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Module 4
Business Ethics
Learning Outcomes

At the end of this module, you should be able to:

1. Describe what ethics and business ethics are
2. Understand the impact of business ethics on the business environment and society
3. Describe the common unethical practices of businesses
4. Describe what meant by an ethical dilemma, and
5. Understand what is corruption and its ill effects.

DEFINITION

Ethics
 Comes from the Greek word ethos, meaning character, or “a characteristic way of
acting.” (Padilla, 2016)
 It is the study of the moral behaviour, or conduct of man as viewed from ultimate
principles insofar as these principles are known by human reason. (Padilla, 2016)
 It is a set of moral principles that guide behaviour (BPP Learning Media Ltd., 2010)

Morality
 comes from the Latin word moralis, meaning customs or manners. (Padilla, 2016)
 Individuals have moral values and beliefs about what constitutes right and wrong
behaviour. These values often reflect those of the individual’s family, culture and
educational environment they are brought up in. (BPP Learning Media Ltd., 2010)

Ethics and morals are concerned with right or wrong and how conduct should be judged to be
good or bad. It is about how we should live our lives and, in particular, how we should
behave towards other people. It is therefore relevant to all forms of human activity.

Morals differ from ethics in the sense that they derive from a person’s individual beliefs and
are often linked to religious views. They are not derived from professional ethics which are
the views and rules of the professional organization that an individual is a member of.

Therefore, it is perfectly possible for an individual to find an action to be justified ethically

(in terms of professional ethics) but be immoral (to their personal views).

Where an individual’s morals clash with their professional ethics, they can protest or resign –
but this will have consequences for them professionally and therefore is the hardest choice
that a professional may face. The law will provide the individual some protection if they
make an ethical protest. Where an individual follows their professional ethics, they may not
be taking (to them) the correct course of action, but they will be afforded protection of their
profession. (BPP Learning Media Ltd., 2010)
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Business ethics
 concerned primarily with the relationship between business goals and techniques to
specifically human ends. It studies the impacts of laws for the benefit of the
individual, the company/firm, the business community, and society as a whole.
(Padilla, 2016)

ETHICAL LEADERSHIP
Source: Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila:
DomDane Publishers.

Ethical leadership is a leadership that is concerned in leading in a manner that respects the
rights, dignity and stake of others. In business and political context, ethical leadership
focuses on how leaders employ their business and political power in the decisions they make
and actions they engage into. Leaders who are ethical demonstrate a level of integrity that is
essential for stimulating a culture of honesty and accountability. The character and integrity
of the leader provide the basis for personal characteristics that direct a leader’s ethical beliefs,
values and decisions. Individual values and beliefs impacts the ethical decisions of leaders.

Leaders who are ethical are stakeholder-oriented, and also conscious of how their decisions
affect others. They use their power to serve the greater good instead of self-serving interests.
In ethical leadership, it is important for the leaders, more specifically for corporate leaders in
business arena to consider how their decisions impact the internal stakeholders, the industry,
customer and ultimately to the public.

ETHICAL DECISION MAKING PROCESS IN ORGANIZATION

Source: Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila:
DomDane Publishers.

“Right now we know there are misdeeds going on somewhere in our company. We just hope
it is small and we find it.” – Warren Buffet, Chairman, Berkshire Hathaway, Business
Nightly Review, May 2005

Ethics in an organization refers to system, values, philosophies and principles that govern the
behavior of organizational members which are the consequences of organizational
pronouncement. Part of the requisite of ethical decision making process in an organization is
answering the following questions whenever confronted with any instance that requires
decision. On the managerial side, did the leader provide leadership and oversight? On the
human side, did the leader nurture individuals by providing responsibility and accountability?
In the operational corporate context, will it facilitate improvements more especially on
compliance requirement?

Decision making is an essential process for organizational effectiveness. Decision making is

nearly universally defined as choosing between choices. It is closely related to all the
traditional management functions. In the context of ethical decision making process, the
following may help decision makers of organizations lay down decisions aligned with their
CSR principles:
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MYTHS ABOUT ORGANIZATIONAL ETHICS

Source: Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila:
DomDane Publishers.

