Colegio de San Gabriel Arcangel

San Jose del Monte City, Bulacan

Bachelor of Science in Business Administration
Level 2 PACUCOA Accredited Program
Pre – Final Examination
Good Governance and Corporate Social Responsibility
Review Material.
Test I. Enumeration. Write on the space provided for the answer. (52 items)

The six-step approach that follows is intended to be a relatively 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 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.

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 the 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 the rule of law, and ultimately delegitimizes the
state.
 Africa's 700 million people under 30 are seeking opportunities with dignity and if mismatch
between aspirations and fulfilment continues, this could lead to apathy, discontent and turn
them to radical extremists and join terrorist groups.
THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)
Top Management
 Our top management leads by example by consistently demonstrating the value of conducting
business with integrity.
 Our officers strongly communicate our organization's position against bribery, corruption and
unethical business practices within the company and the broader public; comply with all the
requirements of government regulatory bodies; and prohibit cover-ups and falsified reports that
conceal improper transactions.
 Management strongly supports integrity practices and allocates sufficient resources for their
implementation.
THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)
Human Resources
 We strive to instill culture of integrity among our employees. The management maintains open
lines of communication with employees, particularly on matters relating to honesty,
transparency and integrity in business transactions.
 In the spirit of fairness and due process, all employees have the right to file and respond to
complaints against practices suspected to be illegal or unethical.
 We have appropriate tools to confidentially receive, monitor, and act on internal and external
complaints.
  Employees filing complaints will be protected from all types of retaliation, while those involved
in unethical practices will be subject to commensurate disciplinary actions.
 We have instituted training programs on business ethics covering all levels of the organization.

THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)

Sales and Marketing
 We clearly communicate rules and guidelines, on giving gifts, entertainment, tokens of
hospitality, and contributions to/from public and private organizations and their
representatives.
 Employees and all third parties engaged by our company to act as our intermediaries, agents or
representatives are not permitted to offer, promise, or give, as well as demand or accept
concessions-directly or indirectly in order to obtain, retain, or secure any undue advantage in
the conduct of business.
 We abide by existing laws when transacting with government agencies (as stipulated under RA
6713- Code of Conduct and Ethical Standards for Public Officials and Employees and RA 3019-
Anti-Graft and Corrupt Practices Act).

THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)

Finance and Accounting
 We require all our employees to ensure that all books and records they create or are
responsible for are complete and accurate.
 Our financial records conform to standard accounting principles, comply with Securities and
Exchange Commission requirements on disclosure and transparency, and abide by anti-money
laundering laws (RA 9160) and international conventions.
 We pay taxes in compliance with all laws.
THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)
Procurement
 A track record of integrity and compliance with existing laws is a prerequisite when we vet third
party consultants, suppliers, intermediaries, and agents. Our company has transparent
procurement procedures, provides equal opportunities for all suppliers, and prohibits, collusion
between and among our employees and suppliers.
 Recognizing that the Integrity Initiative is sustained through widely shared ethical practices
within the business community, we enter into integrity pacts with our suppliers and ensure that
they comply with the provisions of our pact.
 Contracting a third party to bribe or commit corrupt practices on behalf of the company is
strictly prohibited.
THE UNIFIED CODE OF CONDUCT FOR BUSINESS (Integrity Initiative)
Logistics
 We comply with laws and regulations pertaining to supply chain management.
 We do not tolerate any breaches in existing laws in exchange for undue advantage and unethical
concessions or favors. We pay correct duties and taxes based on transparent assessment of
goods and services.
 Employees are not penalized for refusing to pay bribes or facilitation payments even if it results
in failure to meet deadlines or loss, of revenue.

Towards Society in General

Businessmen shall recognize in their decision-making the interest of the general public and, realizing
that they are utilizing to an important degree the nation's resource, shall:
 take regular stock of their response to the basic needs of society and thus ensure that these
needs are taken into account in all policy-making decisions;
  do their best to ensure that the way they deploy their resources benefits society in general and
does not conflict with the needs and reasonable aspirations of the communities in the area
where they operate;
 pay proper regard to the environmental and social consequences of their business activity, with
special attention to the duty of renewing resources where possible and minimizing waste and
pollution, and not sacrifice safety or efficiency in the interest of short-term profitability;
 as corporation citizen make such contributions as their resources will allow, to research,
development and application of indigenous technology, and to the financing of social
development projects;
 consider the human and social costs of mechanization and technology.
 establish a policy allowing employees, within reasonable limits, to contribute to the public and
community services during the work time;
 establish a policy regarding conflicts of interest based on the principle that decisions should be
made in the best interest of the business enterprise, and decision makers should be on their
guard against allowing personal consideration to distort their judgment; and
 not tolerate any form of illegal data-gathering or nay form of inducement that tends to distort
normal commercial judgment.
Risk management should:
1. create value resources spent to mitigate risk should be less than the consequence of inaction, i.e.. the
benefits should exceed the costs.
2. address uncertainty and assumptions
3. be an integral part of the organizational processes and decision-making
4. be dynamic, iterative, transparent, tailorable, and responsive to change
5. create capability of continual improvement and enhancement considering the best available
information and human factors
6. be systematic, structured and continually or periodically reassessed

The factors usually considered with respect to investments are :

business risk.
financial risk
liquidity risk
default risk
interest rate risk
management risk
purchasing power risk.

