CORRESPONDENCE LEARNING MODULE

ETHC 1023 (Governance, Business Ethics, Risk Management and Internal Control)
2nd Semester Academic Year 2020-2021

Weeks 7: Introduction to Ethics

Business Ethics
Topics: a) Definition of Ethics
b) Characteristics and Values Associated with Ethical Behavior
c) Categories of Ethical Principles
f) The need for Professional Ethics
g) Basic Concept of Business Ethics
h) Purposes, Scope and impact of Business Ethics
i) Ethical Challenges in Today’s World
j) Misrepresentation: direct and indirect
k) Unethical Practices of
 Corporate Management
 Executive Officers and Lower Level Management
 Employees
l) Resolving Ethical Dilemmas

Learning Outcomes: At the end of this module, you are expected to:
1. Define Ethics
2. Enumerate and describe the basic characteristics and values associated
with ethical behavior
3. Understand the reason why people act unethically
4. . and explain the categories of ethical principles
5. Explain why professional ethics is important and why a code of conduct
should be adopted
6. Explain the meaning of business ethics, purposes, scope and impact
7. Explain the ethical challenges in today’s world
8. Familiarize yourself with common unethical practices of business
establishments
9. Describe how direct and indirect misrepresentation is committed by
business firms
10. Describe how over persuasion becomes unethical
11. Describe some unethical corporate practices of
 The Board of Directors
 Executives and lower management
 Employees

LEARNING CONTENT:

Definition of Ethics
Ethics is defined as a set of moral principles or values and decisions of an individual or group. “Ethics
comes from Greek word ethos meaning character.

Ethics is a study of moral behavior, or conduct of man as viewed from ultimate principles insofar as these
principles are known by human reason. In other words, ethics is a philosophical science dealing with a morality
of the human act.

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 Morals vs Ethics
Morals are beliefs based on practices or teachings regarding how people conduct themselves in personal
relationships in society while ethics refer to a system or principles, or a philosophy or theory behind them.
One lives according to one’s morals but adheres to one’s ethics while doing so. Morals are the tools by which
one lives, and ethics constitute the manual that codifies them.

Characteristics and Values Associated with Ethical Behavior

 Integrity – being honest even if nobody is looking  Caring for Others – help those in need and
 Honesty – straightforward, frank, candid Avoid harming others
 Trustworthiness and Promise Keeping – abide by the spirit as  Respect for Others – do not embarrass and
well as the letter of demean people
an agreement  Responsible Citizenship – obey laws
 Loyalty (Fidelity) and Confidentiality - faithfulness  Pursuit for Excellence – committed, maintain
 Fairness and Openness – willing to admit error high degree of excellence
 Accountability – accept responsibility

Primary reasons why people act unethically

1) The person’s ethical standards differ from the general society – people who violates ethical
standards feel no remorse because their ethical standards differ from those of society as a whole.

2) The person chooses to act selfishly – unethical behavior results from selfish motives and financial
greed. The person knows that the behavior is inappropriate but chooses to do it anyway.

The Need for Professional Ethics

Careless work or lack of integrity of a professional may lead the public to a negative view towards the entire
profession. All professions must gain the confidence and trust of the public to be successful.
All recognized profession have common characteristics
A Profession is a disciplined group of individuals who and they are:
adhere to ethical standards and who hold themselves  Responsibility to serve the public
out as possessing special skills in a widely recognized  A complex body of knowledge
body of learning derived from research, education and  Standards of admission to the profession
training at a high level of knowledge and who are  A need for public confidence
expected to exercise these skills in the interest of
others. Examples of professions are medicine, law,
accounting, engineering, education, etc.

A Code of Good Governance for the Profession in the Philippines (E.O. No. 22, June 23, 2003)

General Principle of Professional Conduct

Professionals are required to have ethical commitment, a personal resolve to act ethically, but also have both ethical
awareness and ethical competency. Ethical awareness is the ability to discern between right and wrong, while
ethical competency pertains to the ability to engage in sound moral reasoning and consider the implications of
alternative actions.

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 SPECIFIC PRINCIPLES OF PROFESSIONAL CONDUCT
1) Service to others – committed to a life of service to others
2) Integrity and Objectivity – perform responsibilities w/ the highest degree of integrity, imbued
with nationalism and spiritual values
3) Professional Competence – continually upgrade level of skills and take part in Continuing
Professional Education
4) Solidarity and Teamwork – support for all professional organizations, look at the bigger
picture
5) Social and Civic Responsibility – serve clients with professional concern with greater
consideration of the broader interest of the public
6) Global Competitiveness – aligned to global best practices
7) Equality of all Professions – fair dealing with other professionals, in the eyes of the PRC, all
Professionals are equal

BUSINESS ETHICS

Business Ethics refers to a standard of moral conduct, behavior and judgment in business

Main Purpose. To help business to determine what business practices are right and wrong

