BUSINESS ETHICS AND SOCIAL RESPONSIBILITY: AN INTRODUCTION

Learning Objectives:
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

FUNDAMENTALS OF BUSINESS ETHICS

At the end of this module, the student is expected to:
a. Explore conceptualizations of business ethics from an organizational perspective;
b. Examine the historical foundations and evolution of business ethics;
c. Provide evidence that ethical value systems support business performance;
d. Gain insight into the extent of ethical misconduct in the workplace and the pressures for
unethical behavior.

ETHICS VS MORALITY BE LIKE

ETHICS VS. MORALITY

Ethics is a set of moral principles or values and constitutes the discipline that deals with moral duty
and obligation. While morality is a doctrine or system of the principles of right, wrong, and fair
behavior. In simpler differentiation, ethics refer to rules provided by an external source, e.g., codes of
conduct in workplaces or principles in religions and morals refer to an individual's own principles regarding
right and wrong.

KEY BRANCHES OF ETHICS

Descriptive Ethics is concerned with the description, characterization, and study of the morality of
people, an organization, a culture, or a society. (what is)

Normative Ethics is concerned with supplying and justifying a coherent moral system of thinking and
judging. (what should be)
WHAT?????????

DESCRIPTIVE
NORMATIVE

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

WHAT IS BUSINESS ETHICS?
• Comprises organizational principles, values, and norms that may originate from individuals,
organizational statements, or from the legal system that primarily guide individual and group
behavior in business (Ferrell, Fraedrich, and Ferrell, 2017)

• Concerned with morality and fairness in behavior, actions, policies, and practices that take
within the business context.

• The study of practices in organizations and a quest to determine specific practices are
acceptable or not.

KEY CONCEPTS IN BUSINESS ETHICS DEFINITIONS

• Morals refer to a person’s personal philosophies about what is right or wrong.

• Values are enduring beliefs and ideals that are socially enforced, e.g., teamwork, trust, and
integrity.

• Principles are the specific and pervasive boundaries for behavior that should not be violated,
e.g., human rights, freedom of speech, and the fundamentals of justice.

MVP

THREE MAJOR APPROACHES TO BUSINESS ETHICS

• Conventional Approach – based on the ordinary, common sense, and prevailing practices.

• Principles Approach – based on the use of ethics principles or guidelines to justify and direct
behavior, actions, policies, and practices.

• Ethical Tests Approach – based on short, practical questions or “tests” to guide ethical decision-
making, behavior, and practices.

MANAGEMENT ETHICS
‘Management Ethics’ is related to social responsiveness of a firm. It is “the discipline dealing with
what is good and bad, or right and wrong, or with moral duty and obligation. It is a standard of
behavior that guides individual managers in their works”.

“It is the set of moral principles that governs the actions of an individual or a group.”

Business ethics is application of ethical principles to business relationships and activities. When
managers assume social responsibility, it is believed they will do it ethically, that is, they know what is
right and wrong.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

THREE MODELS OF MANAGEMENT ETHICS
Immoral Management – an approach that is devoid of ethical principles or precepts and implies a
positive and active opposition; focused on exploiting opportunities for corporate or personal gain

Amoral Management – depends on the context and can be either intentional or un- intentional;
avoids excessive ethical structure to permit free rein or control within the supposedly unspoken but
understood tenets of the free-enterprise system.

Moral Management – conforms to the highest standards of ethical behavior or professional

standards of conduct; lives by sound ethical standards, seeking out only those economic
opportunities that the organization or management can pursue within the confines of ethical
boundaries

AMORAL

MORAL
IMMORAL

WHY STUDY BUSINESS ETHICS?

Negative publicity associated with major misconduct lowers the public’s trust in certain business
sectors. Decreased trust leads to a reduction in customer satisfaction and customer loyalty, which
in turn can negatively impact the firm or industry.

A number of ethical issues have arisen and should be addressed to prevent misconduct. Problems
cited as potential risk areas include the misuse of company resources, abusive behavior,
harassment, accounting fraud, conflicts of interest, defective products, bribery, product knockoffs,
and employee theft.

Aside from business organizations, general ethics plays an important role in various sectors as well,
including the government, sports, engineering, medicine and/or health, education, and science,
among others.

Business ethics is more than an extension of an individual’s own personal ethics. Many people
believe if a company hires good people with strong ethical values, then it will be a “good citizen”
organization. Further- more, the main concern is with the application of principles, values, and
standards in the business context across various industries.

Professionals in any field, including business, must deal with individuals’ personal moral dilemmas
because such dilemmas affect everyone’s ability to function on the job. Only when a person’s
morals influence his or her performance on the job does it involve a dimension within business
ethics.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

Many people with limited business experience suddenly find themselves making decisions about
product quality, advertising, pricing, sales techniques, hiring practices, and pollution control. The
morals they learned from family, religion, and school may not provide specific guidelines for these
complex business decisions, hence, the need to study business ethics in a specialized and/or specific
manner.

