Business Ethics and Social Responsibility

BUSINESS ETHICS AND SOCIAL
RESPONSIBILITY
Content
Chapter 1: The Role of Business in Social

and Economic Development
Chapter 2: Foundations of the Principles of

Business Ethics
Content
Chapter 3: Social Responsibility of

Entrepreneurs
Chapter 4: Business Beyond Profit

Motivation
LC
FORMS OF BUSINESS ORGANIZATION
1
1. Sole proprietorships – one individual
in business for himself.
They are the simplest to form because of

the small amount of capital needed to start up.
Examples are beauticians, dentists, lawyers,

dry-cleaning and lawn care and lemonade stands.
2. Advantages of a Sole Proprietorship
A. Easy to quit the business if the
owner decides to do so. There are
no co-owners to consult.
B. Owners receive the entire profit.
C. Easy to form–no complicated legal documents or

complicated tax forms, small amount of capital needed.
Personal satisfaction (psychological-being your

own boss) prestige and a sense of accomplishment.
D. Total control – can make decisions

quickly, can hire and fire easily, can
respond quickly to trends.
3. Disadvantages of Sole proprietorships
A. Unlimited liability (debt) - have to forfeit
their personal possessions as well as their
businesses. (auto, other business, house, savings)
B. Burden of sole responsibility – must

have business sense.
C. Limited potential for growth – collateral (any

thing of value to guarantee a loan [like giving up
your personal possessions) [Let’s say you put
your home up for collateral but have to give it up]
I want medical benefits!
D. Difficult to attract qualified employees–can’t

offer fringe benefits. [Let’s say you ask for more benefits]
E. Short life span – depends on owner’s health
and competence. If the owner dies, it is over.
4 Partnership - business
operated by 2 or more people.
Two Forms of Partnerships

5 1. General – equal decision making & unlimited liability
among partners.
6 2. Limited – some non-active partners join as an
investment (and thus have limited liability-just the
investment, not the property). He is a “silent” partner.
Let’s say your silent partner puts up $30,000 to insure the loan.
I gave $30,000 as a silent partner, so
I don’t have to do anything.
Advantages of Partnerships
[“Two heads are better than one.”]
Two Heads better than One Head

7 Specialization – specific duties assigned to
different partners.
A. Sharing of losses. Can borrow more and can sustain
heavier losses.
B. Easy to form. Small amount of money to start & operate.
C. Shared decision making – more informed decisions.
D. Personal satisfaction – sense of accomplishment.
8. Disadvantages of Partnerships
A. Disagreements among partners –

conflicts delay decisions, lower employee
morale, & lessen efficiency. Each partner
is responsible for the acts of all other
partners. Must choose good partners.
Take That!
B. Have to share the profits.
C. Unlimited liability – can lose their

business and personal possessions.
D. Limited life – sickness, conflicts,

or death can end the partnership.
9 Corporations – a business organization
recognized as a separate legal entity (existence).
10 Stockholders – are the owners of a corporation who invest

by buying shares.
Stock – the certificate of ownership.
9 Corporations make up about 20% of business organizations
but produce over 90% of total sales.
Corporations can operate like a sole proprietor. Inc. means
the business is a corporation. [Treated by the courts as an
“artificial person”. They can sue, be sued, enter into contracts,
and pay taxes.
Two Types of Corporations

11 Publicly owned – anyone can invest by buying shares,
so unlimited # of owners. Includes most corporations.
12 Closed – is owned by a limited number of stockholders.
Ford Motor Company was family owned (closed) until 1956.
They went public in 1956 & issued 10,200,000 shares of stock.
13 Wal-Mart leads all other corporations in sales at $371 billion.
Corporate Trivia
• A corporation can be sued but the people who own the
corporation (stockholders) can not be sued.
• A corporation has potentially perpetual life.
• 1.) Nearly all large companies are corporations.
• 2.) Nearly all corporations are small companies.
• 3.) Therefore, a small minority of corporations constitute
nearly all the large companies.
• In other words, of 4 million corporations, about 2,000 are
large companies, and these 2,000 large corporations
constitute the vast majority of the nation’s large companies.
• Also, the 15% of corporations that do more than $1 million
in sales take in in 85% of the receipts of corporations.
If a company had only 200 shares
and you bought a share, you would
own 1/200th of the company.
16 Corporate Bonds – a certificate issued by a corporation in
exchange for money borrowed from investors. There is a
written promise to repay the amount borrowed at a later
date (an I.O.U.) lending money for 10, 20, or 30 years.
Bondholders are creditors, not owners.
17 Advantages of Corporations from a Stockholders Viewpoint

A 1. Limited liability – limited to the amount invested. His
personal assets may not be seized to pay corporate debts.
B 2. May earn a profit without working.
18 Advantages From the Corporation’s Viewpoint
A 1. Separation of ownership from management – can hire
the best management available. Specialized talent can be
hired in all areas.
B 2. Easy to raise capital – can issue stocks or sell bonds
allowing the corporation to tap the savings of thousands.
C 3. Longevity – they have a life independent of their owners.
Disadvantages of a Corporation
Disadvantages from the stockholders point of view.
1. When stockholders earn a profit, they feel no great sense
of pride.
19 Disadvantages from the corporation’s point of view.
A 1. Slow in decision making – must go thru chain of command.
B 2. Many government restrictions – must follow regulations of the
SEC, comply with laws on merging and maintain many records.
C 3. Heavy organizing expenses – pay for its charter and then
depending on the state, expenses can run from a few
hundred to thousands of dollars.
D 4. Double taxation – when a company distributes profits
(dividends) to its stockholders, they have to pay personal
income tax on dividends in excess of $100. Corporations
earnings are subject to taxation.
The income tax on corporations is 15% on the first $50,000;
25% from $50,001- $75,000; 34% from $75,001-$100,000;
39% from $100,001-$335,000; 35% from 335,001-$10 mil.
38% from 10M-18.3million; & a flat 35% over$18.3 million.
Advantages/Disadvantages of Sole Proprietorships
Advantages Disadvantages
Freedom Unlimited Liability
Ease of Formation Lack of Continuity
Difficulty
Low Start-up Costs
Raising Money
Single Taxation Reliance On

