University of Cebu Lapulapu and Mandaue A.C Cortes Avenue, Looc, Mandaue City, Cebu Philippines 6014 College of Business and Accountancy ACCTG 320 BUSINESS ETHICS NOTES 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 demean. 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 markets. 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. SCOPE OF BUSINESS ETHICS 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 employee. 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. TYPES OF ETHICS 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 stakeholders. 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. FIELD OF ETHICS 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 everyone. 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. Leadership - 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. COMMON UENTHICAL PRACTICES OF BUSINESS ESTABLISHMENTS 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. Misrepresentation 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 buck. Over-persuasion 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.
