CHAPTER 4 - INTRODUCTION TO ETHICS

Why Do People Act Unethically?

Most people define unethical behavior as conduct that differs from the way they believe would
have been appropriate given the circumstances. Each of us decides for ourselves what we
consider unethical behavior, both for ourselves and others. It is important to understand what
causes people to act in a manner that we decide is unethical.

There are two primary reasons why people act unethically:

1. The person’s ethical standards are different from those of society as a whole, or
2. The person chooses to act selfishly

In many instances, both reasons exist.

1. Person’s ethical standards are different from those of society as a whole
Extreme examples of people whose behavior violates almost everyone’s ethical
standards are drug dealers, bank robbers, and larcenists. Most people who commit
such acts feel no remorse when they are apprehended, because their ethical standards
differ from those of society as a whole.

There are also many far less-extreme examples when our ethical values are violated.
When people cheat on their tax returns, treat other people with hostility, lie on
employment applications, or perform below their competence level as employees,
most of us regard that as unethical behavior. If the other person has decided that this
behavior is ethical and acceptable, there is a conflict of ethical values that is unlikely
to be resolved.

2. Person chooses to act selfishly

A considerable portion of unethical behavior results from selfish behavior. The Pork
Barrel Scam and other political scandals resulted from the desire for political power
and wealth; cheating on tax returns and expense reports is motivated by financial
greed; performing below one’s competence and cheating on tests are typically due to
laziness. In each case, the person knows that the behavior is inappropriate, but
chooses to do it anyway because of the personal sacrifice needed to act ethically.

Business Ethics refers to standards of moral conduct, behavior and judgment in business. It
involves making the moral and right decisions while engaging in such business activities as
manufacturing and selling a product and providing a service to customers. Business ethics is
an area of corporate responsibility where businesses are legally bound and socially obligated
to conduct business in an ethical manner.

The purpose of business ethics is to help businesses determine which practices are right and
which are wrong. Hopefully, they are gong to use this knowledge to guide them in making the
right business decisions.

Scope and Impact of Business Ethics

Business ethics covers all conduct, behavior and judgment in business. This includes the
slightest deviation from what is right to illegal and dishonest acts that are punishable by law.
It involves making the right choices while engaging in such business activities as
manufacturing and selling a product or selling and rendering a service.

Generally, actions that are not forbidden by law are ethical. In some cases, however, what is
legal (not forbidden by law) may be unethical. Business ethics therefore covers even acts that
may be legal but which are wrong because they violate ethical principles.

Business ethics is based on the personal values and standards of each person engaged in
business. Since individual values differ, what is ethical or unethical in making profit also varies
from person to person. And here lies the problem. There is still no uniform standards of right
and wrong from which all business may base their actions.

The businessmen who provide fair business competition is the most likely to observe the
business ethical rules of conduct, behavior and judgment. Fair business competition means
achieving success solely by offering better products, services and terms than the competitor.
It is a form of business competition where success is gained by the merits of one’s goods or
services.

Economic impact
A business has an economic impact on society through the wages it pays to its
employees, the materials that it buys from their suppliers and the prices it charges its
customers. Needless to say, it will have a positive impact on those stakeholders if it
will pay fair living wages and benefits, if it will pay suppliers fairly and on time, and if it
will give customers good value for the price they pay.

Social impact
The social impact of corporate governance contributes to the ethical climate of society.
If businesses offer bribes to secure work or other benefits, engage in accounting fraud
or breach regulatory and legal limitations on their operations, the ethics of society
suffer. In addition to a deteriorating ethical environment, such as corruption may
unfairly raise the price of goods for consumers or the quality of the product or service
compromised.

Environmental impact
Environmental protection is a key area of business influence on society. Businesses
that implement good environmental policies to use energy more efficiently, reduce
waste and in general lighten their environmental footprint can reduce their internal
costs and promote a positive image of the company. The environmental initiatives of
business leader often force competitors to take similar action for an increased
beneficial effect on the environment.

Impact on business managers

The concepts and principles for the ethical conduct in business are relegated to the
managers of the enterprise. Thus, although the manager is expected to act in the best
interest of the business, he cannot be expected to act in a manner that is contrary to
the law or to his conscience.

In particular, a manager should:

 Acknowledge that his role is to serve the business enterprise and the
community;
 Avoid all abuse of executive power for personal gain, advantage or prestige;
 Reveal the fact to his superior whenever his personal business of financial
interest conflicts with those of the company;
 Be actively concerned with the difficulties and problems of subordinates, treat
them fairly and by example, lead them effectively, assuring to all the right of
reasonable access and appeal to superiors;
 Recognize that his subordinates have a right to information on matter affecting
them, and make provision for its prompt communication unless such
communication is likely to undermine the security and efficiency of the
business;
 Fully evaluate the likely effects on employees and the community of the
business plans for the future before taking a final decision and
  Cooperate with his colleagues and not attempt to secure personal advantage
at their expense

Common Unethical Practices of Business Establishments

Unethical problems in business ethics occur in many forms and types. The most common of
these unethical practices of business establishments are misrepresentation and over-
persuasion.

