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Business Ethics Notes

University of Cebu Lapulapu and Mandaue
A.C Cortes Avenue, Looc, Mandaue City, Cebu Philippines 6014
College of Business and Accountancy
What is Ethics?
 Ethics, in its broad essence, defines as a set moral principles or values that govern the actions
and decisions of an individual or group.
 Each of us has such a set of values, although we may or may not have considered them explicitly.
Philosophers, religious organizations, and other groups have defined in various ways ideal sets
of moral principles or values. Examples of prescribed sets of moral principles or values at the
implementation level include laws and regulations, church doctrine, code of business ethics for
professional groups such as CPAs, and codes of conduct within individual organizations.
What are these set of principles or values?
Characteristics and values associated with ethical behavior
1. Integrity- Be principled, honorable, upright, courageous and act on convictions; do not be
twofaced or unscrupulous, or adopt an end-justifies-the means philosophy that ignores principle.
2. Honesty- Be truthful, sincere, forthright, straightforward, frank, and candid; do not cheat, steal,
lie, deceive or act deviously.
3. Trustworthiness and Promise Keeping- Be worthy of trust; keep promises, full commitments
abide by the spirit as well as the letter of an agreement; do not interpret agreements in an
unreasonably technical or legalistic manner in order to rationalize noncompliance or create
excuses and justification for breaking commitments.
4. Loyalty (Fidelity) and Confidentiality- Be faithful and loyal to family, friends, employers, client
and country; do not use or disclose information learned in confidence; in a professional context,
safeguard the influences and conflicts of interest.
5. Fairness and Openness- Be fair and open-minded, be willing to admit error and, where
appropriate, change positions and beliefs, demonstrate a commitment to justice, the equal
treatment of individuals, and tolerance for acceptance of diversity, do not overreach or take
advantage of another's mistakes or diversities.
6. Caring for Others- Be caring, kind, and compassionate, share, be giving, be of service to others,
help those in need and avoid harming others.
7. Respect for others- Demonstrate respect for human dignity, privacy, and the right to selfdetermination of all people: be courteous, prompt, and decent; provide others with the information
they need to make informed decisions about their own lives; do not patronize, embarrass, or
8. Responsible Citizenship- Obey just laws; if all law unjust, openly protest it; exercise all
democratic rights and privileged responsibly by participation (voting and expressing informed
views), social consciousness, and public service; when in a position of leadership or authority,
openly respect and honor democratic processes of decision making, avoid unnecessary secrecy
or concealment of information, and assure that others have all the information they need to make
intelligent choices and exercise their rights.
9. Pursuit of Excellence- Pursue excellence in all matters; in meeting your personal and
professional responsibilities, be diligent, reliable, industrious and committed; perform all tasks to
the best of your ability, develop and maintain a high degree of competence, be well informed and
well prepared; do not be content with mediocrity; do not "win at any cost".
10. Accountability- Be accountable; accept responsibility for decisions, for the foreseeable
consequences of actions and inactions, and for setting an example of others.
What is Business Ethics?
 The standards of moral conduct, behavior, and judgment in business.
 Business ethics is an area of corporate responsibility where businesses are legally bound and
socially obligated to conduct business in an ethical manner.
Purpose of Business Ethics
 The main purpose of business ethics is to help business and would-be business to determine
what business practices are right and what are wrong.
Importance of Business Ethics
1. Stop business malpractice- Some unscrupulous businessmen do business malpractices by
indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating
in weights and measures, selling of duplicate and harmful products, hoarding, etc. These business
malpractices are harmful to the consumers. Business ethics help to stop these business
malpractices. It creates a healthy business environment for everyone.
2. Investor and customer loyalty- The customers have more trust and confidence in the
businessmen who follow ethical business rules or principles. They feel safe that such
businessmen will not cheat them. Ethics binds businessmen to maintain trust by offering quality
products and services to customers.
3. Survival of business- Business ethics is mandatory or compulsory for the survival of any
business. The businessmen who do not follow it will only have short-term success, but they will
fail in the long run. This is because they can cheat a consumer only once. After realizing being
cheated, the consumer will not buy goods or services from that businessman. He will also tell
others not to buy from that businessman. So, this will defame his goodwill or image and provoke
negative publicity in the market. This will result in the failure and even closure of the business.
Therefore, if the businessmen do not follow ethical rules, he will fail in the market. So, it is always
better to follow appropriate code of conduct to survive in the competitive market.
