Business Ethics and Social Responsibility

The course deals with the fundamental concepts,

principles, and practices of ethical standards in the
business environment. It combines the theoretical
foundations of setting up business enterprises with the
conduct of entrepreneurial activities in the context of
one’s accountability and social responsibility.
Specifically, the course aims to: (1) provide students with
a basic understanding of the mechanisms whereby
companies can be made to act in the best interest of
shareholders, other stakeholders, and society as a whole;
(2) provide students with knowledge of general ethical
principles as applied to the special situations of business
and the ability to make informed judgments through case
analyses; and (3) equip students with the ability to
formulate basic strategies in relation to corporate ethics
and governance.

Additionally, this module contains two (2)

lessons which give emphasis on the Core Principles of
Fairness, Accountability, and Transparency and the Codes
of Ethics and Business Conduct.

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 Business Ethics and Social Responsibility

PRE-ASSESSMENT

Direction: Define the following terms below.

TERM DEFINITION

Fairness

Accountability

Transparency

In your own understanding explain what is Code of Ethics.

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Business Ethics and Social Responsibility

LESSON CORE PRINCIPLES OF FAIRNESS,

3 ACCONTABILITY, AND TRANSPARENCY

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 Lesson Objectives:
At the end of this lesson, the students should be able to:
1. Explain the meaning of fairness, justice, accountability, stewardship, and
transparency;
2. Explain the notion of competence, professionalism, and responsibility;
3. Explain the relationship of accountability, stewardship, and responsibility
with ethical businesses; and
4. Explain the notion of organizational diversity and the role of women in
business organizations.

NOTIONS OF ACCOUNTABILITY, FAIRNESS AND TRANSPARENCY

Business leadership affects the moral capability and performance of organizations.

Business leaders influence the scope and character of formal ethics programs and the integration
of ethics into everyday organizational life. However, most practicing business leaders in most
countries most of the time are not held accountable for dysfunctional moral, social, and
environmental performance. Many are seldom held accountable for adverse impacts of their
decision – making, for example, deepening poverty, social disintegration, and environmental
degradation. There is a need to convince managements that they should develop their “integrity
capacity” which is the individual and/or collective capability for repeated process alignment of
moral awareness, deliberation, character, and conduct that demonstrates balanced judgment,
enhances sustained moral development, and promotes supportive systems for moral decision –
making. These four key dimensions of integrity capacity – process, judgment, development, and
system – should present challenges for business leaders so that they become more aware of
moral concerns and thus respond more effectively to the problems that arise (Petrick and Quinn,
2001). The concept of “accountability” is discussed further below.

ACCOUNTABILITY
The record on business leadership accountability is mixed at best. In Great Britain,
continental Europe, and Australia, the practice of social and environmental accounting has
gained a strong foothold and expanded the scope of business leader accountability beyond
maximizing shareholder wealth. The works of the institute of Social and Ethical Accountability
and other empirical research groups have demonstrated the corporate social performance-
financial performance link. Unfortunately, many of today’s business people are not made to
account for their activities and outcomes, especially for the things that go wrong and for their
unethical actions. In terms of global accountability, many corporate leaders act under the myth
that the public interest is synonymous with corporate property rights. Corporate business
leadership’s external accountability only becomes an issue where a solid line is drawn between
these two spheres.
Why is accountability important? Sound accountability structures are the most important
aspect of prevention and detection of corruption. A civil society organization without proper
accountability systems is fragile and open to rumors about mismanagement and abuse power.
Worst of all, it will prevent from enjoying respect and full legitimacy in the eyes of its
stakeholders including those duty bearers whom it intends to engage with advocacy.

Accountability – what it is:

Business
 To be accountable is to be liable to explain or justify one’s actions Ethics and Social Responsibility
decisions.
 Accountability is the process of explanation and justification.
 Holding to account is the process of requiring explanation and justification, but it is also
about testing, forming a judgment, and if necessary, taking action.
 Accountability implies responsibility: it is reasonable only to hold people to account for
those things for which they are responsible.

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Accountability – what it is not:
 It is not synonymous with responsibility.
 It does not imply a management relationship.
 It is not a “one off” annual event.
 It is not the same as appraisal.
 It is not about confrontation, “putting someone in his place” or “giving him a hard time.”

