CHAPTER 2 : THE PURPOSE OF BUSINESS

WHAT IS THE PURPOSE OF BUSINESS?

"The motive of business is pecuniary gain, the method is essentially

purchase and sale. The aim and usual outcome is an accumulation of
wealth. " Veblen (1904)

Subjective Reasons for Putting Up a Business

"Why do you put up a business?" "Why are you into business?"

 Desire for more income for oneself and his or her family
 Want more independence
 Continuing the legacy of the family business
 Want to try a unique and novel idea
 Desire for competition
 Genuine desire to help people in the community/country
 You like it and you are attracted to the prospect, of interacting
with people

Objective Reasons for Putting Up a Business

Milton Friedman, Paul F. Camenisch, Ronald F.Duska

 Milton Friedman

 American economist who taught at the University of Chicago

 Received Nobel Price for Economics in 1976
 Wrote an article entitled "The Social Responsibility of Business Is
to Increase Its Profits” (1970)

Friedman
 An executive manager's role is to make the firm more profitable
 It is not the manager's moral responsibility to help other people
outside the firm (government)
 If you want to help others, do it on your own capacity as a private
individual and not as an employee of the firm
 If the owners expressed that they want to help others, then you
can use their money for such
 Fiduciary duty to have an intention that is in congruence with the
intention of the owners
“ There is one and only social responsibility of business – to use its
resources and engage in activities designed to increase its profits
so long as it stays within the rules of the game, which is to say,
engage in open and free competition without deception or fraud.”

By focusing on the profit motive, the business institution serves

the society.

Paul F. Camenisch
 Professor of Religious Studies at De Paul University in
Chicago
 Graduated summa cum laude with a degree in English from
Centre College in 1962
 The National Alumni Association awarded him as a
Distinguished Alumnus of Centre College in 2012.

CAMENISCH
 Published an essay, "Business Ethics: On Getting to the Heart of
the Matter"

 Businesses exists to respond to the societal needs of for

life-sustenance and life-enhancement
 Nature provides us with the necessities of life, yet it is
not complete (enough) Developments such as
cooperative efforts, barter and monetary exchange
modified our simple lifestyle

CAMENISCH
1. provision of goods and services

2. profit-making intention

Profit is essential, but it is not the primary motive of business

Profit is the means and not the end of business

Ronald F.Duska
  An American Professor and scholar in the field of business ethics
 Member of the board and past president and executive director of
the Society for Business Ethics, the publisher of Business Ethics
Quarterly.
 Author of numerous books on philosophy and business ethics

DUSKA
Distinction between purpose and motive

A business is seen as distinct from other organizations and

institutions such as public schools, public hospitals, charity
institutions, government bodies and nongovernment
organizations. These are nonprofit organization, and businesses
are for profit.
"The motive is not necessarily the purpose of the action"

DUSKA
 The purpose of teaching vs the motive of the person who enters
the teaching profession
 The purpose of the medical profession vs the motive of the
individual doctor
 The purpose of the law profession vs the motive of the law
student
 The purpose of business is to respond to society's needs for goods
and services
The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount
of goods and services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising the quality
of life for all, especially the underprivileged.

1987 Philippine constitution

...to establish a new concept of business corporations so that they are

not merely entities established for private gain but effective partners of
the National Government in spreading the benefits of capitalism for the
social and economic development of the nation."

Corporation code of the Philippines

Henry Ford, Ford Motor Company

"I don't believe we should make such an awful profit on our cars. A
reasonable profit is right, but not too much. I hold that it is better to
sell a large number of cars at a reasonably small profit... I hold this
because it enables a larger number of people to buy and enjoy the use
of a car and because it gives a larger number of men employment at
good wages. Those are the two aims I have in life."

Masaru Ibuka, Sony Corporation

"We shall eliminate any unfair profit-seeking, persistently emphasize

substantial and essential work, and not mere pursue growth. We shall
place our main emphasis on ability, performance, and personal
character so that each individual can show the best in ability and skill.”
 FORMS OF BUSINESS ORGANIZATIONS:

Major Forms of Business  Organizations recognized by the law

in the Philippines:
 Single/ Sole Proprietorship
 Partnership
 Corporation
 Cooperative

Social responsibility isn’t only for big corporations

SINGLE PROPRIETORSHIP
"A business establishment organized, owned and managed by
one person, who alone assumes the risk of business
enterprise" 
-Philippine Statistics Authority
-82.6% of all legally recognized businesses
-Simplest form of organization
-Has minimal cost
- No specific and strict rules that define and delineate the
policies of single proprietorships.
SINGLE PROPRIETORSHIP

 Sari-sari stores
 Food kiosks
 Street food vendors
 Accountants and Tax Preparers
 Bakers and Chefs

SINGLE PROPRIETORSHIP
 Must be registered under the Department of Trade and
Industry (DTI) and the Bureau of Trade Regulation and
Consumer Protection (BTRCP)