THE DEVELOPMENT OF BUSINESS ETHICS

The foundations and evolution of the study of business ethics has evolved through six distinct stages:

1. Before 1960: Foundations of Ethics in Business

2. 1960s: The Rise of Social Issues in Business
3. 1970s: Business Ethics as an Emerging Field
4. 1980s: Consolidation
5. 1990s: Institutionalization of Business Ethics
6. 2000s: The 21st Century of Business Ethics

BUSINESS ETHICS WAS FOUNDED IN 1960

BEFORE 1960:

EMPLOYER

EMPLOYEE

Before 1960: Foundations of Ethics in Business

Prior to 1960, The US endured several agonizing phases of questioning the concept of capitalism.
Ethical issues related to business were often discussed within the domain of theology or philosophy
or in the realm of legal and competitive relationships. Religious leaders raised questions about fair
wages, labor practices, and the morality of capital- ism.

In the 1920s, progressive movement at- tempts to provide citizens with a “living wage”, defined as
income sufficient for education, recreation, health, and retirement. Businesses were asked to
check unwar ranted price increases and other practices that would hurt the family’s living wage.

In the 1930s came the New Deal that specifically blamed businesses for the country’s economic
woes. Here, businesses were asked to work closely with the government to raise family income.

The first book on business ethics, “Business Ethics: Studies in Fair Competition”, discusses ethical ideas
based largely upon economic theories and moral philosophies. It was published on 1937 by Frank
Chapman Sharp and Philip Fox and has four major sections: fair service, fair treatment of
competitors, fair price, and moral progress in the business world.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

By the 1950s, the New Deal evolved into US President Harry Truman’s Fair Deal, a program the
defined such matters in business and society like civil rights and environmental responsibility as
ethical issues that businesses had to address.

1960s: The Rise of Social Issues in Business

The 1960s saw the decay of inner cities and the growth of ecological problems such as pollution
and the disposal of toxic and nuclear wastes.

This period also saw the rise of consumerism- activities undertaken by independent individuals,
groups, and organizations to protect their rights as consumers.

In 1962, US President John Kennedy outlined four basic consumer rights: the right to safety, the
right to be informed, the right to choose, and the right to be heard. These came to be known as
the Consumers’ Bill of Rights.

1970s: Business Ethics as an Emerging Field

Business ethics began to develop as a field of study in the 1970s where theologians and
philosophers laid the groundwork by suggesting certain moral principles could be applied to
business activities.

Using this foundation, business professors began to teach and write about corporate social
responsibility, an organization’s obligation to maximize its positive impact on stake- holders and
minimize its negative impact to the community and the environment.

By the end of the 1970s, a number of major ethical issues had emerged, including bribery,
deceptive advertising, price collusion, product quality and safety, and ecology. Academic
researchers diligently sought to identify ethical issues and describe how business people might
choose to act in particular situations.

1980s: Consolidation
In the 1980s, business academics and practitioners acknowledged business ethics as a field of
study, and a growing and varied group of institutions with diverse interests promoted it.

R. Edward Freeman, an American philosopher and business administration professor, was among
the first scholars to pioneer the concept of stakeholders as a foundational theory for business
ethics decisions. He defined stakeholders as “any group or individual who can affect or is affected
by the achievement of the organization’s objectives.

Also in the 1980s, the Defense Industry Initiative on Business Ethics and Conduct (DII) was developed
to guide corporate support for ethical conduct. It includes six principles:

1. The DII supports codes of conduct and their widespread distribution;

2. Member companies are expected to provide ethics training for their employees as well as
continuous support between training periods;

3. Defense contractors must create an open atmosphere in which employees feel comfortable
reporting violations without fear of retribution;

4. Companies need to perform extensive internal audits and develop effective internal reporting
and voluntary disclosure plans;

5. The DII insists that member companies preserve the integrity of the defense industry; and

6. Member companies must adopt a philosophy of public accountability.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

The 1980s also ushered in the Reagan-Bush era, with the accompanying belief that self- regulation,
rather than regulation by government, was in the public’s interest. Many tariffs and trade barriers
were lifted and businesses merged and divested within an increasingly global atmosphere.
Corporations which were formerly nationally based began operating internationally, thus giving
birth to multinational corporations.

1990s: Institutionalization of Business Ethics

The administration of US President Bill Clinton continued to support self-regulation and free trade.
However, it also took unprecedented government action to deal with health-related social issues
such as teenage smoking. Its proposals included restricting cigarette advertising, banning
cigarette vending machine sales, and ending the use of cigarette logos in connection with sports
events.

The Federal Sentencing Guidelines for Organizations (FSGO), approved by the US Congress in
November 1991, set the tone for organizational ethical compliance pro- grams in the 1990s. The
guidelines, which were based on the six principles of DII, broke new ground by codifying into law
incentives to reward organizations for taking action to prevent misconduct, such as developing
internal legal and ethical compliance pro- grams. At the heart of the FSGO is the carrot- and-stick
approach, that is, by taking preventive action against misconduct, a company may avoid
onerous penalties should a violation occur.