Identification/definition of terms.
1. Business risk refers to the uncertainty about the rate of return caused by the nature of the
business. The most frequently discussed causes of business risk are uncertainty about the firm's
sales and operating expenses.
2. Default risk is related to the probability that some or all of the initial investment will not be
returned. The degree of default risk is closely related to the financial condition of the company
issuing the security and the security's rank in claims on assets in the event of default or
bankruptcy. For example, if a bankruptcy occurs, creditors, including bondholders have a claim
on assets prior to the claim of ordinary equity shareholders.
3. Financial Risk is the firm's capital structure or sources of financing determine financial risk. If the
firm is all equity financed, then any variability in operating income is passed directly to net
income on an equal percentage basis. If the firm is partially financed by debt that requires fixed
interest payments or by preferred share that requires fixed preferred dividend payments, then
these fixed charges introduce financial leverage. This leverage causes net income to vary more
than operating income.
4. INTEREST RATE RISK. Because money has time value, fluctuations in interest rates will cause the
value of an investment to fluctuate also. Although interest rate risk is most commonly
 associated with bond price movements, rising interest rates cause bond prices to decline and
declining interest rates cause bond. prices to rise. Movements in interest rates affect almost all
investment alternatives. For example, as a change in interest rates will impact the discount rate
used to estimate the present value of future cash dividends from ordinary shares. This change in
the discount rate will materially impact the analyst's estimate of the value of a share of ordinary
share.
5. Liquidity risk is associated with the uncertainty created by the inability to sell the investment
quickly for cash. An investor assumes that the investment can be sold at the expected price
when future consumption is planned. As the investor considers the sale of the investment, he or
she faces two uncertainties: (1) What price will be received? (2) How long will it take to sell the
asset? An example of an illiquid asset is a house in a market with an abundance of homes
relative to the number of potential buyers. This investment may not sell for several months or
even years. Of course, if the price is reduced sufficiently, the real estate will sell, but the investor
must make a selling price concession in order for the transaction to occur.
6. Management Risk. Decisions made by a firm's management and board of directors materially
affect the risk faced by investors. Areas affected by these decisions range from product
innovation and production methods (business risk) and financing (financial risk) to acquisitions.
For example, acquisition or acquisition-defense decisions made by the management of such
firms materially affected the risk of the holders of their companies' securities.
7. Purchasing power risk is perhaps, more difficult to recognize than the other types of risk. It is
easy to observe the decline in the price of a stock or bond, but it is often more difficult to
recognize that the purchasing power of the return you have earned on an investment has
declined (risen) as a result of inflation (deflation). It is important to remember that an investor
expects to be compensated for forgoing consumption today. If an individual is invested in peso-
denominated assets such as bonds, Treasury bills, or savings accounts during the period of
inflation, the real or inflation adjusted rate of return will be less than the nominal or stated rate
of return. Thus, inflation erodes the purchasing power of the peso and increases investor risk.
8. Risk Avoidance. This includes performing an activity that could carry risk. An example would be
not buying a property or business in order not to take on the legal liability that comes with it.
Avoiding risks, however, also means losing out on the potential gain that accepting (retaining)
the risk may have allowed. Not entering a business to avoid the risk of loss also avoids the
possibility of earning profits.
9. Risk reduction or optimization involves reducing the severity of the loss or the likelihood of the
loss from occurring. Optimizing risks means finding a balance between the negative risk and the
benefit of the operation or activity: and between risk reduction and effort applied. Outsourcing
could be an example of risk reduction if the outsourcer can demonstrate higher capability of
managing or reducing risks.
10. Risk Sharing means sharing with another party the burden of loss benefit of gain, from a risk,
and the measures to reduce a risk. the
11. Corruption is the misuse of entrusted power (by heritage, education, marriage, election,
appointment) for private gain. It covers not only the politician and the public servant but also
the CEO, CFO and but other employees of a company.
Corruption often results from patronage and is associated with bribery.
12. A much more difficult, scientific definition for the concept 'corruption' was developed by
Professor (emeritus) Dr. Petrus Van Duyne.
13. Corruption is an improbity or decay in the decision-making process in which a decision-maker
consents to deviate or demands deviation from the criterion which should rule his or her
decision-making, in exchange for a reward or for the promise or expectation of a reward, while
these motives influencing his or her decision-making cannot be part of the justification of the
decision.
14. Corruption causes businesses to flee from the country because businessmen find it a constant
threat for their progress.
15. Corruption is the abuse of entrusted power and elected authority for private profit.
16. Extortion. They do not only blame politicians and public officials for willingly accepting bribes. It
is also often alleged that those having authority in our society ask to be bribed or give us the
opportunity to bribe. This means that the question 'who is to blame', shifts from the person who
pays to the person who extorts and receives. Again on the ground of the allegation: There's no
escaping from it, for if you don't pay, you are bound to fall behind'. In every society it is known,
either publicly or privately, which public official is open to transactions with gifts being made
reciprocally. The gift on the part of the official may then imply considering an application with
priority, or assigning a contract, scholarship or employment. The potential payer will look for his
"prey": he will look for the politician/public official of whom everybody knows that he can be
'bought', that he is prepared to break the rules in exchange for a "gift'. Therefore, the reputation
that a public official or politician enjoys, is of great significance. Some will never be approached
with a proposition", as the potential extortionists or bribers do know that they (those public
officials or politicians) are not open to such practices. Equally, as regards some business
