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II. BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

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A. BUSINESS ETHICS

A.1 Significance and Definition of Business Ethics

Business is a part of society. It works together with

every human being and act like a distinct entity. It is “A society that has low regard for
complex and dynamic interaction among the people and the morals will disintegrate after a
institutions. Its activities must be observed and viewed to period of time”
see their points as a major factor in our society. That is why
business must be observed by their ethics because these 2 cannot be separated from each other. A
business without good ethics can destroy the interactions and relationships of people to institution and
vice versa. Studying Business Ethics can give us better understanding the concepts of right and wrong
actions and how they practice these conducts to the business and its effect to other people or
institutions.
Studying business ethics can give us better understanding the concepts of right and wrong
actions and how they practice these conducts to the business and its effect to other people or
institutions. And we know the business is a dynamic activity. Because of constant changes, there’s
always going to the right path or wrong path as the human conduct dictates it. Ethics is the principle
of understanding good to bad. Through ethics in business, we enable to analyze one’s activity if we
are following the right way in business. We are reflected through the proper guidelines of the business
ethics in proper examination and confrontation several ethical issues and problems affecting the
business activities or transactions. Through business ethics we can resolve these issues and prevent
the possible repetition of the said ethical issue or problem.

Business Ethics can be defined as:

a) BUSINESS ETHICS is the study of what is the right and wrong human behavior and conduct in business.
b) BUSINESS ETHICS is a study of perceptions of people about morality, moral norms, moral rules, and
ethical principles as they apply to peoples and institutions in business.
c) BUSINESS ETHICS is the study, evaluation, analysis and questioning of ethical standards, policies, moral
norms, and ethical theories that managers and decision makers use in resolving moral issues and ethical
dilemmas affecting business.

Ethics – study of morals and moral choices of human beings

Business Ethics – the moral principles defining right and wrong behavior of businesspersons
and their agents

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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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A.2 Ethics and Lawmaking Process

Ethics (morality) and Law are interrelated. Both ethics and the law aim to guide human actions.
They govern actions of individuals around the world on a daily basis. They often work hand-in-hand to
ensure that citizens act in a certain manner, and likewise coordinate efforts to protect the health, safety
and welfare of the public.
Morality basically is held to include principles and norms concerning how a person should and
should not behave. This can be an outcome of a personal, social, culture (organizational or geographic in
origin) or religious views. Law on the other hand is an outcome of legal systems hence one can express
that one is better than another without others arguing. To sum, Ethics (Morality) comes from religion or
personal or cultural secular origins, laws come from officials of the government voting or decreeing them.
Practical intuition would tell us that violating ethical or moral rules affords one shame, on the other
hand, violating legal rules affords one fines or jail. The law, unlike morality, has the enforcement power
of the state behind it. Those who act immorally may earn hate or disrespect of others (few or many), but
those who act illegally may earn hate or disrespect of the state or the universe in general.
Below is a figure expressing Business Ethics and Law of the Land originating from basic public
opinion or what others commonly regard as what is right or wrong.

Ethics and the Lawmaking Process

Key Points:
 The law is an expression of the ethical beliefs of our society.
 Law and ethics are not the same thing.
 Therefore, an action might be unethical, yet not necessarily illegal.
 Similarly, an illegal act does not necessarily mean it is immoral.

