BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Module 3: The Ethical Corporate Culture

In this module, you will be able to:
 Share observations on business policies and practices; and
 Distinguish between good policies/practices and morally unacceptable policies/practices.

If ethics are poor at the top, that behavior is copied down through the organization
- Robert Noyce

When you join an organization, whether it is a school club, hobby group, a social media
group, a church organization, your class section, or even just a group of friends hanging out
together, you will notice that in the group, there are certain accepted behaviors and unwritten
rules that need to be followed. If you fail to follow them, you will either be frowned upon or be
kicked out of the group.
A certain culture exists in every organization. As a person who wants to fit in, you try to
follow the norm in the group—the way the other members act, dress up, behave, speak, and other
actions that may affect your decisions.

The Corporate Culture

Much like the different groups that you are a member of, business organizations also
have their own unique culture. Every organization has a culture that consists of shared pattern
and beliefs, expectations, and meaning that influence and guide the thinking and behavior of the
members of that organization. While culture shapes the people in the organization, the people
also contribute in shaping the culture of the organization (Hartman 2014). Organizational or
corporate culture is the system of shared actions, values, and beliefs that develops within an
organization and guides the behavior of its members (Schermerhorn, Osborn, Uhl-Bien, Hunt
2012).
There are business organizations that expect employees to work for long hours and even
on weekends if needed. There are companies that value work-life balance, so they encourage
employees to clock out at a certain time so they can spend more time with their families or on
personal interests. There are companies that have a vibrant culture, where everyone’s creativity
is honed and generating new and innovative ideas is greatly encouraged. There are also
companies with very traditional style of management where employees are required to be in the
office at a certain time and are given disciplinary action if they are tardy for several times. This
only shows that different business organizations have their own unique culture.
 While corporate culture is built and molded over time, it may still change depending on
the leaders that move the company forward. Changes in policies (e.g., dress code) can alter the
way people behave or feel toward the company. For example, if a company suddenly decides to
disallow casual attire on Fridays and are require corporate attire as dress code all week, it may
harbour ill feelings among employees who may be looking forward to dressing up casually once
a week. On the other hand, if the management decides to change the dress code from strictly
corporate to casual, it may appear that the current leaders are becoming younger and bolder in
their actions.

Functions of Corporate Culture

A company’s culture guides the thinking, behavior, and decisions of its members
according to the company’s beliefs and values. According to Edgar H. Schein, an author of
Organizational Culture and Leadership (2010), the two main reasons why culture develops in
organizations is because of external adaptation and internal integration.
External adaptation requires the organizational culture to determine how the company
will reach the goals, accomplish its tasks, identify methods to achieve its goals, and place
measures to cope with success or failure. Members of the organization may develop common
views and goals through their shared experiences. For example, reaching sales targets in order to
become competitive and profitable in the market uses a goal shared by all the members of the
organization. External challenges, such as economic downturn, bad weather, political issues, and
government regulations that may affect how the company achieves its goals, will have to be dealt
with in accordance with company’s culture. For example, if there is a delay in releasing the
company’s imported raw material from customs, should the company bribe customs officials in
order to expedite the process? The corporate culture will determine the answer to this question.
Internal integration starts with the establishments of an identity that is unique to the
business organization. Members acquire this identity through their interaction with each other.
This enables the members to work in harmony with each other and to work toward the advancing
the company’s goals. There are three important aspects of working together: first, the members
decide who is a member of the group and who is not; second, the members develop an informal
understanding of acceptable and unacceptable behavior; and third, the members separate
“friends” from “enemies.” Managers should be equipped in ensuring harmony within the team or
organization. It is important for the members to understand what their roles are in achieving the
company’s goals and the penalties or incentives that they will get if they perform their roles in
achieving the goals. This is very similar to situations when you need to work on a school project
with a group. You most likely prefer to work with classmates whom you can work well, but in
cases when the teacher chooses who your group mates will be, members within the group must
establish rules (e.g., attending meetings, going online at a certain time, submitting assigned parts
on agreed upon deadlines) in order to achieve the group’s goal, which is to submit the school
project on time. This results in a shared identity and collective commitment toward a common
goal that everyone in the group decided on. If one member does not cooperate, conflicts happen.
Understanding Corporate Culture
A person who recently joined a business organization may not easily figure out the
corporate culture. Understanding organizational culture involves layers of cultural analysis.
Observable culture refers to the way things are done in an organization. This can be
observed in daily activities or in specific instances which include unique stories according to the
company’s history, ceremonies, and corporate rituals. Organizations are rich with their own
stories of achieving success and conquering failures. The story on how a company was founded
may contain the owner’s ideal, vision, and the reason why the company was established. It may
be serve a previously unmet need, to offer solutions to common or not-so-common issues, or to
give better options to the consumers.
Example:
Bingo, a search engine company, is known to consumers as a company that
provides its employees with an environment that feels like home. The office houses a TV,
video games, free food, free Internet, etc. the company’s rationale for this is that happy
employees are productive employees.
Shared values refer to common values that are meant to put together and motivate the
members of the organization. These include a deeper understanding of what the company stands
for. For example, a company may be known for its passion for innovation, green practices, or
providing solutions to social issues.
Example:
Happy Filipino is a social business enterprise that aims to train mothers in the
community to be financially independent and entrepreneurial. All the people in the
company are oozing with passion and are fully aligned to serve this segment as they
know exactly the plight of these mothers.
Common cultural assumptions include the taken-for-granted truths that the members
share as a result of a collective experience with the organization. These assumptions are at the
core of corporate culture, and are thus difficult to discern or understand because they exist at a
largely unconscious level, yet they provide the key to understanding why things happen the way
they do. As employees become ingrained in the culture, their actions that are based on the
company beliefs and values become everyday routines. This include quality of output, morality
of employees, and innovativeness and excellence in carrying out tasks, among others.
Example:
Orange Company, a telecommunication company, has ingrained to their
employees the value of innovation. Every time employees meet in elevator, talk over
lunch, or are anywhere else in the building, they unknowingly talk about the latest trends
 in technology, specifically smartphones, tablets, and the current trends in the
telecommunications industry.