One Person
Advantages/Disadvantages of General Partnership

Larger Talent Pool Unlimited Liability
Larger Money Pool Lack of Continuity
Ownership
Ease of Formation Transfer Difficult
Possibility of
Single Taxation Conflict
Advantages/Disadvantages of Corporations
Limited Liability
Stockholder Revolts
Continuity
High Start-up cost
Greater likelihood of
professional Management
High Cost of
Regulation
Easier Access to Money
Double Taxation
LC
1.1
FORMS OF BUSINESS ORGANIZATI

ON
Examples of Business
LC
Organization
1.2
SOLE PROPRIETORSHIP
LC
Organization
1.2
PARTNERSHIP
LC
Organization
1.2
CORPORATION
ACTIVITY
LC
1.2
DESIGN A BUSINESS
ORGANIZATION that you
want to establish in the
future.
Business Organization
Contribution in the Socioeconomic LC
Development 1.3
• Employs the various resources present in
the economy.
• Entrepreneurs need manpower for their
business operations.
• It is said that business is the backbone of
the economy.
• Ability to innovate goods and services.
Business Organization
Contribution in the Socioeconomic LC
Development 1.3
• The ability to gain international popularity
and prestige for their country.
• The willingness to take risks, risks that
society will otherwise be hesitant to take
• Although a lot of people don’t recognize it,
business also profoundly inspire budding
and potential businessmen.
Various Benefits from Business
Organization in the Socioeconomic LC
Development 1.3
Promotes self-help and employment.
Mobilize capital
Provides taxes to economy
Empowers individual
Enhances national identity and pride
Enhances competitive consciousness
Improves quality of life
Enhance equitable distribution of income and
wealth
FAIRNESS LC
1.4
• the state, condition, or quality of being fair or free from
bias or injustice; evenhandedness:
• the quality of being just, equitable and impartial

FAIRNESS LC
1.4
SEVEN FAIRNESS PRINCIPLE
(International Trade and Theory and Policy LC
By Steven M. Suranovic
1.4
1. Distributional Fairness
2. Non-Discrimination Fairness
3. Golden-Rule Fairness
4. Positive Reciprocity
5. Negative Reciprocity
6. Privacy Fairness
7. Maximum Benefit Fairness
Source:
http://internationalecon.com/Trade/Tch125/T125-3.php
FAIRNESS LC
1.4
ACCOUNTABILITY AND LC
TRANSPARENCY
• Accountability is about being responsible to
1.4
someone
for actions taken; about being able to explain, clarify and
justify actions. It implies that someone has a right to
know and hold an organization to account; and that the
organization has a duty to explain and account for its
actions.
• It means ensuring that officials in public, private and
voluntary sector organizations are answerable for their
actions and that there is redress when duties and
commitments are not met.
TRANSPARENCY
• Transparency is about being easy to
1.4
understand, and
being open, frank and honest in all communications,
transactions and operations.
Information should be
1. Relevant and accessible
2. Timely and accurate:
TRANSPARENCY
1.4
• It is possible to be accountable by providing a lengthy
and technical explanation of every detail, but if this
information is not easily understood by the audience,
and if key facts are hidden by the sheer volume of
information then the information is not presented in a
transparent form.
• Accountability and transparency go hand-in-hand, and
involve being aware of who charities are accountable to,
what the important pieces of information are, and how
they can be communicated most effectively.
Source:http://www.transparency-initiative.org/about/definitions
BUSINESS POLICIES AND LC
PRACTICES
1.5
BUSINESS POLICIES AND LC
PRACTICES
1.5
DECORUM LC
1.6
• The concept of decorum is also applied to prescribed
social behavior limits of appropriate within set
situations.
• Is a dignified propriety of behavior, speech, dress, etc.
• Synonymous to politeness, manners, dignity and
etiquette
DECORUM LC
1.6
DECORUM LC
1.6
DECORUM LC
1.6
DECORUM LC
1.6
DECORUM LC
1.6
CLASSICAL PHILOSOPHIES LC
2.1
Socrates (469 – 399 B.C.)
“The unexamined life is not worth

living.”
• Socratic method: ask questions to find out how to act
by learning the essence of a thing—what makes it
be, for example, an act of holiness or justice.
• Socratic ignorance: to know that even though you do
not know what true holiness or justice is, you know
the method (the questioning search for the essence
of things) by which to live wisely.
2.1
• “Virtue is knowledge”: without knowing why a thing
has value or excellence (aretê), you cannot act
intelligently.
• Your actions should be based on doing the right thing
—that for which you can give informed, defensible
reasons—rather than doing things simply because
the majority says those actions are right.
2.1
• Socrates argued against relativism; he claimed that
through reason we can discern objective truths.
• Knowledge is virtue, and ignorance results from evil.

We may all have limited knowledge, but Socrates
claimed to be somewhat wiser than some in that he
was aware of his own ignorance. To paraphrase, it’s
not what you know but what you don’t know that
matters most.
2.1
Plato
• Plato was a student of Socrates

before forming the Academy, his
own school
• Early Platonic dialogues reflect the early teachings of

