Business Ethics Midterms Reviewer
• A business is an activity that is part and
parcel of human society: it is an entity in
which economic resources or inputs, such
as materials and labor, are put together and
processed to provide goods or services or
outputs to customers.
• Profit is the difference between the amount
earned, and the amount spent in buying,
operating, or producing something.
• Businesses make the goods and services
you use each day. That includes the
products and services used by other
businesses, as well as those needed by
individual consumers.
• There are generally three types of business
organizations operated for profit:
• Service
o Non-professional service ventures
include laundry shops, car repair
shops, beauty parlors, non-banking
institutions.
o Professional service ventures
include law offices, medical clinics,
and auditing and consultancy
services.
• Merchandising- does not alter the
appearance of the product purchased from
the seller. Ex: Grocery stores, hardware
stores, and dry goods stores are examples
of merchandising ventures.
• Manufacturing businesses- a producer of
goods or products. It is engaged in buying
raw materials and supplies to be processed
into finished products. Ex: furniture shops,
bakeshops, rattan factories, flour
producers, and beverage companies.
• Forms of Business Organization: Sole
Proprietorship, Partnership, Corporation
SOLE PROPRIETORSHIP
The characteristics of sole proprietorship are
as follows:
a) It is easy to form
b) It is a simple business operation
c) It has a limited pool of resources
d) Its growth is limited
e) the owner has unlimited liability
Advantages of a sole proprietorship:
• total undivided authority
• low organizational cost and license fees
• tax savings
• no restrictions on type of business(as
long as it is legal).
Disadvantages:
• unlimited liability
• limited capital, which leads to limited
growth in the industry
PARTNERSHIP- Owned by two or more persons.
The owners are usually called partners.
Characteristics of Partnership:
• Association of individuals. The association
of individuals maybe based on simple act of
handshake, however, it is preferable to
state the agreement in writing. A
partnership is a legal entity for certain
purposes. It is an accounting entity for
financial reporting purposes. Net income of
a partnership is not taxed as a separate
entity.
• Mutual agency. It means that an act of any
partner is binding on all other partners, so
long as the act appears to be appropriate
for the partnership. This is true even when
partners act beyond the scope of their
authority.
• Limited life. Partnerships have a limited life.
Partnership dissolution occurs whenever a
partner withdraws or a new partner is
admitted.
• Unlimited liability. Each partner is
personally and individually liable for all
partnership liabilities. Creditor claims attach
first to partnership assets and then to the
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personal resources of any partner,
irrespective of that partner's capital equity
in the company.
CORPORATION is an entrepreneurial venture
formed by at least five but not more than
fifteen persons. A corporation can either be
stock or non-stock, profit or non-profit, and
domestic or foreign. The persons originally
forming the corporation are called
incorporators.
• A corporation is classified as a stock
corporation when it is authorized to issue
shares of stock to stockholders. A non-stock
corporation, on the other hand, is not
authorized to issue shares of stock to the
members. The owners of a stock
corporation are called stockholders or
shareholders; while the owners of a non-
stock corporation are called members. The
certificate of stock is an evidence of
ownership of a corporation. A domestic
corporation is organized under the laws of
the Philippines. On the other hand, a
foreign corporation is organized under the
laws of the foreign country but has the
authority to operate in the Philippines.
The characteristics that distinguish a
corporation from proprietorship and
partnerships are:
1. The corporation has separate legal
existence from its owners.
2. The stockholders have limited liability.
3. Transferable ownership rights
(ownership is in shares of stock).
4. Ability to obtain capital (relative ease).
5. The corporation is subject to numerous
government regulations.
6. The corporation must pay an income
tax on its earnings, and the
stockholders are required to pay taxes
on the dividends they receive: the result
is double taxation of distributed
earnings.
7. An artificial/juridical "person" endowed
with ability for self-management, the
management structure is at the
discretion of the board of directors.
• The role of a business is to produce and
distribute goods and services to satisfy
a public need or demand.
• Trustworthy companies are better at
attracting and keeping customers,
talented employees, and capital.
• to be ethical: to know right from wrong
and to know when you’re practicing one
instead of the other.
• business ethics is the application of
ethical behavior in a business context.
• Acting ethically in business means more
than simply obeying applicable laws and
regulations: It also means being honest,
doing no harm to others, competing
fairly, and declining to put your own
interests above those of your company,
its owners, and its workers.
• ethical reasoning is vital to the practice
of business and finance.
• Ethics are moral principles that guide
the conduct of individuals.
• Poverty is about not having enough
money to meet basic needs including
food, clothing and shelter. However,
poverty is more, much more than just
not having enough money.
• Poverty is experienced and understood
differently by different people in
different regions and at different times.
Broadly, "Poverty" is conceptualized as
a deficiency or shortage of some sort,
typically in comparison either to the
living standards of others within the
same society or culture (called "relative
poverty") or to a universal measure of
adequate provision (called "absolute
poverty").
The Role of Business in Poverty Alleviation
Business Ethics Midterms Reviewer
The reason on extreme poverty despite
Economic Growth
• Economic growth is rarely uniformly
distributed across a country.
• the failure of government
• A third possible reason for continued
poverty in the midst of growth is cultural.
Major factors behind the slow reduction of
poverty include:
• minimal growth and productivity in
agriculture
• limited manufacturing base to absorb
workers moving out of agriculture
• high inequality of income
• natural disasters and conflict
Policy formation should be directed towards
the following:
• creating more jobs for both skilled and
