ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

LECTURE 5: Advocacy Against Corruption and Initiatives to Improve

Business Ethics and Reduce Corruption

Expected Learning Outcomes

After studying Lecture 5.2, we should be able to:
1. Describe the effects and characteristics of corruption;
2. Explain how corruption may be prevented;
3. Describe the initiatives to improve business ethics and reduce corruption; and
4. Explain the different codes of conduct for businesses.

What is Corruption?
Corruption is the abuse of private and public office for personal gain. It includes bribery,
embezzlement, nepotism, kickbacks and state capture. This is often associated with and reinforced
by other illegal practices such as bid rigging, fraud, or money laundering, extortion.

Simply defined, corruption is receiving, asking for or giving any gratifications to induce a person
to do a favor for private gain. This act covers not only public corruption involving misuse of public
power by elected politician or appointed civil servant but also private corruption between
individuals and businesses.

A broader definition of corruption follows:

Corruption is the 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. It involves wrongdoing on the part of an authority
or powerful party through means that are illegitimate, immoral or incompatible with ethical
standards. Corruption often results from patronage and is associated with bribery.

A much more difficult, scientific definition for the concept corruption was developed by Professor
(Emeritus) Dr. Petrus Van Duyne:
Corruption is an 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.

In general, corruption is a form of dishonesty or criminal activity undertaken by a person or an

organization entrusted with a position of authority, often to acquire illicit benefit.

How Does Corruption Look Like?

Corruption may take place in any of the following forms/ways:
✓ A company paying a bribe to win the public contract to build the local highway, despite
proposing a sub-standard offer.
✓ A politician redirecting investments to his hometown rather than to the region most in need.
✓ Public official embezzling funds for school renovation to build his private villa.
✓ A private company manager recruiting an ill-suited friend for a high-level position.
✓ Local officials demanding bribes from ordinary citizens to get access to a new water pipe.
✓ A salesman bribing the purchasing manager of a company to give preference to his products.

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Why and How Does a Person Become Corrupt?

Corruption spreads when there are opportunities, when risk is minimal in comparison to benefits
obtained or when one is confronted with issues like:
✓ Career advancement;
✓ Earning of more income; and
✓ 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

Economically,
✓ Corruption adds up to 10% of the total costs of doing business in any part of the world and up
to 25% of the cost of procurement programs in developing countries.

✓ Corruption leads to waster or the inefficient use of public resources.

In the Philippines, figures from 1960 to 2016 indicate that an average of P550 billion is lost
yearly to crime, corruption and tax evasion. This amount could clearly have been used more
efficiently and effectively for poverty alleviation or education instead.

✓ Corruption corrodes public trust, undermines the rule of law, and ultimately delegitimizes the
state.

✓ Africa’s 700 million people under 30 are seeking opportunities with dignity and if mismatch
between aspirations and fulfillment continues, this could lead to apathy, discontent and turn
them to radical extremists and join terrorist groups.

Other significant and serious repercussions of corruption are:

1. If allowed to take root in society, it can lead to a breakdown in social order and lives are affected
when ordinary people are prevented from receiving all the essential service that they are entitled
to.

Corruption may have drastic impacts like most of the public funds are used on the leisure and
lifestyle of influential people instead of allotting them on hospitals, schools and other basic
needs of general public.

2. It creates unfair competition and increases the cost of doing business. Every form of corruption
is bad for economic growth and could result to tarnished reputation of an entire country.

Corruption causes businesses to flee from the country because businessmen find it a constraint
threat for their progress.

3. Corruption is cancer that spreads rapidly all over the body. Corruption in Australia, Canada and
few European countries has dropped extensively due to adoption of concrete measures.
Nevertheless, corruption in developing and underdeveloped countries (especially Afghanistan
and Somalia) is still a critical problem.

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There is a growing worldwide concern over corruption at the present time. A consensus has now
been reached that corruption is universal. It exists in all countries, both developed and developing,
in the public and private sectors as well as is non-profit and charitable organizations. Allegations
and charge of corruption now play a more central role in politics that at any other time.
Governments have failed careers of world-renowned public figures ruined and reputation of well-
respected organizations and business firms badly tarnished on account of it.

Major corruption arises whenever major events involving large sums of money, multiple parties
or huge quantities of products are at stake. Corruption also flourishes in situation involving high
technology (e.g., purchase of a technologically far-advanced) or in situations that are chaotic and
a number of actions is very large such as natural disasters, civil war and betting in international
sports tournaments. Major corruption thrives on a broad base of small corruption payments or
bribes. In the end, corruption costs are absorbed by the consumers and the taxpayers.

Characteristics of Corruption
Although there is a widespread perception that corruption is prevalent, it is difficult to establish
how wide and deep corruption has penetrated our economy and social life. This is because both
partners in an exchange of power for privileges keep their transaction secret.
1. Recipients and payers
Corruption is the abuse of entrusted power and elected authority for private profit.

✓ 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; customer and producer; renter and tenant; the
one applying for a permit to do something, or asking exemption from an obligation to pay
or to deliver a product or a service. All 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, diplomas, allowances, money, against a reward.