Socrates, later dialogues show more of Plato’s original
thought.
2.1
• Plato argued that our senses provide only illusion

and that reason can provide true knowledge.
• Plato reconciled the assertions of Parmenides (two

views of reality: Truth vs. Opinion) and Heraclitus
(doctrine of change: “you can not step twice into the
same river”) in his theory of forms.
2.1
• The temporal and changing world of becoming we
perceive with our senses derives its meaning from a
world of being and from forms that are timeless,
immutable, and unextended.
• Plato discusses psuche, usually translated as “soul”

or “mind” in numerous works that extend over years
of his life. He speaks of a tripartite mind including
the appetitive soul, the affective soul, and the
rational soul
2.1
• For Plato, learning is the remembering of the true
knowledge of forms from before our birth into a
human body.
• Plato discussed sensory function and perception and
emphasized pleasure and pain in the motivations of
humans. (Behaviorism?)
• Plato argued that mental illnesses may be
associated with irrational drives, discord among parts
of the soul, or ignorance. (Freud?)
• Love can take several forms for Plato, ranging in a
hierarchy from erotic love to love of knowledge
through philosophy.
2.1
• Aristotle
• Aristotle was a student of Plato who,

after leaving the Academy at Plato’s
death, founded his own school, the
Lyceum.
• He recognized the importance of

pleasure and pain in human motivation,
Aristotle advocated a “golden mean”
between the extremes of human activity.
2.1
• He recognized four factors that affected
human ability to achieve the good life:
individual differences, habit, social
supports, and freedom of choice.
• Psychological thought after Aristotle

moved from a pursuit of knowledge to a
pursuit of gratification and the
determination of what constitutes a good
life.
2.1
Confucius
• A Chinese teacher, editor, politician,

and philosopher of the Spring and
Autumn period of Chinese history
• The philosophy of Confucius emphasized

personal and governmental morality,
correctness of social relationships, justice
and sincerity.
2.1
• Confucius's principles had a basis in
common Chinese tradition and belief. He
championed strong family
loyalty, ancestor worship, respect of
elders by their children and of husbands
by their wives.
• He also recommended family as a basis
for ideal government. He espoused the
well-known principle "Do not do to others
what you do not want done to yourself",
the Golden Rule.
2.1
• Confucius's principles had a basis in
common Chinese tradition and belief. He
championed strong family
loyalty, ancestor worship, respect of
elders by their children and of husbands
by their wives.
• He also recommended family as a basis
for ideal government. He espoused the
well-known principle "Do not do to others
what you do not want done to yourself",
the Golden Rule.
2.1
Socrates
“Wisdom begins in wonder. ”
“An honest man is always a child.”
“I am the wisest man alive, for I know one thing, and that
is that I know nothing.”
“The greatest way to live with honor in this world is to be

what we pretend to be.”
2.1
Plato
“Wise men speak because they have something to say;

Fools because they have to say something.”
“A good decision is based on knowledge and not on

numbers.”
“The beginning is the most important part of the work.”

2.1
Aristotle
“The roots of education are bitter, but the fruit is sweet.”
“Democracy is when the indigent, and not the men of

property, are the rulers.”
“Quality is not an act, it is a habit.”
“We are what we repeatedly do. Excellence, then, is not

an act, but a habit.”
BELIEF SYSTEM LC
2.2
Belief systems are the stories we tell ourselves to
define our personal sense of "reality". Every human
being has a belief system that they utilize, and it is
through this mechanism that we individually, "make
sense" of the world around us
Faith based on a series of beliefs but not formalized

into a religion; also, a fixed coherent set of beliefs
prevalent in a community or society
BELIEF SYSTEM LC
2.2
BUDDHISM
• A religion and dharma that encompasses a variety
of traditions, beliefs and spiritual practices largely
based on teachings attributed to the Buddha.
The Essence of Buddhism

• The “middle way of wisdom and compassion.”
• 2,500 year old tradition.
 The 3 jewels of Buddhism:
 Buddha, the teacher.
 Dharma, the teachings.
 Sangha, the community.
BELIEF SYSTEM LC
2.2
BUDDHISM
Four Noble Truths
1. There is suffering in the world. To live

is to suffer
2. The cause of suffering is self-

centered desire and attachments.
BELIEF SYSTEM LC
2.2
BUDDHISM
Four Noble Truths
3. The solution is to eliminate desire and

attachments.
4. To reach nirvana, one must follow the

Eightfold Path.
BELIEF SYSTEM LC
2.2
BELIEF SYSTEM LC
2.2
ISLAM
• The religion of the Muslims, a
monotheistic faith regarded as
revealed through Muhammad as the
Prophet of Allah
• The Koran as a book is comparable in
length to the Gospels
• Muslim believe that Islam is the
perfection of the religion
BELIEF SYSTEM LC
2.2
ISLAM
The Five Pillars

1. Belief
2. Worship
3. Fasting
4. Almsgiving
5. Pilgrimage
SIX ARTICLES OF BELIEF LC
2.2
1. Belief in one God (Allah)
2. Belief in all the prophets and messengers sent by God.
 124,000 prophets, of whom 313 are also messengers
 25 of these messengers are very important (mentioned
in the Quran)
3. Belief in the books sent by God:
 The Suhuf scripts of Abraham
 The Tawrat sent to Moses--Torah
 The Zabur sent to David--Psalms
 The Injil sent to Jesus--Gospels
 The Qur'an sent to Muhammad--Koran
SIX ARTICLES OF BELIEF LC
2.2
 4. Belief in the Angels of whom four are held in
high esteem and are named in the Quran and the
Hadith (additional book about M)
 Like Gabriel who spoke with M
 5. Belief in the Day of Judgment when you die and
in the life after death
 Heaven and hell
 6. Belief in Fate (predestination) Muslims believe in
divine destiny
 God wrote down all that has happened and will
happen
THE FILIPINO VALUE SYSTEM LC
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
Your age will greatly influence your values. Different
people and things influence you at different ages:
Ages 1-7 --- parents

Ages 8-13 --- teachers, heroes (sports, rocks, TV)
Ages 14-20 --- peers (values because of peers or peers
because of values?)
Ages 21+ your values are established, but you may test
your values from time to time.
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
“It’s not doing things

right,
but doing the right
things. “
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
GOOD VS. MORALLY LC
UNACCEPTABLE
2.4
Content (2nd quarter)
Chapter 3: Social Responsibility of