Being Ethical Is Easy

From the business standpoint, being ethical is not easy considering that to be ethical means
that business conduct most of the time has to be beyong the minimum legal requirement.
Second, there is no such thing as cost-free compliance effort. Third, being ethical could
mean being a bee flying towards a huge web of unethical entities that can easily overwhelm
the company.

It is hard to withstand the pressure when almost everybody deviates and their deviation is
already part of the system. The tendency of being carried into this bandwagon mentality may
entice the decision makers of corporation to cross the line and start to find justifications for
some acts deemed unethical; it is like quicksand, the next thing you know, you cannot get off
from it anymore. Just like in politics, some of therm are clean prior to getting involved then
stories change when they are already part of the system.

Being Ethical Is Not Part Of Doing Business

Being ethical is part and parcel of doing business. It should be something that comes with the
existence of the enterprise. When the state grants the business the authority to operate, it is
implied that along the mandate comes the responsibility to comply with ethical standards.

Being Ethical Brings No Benefit

It is not true that being ethical has no reward. Arguably, the only investment without any loss
is being ethical. Ethical companies are standouts. They have the confidence of investors, the
support of the community and other stakeholders, and most importantly, the trust of their
members. These, along with a great vision, can definitely bring success and stability.

WHAT ETHICS IS NOT

Source: Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila:
DomDane Publishers.

Ethics Is Not The Same As Feelings

Feelings provide important information for out ethical choices. Some people have highly
developed habits that make them feel bad when they do something wrong but many people
feel good even though they are doing something wrong. And, often, our feelings will tell us
it is uncomfortable to do the right thing if it is hard.

Ethics Is Not Religion

Many people are not religious but ethics applies to everyone. Most religions do advocate
high ethical standards but sometimes do not address all the types of problems we face.

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Ethics Is Not Just Following The Law

A good system of laws does incorporate many ethical standards but law can deviate from
what is ethical. Law can become ethically corrupt, as some totalitarian regimes have made it.
Law can be a function of power along and designed to serve the interests of narrow groups.
Law may have difficult time designing or enforcing standards in some important areas and
may be slow to address new problems.

Law may be circumvented – what is legal may not always be ethical

Ethics Is Not Merely Following Culturally Accepted Norms

Some cultures are quite ethical but other become corrupt or blind to certain ethical concerns
(as the US was to slavery before the Civil War). “When in Rome, do as the Romas do” is not
a satisfactory ethical standard.

Ethics Is Not Science

Social and natural science can provide important data to help us make better ethical choices.
But, science alone does not tell us what we ought to do. Science may provide an explanation
for what humans are like. But ethics provides reasons for how humans ought to act. And just
because something is scientifically or technologically possible, does not necessarily mean it
is ethical to do it.

ETHICAL BEHAVIOR IN THE ENTERPRISE

Source: Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila:
DomDane Publishers.

Paying attention to ethics makes good business sense. This can create goodwill for the
corporation and enhance its chances of success. Meeting its obligations and treating
customers, suppliers, employees, and other stakeholders fairly is a sure shot investment of a
brighter future for the company in the long run.

When we hear the word ethical, several ideas come to mind, most notably good versus bad
and right versus wrong. These are the six foundation of trust upon which ethical business
practice is built:

Character

Character drives what we do when no one is looking. Each person has the ability to build,
change, or even destroy his or her own character. We can build our character through the
way we live by thinking good thoughts and performing good acts.

Ethics

Ethics refers to a set of rules that describes what is acceptable conduct in society. Ethics
serve as a guide to moral daily living and helps corporation judge whether such behavior can
be justified.

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Integrity

To have integrity is to be honest and sincere. Integrity is defined as adhering to a moral code
in daily decision making. Integrity put simply, when people and businesses possess integrity,
it means they can be trusted.

Laws

The law is a series of rules and regulations designed to express the needs of the people. Laws
frequently provide us with a sense of right and wrong and guide our behavior. It is worth
noting that an illegal act can be ethical. One of the most famous examples is Martin Luther
King, Jr.’s violation of the law on marches and sit-ins during the fight against segregation.