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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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A.3 Factor Influencing Business Ethics
 Leadership. Leader is a person who leads the
people towards achieving a common goal.
Leader can be good or bad, great or small they
arise out of needs and opportunities of a
particular time and place. Leaders should be the
role models and mentors to its subordinates to
attain progress and not became examples of
disgrace and mentors of regress in work.
 Performance and Working Environment.
Good performance creates motivation to the
subordinates to work harder. The working
environment must possess the energy of being
productive in order for all to flow properly. If
the working environment possesses a weak or
feeble performance, the workers started to be
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lazy and not concentrated to the work resulting of being not productive.
 Deontology. The philosophy that says people should meet their obligations
and duties when analyzing an ethical dilemma. This means that a person will follow his/her
obligations because upholding one’s duty is what is considered ethically correct.
 Legal Rights. It includes freedom of religion, speech and assembly, protection from improper
arrest, searches and seizures, proper access to counsel, confrontation of witnesses, cross-
examination in criminal prosecutions, right to privacy in many matters and rights applied without
regard to race, color, creed, gender, or ability.
“Start with what is right rather than what is acceptable.”
-Peter Drucker
A.4 Benefits of Business Ethics
 Goodwill of the People.
People like to build long term
relationships with organizations
that performs tasks on ethical
principle. Moreover, this would
attract new customers & investors.
 Prevention from Legal
Actions. By implementing ethical
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practices, organizations are
automatically prevented from
illegal and objectionable activities as business ethics instruct to avoid all that is wrong and evil.
Such organization have no fear of legal action and social boycott.
 Business Ethics have Substantially Improved the Society. Establishment of anti-trust laws,
unions and other regulatory bodies has contributed to the development of the society.
 Ethical Practices Create Strong Public Image. Organization with strong ethical practices will
possess a strong image among the public. This image would lead to strong loyalty.
 Ethical Practices Support Employees’ Growth. Ethics in the workplace help employee face
reality, both good and bad – in the organization.
 Strong Teamwork and High Productivity. Constant change and dialogue will ensure the
employee matches to the value of the organization.
 Build Trust with the Key Shareholders. Implementation of ethics helps organization to gain
trust of their shareholders.
 High Profit. Reputation of the company and its share prices also increase if the company act upon
Corporate Social Responsibility (CSR)
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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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A.5 Areas of Concern for Business Ethics

Business ethics covers all areas encompassed by business transactions. The ethical conduct
of businesspersons may be measured against how the following are adhered to:

a) Laws and regulations promulgated by the government; and

 Product safety and quality
 Fair employment practices
 Fair marketing and selling practices
 The use of confidential information for personal gain
 Community involvement
 Bribery
 Illegal payments to foreign governments to obtain business

b) Specific ethical conduct not yet passed into law

Examples of Unethical Issues:

 Owners of food stalls serving spoiled
food to customers
 Business owners making fictitious
insurance claims”
 Schools awarding diplomas to
underserving persons
 A contractor bribing a government
official to manipulate the bidding of
contracts
 A drug manufacturer making false claims
regarding the efficacy of his product
 A television station copying the format
of a rival station’s show
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Problem Areas for Company Policy Formulation:

 Drug and alcohol abuse
 Employee theft
 Conflict of interest
 Quality control
 Misuse of proprietary information
 Abuse of expense accounts
 Environmental pollution
 Misuse of company assets
 Inaccuracy of books and records
 Receiving excessive gifts and
entertainment
 False or misleading advertising
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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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A.6 Ways to Improve Ethical Performance

Improvement in the ethical conduct of business and those involved in it may be through any of the
following ways:
 Ethics training—either through formal classroom instruction or through actual hands-on
experience and observation. When carefully designed and administered, it makes a positive
contribution to the company.
 Ethical advocate—a person who is knowledgeable about business ethics, employed by the
company and acts as the company’s conscience.
 Ethical codes—otherwise known as “codes of ethics”, are documents that specify practices that
are unethical and which the company expressly forbids (kickbacks, payoffs, receiving gifts,
falsification of records). These are formal documents that provide clear direction to management
and employees in the performance of their duties.
 Whistleblowing—when the employee resorts to
reporting the perceived unethical practice to outsiders
such as press, government agencies or public interest
groups.