Entrepreneurs
Chapter 4: Business Beyond Profit

Motivation
SOCIAL RESPONSIBILITY LC
3.1
“The impersonal hand of government can never replace
the helping hand of a neighbor.” ~Hubert H. Humphrey
“We cannot always build the future for our youth, but we
can build our youth for the future.” ~Franklin Delano
Roosevelt
“We cannot always build the future for our youth, but we
can build our youth for the future.” ~Franklin Delano
Roosevelt
3.1
 Social responsibility – the adoption by (1) a business of
(2) a strategic focus (3) for fulfilling the economic, legal,
ethical and philanthropic responsibilities expected of it by
its (4) stakeholders
 (1) all types of business – small and large, sole proprietorships and
partnerships as well as large corporations
 (2) it involves action and measurement and then follows through
3.1
 (3) 4 types of responsibility
 economic
 legal
 ethical
 philanthropic
 (4) it involves those to whom an organization is responsible – the
stakeholders
Phila
nthro
pic
Resp
onsib
ilities
Ethical
Responsibilities
Legal
Responsibilities
Economic
Responsibilities
3.1
Stakeholder orientation – implies that business is
fundamentally connected to other parts of society and must
take responsibility for its effects in those areas
DEVELOPMENT OF SOCIAL RESPONSIBILITY
Karl Marx – A German philosopher who developed the

“theory of scientific social revolution”; Marx’s ideas
caused the working class to organize labor unions and
so capitalists have improved their policies and benefits
for their workers
Robert Owen – Father of Socialism and Cooperatives;
the Social Utopian; he abolished child labor, reduced
working hours from 18 to 11, built houses for his workers,
sponsored beautification, health and sanitation projects
in his community
1950s – 1960s – there were few formal governance
procedures to restrain management’s actions
DEVELOPMENT OF SOCIAL RESPONSIBILITY
 1970s – economic turmoil eliminated old companies

 1980 – 1990s – brought new focus on profitability
and economies of scale
 1990s – new era of social responsibility was
renewed and prompted
 21st century – millennium scandals brought calls for
a stronger balance between the global market
economy and social responsibility, social justice and
cohesion
BENEFITS OF SOCIAL RESPONSIBILITY
*customer &
employee trust
*customer
Social satisfaction Organizational
Responsibility *employee Performance
commitment
*investor loyalty
BENEFITS OF SOCIAL RESPONSIBILITY
 Trust – It is the glue that holds organization together and allows them
to focus on efficiency, productivity and profits
 Customer Satisfaction – By focusing on customer satisfaction, a
business can continually strengthen its customer’s trust in the
company by promoting respect and cooperation, and as their
confidence grows, this in turn increases the firm’s understanding of
their needs
 Employee commitment – Employee commitment stems employees
who believe their future is tied to that of the organization and are
willing to make personal sacrifices for the organization
 Investor loyalty – To be successful, relationships with stockholders
and other investors must rest on dependability, trust and commitment.
Many shareholders are also concerned about the reputation of
companies in which they invest
3.1
3.1
Stakeholders – those people and groups to whom an
organization is responsible – including customers,
investors and shareholders, employees, suppliers,
governments, communities and many others – because
they have a “stake” or claim in some aspect of a
company’s products, operations, markets, industry, or
outcomes. These groups not only are influenced by
businesses, but they also have the ability to affect
businesses. The relationship between organizations and
their stakeholders is therefore a two-way street.
3.1
 Stakeholders provide resources that are more or less
critical to a firm’s long-term success.
 Primary stakeholders are those whose continued
association is absolutely necessary for a firm’s survival;
these include employees, customers, investors and
shareholders, as well as the governments and
communities that provide necessary infrastructure.
 Secondary stakeholders do not typically engage in
transactions with a company and thus are not essential for
its survival; these include the media, trade associations,
and special-interest groups.
SHAREHOLDERS DEFINED LC
3.1
Historical Perspectives on Stakeholders
1963 “Those groups without whose support the
organization would cease to exist.”
1971 “Driven by their own interests and goals are
participants in a firm, and thus depending on it
and whom for its sake the firm is depending.”
1983 “Can affect the achievement of an organization’s
objectives or who is affected by the achievement
of an organization’s objectives.”
1988 “Benefit from or harmed by, and whose rights are
violated or respected by, corporate actions.”
SHAREHOLDERS DEFINED LC
3.1
Historical Perspectives on Stakeholders
1991 “Have an interest in the actions of an organization

and … the ability to influence it.”
1994 “Interact with and give meaning and definition to

the corporation.”
1995 “Have, or claim, ownership, rights, or interests in

a corporation and its activities.”
Stakeholders Defined: LC
Input-Output Model
3.1
Stakeholders Defined: LC
STAKEHOLDER MODEL
3.1
STAKEHOLDER ATTRIBUTES
 Power – the extent to which a stakeholder can gain
access to coercive, utilitarian or symbolic means to
impose or communicate its views to the organization;
power may be:
 Coercive – involves the use of physical force, violence
or some type of restraint
 Utilitarian– involves financial or material control such
as boycotts that affect a company’s bottom line
 Symbolic – relies on the use of symbols that connote
social acceptance, prestige or some other attribute
STAKEHOLDER ATTRIBUTES
 Legitimacy – the perception or belief that a stakeholder’s

actions are proper, desirable or appropriate within a given
context
 Stakeholder actions are considered legitimate when claims
are judged to be reasonable by other stakeholders and by
society in general.
 Urgency – the time sensitivity and the importance of claim
to the stakeholderUrgency is based on two characteristics:
time sensitivity and the importance of the claim to the
stakeholder. Time Sensitivity usually heightens the
stakeholder’s effort and may compress an organization’s
ability to research and react to a claim.
Performance with Stakeholders
Reputation Management – the process of

building and sustaining a company’s good name and
generating positive feedback from stakeholders
Identity Imag Performance Reputation

• Desired e• Initial • Actual • Enduring
perception impression interaction perceptions
of btwn & attitudes
organization org&stkhldrs based on
repeated
outcomes
Performance with Stakeholders
Crisis Management – the process of handling a

high impact event characterized by ambiguity and
the need for swift action
Prodromal Acute Chronic Resolution
• Crisis • Ongoing • Success and