Morals

Morals are a set of rules or mode of conduct on which society is based. Certain moral
elements are universal, such as the laws forbidding homicide and the basic duties of doing
good and furthering the well-being of others. Morals and ethics are very similar – both
pertain to society’s ideas of right and wrong.

Values

Values are defined as the acts, customs, and institutions that a group of people regard in a
favorable way.

Many professions and corporations have developed codes of ethics to address their unique
business situations. By developing a code of ethics, an organization makes it clear that
corporations, employees, and members themselves cannot claim ignorance as a defense for
unethical conduct. In general, the proper role of corporate management in promoting
business ethics involves clarifying and enforcing expectations, listening to an respecting
diverse views on various issues, acting consistently over time, and creating an atmosphere
free from harassment and inequality.

In the wake of corporate scandals that cost employees and investors billions of dollars, the
US Federal Government passed legislation that requires publicly-registered corporations to
have a corporate code of ethics. While the Sarbanes-Oxley Act of 2002 (SOX) does not
guarantee the elimination of unethical practices, it does provide a way to legally address such
behavior. Companies that have made a bona fide effort to prevent unethical and illegal
behavior are likely to receive less severe punishment.

Many corporate ethical standards fail because they are too vague and general and give no
specific directives. Codes of ethics must be specific enough to convey the intended conduct.
However, they must avoid being so prescriptive that a literal interpretation becomes an
excuse for noncompliance. Also, codes must be general enough to aviod encouraging
defensive management, where an employee becomes unable to act and make decisions
fearing that any action will be unethical.

The potential for unethical behavior in business is everywhere. Several factors however
contribute to how real administrators can act ethically. Establishing an ethical standards for
business conduct involves more than a written policy. The most compelling support for an
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ethical standard is adherence to and enforcement of that standard by those who institute it,
and by those for whom it is written. More than briefings and policies handed out to every
single employee, our behavior, practice, and deeds are the foundation for creating an ethical
standard and making it stick.

COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

Source: Cabrera, E. B., & Cabrera, G. A. (2019). Corporate Governance, Business Ethics,
Risk Management and Internal Control. Manila: GIC Enterprises & Co., Inc.

1. Misrepresentation

a. Direct misrepresentation – characterized by actively misrepresenting about

the products or customers

 Deceptive packaging – for example, placing the product in containers

of exaggerated sizes and misleading shapes to give a false impression
of its actual contents or using containers filled up only to 85% or 95%
of their capacity.

 Misbranding or mislabelling – this is the practice of making false

stateements 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 – for example, exaggerating the virtues

of a product and telling only half of the truth or worse, declaring its
non-existent virtues.

 Adulteration – this 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 – 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.
One modus operandi of sellers is to use two sets of scales – one which
gives the correct weight and has been sealed by the authorities and
another which looks identical but registers more weight than the
product.

 Measurement understatement or short measurement – the measuring

stick or standard is shorter than the real length or smaller in volume
than the standard, for example in selling textiles or selling rice by sack.

 Quantity understatement or short numbering – the seller gives the

customer less than the number asked for or paid for.

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b. Indirect misrepresentation – characterized by omitting adverse or

unfavourable information about the product or service.

 Caveat emptor
 “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.
 This is unethical because of the willingness of the seller to
generate profit by taking advantage of the buyer’s lack of
information. This is passive deception which is also lying.

 Deliberate withholding of information

 Passive deception

2. Overpersuasion

 This is the process of appealing to the emotions of a prospective customer and

urging him to buy an item of merchandise he needs. Persuation is legitimate
and necessary in the selling of goods if it is done in the interest of a buyer such
as persuading him to get a hospitalization insurance policy. However,
persuation used solely for the benefit of selling a product without considering
the interest of the buyer is not ethical.

 Some common instances of over-persuasion are as follows:

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

UNETHICAL PRACTICES OF CORPORATE MANAGEMENT

Source: Cabrera, E. B., & Cabrera, G. A. (2019). Corporate Governance, Business Ethics,
Risk Management and Internal Control. Manila: GIC Enterprises & Co., Inc.

