Module in Business Ethics

MODULE 6. A ETHICAL ISSUES AND PROBLEMS IN BUSINESS & THE CORPORATE WORLD

Introduction

Business is a productive human activity that brings beneficial contribution to both people and society.
Business produces employment, fair deals, creativity, advancement of technology, customers‟ satisfaction.
Ironically, however, business is also an activity that provides an opportunity for some unscrupulous people to
take advantage of others, the abuse of fiduciary relationship between employers and employees and between
buyers and sellers.

Objectives

At the end of this chapter, the students are expected to;

1. Examine the different issues and problems in business and the business enterprise from the moral
perspective.
2. Develop a framework for analysis and resolution of ethical dilemmas and problems affecting business.
3. Acquire basic information about questionable business practices and their impact to its stakeholders.
4. Develop problem solving skills using the philosophical qualitative approach to resolve ethical problems in
the business and corporate world.

1. Sexual Harassment

Sexual harassment is an issue in the corporate world that must be looked into because it can create a
hostile and unhealthy workplace for the employees. For this reason, the Congress of the Philippines enacted the
Anti-Sexual Act of 1995 or R.A. 7877 declaring sexual harassment unlawful in the employment, education or
training environment, and other purposes.

Republic Act No. 7877 defines sexual harassment as, “Employer, employee, manager, supervisor, agent of
the employer, teacher, instructor, professor, coach, trainor or any other person who, having authority, influence
or moral ascendancy over another in a work or training or education environment demands, request 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.”

Legal Penalties of R.A. 7877

• Imprisonment of not less than one month but not more than six months
• Fine of not less than P 10,000 but not more than P 20,000

Two Types of Sexual Harassment

• “Quid Pro Quo” Harassment- “Quid Pro Quo” means “This for That” (something for something) and is defined
as requiring a sexual favour or interaction as a condition of employment or in exchange for an employment
benefit (such as promotion, transfer, pay raise and the like).

 A harassment that creates a hostile environment- In this environment, abuses include verbal, physical and
visual conducts that create an intimidating, offensive or hostile environment in the workplace that interferes
with work performance.

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Some examples are as follows:

• Unwanted touching, patting, pinching against a person

• Comments about your body, wolf-whistling
• Workplace blackmails
• Green jokes
• Suggestive looks

The profiles of the Victim and the Harasser

1. The victim as well as the harasser may be a woman or a man. The victim does not have to be of the
opposite sex.
2. The harasser can be the victim‟s supervisor, an agent of the employer, a supervisor in another area,
a co-worker, or a non-employee.
3. The victim does not have to be the person harassed but could be anyone affected by the offensive
conduct.
4. The harasser‟s conduct must be unwelcome.

 It is helpful for the victim to directly inform the harasser that the conduct is unwelcome and must stop.

 The victim should use any employer complaint mechanism or grievance system available.

 Although the victim of sexual harassment and the person accused of sexual harassment may be peers,
more frequently the victim is in a position of lesser power than the accused.

 The most common example is the boss-subordinate situation. Harassment also occurs between customer/
client and providers.

How Sexual Harassment Affects the Workplace

 In the study made by Rexbook Magazine in 2012

 140,000 men and women were interviewed pertaining to sexual harassment.
 The result revealed that 80%of the persons interviewed believed they have been sexually
harassed.
 The study also showed that used of words, jokes, and gestures were the type of harassment
which created a hostile environment or offensive work environment.
 It affected the individuals harassed and the person accused, who may be innocent; such case
can generate costly lawsuits, unfavourable publicity or the invasion of privacy.
 It can also affect the bottom line of the employer, managers and co-workers, and affect the
entire life of an organization and its members.

Communicating the Sexual Harassment Policy

 The best policy is ineffective if it is not communicated well. Even if the company already has a well-
written policy, it is important to expose it regularly through :

o Permanent posting on bulletin board

o Memos
o Articles in the organization‟s newsletter
o Meeting and trainings

 Training program may come up with various topics to support the anti-harassment programs and to
assure each employee of a safe and harassment-free workplace environment.

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2. The Problem of Just Wage

Work
• Is said to be for the purpose of obtaining economic gain for the labor.
• Most agreed that work is directed to the promotion of life. – The duty to preserve one‟s life
implies the duty to work and that each has a personal duty to take care of himself and not to be
a burden to other.
• Being compensated for a work done or for services rendered is the very essence of „work‟.