Special Purpose of Business Ethics

 To make the businessman realize that he cannot employ double standards
 To show to the businessman that common practices thought at first to be right are actually wrong
 To serve as a standard or ideal or basis in the conduct of business

SCOPE AND IMPACT OF BUSINESS ETHICS

Economic Impact Business has positive economic impact by the timely and fair wages it pays to its
employees, the materials it buys and pays on time to suppliers, and the good value of
goods it sells and fair prices that it charges to its customers
Social Impact Contributes to ethical climate of society, if bribes and frauds were committed to secure
benefits, it is likely that consumers will be affected due to increase in prices and
deteriorating quality of goods.
Environmental Implementing good environmental policies will lead to efficient use of energy, reduce
Impact wastes, and promote positive image of the company.
Impact on Business The ethical conduct of business are assigned to the business manager who is expected
Managers to act in the best interest of the business. In relation to this role, the business manager
should:
 Acknowledge his role in the business and in the community
 Avoid abuse of executive power for personal gain
 Reveal conflict of interest to his superior
 Concerned with the problems of subordinates, leading them by example
 Recognize the rights of subordinates on information affecting them
 Fully evaluate effects of future business plans to the employees and to the community

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 COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

The most common type are: 1) Misrepresentation and 2) Over-persuasion

Misrepresentation
Direct Misrepresentation
1) Deceptive packaging – exaggerating the size of
package and misleading sizes to give false
impression of the actual content
2) Misbranding or Mislabeling – making false
statement about a product or making the container
similar to a well-known product
3) False or misleading advertisement –
exaggerating the virtues of a product making
advertisement as an agent of misrepresentation
4) Adulteration - the unethical practice of degrading
a pure or genuine commodity by counterfeiting or
imitating it, by adding something to increase
volume, by substituting an inferior product to a
superior one for the purpose of profits/gains
5) Weight understatement of short weighing – the
weighing scale is tampered with or something is
attached to it so that the scale registers more than
the actual weight.
6) Measurement understatement or short
measurement – the measuring stick is shorter
than the standard or real length or smaller in
volume than the standard.
7) Quantity understatement or short numbering –
the product being sold is packed in a shape or
manner that makes counting difficult.
Indirect Misrepresentation
1) Caveat emptor – let the buyer beware, the
defects of the product is not revealed, let the
customer determine for himself.
2) Deliberate withholding of information – similar
to caveat emptor where one party does not
exactly know what he is giving away or receiving
in return.
3) Passive Deception – inability of the
businessman to give the customer with the
complete information that he needs to make a fair
decision.
4) Over-persuasion – persuasion is the process of
appealing to the emotion of the prospective
customer urging him to buy an item. It is unethical
when persuasion is used in selling a product
without considering the interest of the buyer.
Some examples of over-persuasion are:
 Urging a customer to satisfy a low priority
need for merchandise
 Playing upon intense emotional agitation
to convince a person to buy
 Convincing a person to buy what he does
not need just because he has the money
to spend

CORPORATE ETHICS
Unethical practices of Corporate Management
Board of Directors
 Plain graft – huge per
diems, bonuses not
commensurate to their
services
 Interlocking Directorship
– holds directorial positions
in two or more companies
doing business with each
other
 Insider Trading – person
with access to confidential
Executive Officers Employees
 Claiming vacation trip to be a  Conflicts of interest –
business trip transactions with outside
 Having employees do work parties, where employer-
unrelated to the company employee relationship may be
 Loose or Ineffective compromised.
Controls Common examples are:
 Unfair labor practices - Holding significant shares of a
 Making false claims of losses competitor
to avoid paying compensation - Accepting lavish gifts or loan
from a supplier, contractor or
and benefits provided by law
competitor

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 information uses that
information to trade in
shares and securities of
that corporation gaining
advantage over the other
players in the market
 Negligence of Duty –
failure to attend meeting
regularly
 Making employees sign
documents that they are
receiving full benefits but are in
fact receiving just a fraction of
their salary
 Sexual harassment - is
committed by anybody who
having authority, influence or
moral ascendency over the
other in a work environment
demands, requires sexual
favor whether accepted or not.
- Disclosing confidential
company information for
personal gain
- Engaging in a business similar
to the employer
- Using a business opportunity
where employer might have an
interest
 Dishonesty – examples of
dishonesty:
- Taking office supplies for
personal use
- Padding an expense account
using fake receipts
- Taking credit for another
employees ideas

ETHICAL DILEMMA

Ethical dilemma is a situation where a person needs to make a decision about appropriate behavior

To elaborate further, ethical dilemmas are situations in which there is a difficult choice to be made between two
or more options, neither of which resolves the situation in a manner that is consistent with accepted ethical
guidelines. When faced with an ethical dilemma, a person is faced with having to select an option that doesn’t
align with an established code of ethics or societal norms, such as codes of law and religious teachings, or with
their internal moral perceptions of right and wrong.