4. Develops good relations between business and society- Business ethics are important to
develop good and friendly relations between business and society. This will result in a regular
supply of good quality goods and services at low prices to the society.
5. Creates good image of business- Business ethics create a good image for the business and
businessmen. If the businessmen follow all ethical rules, then they will be fully accepted and not
criticized by society. The society will always support those businessmen who follow the necessary
code of conduct and avoid engaging in unscrupulous activities. If the business succeeds in
creating and maintaining its goodwill in the society, it flourishes well even in the most competitive
6. Greater earning- Developing good and friendly relations between business and society will result
in good profits for the businesses thereby resulting in the growth of the economy. If the economy
keeps growing, it ultimately improves the standard of living of the society.
Ethics in Compliance
Ethics in compliance means all about obeying and adhering to rules and authority. Ethics in
compliance is done for the benefit of the organization and the employees of the organization.
Ethics helps to create a positive environment in the workplace.
Ethics in Human Resources
The ethics of Human Resource Management (HRM) covers those ethical issues arising around
the employer-employee relationship, such as the rights and duties owed between employer and
It means helping an organization embed and uphold its values at all levels in order to maintain
and increase trust.
Ethics in Marketing
Marketing ethics are a set of moral principles that guide a company's promotional activities.
Organizations that establish and implement marketing ethics are typically trying to respect the
rights, desires and expectations of consumers.
It is a practice of promoting fairness, honesty, and empathy in all marketing activities. One of the
easiest ways to promote ethics in a business sense, of course, is to ensure it's instilled in your
company's culture and values.
Ethics of Production
Ethics in production is a subset of business ethic that is meant to ensure that the production
function or activities are not damaging to the consumer or the society. Like other ethics there is a
certain code of conduct or standards to be followed, however ensuring that the ethics are complied
with is often difficult.
Ethics in Finance
Ethics in finance demands adherence to the highest standards. The consequences of unethical
behavior are clear, from loss of reputation and trust to monetary penalty and criminal prosecution.
Effective leaders attend to an inner moral compass which helps minimize the temptation toward
unethical behavior.
Ethics in IPR Knowledge and Skills
Ethics in IPR knowledge and skills talk about moral rights being representative of social values in
respect of the protection of trademarks, which have either been registered or unregistered or such
as copy infringement, etc.
Transactional ethics
refers to the ethical principles and values that govern the interactions between individuals or
organizations in a business context. It is concerned with the moral standards that apply when
conducting business transactions, such as buying, selling, or exchanging goods and services.
ethical considerations such as honesty, fairness, and trustworthiness play a critical role in building
and maintaining good relationships between parties.
Participatory Ethics
the ethical principles that guide the active engagement of stakeholders in decision-making
processes within an organization.
emphasizes the importance of including the perspectives and interests of all relevant parties in
ethical decision-making, including employees, customers, suppliers, communities, and other
Recognitional ethics
refers to the ethical principles that guide the recognition and treatment of individuals and groups
within an organization.
emphasizes the importance of treating all people with dignity, respect, and fairness, and
recognizing the inherent worth and value of each person, regardless of their position or role within
the organization.
Descriptive ethics
refers to the study of how individuals and organizations actually behave in relation to ethical
issues, rather than prescribing what they ought to do.
concerned with understanding and describing the moral norms, rules, and practices that exist
within the business community, and how these norms and practices are shaped by cultural,
historical, and social factors.
Analytics ethics
refers to the ethical considerations and principles that should guide the development, deployment,
and use of analytics tools and technologies in business and organizations
encompasses a wide range of issues, from the collection and use of data to the impact of analytics
on individual privacy and the wider society.
Five Sources of Ethical Standards
The Utilitarian Approach
The utilitarian approach deals with consequences; it tries both to increase the good done and to
reduce the harm done.
Ethical warfare balances the good achieved in ending terrorism with the harm done to all parties
through death, injuries, and destruction.
The Rights Approach
This approach starts from the belief that humans have a dignity based on their human nature per
se or on their ability to choose freely what they do with their lives.
This approach stipulates that the best ethical action is that which protects the ethical rights of
those who are affected by the action.
The Fairness or Justice Approach
Aristotle and other Greek philosophers have contributed the idea that all equals should be treated
equally. Today we use this idea to say that ethical actions treat all human beings equally -- or if
unequally, then fairly, based on some standard that is defensible.
