BUSINESS ETHICS

ETHICS AND SOCIAL RESPONSIBILITY

WHAT IS ETHICS
- Is the branch of philosophy that deals with the systematic questioning and critical
examination of the underlying principles of morality.
- Ethics came from the root word ‘ethos’ which refers to the character of a culture. Ethos
includes the attitude of approval or disapproval in particular culture at a given time and place.
- The subject matter being studied in ethics is morality. Morality came from the root word
‘mores’ which refers to the customs, including customary behavior of a particular group
of people.
- It refers to the study of morals and moral choices of human beings.
- It covered the behavior of individuals and groups, which are governed by standards, rules, and
code of conduct
- It is the code of moral principles and values that governs the behaviors of a person or group
with respect to what is right or wrong. Ethics sets standards as to what is good or bad in
conduct and decision making.

WHAT IS BUSINESS ETHICS

- It is the moral principles defining what is right and wrong behavior of businesspersons and
their agents.
- It implores them to adhere to certain ethical conduct when dealing with people especially
those affected by their business activities.
- It is the study of appropriate business policies and practices regarding potentially
controversial subjects including corporate governance, insider trading, bribery,
discrimination, corporate social responsibility, and fiduciary (trustee) responsibilities. The
law often guides business ethics, but at other times business ethics provide a basic guideline
that businesses can choose to follow to gain public approval .
- It deals with internal values that are a part of corporate culture and shapes decisions
concerning social responsibility with respect to the external environment.

AREAS OF CONCERNS FOR BUSINESS ETHICS

- Business ethics covers all areas encompassed by business transactions.

1. Laws and regulations promulgated by the government.

2. Specific ethical standard required but not yet passed into law.
3. Product safety and quality.
4. Fair employment practices.
5. Fair marketing and selling practices.
6. The use of confidential information for personal gain
7. Community involvement.
8. Bribery
9. 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 newspapers; 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 stalls 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
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 accounts
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
13. False or misleading advertising

THE IMPROVEMENT OF ETHICAL PERFORMANCE

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.
- It is the acquisition of knowledge in ethics.
- Learning takes two forms through formal classroom instruction and through actual hands-
on experience and observation. Formal training in ethics may be made shorter period than
through actual hands-on experience.
- When ethics training courses are carefully designed and administered, they make appositive
contribution to the company.
2. Ethical Advocates
- An ethical advocate is a person who is knowledgeable about business ethics, employed by the
company, and act as the company’s conscience.
- Usually sits at the board of directors and sees to it that every policy adapted conforms to
ethical standard.
3. Codes of Ethics/Ethical Codes
- Written documents 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 products.
- The effectiveness of ethical codes depends on the support of top management.
- An ethical code of sorts was considered to be in force at the international level by the member
nations of the Organization for Economic Cooperation and Development (OECD). The
agreement between the nations outlaw’s bribery as a means used by companies in industrial
countries to win overseas contracts.
- ASEAN OECD Participants:
a. Brunei
b. Cambodia
c. Indonesia
d. Laos
e. Malaysia
 f. Myanmar
g. Philippines
h. Singapore
i. Thailand
j. Vietnam
4. Whistle-Blowing
- These 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 and Commission, or public interest groups.

CRITERIA FOR ETHICAL DECISION MAKING

1. Utilitarian Approach
- It is the ethical concept that moral behaviors produce the greatest good for the greatest
number.
- Under this approach, a decision maker is expected to consider the effect of each decision
alternative on all parties and select the one that optimizes the satisfaction for the greatest
number of people.
2. Individualism Approach
- It is the ethical concept that acts are moral when they promote the individual’s best long-term
interests, which ultimately leads to the greater good.
- In theory, with everyone pursuing self-direction, the greater good ultimately is served because
people learn to accommodate each other in their own long-term interest.
3. Moral-Rights Approach
- It is the ethical concept that moral decisions are those that best maintain the rights of those
people affected by them.
- The moral-rights approach asserts that human beings have fundamental rights and liberties
that cannot be taken away by an individual’s decision. Thus, an ethically correct decision is
one that best maintains the rights of those affected by it.
- Moral Rights should be considered during decision making:
a. The Right of Free Consent. Individuals are to be treated only as they knowingly and
freely consent to be treated.
b. The Right to Privacy. Individuals can choose to do as they please away from work and
have control of information about their private life.
c. The Right of Freedom of Conscience. Individuals may refrain from carrying out any
order that violates their moral or religious norms.
d. The Right of Free Speech. Individuals may criticize truthfully the ethics or legality of
actions of others.
e. The Right to Due Process. Individuals have a right to an impartial hearing and fair
treatment.
f. The Right to Life and Safety. Individuals have a right to live without endangerment or
violation of their health and safety.
4. Justice Approach
- It is the ethical concept that moral decisions must be based on standards of equity, fairness,
and impartiality.
- Types of Justice
a. Distributive Justice. It is the concept that different treatment of people should not be
based on arbitrary characteristics. In the case of substantive differences, people should be
treated differently in proportion to the differences among them.
b. Procedural Justice. It is the concept that rules should be clearly stated and consistently
and impartially enforced.
 c. Compensatory Justice. It is the concept that individuals should be compensated for the
cost of their injuries by the party responsible and also that individuals should not be held
responsible for matters over which they have no control.
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HUMAN BEHAVIOR FALLS INTO THREE CATEGORIES