• Warning crisis
occurs failure
signs requires outcomes
and explanation for firm and
sympto and decision stakeholder
ms may making s
occur
Development of Stakeholder Relationships
Social capital – an asset that resides in

relationships and is characterized by mutual goals
and trust
Social audit – the process of assessing and

reporting a firm’s performance in adopting a
strategic focus for fulfilling the economic, legal,
ethical and philanthropic social responsibilities
expected of it by its stakeholders
Link Between Stakeholder Relationships and SR
Rating Strategy Performance
Reactive Deny responsibility Doing less than

required
Defensive Admit Doing the least that is
responsibility, but required.
fight it.
Accommodative Accept Doing all that is
responsibility required
Proactive Anticipate Doing more than is
responsibility required
LC
3.2
Legal, Regulatory, and Political Issues
Government’s Influence on Business
 The government has a profound influence on

business. The government affects the businesses
through laws and regulation and showcases the
costs and benefits of regulation. Individuals and
businesses live under a rule of law that protects
society and supports an acceptable quality of life.
Hopefully, by controlling the limitation of force by
some parties, the overall welfare and freedom of
all participants in the social system will be
protected.
 The public interest is served though open participation
and debate that result in effective public policy.
 The legal system is not always in some countries as
insurance that business will be conducted in a
legitimate way.
 Many businesses may object to regulations aimed at
maintain ethical cultures and preserving stakeholder
welfare, businesses’ very existence is based on laws
permitting their creation, organization, and dissolution.
 From a social perspective, it is significant that a
corporation has the same legal status as a “person”
who can sue, be sued, and be held liable for debts.
Laws may protect managers and stockholders from
being personally liable for their conduct.
1. Security of tenure
2. Living wage and just share What are the
in the fruits of production rights of
3. Humane working conditions employee?
4. Self-organization
5. Collective bargaining
6. Concerted action including
the right to strike
7. Participate in policy and
decision-making processes
 The following are the rationale for regulation of businesses by the
government:
1. Economic and Competitive Reasons for Regulation
A great number of regulations have been passed by legislatures
over the last century in an effort “to level the playing field” on
which businesses operate. Government regulate, if not prevent,
the occurrence of trust and monopolies.
Trust – organizations established to gain control of a product
market or industry by eliminating competition. If trusts are
successful in eliminating competition, a monopoly can result.
Such organizations are often considered detrimental because,
without serious competition, they can potentially charge higher
prices and provide lower-quality products to consumers
 The following are the rationale for regulation of businesses by the
government:
1. Economic and Competitive Reasons for Regulation
Monopoly – the situation where one business provides a good
service in a given market
The government tolerates these monopolies because the cost of

supplying the good or providing the service is so great that few
companies would be willing to invest in new markets without some
protection from competition.
Monopolies may also be allowed by patent laws that grant the

developer of a new technology without the patent holder’s
consent.
2. Social Reasons for Regulation

 Regulations may also occur when marketing advices result in
an undesirable consequences for society, such as pollution.
Regulation is necessary to ensure that all firms within an
industry do their part to minimize costs and to pay their fair
share.
 Benefits of regulation
 Greater equality in the workplace; safer workplaces; resources
for disadvantaged members of society; safer products; more
information about products; greater choices among products;
cleaner air and water; and preservation of wildlife habitats
Business’s Influence on Government
 Although some businesses view regulatory and legal
forces as beyond their control and simply react to
conditions arising from those forces, other firms actively
seek to influence the political process in order to
achieve their goals. The following are the tools business
employ to influence the political process:
1. Lobbying – the process of working to persuade public

and/or government officials to favor a particular
position in decision making
2. Political action committees – organizations that
solicit donations from individuals and then contribute
these funds to candidates running for political office
3. Campaign contributions
Ethical Issues in Business
 Ethical Issue – a problem, situation, or
opportunity requiring an individual, group or
organization to choose among several actions
that must be evaluated as right or wrong, ethical
or unethical
 Classification of Ethical Issues
– Honesty and Fairness
– Conflict of Interest
– Fraud
– Discrimination
 Honesty and Fairness

– Honesty – truthfulness, integrity and
trustworthiness
– Fairness – the quality of being just, equitable and
impartial
Deterioration of Trust in Businesses
Least-Trusted Most-Trusted
Businesses Businesses
Oil and gas Groceries/Supermarkets
Insurance Drug stores
Utilities Computer
hardware/software
Airlines/travel Health and beauty
Accounting Fast-food restaurants
Chemical Food product
manufacturers
Telecom Entertainment/sports
Advertising/marketing Automotive
Media companies Banks/savings and loans
 Conflict of Interest – the situation of an individual
who must choose whether to advance his or her
own interests, those of his/her organization, or
those of some other group
 Fraud – any false communication that deceive, or

conceals facts in order to create a false impression
and damage others
 Discrimination
Codes of Conduct
 Codes of conduct – formal statements that
describe what an organization expects of its
employees
 Research has found that corporate code of ethics
often have six values that have been suggested as
desirable to appearing in the codes which includes:
– Trustworthiness
– Respect
– Responsibility
– Fairness
– Caring
– Citizenship
Consumer and
Community Relations
Consumer Stakeholders
 Consumers – individuals who purchase, use and
dispose of products for themselves and their
homes
 Responsibilities to Consumers
– 1. Economic Issues – Fundamentally,
consumers and businesses are connected by
an economic relationship which begins with an
exchange of product/services to money, then it
often leads to deeper attachments and
affiliation. Fulfillment of economic
responsibilities depends on interactions with the
consumer. However, there are instances when
one of the party does not observe its economic
responsibilities.
• Consumer fraud- intentional deception to
derive an unfair economic advantage over an
organization; e.g. shoplifting, duplicity
– 2. Legal Issues – one of the responsibilities that
businesses must look after to is complying to
laws and regulations that protects consumers
and safeguard its wellbeing. The following are
some of the common issues:
• Health and Safety
• Credit and Ownership
• Marketing, Advertising and Packaging
• Sales and Warranties
• Product Liability – business’s legal
responsibility for the performance of its
products
• International issues
– 3. Ethical Issues
• Consumerism – the movement to
protect consumers from an imbalance
of power on the side of business and to
maximize consumer welfare in the
marketplace
Basic Consumer Rights
Right Consumer
General Issues Stakeholders
To choose Access to variety of products at competitive and
reasonable prices
To safety Protection of health, safety and financial well-
being in the marketplace
To be Opportunity to have accurate and adequate
informed information on which to base decisions and
protection from misleading or deceptive
information
To be heard Consideration given to consumer interests in