2. 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 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

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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 do know that they (those public
officials or politicians) are not open to such practices. Equally, as regards some business
enterprises, it is a known fact that they do not keep any cash for bribes. They run less risk
of falling victims to extortion.

3. Lubricant of society
✓ Many think that paying bribes is required to ensure smoother operation of society. They
think that without an occasional gift (for example, around Christmas and New Year), or
incidentally (a gift on the occasion of a marriage or when a child is born) 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 from a commercial point of view, for as a manner of fact, these gifts
have already been budgeted.

✓ If corruption is judged purely on the basis of business economics, macro-economically it

costs money to society which should be considered as a loss. From the micro-economic
point of view, for the bribing entrepreneur, it is profitable. The payer of a briber 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 word economy.

4. An ethical dilemma
✓ The mere fact that both the payer and the recipient of bribes want to keep their behavior
secret (and often succeed in doing so as well) shows that such behavior is generally
considered to be improper. Many consider corruption to be an ethical problem, a behavioral
problem. And refer to it as being “sinful”, a “wrongdoing”. It is a problem to be solved by
means of personal “reform”.

✓ Emphasizing the “sinfulness” of corruption, aims at improving especially individual and

personal behavior. Poor entrepreneurship (in a moral sense) should then be improved on a
personal basis. Our focusing on the conditions and the implications of corrupt behavior
aims rather on the entire society and economy, and on the conditions that exist within that
structure to prevent and fight corrupt behavior and safeguard integrity. Good
entrepreneurship is judged with regard to its quality in all three aspects: People, Planet and
Profit. The qualification “poor” is not a sign of sinfulness, but a quality that signifies an
adverse effect on all three aspects, not only on the economics.

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5. Poverty alleviation
✓ The explanation that refers to individual poverty reduction is especially given by those who
have a keen eye for corruption among lower operational staff in government service, lower
office clerks, police officers, customs officers, the military, teachers, admission staff in
hospitals, bus ticket collectors, car-park attendants, garbage collectors, etc., who on an
operational level often have good opportunities to extract extra income or privileges from
decisions they might take of importance to entrepreneurs and citizens. Consequently, these
have a certain value.

✓ Investigations into the effect of level of income enjoyed by a person, however, provide
sufficient proof that this explanation is not correct. Low pay does surely not automatically
imply that, consequently, the person concerned is corrupt. What is of much greater
importance for the prevention of, or fight against, corruption at a lower level in all kinds of
hierarchies, is the clearness and transparency of the rules and of the decision-making
process, and the control exercised on the application of the rules. Timely payment of
salaries is an important pre-condition to prevent corrupt behavior.

6. Culture
✓ Gifts are inherent to human relations and therefore present in all cultures. You give and
receive gifts on the occasion of birthdays, Santa Claus or Christmas; on the occasion of
memorable events; an appointment or a departure; marriage or a retirement.

✓ When you receive a gift from them, it will also be open and visible to everyone. Corrupt
payments are made in hiding, are not made known. 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. In fact,
in our everyday life it is not much different. You give and receive on birthdays, on the
occasion of marriages and births, and on other festive occasions. Look at the reciprocal
state visits of Heads of government and Heads of state, exchanging gifts.

7. “Kindness among friends”

✓ 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. Is it a “friendly turn” or is it an “investment”?

✓ To have friends belongs to culture. However, can you “buy” a friend? Is real friendship not
to be based on honesty and transparency? To give presents reciprocally is a sign of
friendship. It should not get lost in a misuse of power for private gains.

The Philippines Corruption Report

Source: GAN-The Risk & Compliance Portal (formerly The Business Anti-Corruption Portal)
The Risk & Compliance Portal is a collection of free anti-corruption compliance and risk
management resources, including e-learning training, country risk profiles and due diligence
tools, produced by GAN Integrity.

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Snapshot
High corruption levels severely restrict the efficiency of businesses operating in the Philippines.
Extensive bribery within the public administration and vague and complex laws make foreign
companies vulnerable to extortion and manipulation by public officials. Favoritism and undue
influence are widespread in the courts, leading to time-consuming and unfair dispute resolution,
and to an uncertain business environment. Corruption plagues the customs administration, and
fraud routinely occurs for companies when filing import and export documentation. The Anti-Graft
and Corrupt Practices Act criminalizes active and passive bribery, extortion, abuse of
office and conflicts of interest. Giving gifts, except for gifts of insignificant value given in line
with local customs, is prohibited. Facilitation payments are not addressed by anti-corruption
regulations and private sector bribery is not criminalized. The legislative framework for fighting
corruption is scattered and is not effectively enforced by the weak and non-cooperative law
enforcement agencies.

Judicial System – HIGH RISK

✓ Corruption risks are high in the judicial system. Bribes and irregular payments in return for
favorable judicial decisions are common. The judiciary is formally independent, but the rich
and powerful have frequently influenced proceedings in civil and criminal cases. Procedural
fairness and transparency are severely undermined by nepotism, favoritism, and
impunity. Companies do not have sufficient faith in the independence of the judiciary and they
rate the efficiency of the legal framework in settling disputes and challenging regulations as
poor. Investment disputes can take several years to resolve due to a lack of resources,
understaffing, and corruption in the court system. Low salaries for judicial officials are said
to perpetuate the problem of bribery.