Compensation

• One is willing to work in exchange for remuneration or rewards he will receive from working.
• Such remuneration may include both financial and non-financial compensation.
• It can be in the form of wages, shares on profits, harvest or commercial goods, in-kind
payments and other remunerative fringe benefits.

The main objective of compensation is to create a system of reward that is equitable to the
employer and employee. Thus, the general concern is that justice should be a substance of compensation.

The Question of Just Wage

 A number of people all over the world commented on its definition and have argued on the appropriate
criteria to consider in setting the so-called „Just Wage‟.
 A just wage is defined as the remuneration which is enough to support the wage-earner is reasonable
and frugal comfort.
 The Catholic Church tells us, “a just wage is the legitimate fruit of labor.”

Factors to consider in Formulation of Fair Wages

• External Market Factor . These refers to the supply and demand for labor and the so-called
economic and underemployment.

• Laws and Regulations . Workers should be paid in accordance with laws regulations issued by the
government. It requires that employers pay at least the minimum wage.

• Cost of Living. The cost of living relates to basic maintenance needs and it must be seriously
considered in formulation of wages. A fair wage should be sufficient to meet the increase in cost of
living.

• Prevailing Industry Rate. Some claim that paying workers the average of what other companies
are paying for the same job result in fair wage. However not all the companies have a minimum wage
high enough to maintain a decent standard of living.

• Organizational Factor. Assessment of what type of industry the organization operates, the size of the
company, and the organization‟s profitability to justify its ability to provide fair wages to its workers
should be considered.

• Job factor . The nature of the job itself entails the formulation of a just wage. Duties, responsibilities,
and the skills requirements of the job are probably the most considerable determinants of fair wage.

• Individual Performance. The trend is that individual performance or productivity ratings affects the
determination of wage/ salary increases.

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Some Issues on Just Wage

 The minimum wage mandated by the government is not a guarantee of a just and fair wage.

 Organizations and businesses usually conclude that they are legally and morally right when they fulfill
their mutual agreement with the employees.

 Geographical difference hinder the formulation of a perfectly common definition of fair wage. Some
communities have a higher cost of living than others.

 Wage indexation to cost of living, where wage is automatically adjusted with the increases of cost of
living, is not usually met by majority of the employers.

 Companies have different interpretations of the justifiable pay for certain job position, skills, and tasks.
Thus, the prevailing rate in industry alone could not perfectly establish a just wage.

3. Gift-Giving and Bribery

Gift-giving is merely an act of extending goodwill to an individual in an effort to share something with them.
Giving gifts to customers, clients and business partners is a common practice in the business community.

Reasons why business usually engage in gift-giving

• show appreciation for a favor received

• To effectively establish goodwill with business partners.
• To advertise.
• To compete effectively against competitors

The following are the common forms of Gift-Giving

• Samples • Raffle coupons / certificates

• Rebates / cash refund • Padding expense accounts
• Premiums • Prizes
• Patronage awards rewards)
• Tie-up promotions • Allowance
• Free goods • Tips

Factors in Determining the Morality of Gift-Giving

• Value of the Gift

• Purpose of the Gift
• Circumstances under Which the Gift was Given or Received
• Position between or Relationship of the Giver and the Receiver
• Acceptable Business Practice in the Industry
• Company Policy
• Laws and Regulations

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Is Gift-Giving Ethical or Unethical?

 Business gift of clients and business associates can raise conflict of interest problems, and knowing
where to draw the line, between what is right and wrong, is not always easy.
 The clear point is that those who cross that line, intentionally or not, end up in big trouble.
 It is indeed difficult to determine the morality of giving-gift.
 Most agree that accepting and receiving bribe is a violation of professional ethics, but we may not
always find it easy to determine what is and is not a bribe.
 Not all examples of giving and accepting gifts and amenities qualify as bribery, just as not all cases of
taking another‟s property should be considered theft.

Bribery is defined as a practice of giving remuneration for performance of an act that is inconsistent with the
work contract or the nature of the work one has been hired to perform.
Examples of Bribery:

 A motorist offers a certain amount of money to a police officer in order not to be issued a ticket for over
speeding;
 A citizen seeking paperwork or utility line connections gives an expensive gift to a functionary in
exchange for a faster service
 A construction company sharing percentage of its income to a civil servant in order to win a contract

1. The Morality of Advertising

Advertising plays a very significant role in marketing goods and services. Without advertising, the
consumers would not be aware of the presence of the diverse products and service available in the market. The
famous marketing guru, Philip Kotler, defines advertising as “any paid from a non-personal presentation and
promotion of ideas, goods, or services by an identified sponsor.”