Supplemental learning through a video on Business Ethics

Business Ethics by Global Ethics Solutions

Video link: https://youtu.be/IEmUag1ri6U

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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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B. SOCIAL RESPONSIBILITY

B.1 Essence and Definition of Social Responsibility

Social Responsibility refers to the concern of

business for the welfare of the society. This definition “Corporate social responsibility is
indicates that the firm must perform its function without a hard-edged business decision.
Not because it is a nice thing to do
harming the community, instead it must improve the quality
or because people are forcing us to
of life. It must produce goods or services that will not do it…but because it is good for
adversely affect any component of the society. It can make our business” -Niall Fitzgerald
profits but not to the detriment of the society.
Social Responsibility is also popularly known as
Corporate Social Responsibility (CSR), Corporate Citizenship, Corporate Philanthropy, Sustainable
Development etc. CSR is most often the foundation of sustainability volunteerism initiatives. CSR has
been a popular phrase since the 1950s. This goes beyond a responsibility to follow the law; it is the
extra actions that ensure a company’s interactions with employees, suppliers, customers, and society
are fair, respectful, and charitable.
It is closely related to the concepts of social obligation and social responsiveness. These define
the extent to which a company can exercise social responsibility in its operations and activities. Social
obligation refers to complying with legal and ethical standards to uphold social welfare. Social
responsiveness, on the other hand, goes beyond prescribed standards and implements actions that aim
to make an impact on society. It also means that the firm adapt to social conditions and engages in
activities that will respond to pressing social needs.

Example: If the company produces products that do not harm or pollute the environment, it is meeting its
social obligation. However, if the same organization uses fully recycled paper in packaging its
products, organizes yearly tree-planting activities for its employees, and supports
campaigns and advocates against illegal logging and pollution, then it is socially responsive.

CSR enhances a company’s image. Companies should always observe good and responsible
practices to maintain a positive image among the public.

The following are some of the often-quoted definitions of Social Responsibility or its
equivalent as defined by various authors/authorities:
“A business system that enables the production and distribution of wealth for the
betterment of stakeholders through the implementation and integration of ethical systems and
sustainable management practices” (Frederick, 2006)
“the responsibility of enterprises for their impacts on society; and the consequences for
the integration of social, environmental, ethical, human rights, and as well consumer concerns
into business operations and core strategy, in close collaboration with stakeholders” (European
Commission, 2011).
“An integrative management concept, which establishes responsible behavior within a
company, its objectives, values and competencies, and the interests of stakeholders” (Meffert &
Münstermann, 2005)
“The understanding and managing a company’s wider influences on society for the benefit
of the company and society as a whole” (Marsden and Andriof, 1998)
“Triple Bottom Line or People, Planet, Profit refers to a situation where companies
harmonize their efforts in order to be economically viable, environmentally sound and socially
responsible” (Elkington, 1997)
“CSR is a concept whereby companies integrate social and environmental concerns in
their business operations and in their interactions with their stakeholders on a voluntary basis.”
EU-Communication” (July, 2002)

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B.2 Pyramid of Corporate Social Responsibility

This figure (Pyramid of Corporate Social Responsibility) reflects the types of social
responsibility in four levels. This type of graphical presentation implies that every organization
pass through 1st level (base, foundation) or described as the Economic responsibility first before it
proceeds to the next level.

The pyramid of Corporate Social Responsibility (CSR) is used to refer the famous model
of Carroll, A.B., one of the distinguishing scholars in the literature. Building on his previous study
in 1979, Carroll (1991) developed a model of CSR that encompasses the entire range of business
responsibilities as economic, legal, ethical, and philanthropic dimensions. Carroll depicts his
model as a pyramid, in which types of CSR involvement are represented systematically at four
levels. This is a framework that explains how and why organizations should take social
responsibility. The pyramid was developed by Archie Carroll and highlights the four most
important types of responsibility of organizations.
CSR refers to a business’s behavior, that it’s economically profitable, complies with the
law, is ethical, and is socially supportive. Profitability and compliance with the law are the most
important conditions for corporate social responsibility and when discussing the company’s ethics,
and the level to which it supports the society it’s part of with money, time, and talent.
In 1991, he expanded on this definition using a pyramid. The goal of the pyramid was to
illustrate the building-block character of the four-part framework. This geometric shape was
chosen because it’s both simple and timeless. The pyramid’s base is profit. The economic
responsibility was placed at the pyramid’s foundation, since it’s a fundamental requirement to
survive in business. As with a building’s foundation that keeps the entire structure up, durable
profitability helps to support the expectations of society, shareholders, and other stakeholders. This
foundation is necessary for a company to meet all laws and regulations, as well as the demands of
shareholders. To sum, before a company can and should then take its philanthropic responsibility
or discretionary responsibility, it must also meet its ethical responsibilities.