Accountability Structures
Accountability is the ability to account for your actions and performance to your
stakeholders. Accountability includes the fact that persons (your stakeholders) are willing and
able to hold you accountable. With the willing and able aspects of the definition, we have an
operational understanding of accountability which can guide us in asking questions to
accountability structures in the organizations. Accountability, then, is the obligations to
demonstrate that work has been conducted in compliance with agreed rules and standards or to
report fairly and accurately on performance results vis – a- vis mandated roles and/or plans.

FAIRNESS
Fairness – in the context of business organization involves balancing the interests
involved in all decision – making including any decisions related to hiring, firing (including the
investigatory process), and the compensation and rewards system. Recent research has expanded
the meaning of equity of fairness. Historically, equity theory focused on distributive justice, the
employee’s perceived fairness of the amount of rewards and who received them. However,
organizational justice draws a bigger picture. Employees perceived their organizations as just
when they believe rewards and the way they are distributed are fair. In other words, fairness or
equity can be subjective; what one person sees as unfair maybe perfectly appropriate for another.
In general, people see allocations or procedures favoring themselves as fair.
Overall fairness has to do with justices, which is to give to another that which is due him
on her. More concretely, justice: (1) looks at the balance of benefits and burdens distributed
among members of a group; and/or (2) can result from the application of rules, policies or laws
that apply to a society or a group. In general, the results of actions override utilitarian results.

TRANSPARENCY
Transparency has become an increasingly popular word in recent times; it is used and
sometimes misused by both scholars and practitioners. In this context, the associated academic
literature has recently analyzed several issues associated with corporate transparency such as
ethical justifications for information disclosure, the ethical nature of corporate information
transparency, or the use of transparency in management – employee relationships.

NOTION OF COMPETENCE, PROFESSIONALISM, AND RESPONSIBILITY

Study show that the moral character and technical competence are viewed as being
equally important for worker excellence. The greater the need to engage with co-workers who
have different values, interests and needs, the more important it becomes for employees to be
able to connect with colleagues, to understand different perspectives, Business
to Ethics
balanceandsometimes
Social Responsibility
conflicting claims and to act competently both interpersonally and ethically. In order to do that, a
responsible worker needs a minimum set of skills, as well as moral and relational qualities
(Whetstone, 2003). The following are the minimum competencies expected of professionals:
 Technical skills encompass the ability to apply specialized knowledge or
expertise. When you think of the skills of professionals such as civil engineers or
oral surgeons, you typically focus on the technical skills they have learned
through extensive formal education. Of course, professionals do not have
monopoly on technical skills, and not all technical skills have to be learned in
schools or other formal training programs. All jobs require some specialized
expertise, and many people develop their technical skills on the job.
 Human skills is the ability to understand, communicate with, motivate, and
support other people, both individually and in groups, which defines human skills.
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Many people are technically proficient but poor listeners, unable to understand the
 needs of others, or weak of managing conflicts. Because managers get things done
through other people, they must have good human skills
 Conceptual skills are the skills and the mental ability that managers must have to
analyze and diagnose complex situations. Decision-making, for instance, requires
managers to identify problems, develop alternative solutions to correct those
problems, evaluate those alternative solutions, and select the best one. After they
have selected a course of action, managers must be able to organize a plan of
action and then execute it.
The first and most basic necessary skill for a working professional is solid competence in
the human sphere, in the sphere of work. Such competence requires the following characteristics:
a) Human maturity – a person works not only hard and solidly but also efficiently,
that is with professionalism;
b) Work is done in a spirit of service and love for those around us – the worker
has to take in and develop the social dimension that the work involves. He
realizes that work is something that helps improve social conditions generally it is
a source of progress and well – being.