enterprises, it is a known fact that they do not keep any cash for bribes.
17. Lubricant of society. Many think that paying bribes is required to ensure smoother operation of
society. They think that without an occasional gift (for example, around Christmas and New
Year), or incidentally (a gift on the occasion of a marriage or when a child is born) for instance
upon entering into a contract for the supply of a product or a service, such contracts might be
lost to them and might be assigned to others.
For entrepreneurs who want to secure sales, those gifts are a cost item. which they
account for in advance in their prices. As a consequence, products and services cost
unnecessarily more than is needed from a commercial point of view, for as a matter of fact,
these gifts have already been budgeted.
If corruption is judged purely on the basis of business economics, macro economically it
costs money to society which should be considered as a loss. From the micro-economic point of
view, for the bribing entrepreneur, it is profitable. The payer of a bribe secures a desired
transaction which if evaluated on purely commercial grounds - strictly speaking, should have
been assigned to someone else. That will harm individual entrepreneurs and transactions; it will
harm the national economy and the world economy.
18. Judicial System
Corruption risks are high in the judicial system. Bribes and irregular payments in return for
favorable judicial decisions are common. The judiciary is formally independent, but the rich and
powerful have frequently influenced proceedings in civil and criminal cases. Procedural fairness and
transparency are severely undermined by nepotism, favoritism, and impunity. Companies do not
have sufficient faith in the independence of the judiciary and they rate the efficiency of the legal
framework in settling disputes and challenging regulations as poor. Investment disputes can take
several years to resolve due to a lack of resources, understaffing, and corruption in the court system.
Low salaries for judicial officials are said to perpetuate the problem of bribery.
The judiciary is underfunded by the state and often depends on local sponsors for resources
and salaries, resulting in non-transparent and biased court decisions. Foreign investors have noted
that the inefficiency and uncertainty in the judicial system are disincentives for investment;
investors regularly decline to file disputes due to the perception of corruption among personnel and
the complex and slow litigation processes. Enforcing a contract takes much longer than the regional
average, but the costs involved are significantly lower.
In one recent case, a businessman filed an administrative complaint in the country's
Supreme Court against Makati City judge for allegedly asking for a PHP 15 million bribe in exchange
for a favorable ruling in an insurance claim. At the time of review, no further updates on the case
were available.
19. Land Administration
Corruption risks in the land administration are high. Two out of five companies report
expecting to give gifts when obtaining a construction permit. Property rights are formally recognized
and protected in the Philippines, but in practice, the law is not always upheld. Businesses have
insufficient confidence in the protection of property rights.
 Corruption and arbitrariness in the application of the law are common. Multiple agencies
are responsible for land administration, which has led to overlapping procedures for land valuation
and title registration; this has made the process costly.
The court system is slow to resolve land disputes. Land records are not properly managed
due to a lack of trained personnel and funds. Foreigners are not allowed to directly own land, but
they may lease land for up to 50 years with a possible one-time extension of 25 years.
Expropriation is possible under Philippine law; the law calls for fair market value
compensation, but coming to a mutually acceptable price can be a lengthy process in the court
system. Registering property takes nine procedures in the Philippines, which is double the regional
average. However, the total time required is less than half of the regional average.
20. Companies operating in the natural resources sector face a high risk of corruption. The
Philippines has shown marked improvements in its natural resource governance in the past few
years; the country has a good enabling environment and its regulatory quality and control of
corruption are judged as adequate. However, poor value realization and revenue management
have caused the country's overall resource governance to be judged as 'weak'. The Philippines
has been working to achieve compliance with the Extractive Industries Transparency Initiative
(EITI) since joining in 2013. Some mining contracts are publicly disclosed via the EITI portal.
While transparency in the sector has improved, poor regulation and overlapping policy
responsibilities between local and central governments have meant that small-scale mining is
still a contentious issue.
Government corruption has allowed mining companies to evade government
regulations, which has resulted in large-scale deforestation, flattened mountaintops and water
pollution. The government responded by cracking down on illegal mining operations; and as of
2017 Secretary of the Environment Gina Lopez shut down 28 of the country's 41 mining
companies for polluting the environment.
21. Philippine civil society is active and is represented by a wide variety of different organizations.
Public participation is high and civil society organizations (CSOs) enjoy a high level of social
capital. CSOs are normally not included in formal decision-making, but they play a large role in
initiating legislation and steering debate in Congress. There are a multitude of watchdog
organizations monitoring implementation of policy.
The Constitution guarantees freedoms of speech and of expression, but in practice these
freedoms are not consistently upheld. The media environment is largely privately owned and
diverse, and the state generally exercises very little censorship. The views represented in the
mainstream media are heavily influenced by the oligarchical owners of many of the outlets.
The Philippines is the second most dangerous country in the world for journalists to
operate in, as measured by the number of journalist deaths. The state is not directly responsible
for the violence, which can mostly be blamed on local strongmen and criminals and the
weakness of the authorities.
The existence of libel and defamation laws remains a problem and are frequently used
by officials and powerful individuals to try to silence journalist. The media does frequently
report on high-level corruption cases. Independent observers report that bribes and other
incentives are often used by high-level officials to motivate journalists to create one-sided
reports for the official's benefit. Internet access is widely available, but there are concerns about
the government trying to install some degree of censorship. The Philippine press is classified as
partly free'.
Case Analysis.
Case: Resolving an Ethical Dilemma