✓ The judiciary is underfunded by the state and often depends on local sponsors for resources
and salaries, resulting in non-transparent and biased court decisions. Foreign investors have
noted that the inefficiency and uncertainty in the judicial system are disincentives for
investment; investors regularly decline to file disputes due to the perception of corruption
among personnel and the complex and slow litigation processes. Enforcing a contract takes
much longer than the regional average, but the costs involved are significantly lower.

✓ In one recent case, a businessman filed an administrative complaint in the country’s Supreme
Court against Makati City judge for allegedly asking for a PHP 15 million bribe in exchange
for a favorable ruling in an insurance claim. At the time of review, no further updates on the
case were available.

Police – HIGH RISK

✓ There is a high-risk of corruption when dealing with the police. The national police force is
widely regarded as one of the most corrupt institutions in the country. Reports of the police
and military engaging in corruption, extortion, and being involved in local rackets are
widespread. Companies report that they cannot rely on the police services. More than half of
firms pay for private security. Businesses rate the National Police’s commitment to fighting
corruption as ‘poor’. President Duterte has accused several police generals of being involved
in the trafficking of illegal drugs.

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✓ In one corruption case, Police Commissioner Mr. Sombero, is under investigation for
allegedly facilitating a PHP 50 million bribe from gambling tycoon Jack Lam, who tried to
bribe immigration authorities in order to release approximately 1,300 Chinese nationals who
were working in his resorts illegally.

Public Services – HIGH RISK

✓ Companies contend with a high corruption risk when dealing with the public
services. Approximately half of business executives reported being asked for a bribe by
someone in the government in 2016. Nearly three out of five business reported expecting to
give gifts in order ‘to get things done’, but only one in ten reported expecting to give gifts to
get an operating license.

✓ Irregular payments and bribes in the public services sector sometimes occur. Philippine
officials involved in processing documents related to civil and property registration and
building permits are more likely to solicit bribes compared to officials dealing with other types
of services. Inefficient government bureaucracy is ranked as the most problematic factor for
doing business in the Philippines.

✓ Civil servants often do not have the resources or abilities to fulfill their tasks free from
corruption and red tape. Furthermore, civil servants are generally not recruited in a
competitive manner; appointments are based on a practice of patronage.

✓ The total number of procedures required to set-up operations, including registering the
company with local government and getting a construction permit, are significantly higher
than regional averages. Getting electricity takes significantly less time than elsewhere in the
region.

Land Administration – HIGH RISK

✓ Corruption risks in the land administration are high. Two out of five companies report
expecting to give gifts when obtaining a construction permit. Property rights are formally
recognized and protected in the Philippines, but in practice, the law is not always
upheld. Businesses have insufficient confidence in the protection of property rights.

✓ Corruption and arbitrariness in the application of the law are common. Multiple agencies are
responsible for land administration, which has led to overlapping procedures for land
valuation and title registration; this has made the process costly.

✓ The court system is slow to resolve land disputes. Land records are not properly managed due
to a lack of trained personnel and funds. Foreigners are not allowed to directly own land, but
they may lease land for up to 50 years with a possible one-time extension of 25 years.

✓ Expropriation is possible under Philippine law; the law calls for fair market value
compensation, but coming to a mutually acceptable price can be a lengthy process in the court
system. Registering property takes nine procedures in the Philippines, which is double the
regional average. However, the total time required is less than half of the regional average.

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Tax Administration – HIGH RISK

✓ There is a high risk of corruption when dealing with the tax administration. Around one in
seven companies indicate they expect to give gifts in meetings with tax officials. Tax
regulations are among the most problematic factors for conducting business in the
Philippines. Companies indicate that they perceive that only a fifth of businesses in their line
of business pay their taxes honestly. Officials at the Bureau of Internal Revenue (BIR) are
believed to be prone to corruption and known for embezzlement and extortion. A
typical example of this can be found in a recent case in the city of Bacolod; an officer with
the BIR was caught extorting PHP 125,000 from a local company. Businesses rate the
BIR’s commitment to fighting corruption as poor. On a more positive note, there are signs
that the BIR is pursuing more cases of tax evasion.

✓ Companies make twenty-eight tax payments a year, which is higher than the regional average.

Customs Administration – HIGH RISK

✓ There is a high risk of encountering corruption when dealing with the customs administration.
Companies indicate that irregular bribes and payments in import and export procedures are
very common.

✓ About a quarter of companies indicate they expect to give gifts when obtaining an import
license. A business survey indicates that the Bureau of Customs (BOC) was the only agency
receiving a rating of ‘very bad’ when it came to its commitment to fighting
corruption. Companies cite burdensome import procedures and corruption at the border as
being among the most problematic factors for importing. The efficiency and time
predictability of procedures are rated as poor. Border compliance costs in the Philippines are
significantly higher than the regional average, whereas the time required is in line with the
regional average.

✓ The Bureau of Customs (BOC) has indicated that smuggling of goods, among which
cigarettes, vehicles, and oil, into the Philippines has led to the evasion of taxes worth at least
USD 1 billion yearly. Consistent fraud in the form of under-invoicing when importing and
exporting costs the state USD billions in revenues each year. In 2016, the BOC alleged one of
its employees accepted as much as USD 4 million in bribes monthly.