The working professional also needs “Relational Intelligence” (RI) in order to connect
and interact effectively and respectfully with people and stakeholders from various backgrounds,
diverse cultures, and with different interests, inside and outside the organization, and to build
lasting and trustful relationships. RI is based on a combination of emotional intelligence and
“ethical intelligence”. Commercial variability and long-term business success depend on the
ability of a firm and their leadership to act responsibly with respect to the stakeholders in
business, society and the environment. Responsibility means to make sure that the company’s
products and services meet the needs of the customers and clients, that they are safe and not
harmful, and that real and potential risks are openly and transparently communicated.
Part of the responsibility of the worker is to be trustworthy: employees need to
demonstrate that they have integrity, benevolence, and ability in situation where trust is
important – say, where they could behave opportunistically or let employees down but do not.
Trust can also be won in the ability domain simply by demonstrating competence.
Business also support the well-being of the members of society through their other key
functions. At the very least, a good business carefully avoids any actions that undermine the
local or global common good. More positively, these businesses actively seek ways to serve
genuine human needs within their competence and thus advance the common good. In some
cases, they actively promote more effective regulation on regional, national or international
level.
Business Ethics and Social Responsibility
THE RELATIONSHIP OF
ACCOUNTABILITY/STEWARDSHIP/RESPONSIBILITY WITH ETHICAL
BUSINESSES
Scholars have recently considered ethical leadership from a new angle by examining
servant leadership. Servant leaders go beyond their own self-interest and focus on opportunities
to help followers grow and develop. They do not use power to achieve ends; they emphasize
persuasion. Characteristic behaviors including listening, empathizing, persuading, accepting
stewardship, and actively developing followers’ potential. Because servant leadership focusses
on serving the needs of others, research has focused on its outcomes for the well-being of
followers. What are the effects of servant leadership? One study of 123 supervisors found it
resulted in higher levels of commitment to the supervisor, self-efficacy, and perceptions of
justice, which all were related to organizational citizenship behavior (OCB). This relationship
between servant leadership and follower appears to be stronger when followers are focused on
being dutiful and responsible. Second, servant leadership increases team potency (a belief that
one’s team has above average skills and abilities), which in turn leads to higher levels of group
performance. Third, a study with a nationally representative sample of 250 workers found higher
levels of citizenship associated with a focus on growth and advancement, which in turn was
associated with higher levels of creative performance. (Robbins and Judge, 2012)
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 Responsibility for one’s education and work experience has also been found to be related
to ethical behaviors in organizations. Some studies reported positive influences between
education and employment or work experience and ethical behavior.

THE NOTION OF ORGANIZATIONAL DIVERSITY AND THE ROLE OF

WOMEN IN BUSINESS ORGANIZATIONS
Organizations use a variety of efforts to capitalize on diversity, including recruiting and
selection policies, as well as training and development practices. Effective, comprehensive
workforce programs, encouraging diversity have three distinct components. First, they teach
managers about the legal framework for equal employment opportunity and encourage fair
treatment of all people regardless of their demographic characteristics. Second, they teach
managers how a diverse workforce will be better able to serve a diverse market of costumer and
clients. Third, they foster personal development practices that bring out the skills and abilities of
all workers, acknowledging how differences in perspective can be a valuable way to improve
performance to everyone. Much concern about diversity has to do with fair treatment. Most
negative reactions to employment discrimination are based on the idea that discriminatory
treatment id unfair. Regardless of race or gender, people are generally in favor of diversity-
oriented programs, including affirmative action, if they believe the policies ensure everyone a
fair opportunity to show their skills and abilities. Some diversity programs are truly effective in
improving representation in management. They include strategies to measure the representation
of women and minorities in managerial positions, and they hold managers accountable for
achieving more demographically diverse management teams (Robbins and Judge, 2013).

LESSON EXERCISE

Direction: Encircle the correct answer.

1. This refers to the skills and the mental ability that managers must have to analyze and
diagnose complex situations.
a. Conceptual Skills c. Technical Skills
b. Human Skills d. Human Maturity
2. It encompass the ability to apply specialized knowledge or expertise.
a. Conceptual Skills c. Technical Skills
b. Human Skills d. Human Maturity
3. It is based on the combination of emotional and ethical intelligence.
a. Intelligent Relativity c. Commercial Variability
b. Relative Intelligence d. None of these
4. The most important aspect of prevention and detection of corruption.
a. Accountability Structures c. Business Organization
b. Accountability System d. Business Ethics
5. Which of the following does imply transparency?
a. Accountability c. Communication
b. Openness d. All of these

Business Ethics and Social Responsibility

ASSESSMEN

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 Answer the following questions below. Do this in a long size bond paper. Do not forget
to put your name, strand and section, either printed or hand-written is acceptable.
1. Define the terms fairness, justice, accountability, and transparency.
2. Define the terms competence, professionalism, and responsibility. Why do you need to
be competent in your job? Explain the basic skills needed in the workplace.
3. What is stewardship? How can you be good steward of your hone, your school, your
workplace, and the environment?
4. What is organizational diversity? What is the role of women in business organizations?

LESSON
CODES OF ETHICS AND BUSINESS
4 CONDUCT

Lesson Objectives:
At the end of this lesson, the students should be able to:
1. Explain what codes of ethics and codes of corporate conduct are;
2. Give examples of corporate codes of ethics in some Philippines firms;
3. Explain the meaning of corporate ethical culture; and
4. Formulate a simple Code of Ethics.