Bert Cruz has been working for 6 months as a staff assistant for a law firm, Alvendia and Castro.
Currently he is assigned to the case of Ryan Manufacturing Company under the supervision of Carlos
Reyes, an experienced senior lawyer. There are three junior legal of assistants assigned to the case,
including Bert, Carlos and more experienced assistant, Martha Sy.
 During lunch on the first day, Carlos says, "It will be necessary for us to work a few extra hours
on our own time to make sure we come in on budget. This case isn't very profitable anyway, and we
don't want to hurt our firm by going over budget. 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."

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

Later, when discussing the issue with Martha, she says, "Carlos 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 seniors staff follow the same practice."

Ethical Issue

The ethical issue in this situation is not difficult to identify.

• Is it ethical for Bert to work hours and not them as hours worked in this situation?

Who is Affected and How is each Affected?

There are typically more people affected in situations in which ethical dilemmas occur than would
normally be expected. The following are the key persons involved in this situation:

Who: Bert
How Affected
Being asked to violate firm policy.
Hours of work will be affected.
Pay will be affected.
Performance evaluations may be affected.
Attitude about firm may be affected.
Success on engagement and in firm may be affected.
Hours of work will be affected. Stated firm policy is being violated.
May result in under billing clients in the current 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 employees.
May result in unrealistic time budgets.
May result in unfavorable time performance evaluations.
May result in pressures to continue practice of not charging for hours worked.
Following the practice of this engagement may motivate others to follow the same practice on other
engagements.

Bert's Available Alternatives

Refuse to work the additional hours.
Perform in the manner requested.
Inform Carlos that he will not work the additional hours or will charge the additional hours to the
engagement.
Talk to manager or partner about Carlos request.
Refuse to work on the engagement.
Quit working for the firm.
Each of these options includes a potential consequence, the worst likely one being termination by the
firm.

Consequences of Each Alternative

In deciding the consequences of each alternative, it is essential to evaluate both the short- and
long-term effects. There is a natural tendency to emphasize the short term because those consequences
will occur quickly, even when the long term consequences may be more important. For example,
consider the potential consequences if Bert decides to work the additional hours and not report them.
In the short term, he will likely get good evaluations for cooperation and perhaps a salary increase.
In the longer term, what will be the effect of not reporting the hours this time when other ethical
conflicts arise? Consider the following similar ethical dilemmas Bert might face in his career as he
advances:
 A supervisor asks Bert to work 3 unreported hours daily and 15 unreported hours each
weekend.
 A supervisor asks Bert to initial certain procedures as having been performed when they were
not.
 Bert concludes that he cannot be promoted to manager unless he persuades assistants to work
hours that they do not record.
 Management informs Bert, who is now a partner, that either the company gets a P400,000 legal
fee or the company will change lawyers.
 Management informs Bert that the legal fee will be increased P50,000 if Bert can find a plausible
way to increase probability or wining the case.

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