R.G.

ALFONSO GOVBUSMAN 2ND SEM 2020-2021

GOVBUSMAN MODULE 6:

Chapter 7: COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

Expected Learning Outcomes

After studying the chapter, you should be able to …

1. To familiarize yourself of the common unethical practices of business establishments such as

● Misrepresentation and
● Over-Persuasion
2. Describe how direct misrepresentation is committed by business firms such as
a. Deceptive packaging
b. Misbranding or mislabeling
c. False and misleading advertising
d. Adulteration
e. Weight understatement
f. Measurement understatement
g. Quantity understatement
3. Describe how indirect misrepresentation is done by business firms such as
a. Caveat emptor
b. Deliberate withholding of information
c. Passive deception
4. Describe how over-persuasion becomes unethical
5. Describe some unethical corporate practices of the
a. Board of Directors
b. Executive officers and lower level manager
c. Employees

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R.G. ALFONSO GOVBUSMAN 2ND SEM 2020-2021

COMMON UNETHICAL PRACTICESOF BUSINESS ESTABLISHMENTS

Unethical problems in business ethics occur in many forms and types. The most common of these
unethical practices of business establishments are misrepresentation and over-persuasion.

Misrepresentation may be classified into two types: direct misrepresentation and indirect
misrepresentation.

Direct Misrepresentation is characterized by actively misrepresenting about the product or customers.

This includes:

● Deceptive packaging. Deceptive packaging takes many forms and is of many types. One type is
the practice of placing the product in containers of exaggerated sizes and misleading shapes to
give a false impression of its actual contents.
● Misbranding or Mislabeling. Is the practice of making false statements on the label of a product
or making its container similar to a well-known product for the purpose of deceiving the
customer as to the quality and/or quantity of a product being sold.
● False or Misleading Advertising. Advertising serves a useful purpose if it conveys the right
information. However, advertising does not always tell the “whole truth and nothing but the
truth” if it greatly exaggerates the virtues of a product and tells only half of the truth or else
sings praises to its non-existent virtues. If advertising does not provide a useful service anymore
to the customers, it can become the agent of misrepresentation.
● Adulteration. Is the unethical practice of debasing a pure or genuine commodity by imitating or
counterfeiting it, by adding something to increase its bulk or volume, or by substituting an
inferior product for a superior one for the purpose of profit or gain.
● Weight understatement or short weighing. In short weighing, the mechanism of the weighing
scale is tampered with or something is unobtrusively attached to it so that the scale registers
more than the actual weight.
● Measurement understatement or short measurement. In short measurement, the measuring
stick or standard is shorter than the real length or smaller in volume than the standard.
● Quality understatement or short numbering. In this unethical practice, the seller gives the
customer less than the number asked for or paid for.

Indirect Misrepresentation is characterized by omitting adverse or unfavorable information about the

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

Caveat emptor is a practice very common among salesmen. Translated, caveat emptor means “let the
buyer beware”. Under this concept, the seller is not obligated to reveal any defect in the product or
service he is selling. It is the responsibility of the customer to determine for himself the defects of the
product.

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R.G. ALFONSO GOVBUSMAN 2ND SEM 2020-2021

Deliberate withholding of Information. Following the argument that caveat emptor is unethical, the
deliberate withholding of significant information in a business transaction, is also unethical. No business
transaction is fair where one of the parties does not exactly know what he is giving away or receiving in
return.

Passive deception. Direct misrepresentation gives business a bad name while indirect misrepresentation
or passive deception is not as obvious, it nonetheless contributes to the impression that businessmen
are liars and are out to make a fast buck. Business ignorance is passive deception because the
businessman is unable to provide the customer with the complete information that the latter needs to
make a fair decision.

Over-persuasion. Persuasion is the process of appealing to the emotions of a prospective customer and
urging him to buy an item of merchandise he needs. Persuasion is legitimate and necessary in the
selling of goods if it is done in the interest of a buyer such as persuading him/her to get a hospitalization
insurance policy. The common instances of ever-persuasion include the following:

1. Urging a customer to satisfy a low priority need for merchandise.

2. Playing upon intense emotional agitation to convince a person to buy.
3. Convincing a person to buy what he does not need just because he has the capacity or
money to do so.