Ethical Leadership and Management

There is no doubt that the leaders of a business organizations serve as the role models of
the beliefs, values, and behavior that are expected from someone who represents the company.
The top management sets the tone of the corporate culture, and this has to be consistently
adopted throughout the firm.
There are two recognized types of corporate culture: compliance-based culture
(traditional approach) and values-based culture (integrity-based).
Compliance-based culture focuses on the following rules, laws, policies, and regulations
as the primary responsibility of ethics. It empowers legal counsel and auditing/accounting firms.
Example:
GHI Bank in Muntinlupa City was cited by internal audit because it was not able
to follow the company’s policy of dual control, that is, there should always be two
persons entering the vault. The CCTV footages showed that there were two instances in
May 2017 that the branch manager entered the vault alone.
On the other hand, values-based culture reinforces a particular set of values rather than a
particular set of rules. It is presumed that a company with a values-based culture adopts its code
of conduct with more regard of ethical values. Values-based culture also recognizes that despite
the rules set by the company’s code of conduct, there are situations where rules can be applied so
the organization will have to rely on the personal integrity of its workforce when decisions are to
be made.
Example:
Tina Garcia, a known actress of ABGM Network, always goes to her teleserye
tapings on time, all the time. She got these values from the TV Network because all the
employees of the ABGM Network give a very high regard to punctuality. Although there
is no formal log-in, all employees still come on time, all the time.
Ethical leaders are expected to practice ethical decision-making. Their goal is not simply
to perform the job, but to perform consistently with a set of ethical values and principles chosen
by the business organization. The ethical leaders are expected to not just care about company
profits but also demonstrate caring for people (internal and external stakeholders) in the process.
Example:
Eugenio Lapid, a supervisor of a big factory manufacturing electronic products,
always ensures to talk to his subordinates during their breaks even about their personal
 lives or personal problems. He treats them as family instead of a simply subordinates. He
also gives them constructive feedback every time they commit mistakes.
A good ethical leader must be visibly practicing the company’s traits and behaviors in
order to influence perceptions and actions among the employees. This is important in creating,
inspiring, and transforming an ethical corporate culture within the company. An effective ethical
leader is able to successfully and efficiently guide, direct, and escort others toward the goals of
the company, in consideration of the ethical standards set by the organization.
Example:
Mrs. Pan Palma has been with JKL Corporation for the past 10 years as executive
vice president. Ever since, she embodies punctuality, is careful with her words, and is
very meticulous with her craft. She is also a role model as she was able to raise he four
children well and is able to balance her career and family life. She never had any case of
fraud, employee compliant, or even one employee resignation.
Not all effective leaders are effective ethical leaders. Some effective leaders may be able
to deliver the expected output of the company with the use of coercion, harassment, or
intimidation in directing the employees. However, an effective ethical leader may use more ideal
interpersonal means of motivating employees by modeling ethical behavior, gentle persuasion, or
positive reinforcement by offering incentives.
Example:
MNO Corporation has produced two exemplary leaders in the information
Technology Department and in the Human Resources Department. The IT head is known
as someone who can deliver IT projects even on a very short notice. He ensures that his
team members work overtime even on weekends and holidays just to finish the task. He
always threatens them that they will get a low performance rating if they do not work
overtime. The HR head, on the other hand, is known as someone who is very pleasant
and nice to his team. With no coercion at all, his team members voluntarily go on
overtime whenever there are major key result areas to be finished on a tight deadline.
Regardless of the technique, both leaders were able to deliver results.

