7

CHAPTER 2

REVIEW OF RELATED LITERATURE

This chapter presents a review of foreign and local literature directly and indirectly

related to the research study.

There are various reasons why people go into business. Some wants to give quality

products and services to the public. Some turn their hobbies and interests into living and for

public benefit, while others do this for personal satisfaction. But the most common reason is that

it opens opportunity for anyone to earn for their living. More and more enter in this field because

it is open for all, no educational attainment nor work experience required just a mind for business

and enough capital. This is why it attracts working people who has insufficient salary and those

unemployed who wants to earn money.

As stated by Cortez (2016), one of the main contributions of Ronald F. Duska in the

debate regarding the purpose of business in his argument on the distinction between purpose and

motive. He observed rightly that business is seen as distinct from other organizations and

institutions such as public hospitals, public schools, charity institutions, government bodies, and

nongovernment organization. These entities are usually non-profit organizations. Business on the

other hand is for profit. Thus, people typically conclude that the main and sole purpose of

business is to make profit. But according to Duska, the purpose is not necessarily the motive and

vice versa. He said, "My motive for doing an action is not necessarily and the same as the

purpose of the action". He believe that the primary purpose of business is neither personal benefit

nor the accumulation of profit. The purpose of business is to respond to society's needs for goods

and services. Duska said, "If doing business rewards me with a profit, I will be inclined to get into

it, but the purpose of business-why society allowed it to be set up or allowed it to exist in its

profit for I enters from-was so that it would provide goods and services.
 8

As stated by Roa (2011) in his book Business Ethics and Social Responsibility,

businessmen, traditionally, looked that profit is the most important aspect of business.

Nonetheless, there is other important aspect of business other than profit, it is ethics. Milton

Friedman, a noted economist, stated that “the only responsibility of business is to make profit so

as long as one stays within the rules of the game and engages in open and free competition

without deception or fraud.” On the other, Peter Ducker, an equally famous management guru,

said that “the primary responsibility of business is look for customers and satisfy their needs and

wants.” He points that businessmen must also consider customer satisfaction, quality products,

after sales policies, and fair and reasonable pricing. Although both have contrasting ideas about

the main responsibility of a business, both implies that ethics is important.

According to Roa, ethics deals with morality. It is a discipline or set of moral principles

and values governing an individual or institutional behaviour. He also added that ethics aimed at

conforming to an accepted standard of good behavior. Meanwhile, he defined moral values as

qualities of an act performed by man freely and knowingly. This suggests that moral values are

part in freedom of choosing an action one wants to perform.

He also stated that ethics is important to business for without it, people especially

businessmen, would set their own moral standards, moral rules, and moral principles. The

outcome would be a kind of subjective morality, in which, what is good for a person may be bad

for another and vice versa. For example, entrepreneurs would consider some or their actions like

cheating their customers to gain profit, though it is unacceptable for others.

According to Bhattacharyya (2016), business ethics help to attract and keep employees,

customers, and investors. She said that reputation is a very important asset of a company and

most difficult task to regain it once lost. In building a good reputation, consistent ethical

behaviour is essential. She added that potential investors and shareholders are likely to get

attracted to the companies which adhere to their moral guidelines and promises they’ve made;
 9

this keeps the company’s share price high. In order to retain good reputation, a business must be

committed in operating on an ethical foundation as it relates to respecting the surrounding

environment, treatment of employees, and good market practices in terms of customer treatment

and price. She also added that employees chooses to stay in a company with strong business, this

increases the company’s productivity. When the employees does their work with honesty and

integrity it will eventually benefit the company.

These agree with the website www.importantindia.com which cites 25 reasons why ethics

is important in business. The reasons are as follows:

1. Ethics lays the strategic decision-making. Managers and employees with ethical values

could make sound decisions. They let the stakeholders partake in the decision-making

process.

2. Ethics increases employee retention. Employees want to stay in a business if the

employers value their rights.

3. An ethical business attracts investors. Investors choose to infuse capital where they are

sure that it is safe – a business promoting ethics makes an investment-friendly

environment.

4. Ethics minimizes cost. More employees are retained so expense for hiring new ones is

reduces.

5. Ethical practices help in building and maintaining reputation. Customers tend to ensure if

a business integrates ethics before engaging with it.

