BUSINESS ETHICS

FELIX M. DEL ROSARIO, CPA, MBA

ETHICS AND BUSINESS
 1. The Nature of Business
 Business is part of human society . And since it is
part of the complex web of interaction among
institutions and people , its activities must be
viewed and examined from the perspective of
morality . Business without ethics threatens the
survival of human society and in some cases,
destroys the fiduciary relationship of people. The
study of business ethics paves the way for our
common understanding of the fundamental
concepts of what is right and wrong in our human
conduct and its implications to business as an
important human activity
CONT.
 Business is an activity that is part and parcel of
human society . Society will not exist without
business. Since business is an integral part of the
society , it’s activities must be examined from the
ethical perspective . The fundamental reason for
examining the activities of business from the
moral perspective is for the promotion of the
common good , protection of the individual’s
interest and the preservation of the human
society in general.With out ethics , business will
be a chaotic human activity because there will be
no common understanding and agreement about
what is right and wrong human conduct.
CONT.
 Business is also a complex enterprise that
involves major activities like purchasing ,
manufacturing , marketing, advertising, selling and
accounting. Businessmen deal with suppliers ,
customers, workers , employees and even
competitors. It is within this structure of
interaction of people a lot of questionable
practices occur- misrepresentation , questionable
pricing policies, false advertising, misbranding,
lying, adulteration, unfair competition and local
price cutting among others. The bottom line is ,
people rights are being violated, their values
disrespected and the interest of the common
good disregarded.
2. The importance of Ethics in
Business
Without ethics , people , especially
businessmen will set their own moral
standards, moral rules and moral principles.
This would result into a kind of subjective
morality , in which case , what is good for
one may be bad for another and vice versa.
 Business ethics opens a novel way of
resolving moral problems and ethical
dilemmas affecting business transactions
and the interactions of people in the
corporate world. Business Ethics will
enhance the human and interpersonal
skills of managers so they can be more
effective in managing the human side of
the organization.
 Business Ethics provide the manager a
process in which ethical issues and
problems benchmarked against a moral
standard so that a moral judgment is
made possible.
Characteristics of a Good Moral
Standard ( Shaw, 1999)
 1. A good moral standard is one that looks at
the issue as something that is very serious..
 2. a good moral standard must be grounded
on good moral argument. A good argument
always tells the truth and a solid moral
argument leaves no room of loopholes and
counter arguments.
 3. A good standard should be objective and
not subjective.
 4. A good standard when violated , brings
about the feelings of guilt, shame and
remorse of conscience.
 Requirements of good moral
judgment
 1.A good moral judgment must be logical.
 2. A good moral judgment must be based
on facts and solid evidence
 3. A good moral judgment must be based
on sound and defensible moral principles.
3. The Relationship Between Ethics
and Business
 Ethics play a vital role in business. Without
morality , business will be a chaotic human
activity. Ethics is not a study of positive laws
intended to govern and regulate actions of
people doing business. It’s concern as a
philosophical science is to discover that
there are unwritten laws, written in the
hearts of men that should govern our human
conduct where positive laws may be absent
,and in some cases , not very clear.
Arguments justify the significant role
of ethics in the world of business.
 a. Business is an integral part of human
society
 b. In business, what is legal may not be
necessary moral
 c,. Laws are insufficient
 d. The trend is to train managers to
maximize profits by quantifying the
operation of the business.
 e. Business enterprise is an organ of society
and its actions have a decisive impact on the
social science.
4. The morality of Profit Motive

 Assumptions of profit motive

 1. Profit Motive in business is an ethical
issue.
 2. Profit Motive as an ethical issue
operates within the two important
aspects of our human conduct – freedom
and the structure of the business.
The good side of Profit Motive

 a. Profit motive motivates people to do

something meaningful
 b. Profit Motive promotes ingenuity and
cleverness in running a business
 c. Profit motive makes people productive
 d. Profit Motives generates potential
capital for the business.
The Bad side of profit motive

 a. Profit motive promotes rivalry among

competitors.
 b. Profit motive makes people focus only on
making money
 c. profit motive turns the businessman from
being a reflective and a questioning person
because he focuses his attention only on the
practical activity of making money.
 d. Profit motive promotes self interest rather
than the common good
Ethical considerations of Profit-
Motive in Business
 a. Earning profit is a good and valid activity
in business.
 b. Making excessive profits is totally
wrong .
 c. Profit is not a be –all and the end – all
of doing business.
 d. The teachings of the Catholic Church
do not totally condemn profit as part of
business activity.
5. Moral Responsibility