Public Procurement – HIGH RISK

✓ There is a very high risk of corruption in the public procurement sector, which is subject to
rampant corruption, irregularities, and inconsistent implementation of legislation. Likewise,
more than a fifth of businesses report they expect to give gifts in order to win a government
contract. Two in five companies indicate that most companies in their sector give bribes in
order to win contracts. Diversion of public funds, as well as favoritism in the decisions of
public officials, is very common.

✓ The public sector is obliged to procure goods and services from companies with at least 60%
Philippine ownership. Local-level public procurement lacks transparency, fostering a culture
of corruption through the misuse of the pork barrel system; which are funds for discretionary
use by representatives for projects in their respective districts. Philippine law allocates

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responsibility for monitoring, investigating and sanctioning irregularities in public

procurement to a number of different state institutions, leaving potential misconduct,
inefficiency and impunity unchecked.

Natural Resources – HIGH RISK

✓ Companies operating in the natural resources sector face a high risk of corruption. The
Philippines has shown marked improvements in its natural resource governance in the past
few years; the country has a good enabling environment and its regulatory quality and control
of corruption are judged as adequate. However, poor value realization and revenue
management have caused the country’s overall resource governance to be judged as ‘weak’.
The Philippines has been working to achieve compliance with the Extractive Industries
Transparency Initiative (EITI) since joining in 2013. Some mining contracts are publicly
disclosed via the EITI portal. While transparency in the sector has improved, poor regulation
and overlapping policy responsibilities between local and central governments have meant
that small-scale mining is still a contentious issue.

✓ Government corruption has allowed mining companies to evade government regulations,

which has resulted in large-scale deforestation, flattened mountaintops and water pollution.
The government responded by cracking down on illegal mining operations; and as of 2017
Secretary of the Environment Gina Lopez shut down 28 of the country’s 41 mining companies
for polluting the environment. However, Lopez was removed from her job by Congress in
May 2017 after mounting complaints from the pro-mining lobby.

Prevention of Corruption
Below are some measures businesses and organizations can adopt to help prevent corruption in the
workplace.

1. Clear Business Processes

Having defined workflows, clear directives on financial approving authorities, and standard
procurement instructions can help flag irregularities in a business or organization. These
processes should be reviewed on regular basis to ensure they are updated to the shifting
business environment. Diligent record-keeping and regular audits are also good practices to
deter corrupt activities.

2. Policy on Gifts and Entertainment

Gifts and entertainment are often offered in the legitimate course of business to promote good
relations. However, if it is too frequent or lavish, or done with the deliberate intention to gain
an unfair business advantage, such gifts and entertainment can be tantamount to corruption,
regardless of whether the recipient is able to fulfill the request of the giver. The risk of
corruption can be reduced by setting a policy on when gifts and entertainment may be given
and accepted and what records need to be kept. The business partners should be aware of your
organization’s gift and entertainment policy too.

3. Declaration of Conflict of Interest

Conflict of interest occur when a personal interest or relationships is placed before the business
interest, and can lead to corrupt activities such as giving or accepting bribes. In order to

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safeguard the business interest, a declaration system that is applicable to all levels of
employees may be instituted. The company may provide a declaration form for conflict of
interest for employees, and then use the information to take the most appropriate course of
action. This could include excluding the employee from engaging in the work or transferring
the employee to another department or post.

4. Convenient Corruption Reporting System

The corruption reporting system is a key function to control corruption and bribery risks, and
can comprise a whistle-blowing policy or feedback channel where staff can conveniently raise
concerns and feel protected from being identified or retaliated against. One way to do this
would be by allowing reports to be filled anonymously through a publicized email address or
phone number.

Efforts to Curb Corruption Through Legislation

✓ The Anti-Graft and Corrupt Practices Act criminalizes active and passive bribery,
embezzlement, extortion, abuse of office and conflict of interest in the public sector.

✓ Bribery of public officials and trading in influence are also criminalized in the Anti-Red Tape
Act. The Act forbids office holders from accepting any gifts or material benefits in exchange
for any government permit or license.

✓ Under the Revised Penal Code, gifts are classified as indirect bribery. An exception is made
for gifts of insignificant value given as a token of friendship in line with local customs.
Facilitation payments are not addressed in the law. Private sector bribery is not criminalized.
Under the Code, public officials are required to regularly file a statement of their assets and
liabilities. In case of any discrepancy between the official’s asset declaration and the amount
of property or financial assets actually possessed, the official is subject to immediate
dismissal. Punishments for corrupt acts include imprisonment of up to ten years, a fine,
removal from office, and/or confiscation of property.

✓ The Anti-Money Laundering Act criminalizes money laundering and organized crime.

✓ The Act Establishing a Code of Conduct and Ethical Standards for Public Officials and
Employees formulates standards for the personal integrity and accountability of civil servants.

✓ The Government Procurement Reform Act requires competitive and transparent bidding.
Philippine legislation does not contain any provisions on protecting whistleblowers who report
on corruption.