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College of Business and Management CENTRAL MINDANAO UNIVERSITY
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All companies should strive to incorporate elements of social responsibility in their operations.
 Economic responsibility—the company should produce goods and services with reasonable prices. The
goods and services should also satisfy the needs of its customers, stakeholders, and other members of
society even as they ensure sustainability and growth.
 Legal responsibility—the organization should comply with local and international laws that apply to its
business operations.
 Ethical responsibilities—include establishing norms, standards, mores, and practices that reflect fairness
to the consumers, employees, shareholders, and the community.
 Philanthropic responsibilities—include the initiation of voluntary activities such as establishing corporate
programs, donating to charitable institutions, and other similar charitable causes.

B.3 Social Responsibility Interest Groups

Social Responsibility are primarily centered to these major groups (Owners/ Investors,
Consumers, Employees, Community/ General Public) and special groups (Minority, Women,
Elderly, and Specially-abled Individuals/ handicapped).

B.2 Benefits and Costs of Social Actions

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B.4 Benefits and Costs of Social Responsibility
BENEFITS
Companies that are socially responsible reaps benefits which may be direct or indirect. Among
the possible benefits are as follows:
a) improved employee satisfaction and motivation
b) awareness of changing consumer tastes/preferences
c) greater demand on products and services
d) investors’ preference to buy stocks
e) elimination of possible legislative controls

COSTS
Even if socially responsible actions have benefits, they are not derived without costs. These
are the following:
a) the money spent in direct support of social projects
b) reduction of competitive power (funds for competitive purposes are used to finance social projects)
c) the private provision of social services and programs may, later on, be also regulated by the
government

COMPARING COST AND BENEFITS

Aware of the costs and benefits of social actions, the company can compare one to the
other. Various factors may be considered when comparing costs with benefits such as
quantitative terms like sales and profits, or non-quantitative like moral values.

B.5 Corporate Social Responsibility Strategies

If the company has already decided on becoming socially responsible, it can do so by adapting a systematic
approach. The approaches are expressed in four basic social responsibility strategies:
Reaction strategy—the company allows a condition or potential problems to go unresolved until the public finds
out about it. When a problem is brought before the company, the firm reacts by denying responsibility, then attempts
to resolve the problem, deal with its consequences, then continue doing business to minimize the negative impact.
Defense strategy—the company tries to minimize or avoid additional obligations. Among the tactics used are legal
maneuvering and seeking the support of groups that prefer the company’s way of doing business.
Accommodation strategy—when a business assumes responsibility for its actions. This is done when special
interest groups are taking the side of the opposition, or when the business perceives that if it does not react, a law
will be passed by Congress to ensure compliance. This means that the company is forced to accept its economic,
legal, and ethical responsibilities.
Proactive strategy—the firm goes beyond what is legally and ethically required. This is undertaken through
sponsorship of cultural shows offered free to the public, scholarship to financially handicapped but deserving
students, providing financial support to the upkeep of endangered animal species, and many other similar concerns.

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Special Topic:

Cadburry is an Example of a company known for its Corporate Social Responsibility

to the society and environment

BA 41.Business and Management Integrals.2020

College of Business and Management CENTRAL MINDANAO UNIVERSITY