy.”
Another offshoot of effective lobbying by moralists is the “Anti-Trust Law.” This law
prohibits businesses from merging to effectively monopolize a certain industry.
Ethical behavior is needed to make the “playing field” free and orderly. If the
businessperson does not adhere to ethical principles, public opinion may pressure the government
to act. Later, it may turn out that the businessperson will be in worse situation than when no law
is passed to force him to act ethically.
AREAS OF CONCERN FOR BUSINESS ETHICS
Business ethics coves all areas encompassed by business transactions. The ethical conduct
of businessperson may be measured against how the following are adhered to:
1. laws and regulations promulgated by the government; and
2. specific ethical required but not yet passed into law.
The following are concerns relating to laws and regulations requiring ethical behavior:
1. product safety and quality;

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 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 government 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 from time to time. It is not
surprising for the media to provide information on any of the following concerns, among others:
1. owners of food stall serving spoiled food to customers;
2. business owners making fictitious insurance claims;
3. schools awarding diplomas to undeserving persons;
4. a contributor bribing a government official to manipulate the bidding of contracts;
5. a drug manufacturer making false claims regarding the efficacy of his product; and
6. a television station copying format of a rival station’s show.
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 are as follows:
1. drug and alcohol abuse;
2. employee theft;
3. conflicts of interest;
4. quality control;
5. misuse of proprietary information;
6. abuse of expense account;
7. plant closings and layoffs;
8. misuse of company assets;
9.environmental pollution;
10. methods of gathering competitor’s information;
11. inaccuracy of books and records;
12. receiving excessive gifts and entertainment; and
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:
1. Ethics Training. If ethics is really an important aspect of managing a business, then its practice
should be expected from the firm’s management and rank-and-file employees. The acquisition of
knowledge in ethics, however, precedes effective implementation. Learning takes two forms
through formal classroom instruction and through actual hands-on experience and observation.
2. Ethical Advocates. An ethical advocate is a person who is knowledgeable about business ethics,
employed by the company, and acts as the company’s conscience. He sits at the board of directions
and sees to it that every policy adapted conforms to ethical standard.
3. Ethical Codes. Codes of ethics are document that specify practices that are unethical and which
the company expressly forbids. Examples of unethical practices are kickbacks, payoffs, receiving
gifts, falsification of records, and false claims about product. These formal documents provide
clear directions to management and employees in the performance of their duties.
4. Whistle-Blowing. There are instances when employees are helpless that they cannot implement
the right ethical conduct require in specific situations. When almost everybody from top to lower
management acts outside ethical norms, the employee who feels he must do something resorts to
reporting the perceived unethical practices to outsider such as the press, government agencies like

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the Ombudsman and the Presidential Anti-Graft Commission, or public interest groups. This
actions 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; 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.
INTEREST GROUPS
There are various groups with interests that are different from one another (Figure 9). These
interests must be properly considered by the business firm for it to be successful.

THE
COMMUNITY
OWNERS CONSUMER
AT LARGE

THE
BUSINESS
HANDICAPPED EMPLOYEES

OLDER
PEOPLE
MINORITY
GROUPS
WOMEN

Figure 9
The Business Firm and Various Interest Groups
1. Owners. The interests of the owners (the sole proprietor, the partners, or stockholders) are
expected to be of the 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
operations, the highest possible profits may be expected. This is not so in corporations because
ownership and management have interests that are not wholly similar.
2. Consumers. They constitute a very important group, which must be handled with some degree
of responsibility. Consumers, like any other groups, 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.
3. 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:
a. Health and safety. Management should be concerned with reducing incidents of work-related
sickness and injury. Workers in a factory, for instance, must be informed or property trained in the
use of certain equipment and materials as some of these pose great risk of harm of the workers.
Whenever necessary, workers must be protected with masks or appropriate clothing. The factory
and the office must be kept safe and free of hazards.

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b. Appropriate salaries and employee benefit. Employees must be paid with salaries commensurate
to their talents, skills, training, and education. Managers are advised not to play games with
compensation. If they do not live to every written and oral agreement, they risk losing respect.
c. The right to speak out. The rights to speak out is everyone’s right in democracy. Employees
must not be deprived of this right by virtue of their employment.

d. The right to privacy. Employees have the right to live their own private lives without interference
from their employees. Data on personal finances, health, travel abroad, and affiliation with
organization and other persons must not be the concern of employers regarding their employees.
e. The right to job security. Employees must be assured of security tenure. They must not be
threatened with dismissals unless there are valid reasons.
6. Older People. The government is slowly recognizing older people, as a group. They are regarded
as “senior citizen” with privileges like discounts in many business establishments. Private
companies as security officers hire retirees from the armed forces. 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 are able to perform special tasks, which younger people cannot do. Most often,
these special task are acquired after long years of experience working on particular jobs. An
example is the distinct expertise in communicating with a particular minority group.