✓ The Philippines has ratified the United Nations Convention against Corruption. Companies
should note that the legal anti-corruption framework in the Philippines is complicated and
poorly enforced; there is a lack of cooperation between law enforcement agencies, and
officials are rarely prosecuted and convicted for corruption crimes.

Vigilance of Civil Society

Philippine civil society is active and is represented by a wide variety of different organizations.

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Public participation is high and civil society organizations (CSOs) enjoy a high level of social
capital. CSOs are normally not included in formal decision-making, but they play a large role in
initiating legislation and steering debate in Congress. There are a multitude of watchdog
organizations monitoring implementation of policy.

The Constitution guarantees freedoms of speech and of expression, but in practice these freedoms
are not consistently upheld. The media environment is largely privately owned and diverse, and
the state generally exercises very little censorship. The views represented in the mainstream media
are heavily influenced by the oligarchical owners of many of the outlets.

The Philippines is the second most dangerous country in the world for journalists to operate in, as
measured by the number of journalist deaths. The state is not directly responsible for the violence,
which can mostly be blamed on local strongmen and criminals and the weakness of the authorities.

The existence of libel and defamation laws remains a problem and are frequently used by officials
and powerful individuals to try to silence journalist. The media does frequently report on high-
level corruption cases. Independent observers report that bribes and other incentives are often used
by high-level officials to motivate journalists to create one-sided reports or the official’s benefit.
Internet access is widely available, but there are concerns about the government trying to install
some degree of censorship. The Philippine press is classified as “partly free”.

Current Issues on Corruption/Fraudulent Activities in the Philippines

Kindly check the links in MVLE.

✓ Pharmally scandal: Due diligence failure overshadows debate on law

Inquirer.Net, September 24, 2021, Kurt Dela Peña

✓ Corruption scandals under Duterte: From whiff to helplessness

Inquirer.Net, September 16, 2021, Kurt Dela Peña

✓ Hontiveros seeks Senate probe of SEA Games venue contract

Inquirer.Net, November 11, 2020, Melvin Gascon

✓ Corruption allegations rock Philippine health insurance corporation amid COVID-19

Devex.Com, September 14, 2020, Jenny Lei Ravelo

Initiatives to Improve Business Ethics and Reduce Corruption

Improvement of business ethics is a common concern of everybody. It is imperative that all parties
involved – manufacturers, sellers, consumers, government and relevant organizations must
participate in improving business ethics. Unless there is a concreted effort on the part of everybody,
we cannot effectively remind businessmen and professional of their ethical responsibility to each
other, to their customers and clients.

Unethical practices are ever present. Even people who have not yet been victims of these practices
of vaguely aware that they exist and agree that something must be done to rid the world of them.
Accordingly, various approaches to improving business ethics have been brought forward not only

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in the Philippines but also in other countries.

The Integrity Initiative Campaign

✓ In 2010, a private sector-led campaign aiming to strengthen ethical standards in business, the
Integrity Initiative was organized after the Philippines received a grant from Siemens. The
Makati Business Club (MBC) and the European Chamber of Commerce of the Philippines
(ECCP) serve as the Integrity Initiative Secretariat.

✓ The Integrity Initiative is a multisectoral campaign that seeks to institutionalize integrity

standards among various sectors of society – business, government, judiciary, academe, youth,
civil society, church and media. Led by the private sector, the initiative aims to help in
diminishing, if not fully eradicating, the vicious cycle of corruption in the Philippines, which
has not only exacerbated poverty but also obstructed the development of a competitive
business environment that operates on a level playing field.

✓ Ultimately, the Integrity Initiative hopes to build trust in government, a more equitable society
and fair market conditions. This will result in improved competitiveness and increased
business confidence, which will be evident with the increase in domestic and foreign
investments, and more employment generated for Filipinos. Subsequently, with more
Filipinos employed in a vibrant and dynamic Philippine economy, the alleviation of poverty
should become inevitability. Through the initiative, the Philippines will be come a benchmark
in the transformation process of any country regarded as highly corrupt to one that fosters an
ethical and progressive business environment.

✓ To achieve the given goal, consultations, roundtable discussions and public for a involving
business leader compliance officers, corporate governance experts, academics and
practitioners from small and medium enterprise to Fortune 500 companies. An “Integrity
Compliance Handbook” containing the key documents and toolkits in Integrity Initiative was
published for the use of organizations to promote ethical business practices.

✓ Since 2010, MBC and ECCP have been joined by various organizations and industry
associations in taking an active role in promoting honesty and transparency in Philippine
business. As of 2018, a number of the organizations and industry associations have been
taking active participation in this movement.

✓ With the active participation of these organizations, it is hoped that the problem of massive
graft and corruption in the Philippines will be minimized if not totally eliminated.

Corporate Values
✓ The increasing scrutiny by regulators, lobbyists, non-government organizations, consumer
groups and the media have the potential to affect a business firm market perception and hence
value. It is therefore important that the organization’s values, and its code of conduct, address
the legal and other obligations owed to important stakeholders, including, for example, trade
practices laws, privacy laws, employment laws, occupational health and safety, equal
opportunity in the workplace, superannuation and environmental regulations.