 To make sure that there are no identical business names,

and no other business will unfairly use another business'
name for their benefit

Principle of Unlimited Personal Liability

 If the company incurs a debt or suffers a catastrophe, the
owner is personally liable.
  This is because the proprietor puts his or her personal
assets at risk for the sake of your business
 The business and the owner are identical

PARTNERSHIP
 Governed by the Civil Code of 1949 (Republic Act No. 386)
 Article 1767 – "two or more persons bind themselves to
contribute money, property or industry to a common fund,
with the intention of dividing the profits among
themselves"
"Two or more persons may also form a partnership for the
exercise of a profession"
 Article 1770 - "must have a lawful object or purpose and
must be established for the common benefit or interest of
the partners"

PARTNERSHIP
 1.2% of all legally recognized businesses in the Philippines
 Must be listed under the Securities and Exchange
Commission if the capital of the partnership is P3,000 or
more
  A "judicial personality separate and distinct from that of
each of the partners" once registered and even prior to
registration
 Separate and independent legal personality from that of
its individual partners
PARTNERSHIP
 Professional firms (law, accounting, engineering,
architecture, medical, etc)
 Merchandise stores
 Restaurants and cafes

SHARING OF PROFITS AND LOSS

"The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be
in the same proportion.
In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the
circumstances. If besides his services he has contributed
 capital, he shall also receive a share in the profits inproportion
to his capital
-Article 1797, Civil Code of the Philippines

SHARING OF PROFITS AND LOSS

"A stipulation which excludes one or more partners from any
share in the profits or losses is void."
-Article 1799, Civil Code of the Philippines
The foundation of partnerships is trust, so its important to
consider one's morals and values in considering a business
partner.

PARTNER
  Must have similar ideals and principles when faced with
ethical problems such as;
 Issue of bribing government officials, suppliers, clients, etc
 Paying the correct amount of taxes
 Treatment of employees
 Breach of partnership agreements (share of capital, profit-
sharing, duties responsibilities)
  Decision-making disputes 
CORPORATION
Governed by the Corporation Code of the Philippines, Batas
Pambansa Blg. 68 (July 21, 1980)
"A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its
existence. "(Section 2)
 15.1% of Philippines businesses are private corporations

CORPORATION
Corporations formed or organized under this Code may be
stock or non-stock corporations. Corporations which have
capital stock divided into shares and are authorized to
distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the shares
held are stock corporations. All other corporations are non-
stock corporations." (Section 3)
CORPORATION
 Required to be registered under the SEC where its
"articles of incorporation" must be filed
  The separate existence or the juridical personality of a
corporation formally begins on the very date that the SEC
releases a "certificate of incorporation"

Advantages of a Corporation

 Limited liability (owners lose as much as the amount

that you put at stake in your business)
 Financial resources (can easily borrow money from
financial institutions, or can issue stocks)
 Continuity (can outlast its individual owners)

CORPORATION
 Foreigners may invest in the Philippines and
may even own a business organization but with
definite restrictions and limitations
 Common issues (tax fraud, irregular accounting
practices, bribery involving top government
officials, wasteful personal spending, right of
workers)
COOPERATIVE
 Republic Act 6938 "An Act to Ordain a Cooperative Code of
the Philippines, which was amended and currently known
as Republic Act 9520 "The Philippine Cooperative Code of
2008"
"A cooperative is an autonomous and duly registered
association of persons, with a common bond of interest, who
have voluntarily joined together to achieve their social,
economic, and cultural needs and aspirations by making
equitable contributions to the capital required, patronizing
their products and services and accepting a fair share of the
risks and benefits of the undertaking in accordance with
universally accepted cooperative principles."

Cooperative Principles (Art.4)

 Voluntary and open membership
 Democratic member control
 Economic participation
 Autonomy and independence
 Education
 Training and information
 Cooperation among cooperatives
  Concern for community
COOPERATIVE
 Still face ethical issues and conflicts
 Remain faithful to their basic principles of
cooperation and democratic ways of management

Cooperatives in the Philippines

 Credit Cooperative
 Consumers Cooperative
 Producers Cooperative
 Electric Cooperative

Business and Socioeconomic Development

Collective Egocentricity
 Idea that the business profession occupies a central place in the
modern society.
 “Teaching the centrality of the profession is peculiar to business
education alone.”
(Giacalone and Thompson)
 It has become a necessary way of living in the modern world
Role in Economic Development
 “The role of business and trade was understood to be central, if
not pre-eminent, in meeting the economic, social, and
environmental aspirations of governments and peoples
worldwide.” (Wheeler and McKague)
 The business institution is a significant factor in the improvement
of our standard of living.
 The different forms of business organizations are also the major
players in creating employment.
 The main enhancer of the entrepreneurial mind – the mind for
innovation and creativity
Role in Economic Development
 Filipinos are motivated to create new ideas, to launch novel
products, and to improve the quality of goods and services
 Helps the government and other social agencies in responding to
the basic needs of many Filipinos by extending basic goods and
service to the less fortunate members of the Philippine society.
 Are also powerful in challenging and changing the common
practices of a society
 Hold influence in politics as they many are ready to make large
donations of funds to show their support to specific candidates
Gross Domestic Product (GDP)