The primary purpose of advertising is to inform potential buyers of the availability of a certain
product by providing relevant information on its uses, benefits and how it might serve the needs and wants of
individuals. However, the use of advertising today has not been serving its intended purpose since very little
information is conveyed to consumers and more other often the information is not even useful.

From the point of morality, advertising in itself is not bad or immoral since it helps achieve the goals
of both the seller and buyer. It only becomes immoral when, in the attempt to persuade customers, the
advertisements become deceptive, misleading, and manipulative. Since the primary function of advertising is to
sell goods, its purpose should not be limited to supplying customers with appropriate information but it should
also educate the public or molds the public‟s opinion in choosing products that they need and not become
manipulated in buying what they do not need.

There is only one criterion in evaluating the morality of advertising, and that is, “to tell truth.” An
advertisement that conveys truthful information is morally permissible. If an advertisement contains false
statements and, lies, then it is said to be immoral.

From the discussions above, it is clear that advertising is not totally immoral. It only becomes unethical when the
advertisement becomes (1) misleading (2) deceptive (3) manipulative.

 Misleading Advertisements. Do not misinterpret, do not make false claims but it make claims in such
a way that a normal person looking at it comes up with wrong conclusion.

 Deceptive Advertisements. Make a false statement or misrepresents the product, e.g., the picture
presented in the advertisement is different from the actual product.

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 Manipulative Advertisements. Uses trickery or by insidious means. It involves the use of force threat,
either physical or psychological.

Deceptive Advertising

Deceptive ads are those which either make a false statement and therefore, lie, or which represent
the product without making any statement. Deceptions may occur not only through sentences or propositions but
also through pictures, individual words, or through certain combinations of objects which can deceive the eye
and mind.

Use of “Weasel Words”

Another deceptive technique in advertising is ambiguity. When ads are ambiguous, they are
considered deceptive. The use of weasel words is often complementary or ambiguity in advertising. Weasel
words are used to avoid from a direct or straightforward statement. This is true with semantics which is used in
advertisements in order to prevent accusations that advertisers are acting immorally. Other commonly used
weasel words are like; virtual or virtually, can be, up to, as much as, and many other words that are used to
imply what can‟t be said.

Exaggeration

Exaggerations occur when advertisements tend to make false claims of the benefits o the goods
and services which is actually unsupported by valid evidence. Exaggerations often goes hand in hand with
concealed information. Advertisers conceal facts by suppressing information that is unflattering to their products.
That is, they deliberately neglect to mention or distract consumers, attention away from information, knowledge
could probably make their products less desirable.

Psychological Appeals

Richard Taflinger defines psychological appeal as a visual or aural influence on the subconscious
mind and emotions. It influences by implying that doing what is suggested will satisfy a subconscious desire. It is
nor subliminal, which includes elements in a visual or aural presentation that are not consciously perceived but
influence behaviour.

Some psychological appeals that advertisers use to motivate people to buy products are; Power,
prestige, personal enjoyment, masculinity, femininity, curiosity, imitation, acceptance, approval, self-esteem, self-
preservation, and the most pervasive of all are sexual pitches.

The use of sex in advertising is a two-edged sword. Although it is extremely powerful and effective
when aimed at one gender, it often does so at the social expense of the other. Since human live in a social
world, consideration must be given to the feelings of the people in that world.

CONSUMER ACT OT THE PHILIPPINES (R.A. 7394)

Article 108 of the Act declares that “The State shall protect the consumer from misleading
advertisements and fraudulent sales promotion practices.” The Department of Trade and Industry is responsible
for enforcing the provision of the Act. With respect of food, drugs, cosmetics, devices, and hazardous
substances, the Department of Health is the agency that oversees these products.

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PHILIPPINE ASSOCIATION OF THE NATIONAL ADVERTISERS (PANA)

The PANA issued a Code of Ethics which includes the following statement of general principles;

 Good advertising recognizes both its economic and social responsibility to help reduce distribution costs
and to serve the public interest.
 Good advertising aims to inform the consumer and help him buy intelligently.
 Good advertising seeks public acceptance on the basis of positive and constructive statements, made on
the merits of the product or service advertised, rather than by the disparagement of competition.
 Good advertisement does not allow any activity that involves the exploitation of the goodwill, attached to
any other firm, product, or service. It does not imitate trademarks, packages, labels, and such
advertising devices as illustration, copy, layouts, or slogan.