unskilled workers
• boosting the quality of basic education
and completion of secondary school
• improving natural disaster risk
management and protection systems
• improving productivity, especially in
agriculture
The Role of Businesses in Overcoming Poverty
• Some studies show that small ad medium
enterprises (SMEs) defined usually as
businesses with up to 250 employees are
believed to be important contributors to
economic growth and a tool to reduce
poverty in developing countries.
• Also, microfinance is believed to be an
effective tool in the arsenal of the war
against poverty by many witnesses to its
success in many developing regions around
the world, including Africa, Southeast Asia,
the Middle East, and the Americas. As
mentioned above, all this should move us to
take action. but it is important to precede
such action with study and knowledge.
Areas of Business that needs Ethical attention
• In agriculture-based economies such as the
Philippines, the ultimate solutions are to be
found in: countryside and rural
infrastructures, quality basic education for
the children of the poor and in Muslim
areas, especially the education of
women, cash transfers to the poorest of
the poor, primary health services, primary
health services, microcredit and
microenterprise programs, technical skills
training for secondary school students, and
social housing.
• Concretely, it has been found that, as far as
food security in the Philippines is
concerned, focus should be placed on
addressing constraints on agricultural
finance in order to boost food productivity.
• Along with this, focus should be put in
investing in roads, since the unreliable and
inadequate infrastructure in the Philippines
has been found to be a major impediment
to economic growth. Given the physical and
environmental constraints on increasing
land and water use for food production and
other economic activities, agricultural
productivity will have to substantially
improve to meet the increasing demand for
food. For this to happen, substantial
investments must be made by both the
government and the private sector.
• Each role in a business organization involves
unique responsibilities (such as the
obligations of an employee to an employer
or the fiduciary duties of management to
the shareholders) that determine what a
person should do.
• Milton Friedman (American economist)
famously stated that the only social
responsibility of business is to increase its
profits. On the other hand, William Sauser,
in the Journal of Business Ethics article
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"Ethics in Business: Answering the Call,"
explained that business organizations have
four levels of responsibility:
1. Earning a profit;
2. Legal responsibility;
3. Ethical responsibility;
4. Discretionary responsibility
• Corporate Social Responsibility or CSR. CSR
- defined by the World Business Council for
Sustainable Development (WBCSD), is a
continuing commitment by business to
behave ethically and contribute to
economic development while improving the
quality of life of the workforce and their
families, the local community, and society
at large. More and more companies are
embracing CSR because of profitability, and
also because more mangers now believe
that being a better corporate citizen is a
source of competitive advantage.
• The leadership of many Philippines
businesses spearheading the contemporary
CSR movement is generally motivated by a
commitment to social or environmental
goals.
• As a concern, CSR was raised to the highest
corporate levels management and the
board itself. Thereafter, market forces
generally became the major driver of CSR
behavior in the Philippines.
• Deceptive Advertising- those that make
false statements about or misrepresent the
product, for example, the picture presented
in the advertisement is different from the
actual product. Deceptive ads may occur
not only through sentences or propositions
but also through pictures, individual words,
or through certain combinations of objects
which can deceive the eye and the mind.
• Article 108 of the Consumer Act of the
Philippines (Republic Act No. 7394) declares
that "The State shall protect the consumer
from misleading advertisements and
fraudulent sales promotion practices."
• Article 110 states that "It shall be unlawful
for any person to disseminate or to cause
the dissemination of any false, deceptive or
misleading advertisement by Philippine mail
or in commerce by print, radio, television,
outdoor advertisement or other medium for
the purpose of inducing or which is likely to
induce directly or indirectly the purchase of
consumer products or services.
• The Labor Code of the Philippines (or
Presidential decree No. 442)- (a decree
instituting a labor code thereby revising and
consolidating labor and social laws to afford
protection to labor, promote employment
and human resources development, and
ensure industrial peace based on social
justice) lays down the rights of workers in
relation to wages, rights to self-
organization, collective bargaining, security
of tenure, and just and humane conditions
of work.
• Republic Act No. 6727 (also known as the
"Wage Rationalization Act") mandates the
fixing of the minimum wages applicable to
different industrial sectors. This law
rationalized wage determination by
establishing the mechanism and proper
standards through the creation of Regional
Tripartite Wages and Productivity Boards
authorized to determine the daily minimum
wage rates in different regions.
• Book Four of the Labor Code of the
Philippines lays down the "Health, Safety,
and Social welfare Benefits" accorded to
workers. Book Five, on the other hand,
entitled "Labor Relations," lays down the
policies of the state with regard to labor.
• Insider trading in the stock market is
characterized as the buying or selling of
shares of stock on the basis of information
known only to the trader (an "insider,"
somebody belonging to the company, as
opposed to the public) or to a few persons.
Insider trading, in finance, is the reverse of
speculation.
• Werhane (1989) seem simply to believe
that insider trading is inherently immoral.
Business Ethics Midterms Reviewer
She argues that insider trading, both in its
present illegal form and as a legalized
market mechanism, undermines the
efficient and proper functioning of a free
market.
• Pollution and Resources Depletion -
Business organizations should take seriously
the task of caring for the earth, by regularly
embarking on projects seeking to diminish
or eradicate pollution, and to renew the
natural resources they tend to use up or
deplete.
• Whistle-blowing is the act, for an employee