The Common Good Approach
This approach suggests that the interlocking relationships of society are the basis of ethical
reasoning and that respect and compassion for all others -- especially the vulnerable – are
requirements of such reasoning.
This approach also calls attention to the common conditions that are important to the welfare of
The Virtue Approach
A very ancient approach to ethics is that ethical actions ought to be consistent with certain ideal
virtues that provide for the full development of our humanity.
These virtues are dispositions and habits that enable us to act according to the highest potential
of our character and on behalf of values like truth and beauty.
Factors influencing Business Ethics
Personal code of Ethics
A man’s personal code of ethics that is what one considers moral is the foremost responsible
factor influencing his behavior.
If the leader can lead in ethical ways and motivates the employees, the employees will perform in
legal ways.
Social Pressure
Social forces and pressure have considerable influence on ethics in business. If a company
supplies sub-standard product and get involved in unethical standards, the consumers will
become indifferent towards the company. Such refusals shall exert a pressure on the company
to act honestly and adhere strictly to the business ethics. Sometimes, the society itself may turn
against the company.
Company’s culture
When a company grows larger, its standard of ethical conduct tends to rise. Any unethical
behavior or conduct on the part of the company shall endanger its established reputation, public
image and goodwill. Hence. Most companies are very cautious in this respect.
Ethical climate of the industry
Modern industry today is working in a more and more competitive atmosphere. When other firms
in the same industry are strictly adhering to the ethical standards, the firm in question should also
perform up to the level of others.
Unethical practices in business ethics occur in many forms and types. The most common of these
unethical practices of business establishments are misrepresentation and over-persuasion.
 may be classified into two types: Direct Misrepresentation and Indirect Misrepresentation.
 Direct Misrepresentation – is characterized by actively misrepresenting about the
product or customers.
o Deceptive Packaging – One type of deceptive packaging is the practice of placing
the product in containers of exaggerated sizes and misleading shapes to give a
false impression of its actual contents.
o Misbranding or Mislabeling – Misbranding is the practice of making false
statement on the label of a product or making its container similar to a well-known
product for the purpose of deceiving the customer as to the quality and/or quantity
of being product being sold.
o False or Misleading Advertising – An untrue information given to get you buy
the product or render the service.
- If advertising does not provide a useful service anymore to the
customers, it can become the agent of misrepresentation.
- Example: Advertisements with pictures of statement that convey
exaggerated impression of the product’s reliability or quality.
o Adulteration – Adulteration is the unethical practice of debasing a pure or genuine
commodity by imitating or counterfeiting it, by adding something to increase its bulk
or volume, or by substituting an inferior product for a superior one for the purpose
of profit or gain.
o Weight understatement or short weighing – The mechanism of the weighing
scale is tampered with or something is unobtrusively attached to it so that the scale
registers more than the actual weight.
o Measurement understatement or short measurement – the measuring stick or
standard is shorter than the real length or smaller in volume than the standard.
o Quantity understatement or Short numbering – The seller gives the customer
less than the number asked for or paid for.
Short numbering is often practiced in selling situations where the
product being sold is in such a shape or is packed in a manner that
would make the counting the product difficult or inconvenient.
 Indirect Misrepresentation – is characterized by omitting adverse or unfavorable
information about the product or service.
o Caveat emptor – The practice very common among salesman.
- Translation: “let the buyer beware”
- The principle that the buyer purchases at his own risk in the absence of an
express warranty in the contract.
- It is an indirect misrepresentation and unethical because a seller is a
witness for the goods he is selling.
o Deliberate Withholding of information – The deliberate withholding of significant
information in a business transaction is unethical. No business transaction is fair
where one of the parties does not exactly know what he is giving away or receiving
in return.
o Passive deception – Direct misrepresentation gives business a bad name while
indirect misrepresentation or passive deception is not as obvious, it nonetheless
contributes to the impression that businessmen are liars and are out to make a fast
 Persuasion is legitimate and necessary in the selling of goods if it is done in the interest of a buyer
such as persuading him to get a hospitalization insurance policy. However, persuasion used for
the sole benefit of selling a product without considering the interest of the buyer is not ethical.
Example: Urging a customer to satisfy a low priority need for merchandise.
Satyam Scam
 Unethical behavior by the director, Mr. Ramalinga Raju, the auditor PwC and SEBI.
o Overrated revenues and profits
o Overrated debtors’
o Understated liabilities
o Paid salaries to non-existent employees.