 Definition
 a. It refers to holding to people morally
accountable for some past actions.
 b. It also means care, welfare or treatment
of others as derived from the specific
social role that one plays in the society.
 c. It refers to one’s capacity for making
moral or rational decisions on his own
Reasons why Human held for
moral responsibility
 a. Man is rational being
 b man is a free being
What are Business Ethics?
 By definition, business ethics are the moral principles that act
as guidelines for the way a business conducts itself and
its transactions. In many ways, the same guidelines that
individuals use to conduct themselves in an acceptable way –
in personal and professional settings – apply businesses as
well.Determining Right and Wrong
 Accdg. To Shaw, it is the study of what is right and wrong
human behavior and conduct in business. It is a study of the
perceptions of people about morality , moral norms , moral
rules and ethical principles as they apply to people and
institutions in business. It is the study , evaluation , analysis
and questioning of ethical standards , policies , moral norms
and ethical theories that managers and decision makers use
in resolving moral issues and ethical dilemmas and affecting
business.
 Acting ethically ultimately means determining what is “right”
and what is “wrong.” Basic standards exist around the world
that dictate what is wrong or unethical in terms of business
practices. For example, unsafe working conditions are
generally considered unethical because they put workers in
danger. It might look like a crowded work floor with only
one means of exit. In the event of an emergency – such as a
fire – workers could become trapped or might be trampled
on as everyone heads for the only means of escape.
 While some unethical business practices are obvious or true
for companies around the world, they do still occur. In other
instances, determining what practices are ethical or not is
more difficult to determine if they exist in a grey area where
the lines between ethical and unethical can become blurred.
 For example, assume Company A works with a
contact at Company B, an individual through which
they negotiate all the prices for supplies they buy
from Company B. Company A naturally wants to get
the best prices on the supplies. When the individual
from Company B comes to their home office to
negotiate a new contract, they put him up in a top-
tier hotel, in the very best suite, and make sure that
all his wants and needs are met while he’s there.
 In technical terms, the practice is not illegal; however,
it might be considered a grey area – close to, but not
quite, bribery – because the individual is then likely to
be more inclined to give Company A a price break at
the expense of getting the best deal for his own
company.
Understanding Business Ethics
in Three Parts
 #1 History
 The first part is the history. While the idea of
business ethics came into existence along with
the creation of the first companies or
organizations, what is most often referred to by
the term is its recent history since the early
1970s. It was when the term became commonly
used in the United States. The main principles of
business ethics are based in academia and
academic writings on proper business operations
gleaned through research and practical study of
how businesses function and how they operate
independently and with one another.
 #2 Scandals
 The second major meaning behind the
term is derived from its close relationship
and usage when scandals occur.
Companies selling goods in the U.S. that
were created using child labor or poor
working conditions is one such
scandalous occurrence
 #3 Integration
 Perhaps, the most recent and continually
developing aspect behind business ethics is
the third piece – the idea that companies are
building business ethics into the core of
their companies, making them the main
standard and part of their operational
blueprint. As the world continues to grow
more political – and more politically correct
– the increased focus on proper business
ethics and strong adherence to them
becomes ever more the norm.
 Business ethics are important for every
company. They keep workers safe, help
trade and interactions between
companies remain honest and fair, and
generally make for better goods and
services. Distinguishing what a company
will and won’t stand for is not always the
same for each organization, but knowing
what guidelines needs to be followed help
keep a company honest and productive.
ETHICAL ISSUES AND PROBLEM IN THE
BUSINESS AND CORPORATE WORLD