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

✓ Managing, protecting and enhancing reputation has become one of the greatest challenges
facing today’s board. The reputation of a business is a critical factor in the determination of
its value. The values and ethics of the organization need to be explicitly managed.

Need for a Code of Conduct

A code of conduct is a formal expression of the organization’s values and ethics. A code of conduct
should:
a. guide directors and senior executives, as a minimum, as to the practices necessary to maintain
confidence in the organization’s integrity. Other members of staff should also have a code of
conduct relevant to them which may be the same as that for directors and senior executives or
may be a complementary version;
b. promote responsibility and accountability of individuals for reporting and investigating
reports of unethical practices; and
c. ensure compliance with legal and other obligations to legitimate stakeholders.

An organization’s code of conduct recognizes the important role that business ethics play in the
success of today’s business, encouraging the board to actively develop an organizational culture
that is established on transparency, accountability and integrity.

One of the most significant accomplishments of the Integrity Initiative is the preparation of the
“Unified Code of Conduct for Business”. The Code’s purpose is two-fold:
First, it harmonizes existing ethical standards among business operations in the
Philippines. It ensures that different market players adhere to the same rules of the game
in order to create fair market conditions and promote transparency in doing business.

Second, the Code formally communicates the signatories’ commitment to upholding high
standards of ethics in all business transactions. It articulates the belief that securing profit
at the expense of integrity is an unacceptable and unsustainable way of conducting business
and that measures have been taken to enforce and cultivate integrity habits within the
signatories’ respective organizations.

The Unified Code of Conduct for Business (Integrity Initiative)

Top Management
a. Our top management leads by example by consistently demonstrating the value of conducting
business with integrity.
b. Our officers strongly communicate our organization’s position against bribery, corruption and
unethical business practices within the company and the broader public; comply with all the
requirements of government regulatory bodies; and prohibit cover-ups and falsified reports
that conceal improper transactions.
c. Management strongly supports integrity practices and allocates sufficient resources for their
implementation.

Human Resources
a. We strive to instill culture of integrity among our employees. The management maintains open
lines of communication with employees, particularly on matters relating to honesty,

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

transparency and integrity in business transactions.

b. In the spirit of fairness and due process, all employees have the right to file and respond to
complaints against practices suspected to be illegal or unethical.
c. We have appropriate tools to confidentially receive, monitor and act on internal and external
complaints.
d. Employees filing complaints will be protected from all types of retaliation, while those
involved in unethical practices will be subject to commensurate disciplinary actions.
e. We have instituted training programs on business ethics covering all levels of the organization.

Sales and Marketing

a. We clearly communicate rules and guidelines on giving gifts, entertainment, tokens of
hospitality and contributions to/from public and private organizations and their
representatives.
b. Employees and all third parties engaged by our company to act as our intermediaries, agents
or representatives are not permitted to offer, promise or give, as well as demand or accept
concessions – directly or indirectly – in order to obtain, retain or secure any undue advantage
in the conduct of business.
c. We abide by existing laws when transacting with government agencies (as stipulated under
RA 6713-Code of Conduct and Ethical Standards for Public Officials and Employees and RA
3019-Anti-Graft and Corrupt Practices Act).

Finance and Accounting

a. We require all our employees to ensure that all book and records they create or are responsible
for are complete and accurate.
b. Our financial record to conform to standards accounting principles, comply with Securities
and Exchange Commission requirements on disclosure and transparency, and abide by anti-
money laundering laws (RA 9160) and international conventions.
c. We pay taxes in compliance with all laws.

Procurement
a. A track record of integrity and compliance with existing laws is a prerequisite when we vet
third party consultants, suppliers, intermediaries and agents. Our company has transparent
procurement procedures, provides equal opportunities for all supplies and prohibits collusion
between and among our employees and suppliers.
b. Recognizing that the Integrity Initiative is sustained through widely shared ethical practices
within the business community, we enter into integrity pacts with our suppliers and ensure
that they comply with the provisions of our pact.
c. Contracting a third party to bribe or commit corrupt practices on behalf of the company is
strictly prohibited.

Logistics
a. We comply with laws and regulations pertaining to supply chain management.
b. We do not tolerate any breaches in existing laws in exchange for undue advantage and
unethical concessions or favors. We pay correct duties and taxes based on transparent
assessment of goods and services.
c. Employees are not penalized for refusing to pay bribes or facilitation payments even if it

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results in failure to meet deadlines or loss of revenue.

Implementation and Monitoring

We will continually align our operations to the principles contained in this Code and periodically
assess and monitor our compliance to it. We will continue to share best practices with the business
community to strengthen ethical business processes in the Philippines.

Bishops-Businessmen’s Conference (BBC) Philippines – Code of Ethics for the Philippine

Business
The Bishops-Businessmen’s Conference for Human Development is a non-stock, non-profit
association of leaders of the Church and business sectors who are committed to the promotion of
total human development, jointly and in collaboration with difference sectors of Philippine society.

The Code of Ethics represents the thinking, the convictions, and the concerns of a wide segment
of Philippine business. It is in this context and in the spirit of sharing that the Code of Ethics is
presented. It is the hope of BBC that the Code will play a major role in creating the right ethical
attitudes essential for business to effectively promote total human development for our people.