government processes
To redress Opportunity to express dissatisfaction and to have
the complaint resolved effectively
To privacy Protection of consumer information and its use
– Philanthropic Issues – Although relationships
with consumers are fundamentally grounded in
economic exchanges, more firms are now
investigating ways to link their philanthropic efforts
with consumer interests. This kind of linkage leads
to stronger economic relationships for according to
a survey, consumers would likely switch to brands
that are associated with a good cause.
Community Stakeholders
 Although the community is considered as a key
constituent in the input-output and stakeholder models, it
does not always receive the same level of acceptance as
other stakeholders. One reason for this may be that
community can be an amorphous concept, making it
difficult to define and delineate.
 Community – those members of society who are aware,
concerned, or in some way affected by the operations
and output of an organization
 Neighbor of choice – an organization that builds and
sustains trust with the community by striving for positive
and sustainable relationships with key individuals and by
demonstrating sensitivity to community concerns
 Community relations – the organizational function
dedicated to building and maintaining relationships and
trust with the community
 Responsibilities to Community
– Economic Issues – Companies play a major

role in community economic development by
bringing jobs to the community, interacting
with other businesses, and making
contributions to local health, education and
recreation projects that benefit local residents
and employees
– Legal Issues – For many firms, a series of
legal and regulatory matters must be resolved
before launching a business, that is, they are
granted with a “license to operate.”
– Ethical Issues – Companies nowadays are

shifting their perspective into ethical decision-
making and conduct. They seek for a
common extension of “doing the right thing”
by allocating funds and resources to assist
community groups and others in their needs.
– Philanthropic Issues –
Community relations function of
companies have always been
the usual providing of gifts,
grants and other resources to
worthy causes. One of the most
significant ways that
organizations are exercising
their philanthropic
responsibilities is through
volunteer programs.
• Volunteerism – the time
companies urge employees
to volunteer to social causes
Employee Relations
Employee Stakeholders
 Throughout history, people’s perceptions of work and
employment have evolved from necessary evil to source
of fulfillment.
 For the ancient Greeks, work was seen as the god’s way
of punishing humans. Centuries later, Benedictine
monks, who built farms, church abbeys, and villages
were considered the lowest order of monks because
they labored.
 Today, psychologists, families and friends lament how
work has become the primary source of many
individual’s fulfillment, status and happiness.
Responsibilities to Employees
 Economic
– Employee-Employer Contract
• Psychological contract – the beliefs,
perceptions expectations, and obligations that
make up the agreement between individuals
and the organizations that employ them
– Workforce Reduction – the process of eliminating
positions
 Legal
– Employment at will – a common law doctrine in

1990’s that allows either the employer or the
employee to terminate the relationship at any time as
long as it does not violate an employment contract
– Wage and Benefits
• Vesting – the legal right to pension plan benefits
– Labor Unions
– Health and Safety
• Ergonomics – the design, arrangement, and use
of equipment to maximize productivity and
minimize fatigue and physical discomfort
– Equal Opportunity
– Sexual Harassment – unwelcome sexual advances,
requests for sexual favors, and other verbal or
physical conduct of a sexual nature; two categories
of harassment – quid pro quo, hostile work
environment
• Quid Pro Quo sexual harassment- is a type of
sexual extortion where there is proposed or explicit
exchange of job benefits for sexual favors; e.g. telling
an employee “you will be fired if you do not have sex
with me.”
• Hostile work environment sexual harassment – is
less direct than quid pro quo and can involve epithets,
slurs, negative stereotyping, intimidating acts, graphic
materials that show hostility toward an individual or
group, and other types of conduct that affect the
employment situation; e.g. sending an e-mail that
contain sexually explicit jokes that is broadcast to
employees, a boss asking his employee to retrieve
coins or keys from his pants
Whistle blowing – reporting individual or company
wrongdoing to either internal or external sources;
Whistle blowers usually focus on issues or
behaviors that need corrective action, although
managers and other employees may not
appreciate reports that expose company
weaknesses, raise embarrassing questions, or
otherwise detract from organizational tasks;
whistleblowers have been retaliated against,
demoted, and even fired
 Ethical
– Training and Development
– Workplace Diversity – initiatives focused on recruiting
and retaining a diverse workforce as a business
imperative
Profiles of Generations at Work
Generation Birth Years Key Characteristics

Name
Veterans 1922-1943 Hard-working, detail-
oriented, uncomfortable
with conflict
Baby Boomers 1943-1960 Service-oriented, good
team players, sensitive to
feedback
Generation X 1960-1980 Adaptable, independent,
impatient
Nexters 1980-2000 Optimistic, technological
savvy, need supervision
– Work/Life Balance
• Work/life programs – programs to assist employees in
balancing work responsibilities with personal and family
responsibilities
 Bryan Dyson, the former CEO of Coca

