CHAPTER 3: Ethics and Social
Responsibility
4. The use of confidential information for
personal gain
5. Community involvement
6. Bribery
7. Illegal payments to foreign governments to
obtain business
What is business ethics?
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Ethics refers to the study of morals and moral choices
of human beings.
The behavior of individuals and groups which are
governed by standard, rules, and codes of conduct
consist of the subjects covered by ethics.
The moral principles defining right and wrong behavior
of businesspersons and their agents are called
business ethics.
Current Issues in Ethics

The Need for Ethical Behavior

People in highly developed economies were the
first to experience and be aware of unethical
behavior of business firms. Many of them pushed
for changes in the way business persons pursue
their trade. Some of their ideas found their way in
the legislative bodies, which later accommodated
them by passing laws in support of their agenda
on business ethics
It is not surprising for the media to provide information
on any of the following concerns:
1. Owners of food stalls serving spoiled food to
customers
2. Business owners making “fictitious insurance
of claims”
3. Schools awarding diplomas to underserving
persons
4. A contractor bribing a government official to
manipulate the bidding of contracts
5. A drug manufacturer making false claims
regarding the efficacy of his product
6. A television station copying the format of a rival
station’s show
Coverage of Company Sponsored Ethic
Programs
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As many less developed countries like the
Philippines look up on the highly developed ones
as some sort of model, the concern about
business ethics abroad become important sources
of patterns of conduct for concerned local
residents.
Ethical behavior is needed to make the “playing
field” free and orderly. If the business person does
not adhere to ethical principles, public opinion may
pressure the government to act. It may turn out,
later, that the business person will be in the worse
situation than when no law is passed to force him
to act ethically.
The Improvement of Ethical Performance
Improvement in the ethical conduct of business and
those involved in it may be made through any of the
following: (1) ethics training; (2) ethical advocates; (3)
ethical codes; and (4) whistle-blowing
Areas of Concern for Business Ethics
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Business ethics covers all encompassed by business
transactions. The ethical conduct of business persons
may be measured against how the following are
adhered to:
1. Law and regulations promulgated by the
government; and
2. Specific ethical conduct not yet passed into
law.
A list of concerns relating to laws and regulations
requiring ethical behavior is provided as follows:
1. Product safety and quality
2. Fair employment practices
3. Fair marketing and selling practices
A very important listing of problem areas which may
be used as a basis for formulating company policies
on ethical conduct is as follows:
1. Drug and alcohol abuse
2. Employee theft
3. Conflict of interest
4. Quality control
5. Misuse of proprietary information
6. Abuse of expense accounts
7. Plant closings and layoffs
8. Misuse of company assets
9. Environmental pollution
10. Methods of gathering competitor’s information
11. Inaccuracy of books and record
12. Receiving excessive gifts and entertainment
13. False or misleading advertising
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o Ethics Training
The acquisition of knowledge in ethics, however,
preceded effective implementation. Learning takes
two forms:
1 Through formal classroom instructions
2 Through actual hands-on experience and
observation
Formal training in ethics may be made in a shorter
period than through actual hands-on experience.
When ethics training courses are carefully designed
and administered, they make a positive contribution to
the company
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o Ethical Advocates
An ethical advocate is a person who is
knowledgeable about business ethics, employed
by the company, and acts as the company’s
conscience/
He sits at the board of directors and sees to it that
every policy adapted conforms with ethical
standards.
o Ethical Codes
Codes of ethics are documents that specify
practices that are unethical and which the
company expressly forbids.
A code of ethics is a formal document that
provides clear direction to management and
employees in the performance of their duties.
o Whistle-Blowing
When almost everybody from top to lower
management acts outside of ethical norms, the
employee who feels he must do something resorts
to reporting the perceived unethical practice to
outsiders such as the press, government agencies
like the Ombudsman and the Presidential AntiGraft Commission, or public interest groups. This
action referred to as whistle-blowing.
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The basic rights of consumers include those
concerning representation, information, a healthy
environment, safety, basic goods an services,
choice, consumer education, and redress.
Employees
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Business firms should regard employees as
among its greatest concerns. Employees welfare
is of utmost importance
Among the specific points of interest in caring
about employees are:
1 Health and safety
2 Appropriate salaries and employee benefits
3 Right to speak out
4 Right to privacy
5 Right to job security except when discipline is
concerned
What is Social Responsibility?
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Social responsibility refers to the concern of
business for the welfare of the society.
This definition indicates that the firm must perform
its function without harming the community,
instead it must improve the quality of life.
It must produce goods and services that will not
adversely affect any components of the society
It can make profits but not to the detriment of
society
Interested Groups
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There are various groups with interests that are
different from one another.
These interests must be properly considered by
business firm if it will have to be successful.
Owners
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The interest of the owners (the sole proprietor, the
partners, or stockholders) is expected to be of
highest priority. For some reasons, this does not
always happen.
The biggest incongruence lies in the corporate
form. Because the sole proprietor directly controls
business operations, the highest possible profits
may be expected.
This is not so in corporations because ownership
and management have interests that are wholly
similar
Consumers