CODE OF ETHICS

When huge corporate sandals began to proliferate, companies began creating

communications propaganda for building a corporate reputation. Feeling a need to improve their
images and facing increasing accusations of corruption, businesses turned to ethical codes to
publicize their virtues and create a more positive impression with stakeholders. The debate over
ethical code effectiveness continues up until today.
American ethical codes were first called creeds or credos and those in the 1980s were
considered “legalistic” and “more likely to talk about ethics and reputation of the company”
(Benson, 1989, p. 308); they showed concern over issues like affirmative action. More recently
they were defined as written documents which attempt to state the major philosophical principles
and articulate the values embraced by the organization – what is acceptable and what is not.
They have been defined multiple times in Journal of Business Ethics, sometimes redundantly
without building on earlier works and other times adding new dimensions to the understanding of
a code. Kaptein and Wempe (2002) describe them as policy documents defining responsibilities
of the organization to stakeholders and articulating the conduct expected of employees. Hijhof et
al. (2003) note codes contain open guidelines describing desirable behaviors and closed
guidelines prohibiting certain behaviors. As instruments to enhance social responsibility, codes
clarify the norms and values the organization seeks to uphold. In contrast, mission statements
articulate the objectives of a company and declare what goals the organization intends and
accomplish. Ethical codes differ from mission statements by articulating the value system and
answering the question “within what ethical standards and values Business Ethics
should theand Social Responsibility
mission be
pursued?”. Sufficient new evidence exists to show that corporate codes can successfully
moderate ethical behavior.

SPECIFIC PHILIPPINES EXAMPLES

Ayala Corporation

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Code of Business Conduct and Ethics
Ayala adopts as part of its basic operating principles, the; primacy of the person, shared
values, and the empowerment of people. The company and its employees are guided by four core
values; integrity, long - term vision, empowering leadership, and commitment to national
development. These values are expressed in the company’s Code of Ethical Behavior, which sets
and outlines the general expectations and standards for employee behavior and ethical conduct.
The Code is in accord with the company’s human resources policies, which include the Code of
Conduct that prescribes standards by which employees are expected to conduct themselves.
Employees are required to disclose annually any business and family related transactions to
ensure that potential conflicts of interest are brought to management attention.

Ayala maintains fair dealings with its shareholders, customers, employees, and business
partners. As such, all Ayala citizens, including senior executives and members of the executive
and management committees, strive to maintain an exceptional standard of conduct guided by
the company’s policies and procedures.

WHAT IS CORPORATE CULTURE?

Culture has a profound influence on all aspects human behavior. Its impact may be subtle
or pronounced, direct or oblique, or enduring or ephemeral. It is so entwined with all facets of
human existence that is often difficult to determine how and in what ways its impact manifested.
Adding to the complexity of understanding the impact of culture and its inherently dynamic
nature. Cultural influences change and culture evolves as political, social, economic, and
technological forces reshape the cultural landscape (Usunier and Lee, 2005; Craig and Douglas,
2006). Certainly the economic and physical environments (populations, climate, geography, etc.)
are important issues for business organizations; however, the cultural environment
(communication, religions, values and ideologies, education, social structure) has special
importance and relevance.
Culture, thus, is a human reality and resides in human communities. Having such that, it
is necessary to deal with the idea of culture from an anthropological perspective. Philosophical
anthropology has taught us that the human person is an open system and as such, is capable of
learning, but a learning that is positive (if he is to be truly human) and is made most perfectly
positive through the cultivation of the virtues (Polo, 1997; Polo, 1991). Aristotle spoke so
eloquently of the essential transcendence of the human beings and the end for him to be cultured.
What one finds in the Protrepticus, so reconstructed, is an impassioned defense of the primacy of
intellectual activity and the importance of devoting oneself to a life of study and culture. The
Protrepticus unabashedly defends a Dominant End view of the human good (Pakaluk, 2005).

CREATING CORPORATE CODES OF ETHICS

Creating an Ethical Corporate Culture
As mentioned in Codes of Ethics above, Sauser and Sims (2013) suggest that an
organizational culture grounded in moral character is the ideal corporate culture. A culture of
character is the type of organizational culture in which positive values are ingrained throughout
the organization. Pastin (1986) describes organization exhibiting what we call a culture of
character as those that possess the following four stylistic markers:
 They are at ease interacting with diverse internal and external stakeholder groups. The
ground rules of these firms make the good of these stakeholder groups part of the
organization’s own good.
 They are obsessed with fairness. Their ground rules emphasize that the other person’s
interests count as much as their own.
 Responsibility is individual rather than collective, with individuals assuming personal
responsibility for actions of the organization. These organizations’ ground rules mandate
that individuals are responsible to themselves.