Misrepresentation may be classified as direct or indirect.

Direct Misrepresentation is characterized by actively misrepresenting about the product or
customers. This includes:
1. Deceptive packaging
This also takes many forms. One type is the practice of placing the product in many
containers of exaggerated sizes and misleading shapes to give a false impression of its
actual contents. An example of this type of deceptive packaging is slack-fill packaging
where containers like cartons, tin cans and certain plastics are filled only up to eighty-
five to ninety-five percent of their capacity.

2. Misbranding or mislabeling
This is the practice of making false statements on the label of a product or making its
container similar to a well-known product for the purpose of receiving the customer as
to the quality and/or quantity of a product being sold.

3. False or misleading advertising

Advertising serves a useful purpose if it conveys the right information. It is the principal
means by which people are informed a bout the availability, nature, and uses of old and
new products. However, advertising does not always tell the ‘whole truth’ and nothing
but the truth’ if it greatly exaggerates the virtues of a product and tells only half of the
truth or else sings praises to its non-existent virtues. If advertising does not provide a
useful service anymore to the customers, it can become the agent of misrepresentation.

Examples are:
a. Advertisements with pictures or statements that convey exaggerated impression of
the product’s reliability or quality.
b. Advertisement that claims that the product is the ‘fastest selling brand’ or the ‘product
of the year’
c. Advertisement using fictitious or obsolete testimonials

4. Adulteration – the unethical practice of debasing a pure or genuine commodity by

imitating or counterfeiting it, by adding something to increase its bulk or volume, or by
substituting an inferior product for a superior one for the purpose of profit or gain. It is
unethical because an inferior product is passed off as a superior one.

5. Weight understatement or short weighing

The mechanism involves tampering with or something is unobtrusively attached to it so
that the scale registers more than the actual weight. An example is a foot pedal with a
concealed string tied to the weighing scale. The modus operandi of sellers is to use two
sets of scales one which gives the correct weight and has been sealed by the authorities
and another which looks identical but registers more weight than the product. This is
usually practiced for sugar, meat, fish, vegetables, nails, and other weighed products.

6. Measurement understatement or short measurement

The measuring stick or standard is shorter than the real length or smaller in volume than
is appropriate. This is found in selling situations where the price of the product depends
on length.
 7. Quantity understatement or short numbering
This is often practiced in products such as toilet paper, paper clips, thumb tacks,
matches, and others that are sold by the box or package.

Indirect Misrepresentation is characterized by omitting adverse or unfavorable information

about the product or service.
Caveat emptor. Translated as ‘let the buyer beware’, this refers to indirect
misrepresentation where seller testifies to product’s nature, features, uses and qualities
without revealing defects in the product or service which he is already aware of.
1. Deliberate withholding of information. No business transaction is fair where one of the
parties does not exactly know what he is giving away or receiving in return.
2. Passive deception. Direct misrepresentation gives business a bad name while indirect
misrepresentation or passive deception is not as obvious, it nonetheless contributes to
the impression that businessmen are liars and are out to make fast buck.
3. Over-persuasion. Persuasion is the process of appealing to the potential customer’s
emotions and urging him to buy an item he may or may not need. Persuasion, however,
that is used for the sole benefit of the seller is not ethical.

Common issues of over-persuasion include:

1. Urging a customer to satisfy a low priority need for merchandise
2. Playing upon intense emotional agitation to convince a person to buy
3. Convincing a person to buy what he does not need just because he has the capacity
or money to do so

CORRUPTION
Corruption is the abuse of private and public office for personal gain. It includes acts of bribery,
embezzlement, nepotism, kickbacks and state capture. This is often associated with and
reinforced by other illegal practices such as bid rigging fraud, or money laundering, extortion.

Simply defined, corruption is receiving, asking for or giving any gratification to induce a person
to do a favor for private gain.

It consists of the misuse of entrusted power (by heritage, education, marriage, election,
appointment).

In general, corruption is a form of dishonesty or criminal activity undertaken by a person an

organization entrusted with a position of authority, often to acquire illicit benefit.

Why and how a person becomes corrupt

Corruptions spread when there are opportunities, when risk is minimal in comparison to
benefits obtained or when one is confronted with issues like
 Career advancement
 Earning of more income
 Financial problems caused by illness, loss of property, etc.

Those engaged in corruption learn how to be dishonest. The next corrupt actions become
easier to do unless one is firmly rooted on solid principles and has been nurtured in an upright
manner.