Cola gave this short and very powerful
speech on work and life balance. The key
lesson to a happy life are very evident in
this powerful speech.
“Imagine life as a game in which you are juggling some
five balls in the air. You name them – Work, Family, Health,
Friends and Spirit and you’re keeping all of these in the air.
You will soon understand that work is a rubber ball. If you
drop it, it will bounce back. But the other four balls – Family,
Health, Friends and Spirit – are made of glass. If you drop
one of these; they will be irrevocably scuffed, marked,
nicked, damaged or even shattered. They will never be the
same. You must understand that and strive for it.
Work efficiently during office hours and leave on time.
Give the required time to your family, friends and have proper
rest. Value has a value only if its value is valued.”
–Brian G. Dyson
President and CEO, Coca-Cola Enterprises during his speech at the Georgia Tech
172nd Commencement Address Sept. 6, 1996
Environmental LC
3.3
Issues
Global Environmental Issues
 Natural environment –
the physical world,
including all biological
entities, as well as the
interaction among
nature and individuals,
organizations and
business strategies
Global Environment Issues
 Atmospheric Issues
– Air Pollution – It typically arises from 3 different
sources: stationary sources such as factories and
power plants; mobile source such as cars, trucks,
planes and trains; and natural sources such as
windblown dust and volcanic eruptions; this gases /
particulates may cause respiratory problems, birth
defects and cancer, even haze that reduces visibility
– Acid Rain – this is the result when nitrous oxide and
sulfur dioxides from factories react with air and rain; it
may corrode paint and deteriorate stones
– Global Warming
• Kyoto Protocol – a treaty proposed among
industrialized nations to slow global warming
 Water Issues
– Water Pollution – Water pollution results
from the dumping of raw sewage and
toxic chemicals into rivers and oceans,
from oil and gasoline spills, and from the
burial of industrial wastes in the ground
where they may filter into underground
water supplies
– Water Quantity – There has been sixfold
increase in water use worldwide since
1990, and as a result, one-fifth of the
world’s population now has no access to
safe drinking water
• “Whiskey is for drinking, water is for
fighting over.” – Mark Twain
 Land Issues
– Land Pollution – results from the dumping of
residential and industrial wastes, strip mining, and
poor forest conservation
– Waste Management
– Deforestation
– Urban Sprawl
– “degenerate urban form that is too congested to be
efficient, too chaotic to be beautiful, and too dispersed
to possess the diversity and vitality of a great city” –
James Kuntsler
 Biodiversity
– The world’s tropical forests, which cover
just 7 % percent of the Earth’s land
surface account for more than half of the
planet’s biological species. The
importance of these ecosystems is
highlighted by the fact that 25% of the
world’s prescription drugs are extracted
from plants primarily growing in tropical
rainforests. 70% of the 3,000 plants
identified as sources of cancer-fighting
drugs come from tropical forests, and
scientists suspect that many more
tropical plants may have pharmaceutical
benefits. However, these forests are
being depleted at alarming rates
 Genetically Modified Foods
– Genetic engineering involves
transferring one or more genes from
one organism to another to create a
new life form that has unique traits.
– One of the primary goals of using GMO
plants is the reduction in the use of
pesticides and other farming practices
that harm the environment. However,
further researches are being conducted
to determine how to prevent GMO
crops from killing beneficial and
harmless insects, and to deter
herbicide-resistant genes from
spreading into weeds.
Campaign Ads Against GMOs
Business Response to
Environmental Issues
 In response to environmental issues, firms have
improved their reputations by creating new
executive positions such as vice president for
environmental affairs (e.g. Walt Disney and
Chevron). AT&T supports and helps publish the
Green Business Letter, a hands on journal for
environmentally conscious companies.
 Corporate efforts to respond to environmental
issues focus on green marketing, recycling,
emission reductions, and socially responsible
buying.
 Green marketing
– Green marketing refers to the
specific development, pricing,
promotion, and distribution of
products that do less harm to the
environment.
– E.g. General Motors is developing
new “hybrid” pick up trucks and
buses that employ electric motors to
augment their internal-combustion
engines, improving the vehicles’ fuel
economy without a loss in power.
Business Response to LC
Environmental Issues 3.3
– Many products are certified as
“green” by environmental
organizations such as Green Seal
and carry a special logo. However,
a recent study by Consumers
International suggests that
consumers are being confused and
even misled by green marketing
claims. (usage of “environmentally
friendly,” “nonpolluting,” “earthworm
friendly”)
Business Response to Environmental
Issues
 Recycling initiatives
– Recycling initiatives is the process of materials,
especially steel, aluminum, paper, glass,
rubber, and some plastics for reuse.
– E.g. Procter & Gamble uses recycled materials
in some of its packaging and markets refills for
some products, which reduce packaging
waste.
– E.g. Starbucks makes coffee grounds available
free to those who wish to use them for
compost to add nutrition to their gardens
Business Response to Environmental
Issues
 Emissions Reduction Initiatives
– Green power – energy sources that are commonly
accepted as having relatively low impact on
human, animal, and ecosystem health
– Many companies are going beyond the emission
reductions called for by the 1997 Kyoto Protocol,
which set a goal of reducing greenhouse emissions
by signing countries by 7% from their 2000 levels.
Those companies that achieve reductions in
excess of that called for by the Kyoto Protocol earn
credits that may then be “traded” to other firms that
have not yet achieved their targets.
 Socially Responsible Buying
Socially Responsible Buying (SRB) can be