Preamble
This Code of Ethics has been formulated impelled by the belief that man as a dignity that must be
respected, and that all the resource of the earth has been created for his growth and development.

As here presented, this Code is considered a major step in the on-going and changing process of
understanding the growing role of business activity in the development of man and, as much, is
open to further improvement.

The Code seeks to express systematically and coherently the principles of business practices
accepted and professed by Philippine business at its best, and seeks to apply these to current and
changing needs.

It is the hope that this Code will serve as a general stimulus to renew and develop or amend existing
standards, and that individual entities will expand and adopt it to the specific needs of their own
organizations.

In general, the Code is intended to be influential rather than coercive. It is hoped that individual
entities will consciously adopt and embrace it as a statement of principles and, having done so,
will be unwilling to incur the sanction of adverse public opinion through failure to live up to the
Code.

Finally, it is the Code for all people, formulated on the premise that the modern manager must be
a strategist for human development, and that the business of business is to build an enterprise
oriented to the development of man.

The Concepts
Business which embraces commerce and industry is not an accidental human activity but an
integral element of the social order. Its primary purpose is to meet society’s human needs by

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

providing goods and services as efficiently as possible. Those engaged in business should,
therefore, recognize the following basic concepts:
✓ All business is essentially an expression of human relationships; not only with those who work
in the enterprise, but also with those who own and provide financial resources, with those who
supply it with materials and services, with those who buy its products or services, with the
government and with the wider public whose lives are affected by the business activity. The
interest of all those members of society must be taken into account in formulating business
policy. These interests, in themselves legitimate, will at times conflict. While conflict and
tension can be themselves being constructive, the aim of business must always be to reconcile
opposing interests in a balance of justice and mutual concern.
✓ The owners, management, the work force, the suppliers and subcontractors, the customers and
government contribute to the performance of the business enterprise, and are therefore entitled
to receive the proper worth of their contributions.
✓ The resources employed by a business enterprise are financial, technological and human. The
human resources have a unique quality and should be employed in a manner consistent with
personal dignity. The individual should be given opportunity to use and develop his faculties
in his work. His contribution to the success of the enterprise should be properly recognized
and rewarded.
✓ Business enterprise has a public responsibility to use all its resources efficiently. Profit in a
system of free enterprise is recognized as a fundamental incentive, and is necessary for the
maintenance and growth of the enterprise, for raising the quality of life, and for helping meet
the broader needs of society.
✓ Competition and incentives are essential for the maintenance and continuing improvement of
the quality of goods and services for growth and for technological progress. However, to guard
against unfair forms of competition, a consistent standard of business behavior must be
established and observed.
✓ In business, as in any other institution of society, any right or authority enjoyed by or entrusted
to business presupposes, and is justified by, corresponding duties, responsibilities and
performance.

Some Principles for the Conduct of Business

Those responsible for business policy should consider not only the interest of the owners of the
business, but also the interest of those affected by the activities of the business.

Towards the Employees

Business shall recognize the unique position of employees as individuals with a vital state in their
work and at the same time with inherent obligations to their own families, and provide:
a. for recognition that, although rates of pay may often be determined by union, economic and
legal pressures, wages and salary policy should be based on the right of the employees to a
fair and improving standard of living, irrespective of race, sex, age and creed;
b. for fair recruitment practice that affords equal opportunity to all qualified job seekers;
c. for job security, adequate compensation for employees in cases of separation and retirement,
and opportunities for fringe benefits;
d. for a safe and healthy atmosphere in the work environment conducive to the physical and
moral well-being and growth of the employees;
e. for conditions in which human potentials and relationships can be developed at all levels of

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

the workforce, with a view to providing therein a sense of purpose and achievement; and
f. for participative elements so that the knowledge, experience and creativity of all who work in
the enterprise may contribute to the decision-making process.

Towards the Customers

Business shall, in the production of goods and services:
a. strive after a quality that will enable them to serve their purpose efficiently and effectively;
b. avoid anything that would be detrimental to the health, safety or growth of the proper user of
beneficiary of such goods and services; and
c. seek to apply or make use of the discoveries and inventions of science with adaptations that
will improve their products or services, thereby benefitting customers/users and increasing
their number.

In this marketing arrangement, business shall:

a. drive the product or service in the quality, quantity and time agreed upon, and at a reasonable
price, and avoid the creation of artificial shortages, price manipulation and like practices;
b. establish an after sales and complaints service commensurate with the kind of product of
service supplied and the price paid;
c. ensure that all mass media, promotional and packaging communications be informative and
true, and take into account the precepts of morality and the sound cultural values of the
community, and manifest for human dignity.

Towards the Suppliers

Business shall ensure:
a. that the terms of all contracts be clearly stated and unambiguous, and honored in full unless
terminated or modified by mutual consent;
b. that abuse of economic power in dealing with a smaller concern be avoided, and that, in all
cases, terms of payment be strictly and fully observed. In general, payment should always be
made promptly at the agreed time or, if no specific time is agreed upon, as quickly as may be
reasonable, given the circumstances; and
c. that no supplier be encouraged to commit his resources for apparently long-term purposes
unless there are reasonable guarantees that the orders, he receives from the business enterprise
will not be terminated arbitrarily.