6. An ethically oriented company is bound to avoid fines. A business must abide by the

laws, file tax returns in time, ensure the quality of products and services at all times, etc.

7. Ethics in business attracts more employees. More people wants to work in a business

with good reputation.

 10

8. Good business ethics is the key to enhancing productivity. Employees would work better

if they know that what they are doing is ethical for they will not have doubts about it.

9. Ethics creates customer loyalty. If a business has good reputation build in ethics,

customers tend to trust the products and services and they also put a good word to their

family and friends thus, creating more customers.

10. Ethics encourages teamwork. Employers and employees would work together efficiently

if they trust each other.

11. A business that values ethics attracts more suppliers. Suppliers want to engage in

business that appreciates their supplies and pays immediately.

12. Ethics in business enhances partnership. Strong business ethics is the foundation of good

partnership.

13. Ethics reduces business risks. As trust and loyalty are built on ethics, chances of losing

potential customers, suppliers, employees is minimal.

14. Ethics improves a company’s bottom line (last line that shows profit or loss). The cost

and risks are reduced, so the bottom line increases.

15. Ethics increases business profits. A decreases in cost is likely to result to a higher profit.

16. Ethics results in sustainable growth in sales. An increase in customers leads to an

increase in demand. The higher the demand, the higher the sales would be.

17. Good ethics in business boosts the morale of the employees. Rewarding the employees is

involved in good business ethics. This makes them work harder, leading to increased

profits.

18. Ethics helps in building consumer confidence. Even in difficult situations, business ethics

makes the customers believe in the business.

19. Ethics enables a company to make good use of the limited resources. The company

leaders can put the limited company resources to good use.

 11

20. Ethics in business allows for healthy competitions. A company characterized with ethical

behavior will compete fairly with the other competitors. They will let the customers

choose and will not resort to unethical tactics

21. Ethics leads to long-term gains. A company that values ethics believes in small, but long-

term benefits rather than big, but short-term benefits.

22. Ethics helps in maintaining quality. A company with ethics will ensure to provide

customers with quality products and services at all times.

23. Ethics offers extra asset protection. Employees with ethics, will protect the business’s

assets.

24. Ethical practices foster community improvement. Ethically oriented companies will help

a community to be better through things like construction of roads and schools and other

social works.

25. Good business ethics is an end in itself. Running an ethical business makes the

employees, vendors and customers satisfied.

Based on all the given reasons of the various authors stated, ethics is very important in a

business operation. It helps the company attract, retain and make the investors, employees and

customers satisfied.

William Sauser, in the Journal of Business Ethics article “Ethics in Business: Answering

the Call,” explained that business organizations have four levels of responsibility: (1) Earning

profit; (2) Legal responsibility; (3) Ethical responsibility; and (4) Discretionary responsibility.

Responsibilities of business beyond profit making have come to be called Corporate Social

Responsibility or CSR. CSR, as defined by the World Business Council for Sustainable

Development (WBCSD), is a “continuing commitment by business to behave ethically and

contribute to economic development while improving the quality of life of the workplace and

their families, the local community, and society at large.” More and more companies are
 12

embracing CSR because of profitability, and also because more managers now believe that being

a better corporate citizen is a source of competitive advantages. The leadership of many

Philippines business spearheading the contemporary CSR movement is generally motivated by a

commitment to social or environmental goals. CSR in the Philippines has evolved over the last

four decades mainly as a response to the country's worsening socio-economic conditions.

In applying ethical values, there are various techniques that could be used. According to

Putnam, in his article “Ethical Values for Business Success” in the globalethicsuniversity.com, “it

takes a concentrated, company-wide effort, beyond inserting these words in san employee

manual, to make it happen.” He said that the management must lead example for good ethics

must be noticeable from the top and all employees must be countable for the same rules. In

addition he said that a corporate values or ethics initiative must be sold and marketed

aggressively in the company. All medium must be used to spread it. Of course, the company must

practice what it preaches. Moreover, training must be provided to get everyone in the same page

for spending time in learning have lasting impact. Furthermore, the company, entrepreneur, and

employees must be in it. It must extend to next generations because the longer it lasts the more

ingrained it will become.