(or former employee), of disclosing what he
believes to be unethical or illegal behavior
to higher management (internal whistle-
blowing) or to an external authority or the
public (external whistle-blowing).
• Accountability is when an individual or
department is held responsible for the
performance of a specific function.
Essentially, they are liable for the correct
execution of a particular task, even if they
may not be the one performing the task
• Why is accountability important? Sound
accountability structures are the most
important aspect of prevention and
detection of corruption.
• Accountability is NOT synonymous with
responsibility
• Fairness is the quality of making judgments
that are free from discrimination.
• Fairness comes from the old English faeger,
meaning "pleasing, attractive."
• Fairness in the context of a 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.
• Transparency is identified as an important
mechanism for guaranteeing social
accountability. Appropriate information
disclosure is necessary to inform donors
about how their money is used by these
organizations. The information that should
be disclosed, such as the percentage of
funds directly used to help people, the
activities and the results achieved, and how
these organization's budgets are distributed
among different organizational functions.
• transparency is an essential element
for building trust.
• Business ethics refers to how ethical
principles guide a business's operations.
• American ethical codes were first
called creeds or credos and those in the
1980s were considered legalistic and more
likely to talk about ethics or the reputation
of the company (Benson, 1989)
• they were defined as written
documents which attempt to state the
major philosophical principles and articulate
the values embraced by the organization.
• Codes articulate ethical parameters of the
organization, what is acceptable and what is
not.
• Ethical codes differ from mission
statements by articulating the value system
and answering the question "Within what
ethical standards and values should the
mission be pursued"
• Among the four types of organizational
culture in Sauser's (2008) taxonomy, the
culture of character is the ideal. This is the
organizational culture whose leaders and
members are truly committed to ethical
conduct and make ethical behavior a
fundamental component of their every
action.
• 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.
• language is said to be continuatio naturae a
continuation of nature.
• man is a symbolic animal, and this is what
we mean that culture is continuatio
naturae.
• Culture comes from colere, a word that is
of agricultural origin: cultivation is not
Business Ethics Midterms Reviewer
merely imitating: it entails concern for,
taking care of, fostering, nurturing,
growing.
• Corporate culture refers to the
assumptions, beliefs, goals, knowledge, and
values that are shared by organizational
members
• Barnard is the father of the concept of
corporate culture.
• Barnard recognized that shared values and
meanings, internalized by participants,
could constitute a strong system of control
much more powerful than one based
exclusively on material rewards or on force
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.
Pastin (1986) describes organizations 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 stakeholders groups part of
the organization's own good.
• They are obsessed with fairness. Their
ground rules emphasize that the other
persons'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.
• They see their activities in terms of purpose.
Those 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
Sauser and Sims (2013) give the following
suggestions for creating Codes of Ethics in
business organizations:
1. Adopt a ode 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 from the top
10.Communicate the standards of
conduct widely throughout the organization
and the industry
Business Ethics Midterms Reviewer
11.Designate an ethics officer with clear
responsibility for enforcing ethical standards
12.Establish a process for reporting
violations of ethical standards and actively
investigate all reported violations
13.Assure due diligence by the
organizations' board of directors
14.Above all, lead by example
• Ethics, also called moral philosophy, the
discipline concerned with what is morally
good and bad and morally right and wrong.
The principles of conduct governing an
individual or a group
• The terms ethics and morality are closely
related. It is now common to refer to ethical
judgments or to ethical principles where it
once would have been more accurate to
speak of moral judgments or moral
principles.
• Philosophy, on the other hand, comes
etymologically from two Greek words philia,
which means love, and sophia, which means
wisdom. It is the "study of the fundamental
nature of knowledge, reality, and existence"
We can speak in general of three branches of
philosophy:
1. Metaphysics
2. Epistemology
3. Axiology
• Metaphysics answers the question: "What
is the nature of reality?" is the philosophical
branch that studies reality, existence, the
nature of being, the physical world, and the
universe. It is the philosophy of being.
Metaphysics can be subdivided into two
categories:
1. ontology which deals with the
nature of existence;
2. cosmology which inspects the
origin and organization of the
universe.
• Epistemology answers the question: "What
is the nature of knowledge?" Epistemology
raises questions about the nature of
knowledge. Logic is a key dimension to
epistemology. Often referred to as
the theory of knowledge. It delves into the
definition, scope, and parameters of
knowledge and knowledge formation. It
seeks to explain how we acquire
knowledge, how knowledge relates to
notions like justification, truth, and belief,
and how and where it falls in the spectrum
of certainty and error.
We can distinguish between:
1. deductive logic (moving from general to
specific)
2. inductive logic (from specific facts to
generalization).
• Axiology answers the question "What is the
nature of values?" It explores the nature of
values. This can be subdivided into:
1. ethics - studies human conduct and
examines moral values. Ethics, also
known as moral philosophy , is
often referred to as the study of
morality. What is the good life?
How should we act? What do we
mean by virtue? What does “right”
even mean?
2. aesthetics - studies values, beauty,
nature, and aesthetic experience
often associated with music, art,
literature, dance, theater, and other
fine arts.
Strands of Philosophy:
1. Idealism - This is considered the oldest
philosophy of Western culture. It refers to the
Business Ethics Midterms Reviewer