Some unethical practices of directors

1. Plain graft

 Some directors help themselves to the earnings that otherwise would go to

stockholders, for example 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. They can also reduce the earnings going to the other
shareholders by authorizihng purchases of goods and services for the
company’s use at a price higher than normal, in consideration of a certain
percentage of the purchase value or commission accruing to them.

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2. Interlocking directorship
 This refers to holding directorial positions in two or more corporation that do
business with each other. This may involve conflict of interest and can result
in disloyal selling. Disloyal selling happens when a person is compelled to
decide which of the two corporation’s interest should be protected or upheld.
Thus, whatever decisions the person makes, he betrays the trust reposed on
him by the shareholders of either of the two companies.

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

4. Negligence of duty
 For example, failure to attend board meetings regularly by directors. It is only
in regular attendance that they can protect the rights and interests of the
shareholders and their non-attendance of board meetings could result in
betrayal of trust of the parties who elected them to their positions.

Some unethical practices of executive officers and managers

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
5. Making false claims about losses to free themselves from paying the compensation
and benefits provided by law.
6. Making employees sign documents showing that 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

Some unethical practices of employees

1. Conflicts of interest – examples:

a. An employee 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. In this situation, the decision or
action of the employee is influenced by his being indebted for a favour or loan
from a party with whom the company is doing business. He, therefore, cannot
act impartially.
c. The employee uses or discloses confidential company information for his or
someone else’s personal gain. An example is revealing his employer’s
formula or menu for a well-liked food to a competitor.
d. The employee engages in the same type of business as his employer.
e. The employee uses for his owne benefit a business opportunity in which his
employer has or might be expected to have an interest.

2. Dishonesty – examples:
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a. Taking office suppliers 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

ETHICAL DILEMMA
Source: Cabrera, E. B., & Cabrera, G. A. (2019). Corporate Governance, Business Ethics,
Risk Management and Internal Control. Manila: GIC Enterprises & Co., Inc.

Ethical dilemma is a situation in which a decision must be made about the appropriate
behaviour

Resolving ethical dilemmas

You may use the following six-step approach to resolving ethical dilemmas:
1. Obtain the relevant facts
2. Identify the ethical issues from the facts
3. Determine who is affected by the outcome of the dilemma and how each person or
group is affected
4. Identify the alternatives available to the person who must resolve the dilemma
5. Identify the likely consequences of each alternative
6. Decide the appropriate action

ADVOCACY AGAINST CORRUPTION

Source: Cabrera, E. B., & Cabrera, G. A. (2019). Corporate Governance, Business Ethics,
Risk Management and Internal Control. Manila: GIC Enterprises & Co., Inc.

Corruption
 The abuse of private and public office for personal gain. It includes acts of bribery,
embezzlement, nepotism, kickbacks and state capture

 Asking for or giving any gratification to induce aperson to do a favour for private
gain

 Misuse of entrusted power (by heritage, education, marriage, election, appointment)

for private gain. It covers not only the politician and the public servant but also the
CEO, CFO and other employees of a company

 The improbity or decay in the decision-making process in which a decision-maker

consents to deviate or demands deviation from the criterion which should rule his or
her decision-making, in exchange for a reward or for the promise or expectation of a
reward, while these motives influencing his or her decision-making cannot be part of
the justification of the decision. (Dr. Petrus Van Duyne)

Why and how does a person become corrupt?

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 Corruption spreads when there are opportunities, when risk is minimal compared to
benefits obtained or when one is confronted with issues like:
o Career advancement
o Earning of more income
o Financial problems caused by illness, loss of property, etc.

 Those engaged in corruption learn how to be dishonest. The next corrupt actions
become easier to do unless one is firmly rooted on solid principles and has been
nurtured in an upright manner.