2. Workplace Romance

People at work see each other every day, work together as teams, sometimes partners, on specific projects.
Through this, they get a sense of fulfilment and find encouragement from one another. Sometimes, people at
work get attracted to each other.

Workplace romance is defined as a relationship between two people who are employed by the same
organization.

Benefits of Workplace Romance

Workplace romance offers benefits for the employees in particular and also for the company in general. These
benefits include friendship, mutual support to each other at work and other personal experiences. Employees
involved in a love relationship overcome rough times at work because of mutual support and inspiration.
Employees likewise tend to view work as fun even when pressures begin to pile up. A lot of people also believe
that the workplace is right venue to find the person to marry and to nurture long-term relationships.

Disadvantages of Workplace Romance

Like any other relationships, an office or workplace romance is risky. It is sensible to have a head
start about the possible outcomes of a workplace romance before engaging into one: It can lead to:

• Damaged Professional Reputations- Integrity will be placed in a questionable situation within the corners
of workstations.
• Disturbed Co-workers- They may have a idea of favouritism, unfair treatment and bias may arise from
the relationship.
• Changes in Productivity- It also includes the aftermath of an office or workplace romance that did not
work out.
• Dating the Boss
• Extramarital Affairs
• The Problem of Fair Pricing- Price must be acceptable and just.

3. Ethical Issues in Fair Price

• The true cost of the product is concealed.

• Suggested retail price
• Use of electronic scanners
• Promotional Pricing
• Follow the leader pricing

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• Price gouging
• Price fixing

4. Trade Secrets and Corporate Disclosure

Trade secret is the legal for confidential business information. That piece of information allows the company to
compete effectively.

Examples of trade secrets include customer identities and preferences, vendors, product pricing, marketing
strategies, company finances, manufacturing processes and other competitively valuable information.

Trade secret protection is a must for any business. It is most often not addressed until an employee
or competitor obtains and uses against a company its valuable information, thereby stealing their sales,
customers, technology base or damaging financial information. The method of manufacturing your product is not
a trade secret if someone can learn how to make the product by simply examining it, otherwise known as reverse
engineering. Reverse engineering is the determination of someone else‟s trade secret information via
examination and testing of publicly available information.

Corporate Disclosure

According to De George, the moral basis for corporate disclosure rests primarily on the following arguments:
• Each person has the right to the information he needs to enter into a transaction fairly.
• Each person has the right to those action of others that will seriously and adverse affect him or her.

5. Product Misrepresentation and Caveat Emptor

Misrepresentation is observed when there is a transformation of information to misinformation. The following are
the two types of misrepresentation.

• International- commonly known as lying

• Unintentional- commonly called as white lie

Types of Lying

• Use of ambiguous terms: Is the act of deliberately using vague terms or open-ended statements that can
have meanings to mislead people.
• Use of false statements: Example, using the term “best selling” brand
• Lying through action: Person gets caught in the act
• Suppression of correct information: is an unintentional act of hiding correct information which eventually
misleads others.

Business Practices involving Misrepresentation and Lying

A. Misrepresentation: It is characterized by actively misrepresenting something about the product or service.

• Deceptive Packaging: The concept is to create an illusion that will divert the attention of the buyer and
convince him to believe that the product has been made better. Example is a floppy-filled packaging where
containers are filled up to 90% of its real capacity or new packaging material which actually lessen the contents
of the goods.

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• Adulteration: Corrupting a genuine commodity by imitating or by adding something to increase its bulk or
volume, or even by substituting an inferior product for a superior one for the purpose of profit or gain.

• Misbranding or Mislabelling: Copying the product‟s design to the closest possible way giving an impression
that is the same with the leading brand.

• Short weighing: It is considered as the most common type of direct misrepresentation.

• Short changing:
• Short measuring: It is very common in textile markets and electrical shops.
• Short numbering: The seller gives the consumer the quantity by piece of the product less than number he has
paid for. Example, bond paper in reams or paperclips and matchsticks in boxes.

B. Indirect Misrepresentation: It is characterized by omitting adverse information about the product or

service. It is a passive deception and not as obvious compared to direct misrepresentation.

• Caveat Emptor means, “let the buyer beware” and is a practice very common among salesmen.
• Deliberately withholding information in any business transaction.
• Business ignorance: Inability of the businessman to provide the customer with the complete information.
Example stock investments

6. The Morality of Labor Strikes

Strike describes collective action undertaken by groups of workers in the form of a refusal to perform work.

