LESSON 4: Major Ethical Issues in Entrepreneurship

Ethical Issues
• Ethical issues are defined as situations that occur as a result of a moral conflict that must be
addressed. Thus, ethical issues tend to interfere with a society's principles.
• conflict and choice between values, beliefs and options for action.

ARE ETHICAL ISSUES ALL WRONG ACTIONS and DECISIONS?

• NOT NECESSARILY

Ethical Issues
• Wrong decisions or actions
• Decisions or actions that are in conflict with what is acceptable (norm) in a society

Examples of Ethical Issues

• In school: cheating, bullying
• In the workplace: sexual harassment, theft, fraud
• In the government: corruption, nepotism
• In a hospital: DNR (Do Not Resusitate), mandatory vaccination, organ donation

MAJOR ETHICAL ISSUES IN ENTREPRENEURSHIP

1. Injustice and gross negligence (issues on basic fairness)
2. Mistreating employees and customers (issues on personnel and customer relations)
3. Non-respect of agreement (breach of contract)
4. Environmental degradation
5. Financial miscoduct or misrepresentation (fraud)
• Charity Fraud: misuse of monetary donations; identifying non-existent or dummy organizations
as beneficiaries; poor quality of help; using charitable intentions only as a “come on” or a
marketing strategy so consumers will be entised to support their business activities.
• Internet Auction fraud involves fraudulent advertisements on auction sites such as eBay. The
seller is selling goods that do not exist or is selling the one item to everyone who bid on the item,
saying the person who won the auction no longer wants the goods and they are the next highest
bidder.
• Non-delivery of merchandise: product is not delivered even after payment
• Non-payment of funds: products are not paid even after shipment or receipt of items
• Overpayment scheme: refunds are not done as promised due to overpayment of buyers
• Re-shipping scheme: A reshipment scam is a fraudulent “business.” A criminal uses stolen
credentials to make a purchase, but has the goods shipped to their reshipper’s address. The
reshipper receives packages at home, then gets paid to forward them to another address.
6. Distribution Dillemas (issues on marketing-pricing, placement and promotion)
• Pricing strategy ethics– price collusion
• Product placement ethics:
 End-caps: a display of products placed at the end of an aisle in a store
 POS Display: a specialised form of sales promotion that is found near, on, or next to a
checkout counter
 Kiosks: small, temporary booths placed in areas with high foot traffic that are used by
businesses to reach their customers in a more simple and informal manner
How are end-caps, SOP displays and kiosks used unethically?
 These can be marketing strategies that may force consumers to buy products even when not
needed or the non-essentials
 may promote overspending
 take advantage of consumers idle time while waiting in line to pay
 allows consumers to be victims of other deceiving market strategies
 obstructions
 Ethics and promotion– misleading images and sales, twisting facts, hidden fees, celebrity
endorsements
7. Unfair competition
 Trademark infringement: the unauthorized use of a trademark or service mark. This use can
be in connection with goods or services and may lead to confusion, deception, or a
misunderstanding about the actual company a product or service came from.
 Misappropriation of trade secrets happens when a trade secret has been wrongfully taken or
disclosed without consent via espionage, bribery, or theft.
 Trade libel also known as "product disparagement" or spreading of false information about a
competitor leading to financial losses or even closure of the business.
 Dumping happens when foreign firms dump products at low prices in local markets affecting
locally made products and businesses.
 Tying is selling unrelated products or multiple products together leading consumers to buying
what they don’t need
8. Unfair communication
 Where unethical communication impairs relationships with consumers and others.
 Examples:
 Johnson & Johnson to pay $417M in cancer lawsuit - A Los Angeles jury ordered Johnson&
Johnson to pay a record $417 million to Echevarria, a hospitalized woman who claimed in a
lawsuit that the TALC in the company's iconic baby powder causes ovarian cancer when
applied regularly for feminine hygiene.
 Matthias Rath is a vitamin entrepreneur who used to be a doctor. He recommends vitamin
pills to cure even serious ailments. In UK ads, he claimed that 90% of cancer patients die
within several months of starting chemo, arguing that corporations let them die for profit. He
uses his lies to sell an HIV/AIDS “miracle cure”, saying that HIV doesn’t cause AIDS and
antiretroviral drugs won’t work, leading to the spread of infections in South Africa.
9. Contractualization or LaborContractualization
 Replacing of regular workers with temporary workers who receive lower wages with no or fewer
benefits. These temporary workers are also known as sometimes called contractures, trainees,
apprentices, helpers, casuals, piece raters, agency- hired, and project employees among others.
 Contractualization is a form of underemployment (individuals are forced to work in low-paying or
low-skill jobs)
 “Endo” (end of contract)
 Do not enjoy full security of tenure rights as guaranteed by the Constitution and the Labor Code.
 Employers find authority to hire endos in Article 280 of the Labor Code, which allows employers
to hire employees on a project basis. To the endo employers, the project pertains to their five-
months engagement.
 Foremost in these issues is the “5-5-5” arrangement where contractual workers are terminated
after five months, and then re-hired again for another five months.