Ill effects of corruption

 Increases the cost of doing business and creates unfair competition

 Leads to waste or inefficient use of public resources

 Erodes public trust, undermines rule of law and ultimately deligitimizes the state

 Ordinary people are prevented from receiving all the essential services they are
entitled to

Characteristics of corruption

a. Recepients and payers

Worldwide complaints are heard about politicians and public officials who accept
bribes and enrich themselves privately at the expense of the common citizen. This
may be at the expense of the employee and the employer, consumer and producer,
lessor and tenant, the one applying for a permit to do something or asking exemption
from an obligation to payor to deliver a product or a service. All of those cases may
be considered to be abuse of power and authority for one’s own benefit.

Complainants forget that necessarily there should also be payers who benefit from
that abuse of power and authority. The other side of the coin shows payers assuming
that their ‘gift’ to a politician or a public official, may in return deliver profitable
preferential treatment or delivery.

Anyone who wants to fight corruption and safeguard integrity in governance should
not only prevent politicians and public officials from unlawfully accepting gifts, but
should also fight the “high and mighty” that abuse their power and authority to give
privileges such as land rights, permits, diplomas, allowances, money, against a
reward.

b. Extortion

They do not only blame politicians and public officials for willingly accepting bribes.
It is also often alleged that those having authority in our society ask to be bribed or
give us the opportunity to bribe. This means that the question “who is to blame”,
shifts from the person who pays to the person who extorts and receives. Again on the

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ground of the allegation: “There’s no escaping from it, for if you don’t pay, you are
bound to fall behind”.

In every society it is known, either publicly or privately, which public official is open
to transactions with gifts being made reciprocally. The gift on the part of the official
may then imply considering an application with priority, or assigning a contract,
scholarship or employment. The potential payer will look for his “prey”: he will look
for the politician/public official of whom everybody knows that he can be “bought”,
that he is prepared to break the rules in exchange for a gift.

Therefore, the reputation that a public official or politician enjoys, is of great

significance. Some will never be approached with a proposition, as the potential
extortionists or bribers know that they are not open to such practices.

c. Lubricant of society

Many think that paying bribes is required to ensure smoother operation of society.
They think that without an occational gift (for example, Christmas and New Year), for
instance upon entering into a contract for the supply of a product or a service, such
contracts might be lost to them and might be assigned to others.

For entrepreneurs who want to secure sales, those gifts are a cost item which they
account for in advance in their prices. As a consequence, products and services cost
unnecessarily more than is needed.

Macroeconomically, corruption costs money to society which should be considered as

a loss. From a microeconomic point of view, for the bribing entrepreneur, it is
profitable. The payer of a bribe secures a desired transaction which if evaluated on
purely commercial grounds – strictly speaking, should have been assigned to someone
else. That will harm individual entrepreneurs and transactions; it will harm the
national economy and the world economy.

d. An ethical dilemma

The mere fact that both the payer and the recipient of bribes want to keep their
behaviour secret shows that such behaviour is improper. Many consider corruption
as an ethical problem, a behavioural problem and refer to it as being sinful. It is a
problem to be solved by means of personal reform.

e. Culture

Gifts are inherent to human relatinos and therefore present in all cultures. When you
receive a gift, it will also be open and visible to everyone. Corrupt payments,
however, are made in hiding. A gift made in public will also impose a certain
obligation upon the recipient. On a next occasion, you will show your gratitude by
reciprocating the gift and you share the gift received with your family and friends.

f. Kindness among friends

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It is essential, whether you just want to be thoughtful, or whether your gift is

presented with a certain intention. Is it a sign of thoughtfulness or is it hiding a
particular purpose, an expected return in the future? Whether attention or intention,
the difference is of great importance for the relationship.

***

REFERENCES

Biore, C., & Gonzales, R. e. (2015). Good Governance & Social Responsibility. Manila: DomDane
Publishers.

BPP Learning Media Ltd. (2010). CIMA: Certificate C5 Fundamentals of Ethics, Corporate Governance
and Business Law Study Text. BPP Learning Media Ltd.

Cabrera, E. B., & Cabrera, G. A. (2019). Corporate Governance, Business Ethics, Risk Management
and Internal Control. Manila: GIC Enterprises & Co., Inc.

Padilla, R. A. (2016). Business Ethics and Social Responsibility. Pasay City: JFS Publishing Services.

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