Ill effects of corruption

Economically,
 Corruptions add up to 10% of the total costs of doing business in any part of the world
and up to 25% of the cost of procurement programs in developing countries.
 Corruption leads to waste or inefficient use of public resources.
 In the Philippines, figures from 1960 to 2016 indicate that an average of P550 billion is
lost yearly to crime, corruption and tax evasion. This amount could clearly have been
used more efficiently and effectively for poverty alleviation or education instead.
 Corruption corrodes public trust, undermines rule of law, and ultimately delegitimizes
the state.
 Mismatch between aspirations and fulfilment could lead to apathy, discontent and turn
some into radical extremists

Other serious repercussions are:

 Ordinary people are prevented from receiving all essential services they are entitled to
 It creates unfair competition and increases cost of doing business. Every form of
corruption is bad for economic growth and could result to tarnished reputation.
 Corruption is a cancer that spread rapidly.

Prevention of Corruption
Corruption in Singapore is under control. However, a clean system is not a natural state of
affairs. Corruption comes from weakness of human nature – greed, temptation, the desire to
amass wealth or to obtain business through unfair means. Even with harsh penalties, it cannot
be totally eliminated.

Below are some of the measures that can be adopted by organizations to help reduce
corruption in the workplace.

Clear business processes

Having defined workflows, clear directives on financial approving authorities, and
standard procurement instructions can help flag irregularities in a business or
organization. These processes should be reviewed regularly to ensure they are
updated to the shifting environment. Diligent record-keeping and regular audits are
also good practices to deter corrupt activities.

Policy on gifts and entertainment

Gifts and entertainment are often offered in the legitimate course of business to
promote good relations. However, if it is too frequent or lavish, or done with the
deliberate intention to gain an unfair business advantage, such as gifts and
entertainment can be tantamount to corruption, regardless of whether the recipient is
able to fulfill the request of the giver. The risk of corruption can be reduced by setting
a policy on when gifts and entertainment may be given and accepted and what records
need to be kept. Your business partners should be aware of your organization’s gift
and entertainment policy, too.

Declaration of conflict of interest

Conflict of interest occur when a personal interest or relationship is placed before the
business interest, and can lead to corrupt activities such as giving or accepting bribes.
In order to safeguard the business interest, a declaration system that is applicable to
all levels of employees may be instituted. The company may provide a declaration form
for conflict of interest for employees, and then use the information to take the most
appropriate course of action. This could include excluding the employee from engaging
in the work or transferring the employee to another department or post.

Convenient corruption reporting system

The corruption reporting system is a key function to control corruption and bribery risks,
and can comprise a whistle-blowing policy or feedback channel where staff can
conveniently raise concerns and feel protected from being identified or retaliated
 against. One way to do this would be by allowing reports to be filed anonymously
through a publicized email address or phone number.

Efforts to Curb Corruption through Legislation

1. Anti-Graft and Corrupt Practices Act – criminalizes active and passive bribery,
embezzlement, extortion, abuse of office and conflict of interest in the public sector
2. Anti-Red Tape Act – criminalizes bribery of public officials and trading in influence. It
also forbids office-holders from accepting any gifts or material benefits in exchange for
any government permit or license
3. Under the Revised Penal Code, gifts are classified as indirect bribery. An exception
is made for gifts of insignificant value given as a token of friendship in line with local
customs. Facilitation payments are not addressed in the law. Private sector bribery is
not criminalized. Under the Code, public officials are required to regularly file a
statement of their assets and liabilities. In case of any discrepancy between the
official’s asset declaration and the amount of property or financial assets actually
possessed, the official is subject to immediate dismissal. Punishments for corrupt acts
include imprisonment of up to ten years, a fine, removal from office, and/or confiscation
of property.
4. Anti-Money Laundering Act – criminalizes money laundering and organized crime
5. The Act Establishing a Code of Conduct and Ethical Standards for Public
Officials and Employees formulates standards for the personal integrity and
accountability of civil servants
6. The Government Procurement Reform Act requires competitive and transparent
bidding. Philippine legislation does not contain any provisions on protecting
whistleblowers who report on corruption.

Companies should note that the legal anti-corruption framework in the Philippines is
complicated and poorly enforced; there is a lack of cooperation between law enforcement
agencies, and officials are rarely prosecuted and convicted for corruption crimes.
SAQ1:
1. What is business ethics?
2. What is the difference between advertising and promotion?
3. Front-liners in fast-food chains often insidiously ask customers if they want to
upgrade their orders in a way many may find cunning and opportunistic. Is this
practice unethical? Explain. Further, if so, identify which kind of misrepresentation it
is.
4. Describe the inherent conflict between ethics and the pursuit of profit.
5. Explain what corruption is. Is this limited to pocketing government funds and
property?
6. Did you ever, or would you if you were offered a bribe, refuse to receive it? What
about if you were pressured to pay it for something you need? Justify your answer.
7. What have you learned about the regulatory framework in the Philippines in relation
to corruption?

Midterm Project:
1. Submit a research on Philhealth 2020 Corruption Scandal.
(A4 paper size, Arial-11)

Format:
 Cover Page
 Body – Research content
 Discussion: What does this scandal reveal about Philippine governance?