7. The Handicapped. Since the handicapped persons may contribute positively to the firm’s
objective, they must not be discriminated against in any activity like hiring and promotion. The
firm’s 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, like
special stairways and washrooms, are now utilized by the more progressive companies. The current
trend that allows employees to do their work at home is also a handicapped-friendly feature of
modern business.
8. The 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 so on.
As a result of these concerns, responsible persons have formed groups to monitor and recommend
appropriate actions to government agencies.
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 benefits, which may be direct or indirect.
Among the possible benefits are as follows:
1. 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
organization’s goals. When employees know that the products they are manufacturing, for
instance, may harm people, there will be some lingering 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.
2. Becoming More Aware of Changing Consumer Taste and Preferences. When the firm’s research
includes identifying social needs that can be served, it will only be a step away from knowing any
changes in consumers taste and preferences. For instance, a furniture manufacturing firm that
sponsors a social projects on the preservation of forests will be able to surmise that consumer
would prefer to buy furniture that use less or no wooden components.

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3. Greater Demand for the Company’s Products and Services. Consumers currently have better
access to 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.
4. Preferences for Socially Responsible Companies by Investors. Companies that are socially
concerned may find their stocks sold in the market at a higher market price. This is the effect of
greater demand for the company’s products and services, which, as has been mentioned earlier, is
a result of socially responsible actions.
5. Elimination of Legislative Controls on Business Activity. When social issues become the concern
of the legislative bodies, sanctions and other prohibitions may result in more opportunities lost and
lesser chances of profit-making for the firm. When labor laws were not yet enacted, it was easier
to terminate the services of the 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 “cannot be undertaken” without the
attendant costs. These costs refer to the following:
1. Money Spent in Support of Social Projects. To support social projects, funds must 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 and could be used for other purposes.
2. Reduction of Competitive Power. When the company to finance social projects uses part of
available funds, this will reduce the funds that could be used for competitive purposes. For
instance, if the company has the money to buy additional delivery equipment to serve its growing
number of customers, but the money is diverted instead to financing a social project, the result
could be that some customers will not be served. Competitors who are not involved in funding
social projects will be happy to note that the firm’s competitive power is reduced.
3. Government Regulations May Also be Imposed. Even if a company is acting in a socially
responsible way, there is still a chance that the government will step in and impose regulations
even along areas covered by the company’s social actions.
SOCIAL RESPONSIBILITY STRATEGIES
If the company has already decided on becoming socially responsible, it can do so by adapting
systematic approach. The approaches are expressed in four basic social responsibility strategies as
follows:
1. Reaction Strategy. In using this strategy, the company allows a condition or potential problem
to go unresolved until the public finds out about it. When a problem is brought before the company,
the firm reacts by denying responsibility, then attempts to resolve the problem, deal with its
consequences , then continue doing business to minimize the negative impact.
2. Defense Strategy. Under the defense strategy, the company tries to minimize or avoid additional
obligations. Among the tactics used are legal maneuvering and seeking the support of groups that
back up the company’s way of doing business.
3. Accommodation Strategy. When a business assumes responsibility for its actions, it uses the
accommodation strategy. This is done when special interest groups are taking the side of the
opposition, or when the business perceives that if it does not react, a law will be passed by Congress

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to ensure compliance. This means that the company is forced to accept its economic, legal, and
ethical responsibilities.
4. Proactive Strategy. In using a proactive strategy, the firm goes beyond what is legally and
ethically required. There are a number companies using proactive strategy. This is undertaken
through sponsorship of cultural shows offered free to the public, scholarships for financially-
handicapped but deserving students, financial support for the upkeep of endangered animal
species, and many other similar concerns.
SOCIAL AUDITS
When the organization wants to measure its performance regarding corporate social
responsiveness, it does so by the use of social audit. A social audit refers to the systematic
examination of all the activities compromising a firm’s social programs. It measures a company’s
progress toward achieving social goals such as employment of the handicapped and those
belonging to cultural minorities, adoption of anti-pollution measures, 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 progress 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 these objectives.
4. A summary report of the costs of each program area and activity to the company.
5. A summary using quantitative measures of the extent of achievement of each social objective
whenever possible.

CHAPTER EXERCISES
1. Prove or disprove the statement: “Laws provide equality and fairness to all; therefore, all laws
are always ethical.”
2. Cite other ways businesses do to improve the ethical performance of its employees and
organization as a whole.
3. How would you integrate ethics in the business pursuit for maximum profitability?
4. Assess whether “Whistle-blowing” is ethical or unethical from the following standpoints:
a. interest groups
b. propriety of organizational information
5. Briefly explain the value to an organization of social audits.

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