world of mind and ideas, where reason is 3. Edmund Husserl;

primary. Leading proponents of idealism are:
a. Socrates (Greek philosopher)
b. Plato (Greek philosopher, "father of
idealism")
c. Augustine (Theologian of the 4th and 5th
centuries)
d. Rene Descartes
e. Immanuel Kant
f. Georg Wilhelm Friedrich Hegel
2. Realism - This can be considered the
antithesis of idealism, whereby "the Universe
exists whether mind perceives it or not."
Leading proponents of Realism are:
4. Martin Heidegger;
5. Jean-Paul Sartre.
c. Analytic Philosophy - it sought out to
clarify and define philosophies. This began in
post World War I era (the Vienna Circle) and
studied the alienation between philosophy and
science. It established the concept of logical
positivism there are logical and empirical types
of scientific expression. Analytic philosophy has
recently focused on political philosophy, ethics,
and philosophy of the human sciences.

a. Aristotle (Greek philosopher, "Father of

Realism")
b. Francis Bacon
c. John Locke
d. Comenius, Rousseau, and Pestalozzi

3. Neo-theism. This would date to the time of

Thomas Aquinas (1225 - 1274), and is also
known as theistic realism, whereby "God exists
and can be known through faith and reason."

4. Contemporary Philosophies:

a. Pragmatism - also known as

experimentalism (experience of things that
work). Leading proponents were:

1. Auguste Compte;
2. Charles Darwin;
3. Charles Peirce;
4. William James;
5. John Dewey

b. Existentialism - appeared as a revolt

against the mathematical, scientific
philosophies that preceded it. Leading
proponents were:

1. Soren Kierkegaard;
2. Martin Buber;