Types of strikes

• Sit-down strike (or sit-in) is a strike in which workers show up to work, but refuse to work.
• General strike is a strike affecting all areas of a labor force across many industries.
• Sympathy strike (or secondary) is a strike initiated by workers in one industry and supported by workers
in a separate but related industry.
• Unfair labor practice strike is an action taken by an employer ( including any agent or representative of
the employer)

• Economic strike is based on a demand for better wages or benefits than the employer wants to provide.
• Wildcat strike is against the will of the leadership of a union, or without a union.
• Slow-down is a form of work stoppage in which employees deliberately reduce their individual
performance.

7. Whistle blowing

It is the disclosure by an employee of confidential information which relates to some danger, fraud or other
illegal or unethical conduct connected with the workplace, be it of the employer or his fellow employees.

A whistleblower is someone in an organization who witness behaviour by members that is either contrary to
the mission of the organization, or threatening to the public interest and who decides to speak out publicly about
it.

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Types of Whistleblowing

• Internal whistleblowing: occurs within the organization.

• External whistleblowing: occurs outside the organization.
• Current: Those who blow the whistle on current employees.
• Alumni: Those who blow the whistle on former employees.
• Open: The whistleblower discloses his identity.
• Anonymous: The whistleblower does not disclose his identity.

8. Multilevel Marketing (MLM) or Pyramiding

Multilevel Marketing is a system of selling on which one signs up other people to assist him, and they, in turn,
recruit others to help them. It is a system of selling through many levels of distributors, thus the word “multilevel
marketing”. Common companies of this type are Avon, Sara Lee Direct Selling and Tupper Ware Philippines.

Pyramiding: In the classic pyramid scheme, participants attempt to make money solely by recruiting new
participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of
time for doing nothing other than handing over your money and getting others to do the same.

Moral Issues in Pyramiding

• Too much materialism and greed

• They con the public, making them believe that they are a legitimate MLM.
• The intentions are bad

a. Unfair Competition

Is a competition good or bad? Competition is healthy and can be a motivation for firms to produce better
products or offer better services.

9. Money Laundering

It is the process of disguising illegally obtained money so that the funds appear to come from legitimate
sources or activities. Money laundering occurs in connection with a wide variety of crimes, including illegal arm
sales, drug trafficking, robbery, fraud and terrorism.

Impact of Money laundering on Society

The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are
serious. Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy
through investment, or offer bribes to public officials or even government.

10. Conflict of Interest

It occurs in the business context when a person acts in a way that is to his/her advantage at the
expense of the employing organization. At the time of hiring, when an employee agrees to the terms of a
contract, there is also an implicit agreement that the employee will not sacrifice the interest of the organization
for his/her personal interest. Conflict of interest violates the principles of impartiality. Common factors that create
conflict of interest are commercial bribes or gifts.

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Types of Conflict of Interest

• Self-dealing: For example, you work for the government and use your position to secure a contract for a
private company you own.
• Accepting benefits: Bribery is one example. For example, you are the purchasing agent of your department
and you accept a case of liquor from a major supplier.
• Influence peddling: Here, the professional solicits benefits in exchange for using her influence to unfairly
advance the interest of a particular party.
• Using your employer‟s property for private advantage: This could be as obvious as stealing office supplies for
home use.
• Outside employment or moonlighting: An example would be setting up a business on the side that is in direct
competition with your employer.
• Post-employment: Here, a risky situation can be one in which a person who resigns from a public or private
employment and goes into business in the same area. For example, a former public servant sets up a
practice lobbying the former department in which she was employed.

11. Insider Trading

Insider Trading refers to the significant facts that have not yet made public and are likely to affect stock prices.

12. Tax Evasion and Tax avoidance

Ideally, corporations should pay the exact amount of tax to the government as part of their obligation to
the society in general. However, come companies intentionally evade the payment of taxes to the government.
Tax evasion is “intentional negligence” of the obligation to pay

Correct taxes to the government. Example, omitting report one‟s corporate income, intentional
understatement of income, improper overstatement of deductions, claiming false personal exemptions.

Tax avoidance
It is when taxpayers exploit legally permissible alternative methods of assessing taxable property or income in
order to avoid reduce tax liability.

References:

Business Ethics and Social Responsibility 2nd Edition by Fr. Froliano Roa,

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