Chapter VII: Common Unethical Practices of Business Establishments

Date of Presentation: October 02, 2021

Members:
Aguila, Eldrin Aaron V. 20-50138
Duran, Christinne Joy L. 20-50831
Robles, Vince Harry D. 20-52479

Expected Learning Outcomes:

1. Familiarize with the common unethical practices of business establishments.

2. Describe how direct misrepresentation is committed by business firms.
3. Describe how indirect misrepresentation is done by business firms.
4. Describe how over-persuasion becomes unethical.
5. Describe some unethical practices of the board of directors, executive officers and
lower-level managers, and employees.

Content:

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 is divided into two; direct misrepresentation and indirect misrepresentation.

Direct Misrepresentation

It is the actively misrepresenting the product or customers.

1. Deceptive Packaging. Deceptive packaging takes many forms and is of many types.
One type is the practice of placing the product in containers of exaggerated sizes and
misleading shapes to give a false impression of its actual contents.
2. Misbranding or Mislabeling. Misbranding 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

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control
 purpose of deceiving the customer as to the quality and/or quantity of a product being
sold.

3. False or Misleading Advertising. A misconduct of misrepresenting the nature,

characteristics, qualities or geographic origin of goods or services to mislead the
consumer.
4. Adulteration. Adulteration is the unethical practice 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.
5. Weight understatement or Short weighing. In short weighing, the mechanism of the
weighing scale is tampered with or something is unobtrusively attached to it so that the
scale registers more than the actual weight.
6. Measurement understatement or Short measurement. The measuring standard is
shorter than the real length or smaller in volume than the standard. This unethical practice
is found in selling situations where the price of a product depends on its lengths such as
selling cloth or textiles, electric cords, or wires, or on its volume such as selling rice by the
sack.
7. Quantity understatement or Short numbering. In this unethical practice, the seller gives
the customer less than the number asked for or paid for. Short numbering is often
practiced in selling situations where the product being sold is in such a shape or is packed
in a manner that would make counting the product difficult or inconvenient.

Indirect Misrepresentation

It is characterized by omitting adverse or unfavorable information about the product or

service. Among the most common practices involving indirect misrepresentations are caveat
emptor, deliberate withholding of information, and business ignorance.

1. Caveat emptor. It is a practice very common among salesmen. Translated, caveat emptor
means "let the buyer beware". Under this concept, the seller is not obligated to reveal any
defect in the product or service he is selling. It is the responsibility of the customer to
determine for himself the defects of the product.
2. Deliberate Withholding of Information. Following the argument that caveat emptor is
unethical, the deliberate withholding of significant information in a business transaction is

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control
 also unethical. No business transaction is fair where one of the parties does not exactly
know what he is giving away or receiving in return.
3. Passive deception. Direct misrepresentation gives the 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 a fast buck.
Business ignorance is passive deception because a businessman is unable to provide the
customer with the complete information that the latter needs to make a fair decision.

Over-Persuasion

Persuasion is the process of appealing to the emotions of a prospective customer and

urging him to buy an item of merchandise he needs. Persuasion is legitimate and necessary in
the selling of goods if it is done in the interest of a buyer. However, persuasion used for the sole
benefit of selling a product without considering the interest of the buyer is not ethical.

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.

Corporate Ethics

Practices of corporate management that involve ethical considerations may be classified

into two: practices of the Board of Directors and practices of executive officers. In many cases,
the practices may apply to both categories of corporate management and the only dividing line is
in the financial magnitude and implications of particular corporate management practice.

Unethical Practices of the Board of Directors

The following are unethical practices that are more common to the board of directors:

1. Plain Graft. A form of corruption defined as the unscrupulous use of a board of director's
authority for personal gain.
2. Interlocking Directorship. A situation in which a member of the board of directors of one
corporation also serves as a member of the board of directors of another corporation.

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control
 3. Insider Trading. Illegal practice of trading on the stock exchange to one's own
advantage through having access to confidential information.
4. Negligence of Duty. Failure to act reasonably and neglect their duties.