In his article “Tips to Improve Ethical Behavior in Organizations,” Nag mentioned tips to

foster effective ethical training in the organization. First is to develop a code of ethics. It provides

the direction and guidelines for employees’ ethical behaviors and helps them understand the

ethical expectations and rules of the organization. Second, make mangers role models, the same

with what Putnam said. Through this, the employees would be guided accordingly and they will

feel reluctant to oppose the guidelines. Third, disciplinary actions for unethical behavior. It is

better to impose sanctions to employees who resorts to malpractice or unethical behaviour to help

them understand the implications of inappropriate behaviors. Fourth, reward for ethical behavior.
 13

Rewarding employees for ethical behaviors makes them feel appreciated so that they will

continue to adhere ethical practices and for them to inspire other employees.

Deiner, in his article “7 Biblical Secrets to Business Success,” mentioned biblical

principles that could lead to success in business which include the following:

1. Do your homework. He said that he learned the principle of due diligence through

Talmudic study. He studied and debated among rabbinical scholars. He did not take

anything for granted and made sure that every argument is considered and debated. He

learned to ask why and made sure to understand the issues. He used the same approach in

business. He did his homework: researching competition and testing the market.

According to him, major mistakes can be avoided and opportunities can be found due

diligence.

2. Treat employees fairly. Employees are company asset, they are importance in running a

business. Paying employees on time is a must. “The wages of a worker shall not remain

with you all night until the morning” (Lev. 19:13). Employers must also not take

advantage on the employees. “You shall not abuse a needy and destitute labourer,

whether a fellow countryman or a stranger” (Deut. 24:14). Every employee must be

treated impartially, regardless of their race, age, gender, religion, and color.

3. Have the highest level of customer service. An entrepreneur must give what is best for the

customers at all times. Goods and services must be of high quality. “Love your neighbour

as yourself” “Lev. 18:18). Every entrepreneur must put themselves in the customers’

shoes when providing them with products and services.

4. Be honest with customers. Honesty must always be practiced in business. “You shall have

just balances and just weights” (Lev. 19:36). Even they would not find out, customers

must not be cheated. “Do not… put a stumbling block before the blind” (Lev. 19:14).

This means that when another party does not know or see what one is doing, he or she
 14

must not take advantage. “The Lord hates anyone who cheats, but he likes everyone who

is honest” (Prov. 11:1). “The Lord doesn’t like when we cheat in business” (Prov. 16:11).

“Two things that the Lord hates are dishonest scales and dishonest measures” (Prov.

20:10).

5. Always act as if you are being watched. Someone above is always watching you. “The

Lord sees everything, and he watches us closely” (Prov. 5:21)

6. Build reputation for integrity and honesty. Cheating is the greatest temptation in business

setting where one can earn more profits. If one can overcome the temptation, one will

reach high level of character. Honesty makes the business grow. “Being greedy causes

trouble for your family, but you protect yourself by refusing bribes” (Prov. 15:27)

7. Be humble: accept and encourage criticism. “He who loves instruction loves knowledge,

but he who hates correction is stupid” (Prov. 12:1). Pride gets in the way of success. One

must not always think that he is perfect. Entrepreneurs must accept and encourage

criticisms from employees and so as from customers. These criticisms would help the

company to be better.

Similarly, Putanam referred to the following values which have stood the test of time:

honesty, being truthful; integrity, showing completeness and soundness in character;

responsibility, taking responsibility for the actions; quality, offering what is best; trust; respect’

demonstration of honor, value and reverence; teamwork; leadership, providing good example that

other follow; and corporate citizenship, providing safe workplace, protecting the environment and

becoming good citizens of the community.

Padilla (2016) stated that “an individual’s ethical viewpoint does not develop or exist

apart from real world. Values developed in childhood and youth are constantly tested and on-the-

job decisions reflect the employee’s understanding of ethical responsibility. An individual’s

ethical behaviour affects not only his or her reputation within the company but may also
 15

contribute on the way in which others perceive the company. Business ethics cannot be separated

from the ethics in general, and the individual must deal with job problems by fundamental ethical

standards.”

Venturing into a business is thus not just about making or earning money, but it is about

making a lot of opportunities as well, and one of these opportunities is to integrate ethical values

into the business operation, mainly anchored on the Golden Rule, which emphasizes the need to

treat others as one wants to be treated.