1. The Domain of Codified Law (Legal Standard) The first is codified law, in which
values and standards are written into the legal system and enforceable in the courts. In the
domain of codified law, obedience is to laws prescribed by the legal system.
2. The Domain of Free Choice (Personal Standard) It pertains to behavior about which
the law has no say and for which an individual or organization enjoys complete freedom.
In the domain of free choice, obedience is strictly to oneself.
3. The Domain of Ethics (Social Standard) It has no specific laws, yet it does have
standards of conduct based on shared principles and values about moral conduct that
guide an individual or company. In the domain of ethical behavior, obedience is to
unenforceable norms and standards about which the individual or company is aware.
An ethically acceptable decision is both legally and morally acceptable to the larger
community.

WHAT IS ETHICAL ISSUE?

- An ethical issue is present in a situation when the actions of a person or organization may
harm or benefit others

WHAT IS ETHICAL DILEMMA?

- It is a situation that arises when all alternative choices or behaviors are deemed undesirable
because of potentially negative consequences, making it difficult to distinguish right from
wrong.
- The individual who must make an ethical choice in an organization is also known as the
‘moral agent’.

WHAT IS SOCIAL RESPONSIBILITY?

- It refers to the concern of business for the welfare of the society.
- 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.
- It means being a good corporate citizen.
- It also protects the environment for the benefit of our society.

WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

 - It is the obligation of organization management to make decisions and take actions that will
enhance the welfare and interests of society as well as the organization.

INTEREST GROUPS OF THE BUSINESS FIRM

- These interest groups must be properly considered by the business firm for it to be successful.

1. Owners/Business Persons
- The interest of the owners (the sole proprietor, the partners, or stockholders) are expected to
be of the highest priority.
2. Customers/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
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 of hazards.
b. Appropriate Salaries and Employee Benefits- 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 right to speak out is everyone’s right in a 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 employers. Data on personal finances, health, travels 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 of tenure. They must
not be threatened with dismissal unless there are valid reasons.
4. Minority/Ethnic Groups
- Management must treat them as equals as far as their employment and promotion are
concerned.
- Various minority groups are found all over the Philippine archipelago; the Aetas, the Igorots,
the Dumagats, and the Ibanags are examples of these groups.
5. Women
- They constitute a potential force to make business progressive. In spite of findings that
women are no less ambitious than men, no less motivated to do a good job, and no less
qualified, they are still undertapped as a business resource.
- According to “Barriers for Women in Career Advancement” by Essays, UK, their being
females, most often, bar them from getting promoted.
- Management must regard women as a force with potentials to lead as much as to follow.
6. The Elderly/Older People
- The government is slowly recognizing older people, as a group.
- They must be 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
becomes directors or consultant of big corporation.
 - Older people have distinct needs that must be concerns of business firm. Many of them ae
highly qualified and are able to perform special tasks, which younger people cannot do. Most
often, these special tasks are acquired after long years of experience working on particular
jobs.
7. The Handicapped/People with Disabilities (PWD)
- Since handicapped persons may contribute positively to the firm’s objectives, they must not
be discriminated against in ay activity like hiring and promotion.
- The management must be responsible for removing hazards and obstacles, which prevent
them from doing their job 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.
- If the concerned companies do not respond favorably to reasonable requests from the public,
they find their products or services boycotted in the market.
- The modern manager must have multiple abilities and an open mind if he wants to succeed in
his endeavor.

BENEFITS AND COSTS OF SOCIAL AUDITS

BENEFITS
- Companies that are socially responsible reap benefits, which may be direct or indirect.