Consumers constitute a very important group,
which must be handled with some degree of
responsibility.
Minority groups
 The denigration of these groups as second-class
citizens or funny looking people including their
conclusion and demeaning scenes in the movies
happen every now and then
 This attitude was filled over in business and is not
proper
 Management must avoid treating them outright as
inferior so as not to affect their employment and
promotion chances.
Women
 Women constitute a potential force to make
business progressive.
 The view that management must have is to regard
women as a force with potential "to lead" as much
as "to follow".
Older People
 Older people, as a group, are slowly being
recognized by the government.
 They are regarded as "senior citizen" with
privileges flight discounts in many business
establishments.
The Handicapped
 Handicapped may be made to contribute positively
to the firm's objectives.
 As such, they must not be discriminated against in
any activity like hiring and promotion.
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The firm's management must be responsible for
removing hazards and obstacles which prevent
them from doing their jobs effectively.
Facilities that are specially designed for the
handicapped are now utilized by the more
progressive companies.
The Community at Large
 People living in the communities have problems in
common.
 Some of these are related to pollution, traffic,
substandard products, unfair business practices,
and others.
 It is now not uncommon to find big corporations
assisting rural communities providing funds for
construction and equipment for school buildings.

This access to information enables them to
identify companies that are socially
responsible.
Preference for Socially Responsible Companies
by Investors

Companies that are socially concerned may
find their stock sold in the market at a higher
market price.

This is the effect of greater demand for the
company’s products and services, which, as
has been mentioned earlier, is a result of
socially responsible actions.
Elimination of Legislative Controls on Business
Activity
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Benefits and Costs of Social Actions
When social issues become the concern of
legislative bodies, sanctions and other
prohibitions result to more opportunities lost
and chances of profit-making for the firm.
♦Benefits
Companies that are socially responsible reap
benefits at which may be direct or indirect.
Among the possible benefits are as follows:
♦Costs

1. improved employee satisfaction and
motivation;
1. the money spent in direct support of
social projects;
2. company becomes more aware of
changing
consumer
tastes
and
preferences;
2. reduction of competitive power; and
3. the private provision of social services
and programs may, later on, the also
regulated by the government.
3. greater demand for the company's
products and services;
4. preference by investors to buy the firm's
stocks; and
5. elimination of possible
controls on business activities.
legislative
Improved Employee Satisfaction and Motivation

A socially responsible company is more likely
to provide job satisfaction to its employees.

They are also more motivated to achieve the
organization's goals.
Money Spent in Support of Social Projects

To support social projects, funds have to be
taken from whatever source is available
within the firm.

Most often, this will reduce whatever amount
is available for capital spending.
Reduction of Competitive Power

Becoming More Aware of Changing Consumer
Tastes and Preferences

When the firm's research facility includes
identifying social means that can be served, it
will only be a step away from knowing any
changes and what consumers really want in
buying products or services.

Consumers are currently having better access
to information.
They get these from the broadcast and print
media.
When part of available funds are used by the
company to finance social projects, this will
reduce the funds that could be used for
competitive purposes.
Government Regulations May also be Imposed

Greater Demand for the Company's Product and
Services

Even socially responsible actions have
benefits, they are not derived without the
attendant costs.
Even is acting socially responsible, there is still
a chance that the government will step in
and impose regulations even along areas
covered by the company's social actions.
Comparing Costs and Benefits

Various factors may be considered when
comparing costs and benefits.

The factors may be expressed in quantitative
terms like sales and profits, or non-quantitative
life moral values.
Social Audits

A social audit refers to the systematic
examination of all activities involved in
achieving social goals such as employment of
the handicapped and those belonging to the
cultural minorities, adaption of anti-pollution
campaign,
improvement
of
working
conditions,
community
development,
donations to worthy causes, and various
consumer issues.
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A social audit may be done through the
preparation of the following:
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 as follows:
1. reaction strategy,
2. defense strategy
3. accommodation strategy, and
3. proactive strategy
Reaction Strategy

In using reaction strategy, the company
allows condition or potential problems to go
unresolved until the public finds out about it.
Defense Strategy
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Under the defense strategy, the company
tries to minimize or avoid additional
obligations.
Among the tactic used are illegal
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, it uses the accommodation strategy.
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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
long 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

In using a proactive strategy, the firm goes
beyond what is legally and ethically required.

This is undertaken through sponsorship 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.
1. a summary of program areas, such as
consumer affairs, as well as the reason for
undertaking certain social activities and
not others
2. a report of specific programs and the
priorities for each set of activities
3. a listing of objectives for each priority
activity and a description on how the
organization is striving to reach the
objective
4. a summary report of the costs of each
program area and activity to the
company
5. a summary using quantitative measures,
whenever possible, of the extent of
achievement of each social objective