HOW WILL YOU ADDRESS UNETHICAL BEHAVIOR IN YOUR BUSINESS?

A Proactive Approach to Addressing Unethical Behavior in the Workplace
1. Create a CODE OF ETHICS and a CODE OF CONDUCT
2. Establish PROTOCOLS
 Reporting unethical behavior
 Investigating and sanctioning unethical behavior
 Identifying qualified, fair, objective people (internal or external HR) to implement protocols
3. EMPOWER EMPLOYEES
 implementing ethics-training programs
 tie ethical behavior to some compensation incentives
4. Conitnuously REVIEW and PROMOTE the code of ethics and conduct to create a positive and
ethical workplace.
 LESSON 5: DIFFERENT MODELS AND FRAMEWORKS OF SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

1. ECONOMIC RESPONSIBILITY
 Refers to the practice of making financial decisions based on a commitment to doing good.
 Business leaders are challenged to think past operational cost savings and instead put their
obligation to corporate citizenship at the heart of all financial decisions.
 Additionally, this also means that it is a company’s duty to produce goods and services that
are needed/wanted by the customers, at a reasonable price.
 EXAMPLES: investing in alternative energy sources, putting more money into education
programs and funding local charities
 CORPORATE CITIZENSHIP
 Refers to a company's responsibilities toward society. The goal is to produce higher
standards of living and quality of life for the communities that surround them and still
maintain profitability for stakeholders.
2. LEGAL RESPONSIBILITY
 This refers to how companies conduct their business in the marketplace.
 Examples of legal responsibilities a company: Employment laws, competition with other
companies, tax regulations and health and safety of employees
 Failing to be legally responsible can be very bad for businesses.
3. ETHICAL RESPONSIBILITY
 Refers to a company’s commitment to operate their business in an ethical manner that
preserves human rights, protection of the environmental, compliance of business laws,
upholds transparency, accountability and responsibility at every stage of business.
4. PHILANTHROPIC RESPONSIBILITY
 Refers to a corporation’s aims, goals and objectives for ACTIVELY bettering society as a
whole.
 Example: donating money from company earnings to worthy causes within the local
community — often in the form of a trust or foundation.
 Example: ABOITIZ FOUNDATION
 Focuses its efforts on education, enterprise development, and environment (including
disaster response).
 Continues to invest heavily on quality education-related projects including the Purposive
College Scholarship, and technical-vocational scholarships. For decades, they have been
working closely with the Department of Education, schools, and training institutions. They
support the youth in becoming productive workforce members.

CSR MODELS / FRAMEWORKS

1.

---------SUMMATIVE TEST #2----------

Carroll’s Pyramid CSR Model

 CSR encompasses the economic, legal, ethical, and discretionary (philanthropic)
expectations that society has of organizations.
 Degree of Importance
 Empirically interrelated, but conceptually independent
  ECONOMIC
 a fundamental condition or requirement of existence of a business
 Society expects businesses to be profitable to be able to sustain business operations
 LEGAL
 Important expectations of business include their
 Performing in a manner consistent with expectations of government and law
 Conducting themselves as law-abiding corporate citizens
 Fulfilling all their legal obligations to societal stakeholders
 Providing goods and services that at least meet minimal legal requirements
 ETHICAL
 All businesses activities are expected to reflect and honor what consumers, employees,
owners and the community regard as consistent with respectto the protection of
stakeholders’ moral rights.
 Doing what is right even when it is not codified into a law.
 PHILANTHROPIC
 Business’s desire to participate in social activities are not required but are expected by
society.
 Altruistic motivation for “business giving” means doing good to enhance company’s
reputation and not necessarily for noble or self-sacrificing reasons.

2.

 Dynamic interplay
 It is the responsibility of the business to maintain harmony and resolve the conflicts between
different responsibilities
 NO RESPONSIBILITY IS MORE IMPORTANT THAN THE OTHER
 Business is a profit venture, but also a social creation.
 Doing economic activities without moral or legal responsibilities is unacceptable
 According to Kanji and Agrawal (2016) CSR is incomplete without the firm’s philanthropic
acts.

3.

 Urges businesses to adopt a broader and more humane view of its function in society
 Integration of a normative core – having a stakeholder mindset than a shareholder mindset.

---------SUMMATIVE TEST #3----------