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 Business Ethics and Social Responsibility

 They see their activities in terms of purpose. This purpose is a way of operating that
members of the organization highly value. Purpose ties the organization to the
environment.

To Pastin’s (1986) list, Sims (2005) has added:

 There exists a clear vision and picture of integrity throughout the organization.
 The vision is owned and embodied by top management, over time.
 The reward system is aligned with the vision of integrity.
 Policies and practices of the organization are aligned with the vision; there are no mixed
messages.
 It is understood that every significant leadership decision has ethical value dimensions.
 Everyone is expected to work through conflicting stakeholder value perspectives.

Creating Corporate Codes of Ethics

Saucer and Sims (2013) give the following suggestions for creating Codes of Ethics in
business organizations:
1. Adopt a code of ethics
2. Provide ethics training
3. Hire and promote ethical people
4. Correct unethical behavior
5. Take a proactive strategy
6. Conduct a social audit
7. Protect whistle – blowers
8. Empower the guardians of integrity
9. Assure commitment form the top
10. Communicate the standards of conduct widely throughout the organization and the
industry
11. Designate an ethics officer with clear responsibility for enforcing ethical standards
12. Establish a process for reporting violation of ethical standards and actively investigate all
reported violations
13. Assure due diligence by the organization’s board of directors
14. Above all, leads by example

LESSON EXERCISE

Direction: Encircle the letter of the correct answer.

1. What is the term which describes the opportunity for shareholders and potential investors to
openly observe companies’ financial transactions?
a. Code of Ethics c. Transparency
b. Social Audit d. Philanthropy
2. Which of the following occurs when an individual or organization is involved in multiple
interests, one of which could possibly corrupt the motivation for an act in the other?
a. Impropriety c. Conflict of Interest
b. Multitasking d. Ethical Lapse
3. What type of companies do individuals tend to want to work for?
a. Ones with ethical dilemmas are minimized
b. Ones which display no ethical track record
c. Ones in which there are pressure to act in an unethical way
d. Ones which disregard environmental responsibility
 Business Ethics and Social Responsibility

4. What is a corporate ethics statement?

a. A detailed policy, containing specific behavioral requirements
b. An agreement signed by employees stating that they will abide by the company’s rules
of conduct
c. An exhortation in broad, highly generalized
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d. A seminar regarding business conduct
5. What corporate ethics code?
a. A seminar regarding business conduct
b. An agreement signed by employees stating that they will abide the company’s rules of
conduct
c. An exhortation in broad, highly generalized language
d. A detailed policy, containing specific behavioral requirements

ASSESSMEN

“When business and market economies function properly on serving the common good,
they contribute greatly to the material and even the spiritual well – being of society. Recent
experience, however, has also demonstrated the harm caused by the failings of businesses and
markets. Alongside their benefits, the transformative developments of our era – globalization,
communications technologies, and financialization – produce problems: inequality, economic,
dislocation, information overload, financial instability, and many other pressures that interfere
with serving the common good.
Nonetheless, business leaders who are guided by ethical social principles, live through
virtues and illuminated for Christians by the Gospel, can succeed and contribute to the common
good. Obstacles to serving the common good come in many forms – corruption, absence of rule
of law, tendencies toward greed, and poor stewardship of resources – but the most significant for
a business leader on a personal level is leading a divided life. This split between faith and daily
business practice can lead to imbalances and misplaced devotion to worldly success. The
alternative path of faith – based “servant leadership” provides business leaders with a larger
perspective and helps them to balance the demands of the business world with those of ethical
social principles, illuminated for Christians by the Gospel. This is explored through three stages:
seeing, judging, and acting, even though it is clear that these three aspects are deeply
interconnected

Instructions: Imagine that you have just set up your own small business, and you have become
its General Manager. Based on the ideas contained in the two paragraphs above, write out a
simple Company Code of Ethics that you and your company shall live by from now onward. The
image below is the suggested format. Print it out in a long size bond paper. Do not forget to put
your name, section and the name of the subject.

Statement of Our Core Values

Company Vision________________________
Principles______________________________
Values ________________________________
Mission _______________________________

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