RESOLVING ETHICAL DILEMMAS

Formal frameworks have been developed over the years to help people resolve ethical dilemmas. The six-
step approach is intended to be a simple approach to resolving ethical dilemmas:
1) Obtain the relevant facts
2) Identify the ethical issues from the facts
3) Determine who is affected by the outcome of the dilemma and how each person or group is affected
4) Identify the alternatives available to the person who must resolve the dilemma
5) Identify the likely consequences of each alternative
6) Decide the appropriate action.

Illustrative Case: Resolving an Ethical Dilemma

Alfonso Cruz has been working for six months as a staff assistant for a law firm, Castro and Decapia. Currently,
he is assigned to the case of Alvendia Manufacturing Company under the supervision of Bert Reyes, an experienced
senior lawyer. There are three junior legal assistants assigned to him for the case including Alfonso, Bert and more
experienced assistant Marciana Dee.

During lunch on the first day, Bert Reyes says, “It will be necessary for us to work a few extra hours on our time to
make sure we come in budget. This case isn’t very profitable anyway, and we don’t want to hurt our firm by going
over budget.

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We can accomplish this easily by coming in a half hour early, taking a short lunch break, and working an hour or so
after normal quitting time. We just won’t write that time down on our time report.”

Alfonso recalls reading the firm’s policy manual that working hours and not charging for them on the time report is
a violation of Castro and Decapia employment policy. He also knows that seniors are paid bonuses, instead of
overtime, whereas staffs are paid for overtime but get no bonus.

Later, when discussing the issue with Marciana Dee, she says, “Bert does this on all of his job. He is likely to be
our firm’s next manager. The partners think he is great because his job always come in under budget. He rewards
us by giving us good engagement evaluations, especially under the cooperative attitude category. Several of the
other senior staff follow the same practice.”

Ethical Issue
The ethical issue in this case is not difficult to identify.
 Is it ethical for Alfonso Cruz to work hours and not reporting them as hours worked in this situation?

Who is affected and how is each affected?

The following are the key persons involved in this situation:
Who How affected?
Alfonso Being asked to violate company policy. Hours of work will be affected. Pay will be
affected. Performance evaluation will be affected. Attitude about firm will be
affected.
Bert Success on engagement and in firm may be affected. Hours of work will be
affected
Castro and Decapia Stated firm policy is being violated. May result in under billing clients in present
and future engagements. May affect the firm’s ability to realistically budget
engagements and bill clients. May affect the firm’s ability to motivate and retain
the good employees.
Staff assigned to Alvendia May result in unrealistic time budgets. May result in unfavorable time performance
Manufacturing Company in evaluations. May result in pressures to continue practice of not charging for hours
the future in the future
Other staff of the firm Following the practice of this engagement may motivate others to follow the same
practice on other engagements.

Alfonso’s available alternatives

 Refuse to work the additional hours
 Perform in the manner requested
 Inform Bert that he will not work the additional hours or will charge overtime for the additional hours to the
engagement
 Talk to the manager or partner about Bert’s request
 Refuse to work on the engagement
 Quit working for the firm

Each of these options includes a potential consequence, the worst likely one is to termination from the firm.

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 Consequences of each alternative
It is important to evaluate the short-term and long-term effects. Emphasize the short-term effects because those
will occur quickly even when the long-term effects are more important.

If Alfonso decides to work the additional hours and not report them, it is very likely that he will get good evaluations
for cooperation and perhaps a salary increase in the near future. In the longer term, what will be the effect of not
reporting the hours this time when other ethical conflicts will arise?

Consider the following similar ethical dilemmas Alfonso may face in his career as he advances:
 A supervisor asks Alfonso to work unreported 3 hours a day and 15 unreported hours a week
 A supervisor asks Alfonso to initial certain procedures as having been performed when they were not.
 Alfonso concludes that he cannot be promoted to manager unless he persuades assistants to work hours
that they do not record.
 Management informs Alfonso, who is now a partner, that either the company gets P400,000 legal fees or
the company will change lawyers
 Management informs Alfonso that the legal fees will be increased P50,000 if Alfonso can find a plausible
way to increase probability of winning the case.

Appropriate action
Only Alfonso can decide the appropriate option to select in the circumstances after considering its ethical
values and the likely consequences of each option. Alfonso could decide that the only relevant consequence
is the potential impact in his career. Most of us would conclude that Alfonso is an unethical person if he will follow
that direction. At the other extreme, Alfonso can also decide to refuse to work for a firm that permits one supervisor
to violate firm policies. Many people would consider that extreme reaction naïve.

End of lesson

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References:
1. Corporate Governance, Business Ethics, Risk Management and Internal Control
By: Ma. Elenita Balatbat Cabrera and Gilbert Anthony B. Cabrera

2. Code of Ethics for Professionals

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