defined as “that which attempts to take into
account the public consequences of
organizational buying or bring about positive
social change through organizational buying
behavior.” – Minette Drumwright
E.g. In the 1990s, when disposable cameras were
popular, Kodak obtained licensing rights from Fuji to
produce and manufacture single-use camera. With the
continuing bulge of waste and scarcity of resources, it
decided to launch a recycling program for the
QUickSnap camera. They offer a base price for one-
time-use cameras and recycled the products.
However, Jazz Photo Corporation decided to shave
profits by taking used Fuji and Kodak camera cases,
place new film, color out the labels and market the
said cameras to retailers. Kodak decided to file suit
against the Jazz Photo Corporation for patent
infringement whereas the former claimed $22.9 million
in damages for the relabeling.
Strategic Implementation of
Environmental Responsibility
 Risk analysis tries to assess the environmental
risks and trade-offs associated with business
decisions. Organizations that are highly committed
to environmental responsibility may conduct an
audit of their efforts and report the results to all
interested stakeholders. Such organizations may
use globally accepted standards, such as ISO
14000, as benchmarks in a strategic environmental
audit.
Technology Issues
Corporate Social Responsibility for Profit LC
by. Richard Levick
3.5
 One report by the Havas Media Lab underscores this
transformation with a list based on a survey of 50,000
consumers worldwide who identified the companies
they feel have the most “meaningful” CSR. The 10 top
names included Unilever and Bimbo, Ikea and Leroy
Merlin, as well as consumer technology companies
like Samsung and Sony. As the Lab’s director Umair
Haque quips, they’re not “necessarily the do-gooding
corporate entities you might expect.”
 http://www.forbes.com/sites/richardlevick/2012/01/11/corporate-social-
responsibility-for-profit/#3d71d0bd6da3
 In lieu of such “do-gooding,” Haque talks about
CSR as a way to connect to the personal well-
being of customers. Nike+ is a prime example.
“Instead of putting up another campaign of
billboards with celebrities saying, ‘Buy our
shoes’…Nike+ actually helps makes you a better
runner,”.
How CSR is evolving in the philippines?
 http://www.rappler.com/newsbreak/3421-how-
csr-is-evolving-in-the-philippines

 “Businesses cannot be successful
when the society around them fails.”
— Responsible Business Summit
LC
3.5
Companies Doing Corporate Social
Responsibility Right
 Starbucks
 Starbucks has been around for more than four
decades, and from the very beginning it has
worked hard to operate in an ethical manner.
Starbucks ranked as Fortune Magazine’s fifth most
socially responsible company in 2012. There are a
number of good reasons for the high ranking. The
company looks for better ways to develop
sustainable production of its coffee. It has set in
place some guidelines it calls C.A.F.E Practices,
ensuring environmental leadership, economic
accountability, and product quality. Starbucks also
supports Ethos Water, which provides clean water
to more than a billion people.


Disney
 Disney is a name known around the world, and
though the company has been around for a long
time, its reputation is still a glowing one. The Walt
Disney Company largely focuses on a few areas of
social responsibility, namely community, the
environment, and volunteerism Disney has been a
major provider of aid after natural disasters, such
as the 2010 earthquake in Haiti. The company also
takes an interest in protecting the environment,
giving proceeds from nature films to plant trees in
the rain forest and protect thousands of acres of
coral reef.


Microsoft
 Microsoft is another major company that takes
great effort in giving back. The company was
even named the best at Corporate Social
Responsibility by the Reputation Institute. One way
Microsoft is helping out is through its annual
Employee Giving Campaign, where employees
attend fundraising events for nonprofit
organizations. The campaign has been held every
year since 1983 and has raised more than $1
billion in contributions to more than 31,000
organizations.
5 Key Points to Consider when Developing an
Innovation Strategy
By: Wouter Koetzier & Christopher Schorling
 First, an innovation strategy needs to be

truly inspiring and should describe a
desirable future state for the company.
 Second, the innovation strategy needs to be
ambitious in terms of providing the basis to
break away from the competition, beat the
competition, and create new spaces.
5 Key Points to Consider when Developing an
Innovation Strategy
By: Wouter Koetzier & Christopher Schorling
 Third, the process of developing the strategy
needs to be open.
 Fourth, an innovation strategy must also be
specific to the time in which it is developed
 Finally, an innovation strategy needs to be
adaptive and to evolve over time
New-Product Development Proces
s
1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization

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BUSINESS ETHICS AND SOCIAL

Chapter 1: The Role of Business in Social

Chapter 2: Foundations of the Principles of

Chapter 3: Social Responsibility of

Chapter 4: Business Beyond Profit

They are the simplest to form because of

Examples are beauticians, dentists, lawyers,

B. Owners receive the entire profit.

C. Easy to form–no complicated legal documents or

Personal satisfaction (psychological-being your

D. Total control – can make decisions

B. Burden of sole responsibility – must

C. Limited potential for growth – collateral (any

D. Difficult to attract qualified employees–can’t

Two Forms of Partnerships

Two Heads better than One Head

A. Disagreements among partners –

C. Unlimited liability – can lose their

D. Limited life – sickness, conflicts,

10 Stockholders – are the owners of a corporation who invest

Two Types of Corporations

17 Advantages of Corporations from a Stockholders Viewpoint

Ease of Formation Lack of Continuity

Single Taxation Reliance On

Advantages/Disadvantages of General Partnership

Larger Money Pool Lack of Continuity

FORMS OF BUSINESS ORGANIZATI

• the quality of being just, equitable and impartial

“The unexamined life is not worth

• Knowledge is virtue, and ignorance results from evil.

• Plato was a student of Socrates

• Early Platonic dialogues reflect the early teachings of

• Plato argued that our senses provide only illusion

• Plato reconciled the assertions of Parmenides (two

• Plato discusses psuche, usually translated as “soul”

• Aristotle was a student of Plato who,

• He recognized the importance of

• Psychological thought after Aristotle

• A Chinese teacher, editor, politician,

• The philosophy of Confucius emphasized

“Wisdom begins in wonder. ”

“An honest man is always a child.”

“The greatest way to live with honor in this world is to be

“Wise men speak because they have something to say;

“A good decision is based on knowledge and not on

“The beginning is the most important part of the work.”

“The roots of education are bitter, but the fruit is sweet.”

“Democracy is when the indigent, and not the men of

“Quality is not an act, it is a habit.”

“We are what we repeatedly do. Excellence, then, is not

Faith based on a series of beliefs but not formalized

The Essence of Buddhism

Four Noble Truths

1. There is suffering in the world. To live

2. The cause of suffering is self-

Four Noble Truths

3. The solution is to eliminate desire and

4. To reach nirvana, one must follow the

The Five Pillars

Ages 1-7 --- parents

“It’s not doing things

Chapter 3: Social Responsibility of

Chapter 4: Business Beyond Profit