A comprehensive scorecard of a given country’s economic health,

it is the monetary value of all finished goods and services made
within a country during a specific period.
 Does not mirror the situation of the very poor members of
the Philippine society
 The ultimate test of development is whether the poorest of
the poor Filipinos receive the necessities of life: food,
shelter, education, and health care.
Science and Technology
  Businesses improves our way of living by providing us with goods
and services that make our work faster and more efficient, and
our daily activities easier and more comfortable
 The downside, however, is that businesses cannot escape from
the ideals of extreme consumerism and its materialistic culture

“One concern about the domination of a consumer-orientation in society is that, carried to an

extreme, consumerism generates a value system driven by self-centeredness; individual ambition and
achievement; and, ultimately, greed. In other words, it generates a society in which people are
motivated primarily by the acquisition of wealth and possessions."

- Gunther, et al. (2005)

Perfecting Nature While Destroying It

 What nature cannot provide because of its lack and
unfinishedness, the business institution fills in
 Use resources from nature and improves these to address man's
needs and wants, but also plays a major role in the destruction
of the natural environment
 We are now experiencing the devastating effects of natural
calamities (man-made calamities)

Two Faces of Business as a Social Institution

 A necessary component of social and economic development

 Source many of our serious social, economic, and environmental
problems
 ENTREPRENEUR BUSINESSPERSON
Concerned with the insight aspect of the Concerned with the business aspect of
enterprise enterprise
Innovator Imitator
Observant Wait for the innovations of the entrepreneur
Risk-taker Risk averse
Motivated beyond the profit motive Motivated by financial reward
Usually the founders of companies Mostly are managers, employees and agents

CAPITALIST ENTREPRENEUR
Passive recipient of the fruits of the toils of Contributes actively and positively for the
other stakeholders in the business activity benefit of the society
Provides capital Contributes innovation and creativity

Edilee Omoyon of Milea Bee Farm

 - started her business because of her son’s skin condition. She studied about organic
products and soon, she started manufacturing products such as soaps, shampoos
and  balms made out of real honey sourced from their own bee farm.

Alfredo M. Yao of  Zest-O

- Alfredo took several odd jobs, which included time at a printing
press. He learned how to print cellophane wrappers for candies
and biscuits and this experience prompted him to start his own
printing business.
- His printing business was doing well but his discovery of the Doy
Packaging system from Europe was the turning point of his
entrepreneurial career. 

- He tried to sell the system to juice manufacturers, but no one was

interested. Thus, Alfredo ventured into the juice business by
concocting flavors in his kitchen.
- These juices were not only delicious but also appealing to parents
as they found the light and brightly colored packs easy to include
in their children’s lunch boxes. Best of all, the packaging allowed
the juice to stay chilled longer. 
Cecilio Kwok Pedro of Lamoiyan Corporation

- Cecilio used to head Aluminum Container Inc., which produced

the aluminum toothpaste tubes for Procter and Gamble, Unilever,
and Colgate-Palmolive. Environmental concerns led his clients to
shift to plastic-laminated toothpaste tubes and Aluminum
Container Inc. failed and closed its shop in 1986.
- He put up Lamoiyan Corporation and manufactured toothpaste
that -was priced 50% lower than his competitors. These included
the still-popular brands Hapee and Kutitap. 

- Cecilio’s greatest accomplishment was not limited

to manufacturing. He is also known for his advocacy to
help hearing-impaired people find employment in the country. His
programs include free housing for more than 30 deaf–mute staffs.
To date, more than 180 hearing-impaired students have received
college education through DEAF or Deaf Evangelistic Alliance
Foundation.
Olive Puentespina of Malagos Farmhouse

- started experimenting with goat’s milk in 2005 which then led to

the establishment of Malagos Farmhouse, leading maker of
fine artisan cheeses in Davao. Today, Malagos Farmhouse cheeses
are enjoyed in over 80 hotels, resorts, restaurants, and airlines in
the country.
-

Aracelli and Jun Manas of  HenLin

- With the help of a HongKong chef friend of Jun, they learned
authentic Chinese recipes and procedures in the preparation and
 cooking of their products. They also attended cooking lessons
during weekends and observed restaurants whenever they
traveled overseas. They kept experimenting and experimenting on
new food items, as well as improving the existing ones to the
satisfaction of their customers.-
- While Jun and his wife, Cely, were busy starting and growing their
business, they practiced due diligence and proper time
management as they never used the company time of their
employers, nor did they allow this to interfere with their official
duties in their employment.

Nina Ellaine Dizon-Cabrera of Colourette Cosmetics

- describes the birth of her brand as a spur of the moment

challenge that she decided to take head-on, whose first real
business was F and F Skin Products and two years later decided
to give life to Colourette.