CORPORATE ETHICS

Unethical practices of Corporate Management

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

Some Unethical Practices of the Board of Directors

1. Plain Graft
Some of the Board of Directors help themselves to the earnings that otherwise would go to
other stockholders. This is done by voting for themselves and the executive officers huge per
diems, large salaries, big bonuses that do not commensurate to the value of their services.

2. Interlocking Directorship
Interlocking directorship is often practiced by a person who holds directorial positions in two or
more corporations that do business with each other. This practice may involve conflict of
interest and can result to disloyal selling.

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R.G. ALFONSO GOVBUSMAN 2ND SEM 2020-2021

3. Insider trading
Insider trading occurs when a broker or another person with access to confidential information
uses that information to trade in shares and securities of a corporation, thus giving him an unfair
advantage over the other purchasers of these securities.

4. Negligence of Duty
A more common failure of the members of the Board of Directors than breach of trust is neglect
of duties when they fail to attend board meetings regularly.

Some Unethical Practices of Executive Officers and Lower Level Managers

Unethical practices that are more common to executive officers and lower level managers are:

1. Claiming a vacation trip to be a business trip.

2. Having employees do work unrelated to the business.
3. Loose or ineffective controls.
4. Unfair labor practices.
a. To interfere with, restrain or coerce employees in the exercise of their right to self-
organization;
b. To require as a condition of employment that a person or an employee shall not join a labor
organization or shall withdraw from one to which he belongs;
c. To contract out services or functions being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their rights to self-
organization;
d. To initiate, dominate, assist or otherwise with the formulation or administration of any labor
organization, including the giving of financial or other support to it;
e. To discriminate with regards to wages, hours of work, and other terms or conditions of
employment in order to encourage or discourage membership in any labor organization.
f. To dismiss, discharge, or otherwise prejudice or discriminate, against an employee for
having given or being about to give testimony under the Labor Code;
g. To violate the duty to bargain collectively as prescribed by the Labor Code.
h. To pay negotiation or attorney’s fees to the union or its officers or agents as part of the
settlement of any issue in collective bargaining or any other dispute;
i. To violate or refuse to comply with voluntary arbitration awards or decisions relating to the
implementation or interpretation of a collective bargaining agreement;
j. To violate a collective bargaining agreement.
5. Making false claims about losses to free themselves from paying the compensation and benefits
provided by law.
6. Making employees sign documents showing they are receiving fully what they are entitled to
under the law when in fact they are only receiving a fraction of what they are supposed to get.
7. Sexual Harassment.

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R.G. ALFONSO GOVBUSMAN 2ND SEM 2020-2021

Some Unethical Practices by Employees

1. Conflicts of Interest. A conflict of interest arises when an employee who is duty bound to protect
and promote the interests of his employer violates this obligation by getting himself into a
situation where his decision or actuation is influenced by what he can gain personally from it
rather than what his employer can gain from it.
a. An employee who holds a significant interest or shares of stock of a competitor, supplier,
customer or dealer favors this party to the prejudice of his employer.
b. The employee accepts cash, a gift or a lavish entertainment or a loan from a supplier,
customer, competitor, or contractor. As a result, he therefore cannot act impartially.
c. The employee uses or discloses confidential company information for his or someone else’s
personal gain.
d. The employee engages in the same type of business as his employer.
e. The employee uses for his own benefit a business opportunity in which his employer has or
might be expected to have an interest.
2. Dishonesty. Business ethics is not just limited to business transactions with outside parties. It
also covers employee-employer relationship, especially with respect to an employee’s honesty
as he carries out his assigned duties in the office.
a. Taking office supplies home for personal use.
b. Padding an expense account through the use of fake receipts when claiming
reimbursements.
c. Taking credit for another employee’s idea.

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R.G. ALFONSO GOVBUSMAN 2ND SEM 2020-2021

DISCUSSION QUESTIONS:

1. What are the two most common types of unethical practices of business establishments as far as the
products or customers are concerned?

2. How is indirect misrepresentation of a product undertaken?

3. What does “caveat emptor” mean?

4. What is “interlocking directorship” and why could it lead to unethical actions of a member of the
board of directors?

5. Insider trading is considered an unethical practice. Why?

COMMENTS / FEEDBACK

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