Unethical Practices of Executive Officers and Lower-Level Managers

The following are unethical practices that are more common to executive officers and lower-level
managers:

1. Claiming a vacation trip to be a business trip. Reporting a personal vacation as a

business trip so that he or she can get reimbursement for the expenses he or she incurred.
2. Having employees do work unrelated to the business. Executive officers and lower
managers ask company employees to do personal things for them on company time.
3. Loose or ineffective controls. Managers do not provide adequate controls to remove
the temptation and to prevent or discourage employees from engaging in unethical
practices.
4. Unfair labor practices. The labor code lists the unfair labor practices committed by an
employer on employees or a group of employees who have organized themselves into a
union.
a. To interfere with, restrain, or coerce employees in the exercise of their right to self-
organization.
b. To require as a condition of employment that a person or an employee shall not
join a labor organization or shall withdraw from one to which he belongs.
c. To contract out services or functions being performed by union members when
such will interfere with, restrain, or coerce employees in the exercise of their rights
to self-organization.
d. To initiate, dominate, assist, or otherwise in the formation or administration of any
labor organization, including the giving of financial or other support to it.
e. To discriminate with regard to wages, hours of work, and other terms or conditions
of employment in order to encourage or discourage membership in any labor
organization.
f. To dismiss, discharge, or otherwise prejudice or discriminate, against an employee
for having given or being about to give testimony under the Labor Code.
g. To violate the duty to bargain collectively a prescribed by the Labor Code.

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control
 h. To pay negotiation or attorney fees to the union or its officers or agents as part of
the settlement of any issue in collective bargaining or any other dispute.
i. To violate or refuse to comply with voluntary arbitration awards or decisions
relating to the implementation or interpretation of a collective bargaining
agreement.
j. To violate a collective bargaining agreement.
5. Making false claims about losses to free themselves from paying the compensation
and benefits provided by law. There are employers who claim non-existent losses so
they can be exempted from paying the minimum wage and emergency allowances.
6. Making employees sign documents showing that they are receiving fully what they
are entitled to under the law. There are employers who cut the compensation of their
employees- receiving a fraction of what they are supposed to get.
7. Sexual Harassment. Work, education, or training-related sexual harassment is
committed by those who have authority, influence, or moral ascendency over another.

Unethical Practices of Employees

There are some employees who are not mindful of their moral obligations to their
employers. They take advantage of their position and the trust of their employees by committing
unethical practices harmful to their employers' interests; these unethical practices may be
classified into conflict interest and dishonesty.

1. Conflicts of Interest. A conflict of interest arises when an employee who is duty-bound

to protect and promote the interests of his employer violates this obligation by getting
himself into a situation where his decision or actuation is influenced by what he can
personally gain from it rather than what his employer can gain from it. Some common
examples of interest are:
a. An employee who holds a significant interest or shares of stock of a competitor,
supplier, customer, or dealer favors this party to the prejudice of his employer.
b. The employee accepts cash, a gift, or lavish entertainment, or a loan from a
supplier, customer, competitor, or contractor. In this situation, the decision or
action of the employee is influenced by his being indebted for a favor or loan from
a party with whom the company is doing business. He, therefore, cannot act
impartially.

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control
 c. The employee uses or discloses confidential company information for his or
someone else's personal gain.
d. The employee engages in the same type of business as his employer. He may
attend to his business only after office hours because he has somebody to mind it
for him but it is still unethical.
e. The employee uses for his own benefit a business opportunity in which his
employer has or might be expected to have an interest.
2. Dishonesty. Business ethics is not just limited to business transactions with outside
parties. It also covers the employee-employer relationship, especially with respect to an
employee's honesty as he carries out his assigned duties in the office.
a. Taking office supplies home for personal use.
b. Padding an expense account through the use of fake receipts when claiming
reimbursements.
c. Taking credit for another employee's idea.

Reference:

Cabrera M. and Cabrera G. (2019). Corporate Governance, Business Ethics, Risk Management,
and Internal Control. 2019-2020 Edition. 2017 C. M. Recto Avenue, Manila: GIC Enterprises &
Co., Inc.

MGT 209: Corporate Governance, Business Ethics, Risk Management and Internal Control