1. Improved Employee Satisfaction and Motivation. A socially responsible company is more

likely to provide job satisfaction to its employees. They are 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 Tastes and Preferences. When the firm’s
research includes identifying social needs that can be served, it will only be a step away for
knowing any changes in consumers taste and preferences. For instance, a furniture
manufacturing firm that sponsors a social project on the preservation of forests will be able to
assume that consumers would prefer to buy furniture that uses less or no wooden components.
3. Greater Demand for the Company’s Products and Services. Consumers currently have
better access to information. They get these from broadcast and print media. This access to
information enables the consumers 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. Preference for Socially Responsible Companies by Investors. Companies that socially
concerned may find their stocks sold in the market at a higher market price.
5. Elimination of Legislative Controls on Business Activity. When social issues become the
concern of legislative bodies, sanctions and other prohibitions may result in more
opportunities lot and lesser chances of profit-making for the firm. When labor laws were 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.

COSTS
- Even if socially responsible actions have benefits, they cannot be undertaken without the
attendant costs.
 1. 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.
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.
Competitors who are not involved in funding social projects will be happy to note that firm’s
competitive power is reduced.
3. Government Regulations May Also be Imposed. Even if company is acting in a socially
responsible way, there is still chance that the government will step in and impose regulations
even along areas covered by the company’s social actions.

COMPARING COSTS AND BENEFITS

- Awareness of the costs and benefits of social actions, the company can compare one with 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 terms like
moral values.

SOCIAL RESPONSIBILTY STRATEGIES

- If the company has already decided on becoming socially responsible, it can do so by
adapting a systematic approach

1. Reaction 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. 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 the business assumes responsibility for its actions, it
uses this strategy. This is done when special interest groups are taking the side of the
opposition, when the business perceives that if it does not react, a law will be passed by
Congress to ensure compliance. This means that the company is forced to accept its
economic, legal, and ethical responsibilities.
4. Proactive Strategy. The firm goes beyond what is legally and ethically required. This is
undertaken through sponsorship of cultural shows offered free to the public, scholarship
for financially-handicapped but deserving students, financial support for the upkeep of
endangered animal species, and many other similar concerns.

SOCIAL AUDITS
- It refers to the systematic examination of all the activities comprising 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.

OTHER TERMINOLOGIES
1. Management- May be defined as the achievement of organizational objectives through
people and other resources.
- It is the effective and efficient use of scarce resources to achieve organizational goals.
- The process of planning, organizing, leading and controlling the efforts of organizational
members and the use of all available organizational resources in order to achieve the stated
organizational goals.
- The process of optimizing human, material and financial contributions for the achievement of
organizational goals.
2. Effectiveness. Is a central element in the management process, which requires the
achievement of an objective.
3. Efficiency- Is a central element in the management process, which requires that the minimum
amount of resources is used to achieve an objective.
4. Employee Theft- It is defined as any stealing, use or misuse of an employer’s assets without
permission. The term employer’s assets are important because it implies that employee theft
involves more than just cash. In many industries, there are much more important things than
cash that employees can steal from a company. Some of the different assets that employees
normally steal from their employers are (Money)- the most common asset stolen from
employers; (Time)- occurs when an employee is paid for time that he/she did not work. This
usually happens through falsifying time keeping records, or when employees are not working
while on the job (although difficult to prove); (Supplies)- common examples of theft of
supplies include office supplies (paper, pens, computers, etc.) or restaurant supplies (food,
condiments, silverware, etc.); (Merchandise/Company Property)- theft of products that are
to be sold; (Information)- stealing product designs and trade secrets.
5. Grease Payment- It is a bribe or extorted money, usually relatively small in amount,
provided to a low-level government official or business person, in order to expedite
a business decision, shipment, or other transaction, especially in a country where
such payments are not unusual.
6. Conflict of Interest- It occurs when an entity or individual becomes unreliable because of a
clash between personal (or self-serving) interests and professional duties or responsibilities.
Such a conflict occurs when a company or person has a vested interest, such as money, status,
knowledge, relationships, or reputation, which puts into question whether their actions,
judgment, and/or decision-making can be unbiased. When such a situation arises, the party is
usually asked to remove themselves, and it is often legally required of them.
7. Green Building/Green Revolution is the practice of creating structures and using processes
that are environmentally responsible and resource-efficient throughout a building's life-cycle
from siting to design, construction, operation, maintenance, renovation and deconstruction.