 1. SEXUAL HARRASSMENT
 R.A 7877 defines as “Employer, employee, manager , supervisor,
agent of the employer, teacher, instructor , professor , coach, trainor
or any other person having authority , influence or moral
ascendancy over another in a work or training or education
environment demands , requests or otherwise requires any sexual
favour from the other, regardless of whether the demand, request
or requirement for submission is accepted by the object of said act.
 TYPES OF SEXUAL HARRASSMENT
 A. QUID PRO QUO
 B. HARRASSMENT THAT CREATES A HOSTILE ENVIRONMENT
 Legal penalties
 1. Imprisonment of not less than 1 month but not more than
6 months
 2. Fine of not less than Ten thousand but not more than
twenty thousand.
 2. JUST WAGE
 3. GIFT GIVING AND BRIBERY
 It is merely an act of extending goodwill to an individual in an
effort to share something with them.
 FACTORS IN DETERMINING THE MORALITY OF GIFT GIVING
 1.VALUE OF GIFT
 2. PURPOSE OF THE GIFT
 3. CIRCUMSTANCES UNDER WHICH THE GIFT WAS GIVEN
OR RECEIVED
 4. POSITION BETWEEN OR REALTIONSHIPS OF THE GIVER
AND RECEIVER
 5. ACCEPTABLE BUSINESS PRACTICE IN THE INDUSTRY
 6. COMPANY POLICY
 7. LAWS AND REGULATIONS
 4. WORKPLACE ROMANCE
 Relationship between two people who are employed by the same organization . It is characterized by mutual attraction
between the parties and a desire for a personal , romatic relationship.
 The company stand;
 The company is trapped in the middle of office and work place romances present in the organization.
 Benefits of WorkPlace Romance
 a. friendship
 b. mutual support to each other at work and other personal experiences.
 c. The reason to keep their jobs
 d. To be in somebody’s company is better than being lonely.
 e. love and companionship in the office give the employees the relief and reason to overcome problems that come along
their way.
 f. Majority believes that the workplace is the right venue to find the person to marry and to nurture long term relationship

 DISADVANTAGES OF WORKPLACE ROMANCE
 1. Damaged Professionals Reputations.
 2. Disturbed Co workers
 3. Changes in productivity
 4. Dating the boss
 5. Extramarital affairs.

 5. FAIR PRICING
 ETHICAL ISSUES IN FAIR PRICING
 A. The true cost of the product is
concealed.
 b. Suggested retail price
 c. Use of electronic scanners
 d. Promotional pricing
 e. Follow the leader pricing
 f. price grouping
 g. price Ficxing
 6. TRADE SECRETS AND CORPORATE
DISCLOSURE
 7. MORALITY OF LABOR STRIKES
 8. WHISTLEBLOWING
 9. UNFAIR COMPETITION
 KINDS OF COMPETITION
 A. Monopoly
 b. Oligopoly
 3. Perfect competition
 10. MONEY LAUNDERING
 11. TAX EVASION AND TAX AVOIDANCE
Case Study
 1. To foster ethical discussion and understanding in the
workplace, the Lockheed Martin company developed a quiz
for employees called “Gray Matters.” The quiz is multiple
choice, with a range of points awarded (or subtracted)
depending on the response. Subsequently, the approach has
been adopted by a wide range of corporations. Here’s a
typical question matched with its possible answers and the
corresponding points:
 Six months after you hired an assistant accountant who has
been working competently and responsibly, you learn that
she departed from the truth on her employment application:
she claimed she had a college degree when she didn’t. You’re
her manager; what should you do?

 Nothing because she’s doing her job just fine. (–10
points)

 Bring the issue to the human resources department
to determine exactly how company policy determines
the situation should be handled. (10 points)

 Fire her for lying. (5 points)

 Carefully weigh her work performance, her length of
service, and her potential benefit to the company
before informing anyone of what happened or making
any recommendations. (0 points
Questions
 The three principle components of business ethics are facts, values, and
arguments. What are the facts pertinent to an ethical evaluation of this
case? Is there any information not contained in the question that you’d like
to have before making a decision about what should be done?