Setting a Corporate Code of Conduct

A code of conduct or code of ethics is a list of guidelines and protocols based on the
organization’s values. It articulates how an employee should behave and imbibe the values of the
organization at all times, and it also serves as a reference when decisions are to be made.
Below are some guidelines in developing a code of conduct for an organization:
1. Understand the mission and vision of the organization. This will set the tone for the
required conduct and behavior that the members must know by heart.
2. Identify the values that the organization lives for.
 3. Spell out the different behaviors and values that an employee must follow in order to
maintain the ethical values of the organization.
4. Ensure proper enforcement of the code of conduct in order to maintain the ethical culture
within the organization.
5. Outsiders, such as suppliers, distributors, subcontractors, and customers, must also
understand the organization’s code of conduct in order to avoid presenting the employees
with actions that go against the code.

Below is a sample code of conduct:

Baby Food Corporation upholds the distributions of healthy and safe baby products
(clothes, bath and body products, and accessories) in the market. This code of conduct is
drafted to strengthen the company’s ideals in serving our customers well and giving only the
best products to our most important customers—the babies.
Company Values
1. Customer-centered – We strive to provide the best service and products to our
customers.
2. Safety – We assure that our products are safe from harmful chemicals.
3. Integrity – We practice integrity in all our actions, and we promise an honest and fair
service to all our employees, customers, and suppliers.
Code of Conduct
Employee Decorum
1. Employees must always practice mutual respect to one other. The company does not
tolerate spreading of rumors and stories that may taint the reputation of its employees.
2. Employees must practice professional tone in communicating with colleagues, whether
oral or written communication.
Use of Company Property
1. Employees must only use company properties for official business functions and not for
personal gains.
2. Company properties are the employee’s resources. Everyone must engage proper use,
care, maintenance, and operation of these properties.

Ethical Issues
At any given time, an organization may be confronted with ethical issues. An ethical
issue is an identifiable problem, situation, or opportunity that requires a person to make an action
or decision based on several options—whether right or wrong, ethical or unethical. It usually
concerns financial matters in a business setting.
Some Examples of Common Ethical Issues in Business Organizations
Misrepresenting the benefits Overstating a product’s benefits in order to make a sale is often
of a product committed by sales personnel or even by marketing officers.
Misrepresenting a product—for example, saying that it can
make your skin fairer without any substantial research to back it
up—is an ethical issue.
Misuse of Company Time Some employees may engage in activities that are not related to
and Resources the job—for example, browsing and posting on social media
during office hours. The employees is clearly misusing the time
that he or she is supposed to spend working for the company
and the company resources by using the computer and Internet
connection on social media browsing.
Abusive Behavior Harassing a colleague by using physical threats, harassment,
false accusations, profanity, yelling, and unreasonableness may
result in conflicts within the department or organization. This
disruptive behavior may demotivate employees involved and
may result in less productivity.
Conflict of Interest Conflict of interest happens when an employee is presented
with a dilemma of whether to advance personal gain or interests
or that of the company’s. For example, an employee may
choose to deal with a supplier that provides substandard
products or services but gives him or her a bribe instead of an
ethical supplier that provides better products or services.