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? 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 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 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 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 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. The basic rights of consumers include those concerning representation, information, a healthy environment, safety, basic goods an services, choice, consumer education, and redress. Employees 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? 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 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 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. 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 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. 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 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. 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