 From the facts and information provided, can you sketch a set of values
and chain of reasoning justifying the answer that the quiz’s original authors
sanctioned as the right one? (Leave the decision in the hands of the HR
department and existing company policy.)

 You get some points for C (firing her). What values and reasoning may lead
to that determination?

 According to the quiz authors, the worst answer is A. Maybe they’re wrong,
though. What values and reasoning may lead to the conclusion that doing
“nothing because she’s doing her job just fine” is an excellent response?

◦ One of the most important questions about a
situation’s facts is “who’s involved?”
 Would it be reasonable to say that, ethically, this is
an issue just between you and the woman who you
hired after she lied on her résumé?
 If you expand the answer about who’s involved to
include other workmates at the company, as well as
the company’s clients and shareholders, does that
change the ethical perspective you have on what
should be done with the lying (but capable) co-
worker?
 ◦ What’s the difference between morality and ethics?
 Would you categorize response B (bring the
issue to HR to determine exactly how company
policy determines the situation should be
handled) as leading to a decision more based on
morality or more based on ethics? Explain.
 Would you categorize response D (carefully
weigh her work performance, her length of
service, and her potential benefit to the company
before informing anyone of what happened or
making any recommendations) as leading to a
decision more based on morality or ethics?
Explain
I POD Mo.
 Connie Guglielmo, a reporter for Bloomberg news services, begins an article on Apple this
way: “Apple Inc. said three of its suppliers hired 11 underage workers to help build the
iPhone, iPod and Macintosh computer last year, a violation it uncovered as part of its
onsite audit of 102 factories.”Connie Guglielmo, “Apple Says Children Were Used to Build
iPhone, iPod (Update1),” Bloomberg, February 27, 2010, accessed May 11, 2011,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aiEeeQNHkrOY.

 Her story adds details. The underage workers were fifteen in places where the minimum
legal age for employment is sixteen. She wasn’t able to discover the specific countries, but
learned the infractions occurred in one or more of the following: China, Taiwan, Thailand,
Malaysia, Singapore, South Korea, the Czech Republic, and the Philippines.

 Following the discovery, the employees were released, and disciplinary action was taken
against a number of the foreign suppliers. In one case, Apple stopped contracting with the
company entirely
 The story closes with this: “Apple rose $2.62 to $204.62 yesterday in Nasdaq Stock
Market trading. The shares more than doubled last year.”
 The ethical question is whether Apple ought to contract (through suppliers) fifteen-year-
olds to work on factory floors. Is the fact that the stock price has been zooming up a
pertinent fact, or does it not affect the ethics? Explain.

 From the information given and reasonable assumptions about these factories and the
living conditions of people working inside them, sketch an ethical argument against Apple
enforcing the age workplace rule.What fundamental values underwrite the argument?
 From the information given and reasonable assumptions about these factories and the
living conditions of people working inside them, sketch an argument in favor of Apple
enforcing the age workplace rule.What fundamental values underwrite the argument?
 Within the context of the Apple situation, what’s the difference between making a
decision in terms of the law and in terms of ethics?

◦ Assume that in the countries where fifteen-year-olds were working, it’s customary for children even
younger to earn an adult-type living.

 What is an advantage of following the local customs when making economic decisions like the one confronting
Apple?
 Does the custom of employing young workers in some countries change your ethical consideration of the
practice in those places? Why or why not?
 ◦ Attributing responsibility—blaming another for doing wrong—requires that the following conditions hold:

 The person is able to understand right and wrong.

 The person acts to cause (or fails to act to prevent) a wrong.

 The person acts knowing what they’re doing.

 The person acts from their own free will.

 Assuming it’s unethical for fifteen-year-olds to work factory shifts making iPhones, who bears
responsibility for the wrong?

 Do the fifteen-year-olds bear some responsibility? Explain.

 Does Steve Jobs, the CEO of Apple? Explain.

 Are shareholders guilty? Explain.

 Do people who use iPhones bear responsibility? Explain.