2000s: The 21st Century of Business Ethics

Accounting scandals, especially falsifying financial reports, became part of the culture of many
companies. Even firms in other countries (e.g. Royal Ahold in the Nether- lands and Parmalat in Italy)
became major examples of global accounting fraud. To address this, the US Congress passed in 2002
the Sarbanes-Oxley Act which made securities fraud a criminal offense and stiffened penalties for
corporate fraud and created an accounting oversight board that requires corporations to establish
codes of ethics for financial reporting and to develop greater transparency in financial reports to
investors and other interested parties.

In 2009, the US Congress passed the Dodd- Frank Wall Street Reform and Consumer Protection Act, a
complex law that required regulators to create hundreds of rules to pro- mote financial stability,
improve accountability and transparency, and protect consumers from abusive financial practices.

Future ethical issues in business could include data privacy, digital marketing and sustainable
development, the promotion of culture and creativity amid modernization and technological
advancements, and the interference of corporate ethics to the non- professional (or personal) life of
employees.

DEVELOPING AN ORGANIZATIONAL AND GLOBAL ETHICAL CULTURE

Ethical culture – acceptable behavior as de- fined by a company or industry; the component of
corporate culture that captures the values and norms an organization defines and is compared to
by its industry as appropriate conduct.

The goal of ethical culture is to minimize the need for enforced compliance of rules and maximize
the use of principles that contribute to ethical reasoning in difficult or new situations.
• Ethical culture is positively related to workplace confrontation over ethics issues, re- ports to
management of observed misconduct, and the presence of ethics hotlines. To develop
better ethical corporate cultures, many businesses communicate core values to their
employees by creating ethics pro- grams and appointing ethics officers to oversee them.

• Globally, businesses are working closely together to establish standards of acceptable

behavior. International organizations such as NAFTA, ASEAN, the EU, APEC, MERCOSUR, and
WTO exhibit collaborative efforts to establish goals and mandate minimum levels of ethical
behavior.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

• ISO 19600 is a global compliance management standard that addresses risks, legal
requirements, and stakeholder needs. Companies can use these standards to improve their
commitment towards ethics, compliance, and organizational quality.

• In 2000, the UN launched the Global Com- pact, a set of ten principles concerning human
rights, labor, the environment, and anti- corruption. Its purpose is to create openness and
alignment among stakeholders in business, government, society, labor, and the UN.

THE BENEFITS OF ETHICS

Ferell, Fraedrich, and Ferell (2017) outline the key benefits of business ethics as specified in four
major aspects: (1) employee commitment, (2) investor loyalty, (3) customer satisfaction, and (4)
profits.

1. Ethics contributes to employee commitment. Commitment comes from employees who

believe their future is tied to that of the organization and from a willingness to make personal
sacrifices for the company. The more a company is dedicated to taking care of its
employees, the more likely the employees will take care of the organization.

2. Ethics contributes to investor loyalty. Ethical conduct results in shareholder loyalty and
contributes to the success that supports even broader social causes and concerns.
Investors today are increasingly concerned about the ethics and social responsibility that
creates the reputation of companies in which they invest, and various socially responsible
mutual funds and assets management firms help investors purchase stock in ethical
companies.

3. Ethics contributes to customer satisfaction. For most businesses, both repeat purchases and
an enduring relationship of mutual respect and cooperation with customers are essential
for success. By focusing on customer satisfaction, a company continually deepens the
customer’s dependence on the company, and as the customer’s confidence grows, the
firm gains a better under- standing of how to serve the customer so the relationship may
endure.

4. Ethics contributes to profits. Ethical conduct toward customers builds a strong competitive
position shown to positively affect business performance and product innovation, which
could lead to better sales performance and profits. These profits could then be invested to
ethics and social responsibility programs and other activities which could again boost sales
and profitability. With this, feedback, follow up, and follow through are essential in order for
the firm to maximize this benefit with the use of an in- vestment perspective.

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Business Ethics & Social Responsibility
 Business Ethics and Social Responsibility
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM -12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 1- Bus Ethics Subject Teacher: Kenny Jones A. Amlos

References:

• Ariely, D. (2009). Predictably Irrational: The Hidden Forces that Shape our Decisions. Re- vised
and expanded edition. New York: HarperCollins Publishers.
• Ferrell, O., Fraedrich, J., and Ferrell, L. (2017). Business Ethics: Ethical Decision Making and Cases.
11th ed. Boston: Cengage Learning
• https://www.businessmanagementideas.com/notes/management-notes/corporate-social-
responsibility/management-ethics-meaning-need-and-
importance/5319#:~:text=Meaning%20of%20Management%20Ethics%3A,individual%20manage
rs%20in%20their%20works%E2%80%9D.

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Business Ethics & Social Responsibility