Towards the Owners and other Providers of Capital

In the interest of the Owners and other Providers of Capital, business shall:
a. provide an adequate rate of return to those contributing capital to the enterprise and ensure the
security of their investment;
b. use their financial resources to provide goods and services responsibly and efficiently;
c. furnish the Owners and other Providers of Capital with such information as they may
reasonably require, provided that it does not adversely affect the security or efficiency of the
business; and
d. purse the specific objectives of the Owners and other Providers of Capital provided these do
not run contrary to any of the principles stated herein.

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

Towards the Local and National Government

Although it is the responsibility of government to enact legislation and formulate implementing
policies and programs, it is the duty of business:
a. to participate in the discussion of proposed legislation and/or its implementation affecting
sectoral, regional, national and international interests; and
b. to propose sound policies in the use of human and material resources.

Towards Society in General

Businessmen shall recognize in their decision making the interest of the general public and,
realizing that they are utilizing to an important degree the nation’s resource, shall:
a. take regular stock of their response to the basic needs of society and thus ensure that these
needs are taken into account in all policy making decisions;
b. do their best to ensure that the way they deploy their resources benefits society in general and
does not conflict with the needs and reasonable aspirations of the communities in the area
where they operate;
c. pay proper regard to the environmental and social consequences of their business activity,
with special attention to the duty of renewing resources where possible and minimizing waste
and pollution, and not sacrifice safety or efficiency in the interest of short-term profitability.
d. as corporate citizens, make such contributions as their resources will allow, to research,
development and application of indigenous technology, and to the financing of social
development projects;
e. consider the human and social costs of mechanization and technology;
f. establish a policy allowing employees, within reasonable limits, to contribute to the public
and community services during the work time;
g. establish a policy regarding conflicts of interest based on the principle that decisions should
be made in the best interest of the business enterprise, and decision makers should be on their
guard against allowing personal consideration to distort their judgment; and
h. not tolerate any form of illegal date gathering or any form of inducement that tends to distort
normal commercial judgment.

Survey of Laws Advocating Business Ethics

RA 7394 (Consumer Act of the Philippines) approved on April 13, 1992
This is the principal law for consumer protection in the Philippines. It came into effect on July 15,
1992. This is anchored on the basic policy of the state to protect the interests of the consumer,
promote his general welfare and to establish standards of conduct for business and industry.

Towards the end, the State shall implement measures to achieve the following objectives:
1. protection against hazards to health and safety;
2. protection against deceptive, unfair and unconscionable sales acts and practices;
3. provision of information and education to facilitate sound choice and the proper exercise
of rights by the consumer;
4. provision of adequate rights and means of redress; and
5. involvement of consumer representatives in the formulation of social and economic
policies.

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 ACC 132 – Governance, Business Ethics, Risk Management, and Internal Control

The provisions of the law shall be enforced by the following implementing agencies:
1. the Department of Health with respect to food, drugs, cosmetics, devices and substances;
2. the Department of Agriculture with respect to products related to agriculture, and
3. the Department of Trade and Industry with respect to other consumer products not specified
above.

Amongst all the relevant departments involved in the implementation of RA 7394, the DTI plays
the central role. It is also the focal point for the ASEAN Consumer Protection Committee (ACCP).

RA 3720 (Food, Drug and Cosmetic Act) approved on June 22, 1963
This Act took effect upon its approval. This Act aims to ensure safe and good quality of food,
drugs and cosmetics and to regulate their production, sale and distribution in order to protect public
health. This is anchored on the policy of the State to ensure safe and good quality supply of food,
drug and cosmetic, and to regulate the production, sale, and traffic of the same to protect the health
of the people.

The Act provides for the creation of an office called the Food and Drug Administration in the
Department of Health. The Act defines its internal organization and its powers, functions and
duties which are: provide for the collection of samples of food, drug and cosmetic for analyses and
inspection; establish analytical data to serve as basis for the preparation of food, drug and cosmetic
standards; issue certificates of compliance with technical requirements to serve as basis for the
issuance of licenses; etc. The Act also reorganizes the Board of Food Inspection by converting it
into the Board of Food and Drug Inspection.

The Act further provides for: prohibited acts and penalties; food standards; tolerances for
poisonous ingredients in food; certification of drugs; general administration matters; regulation
making powers of the Secretary of Health; hearings and institution of criminal action; imports and
exports of food, drugs and cosmetics; etc.

RA 8293 (Intellectual Property Code of the Philippines) approved on June 6, 1997

The Act came into effect on January 1, 1998. The State recognizes that an effective intellectual
and industrial property system is vital to the development of domestic and creative activity,
facilitates transfer of technology, attracts foreign investments, and ensures market access for our
products. It shall protect and secure the exclusive rights of scientists, inventors, artists and other
gifted citizens to their intellectual property and creations, particularly when beneficial to the
people, for such periods as provided in the Act.

The Act covers:

a. Copyright and Related Rights;
b. Trademarks and Service Marks;
c. Geographic Indications;
d. Industrial Designs;
e. Patents;
f. Layout-Designs (Topographies) of Integrated Circuits; and
g. Protection of Undisclosed Information.

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