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- Ethics Subject Teacher:

BUSINESS ETHICS AND SOCIAL RESPONSIBILITY: AN INTRODUCTION

Learning Objectives:

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.

Fundamentals of Business Ethics

Ethics vs. Morality

• Ethics – a set of moral principles or values and constitutes the discipline that deals
with moral duty and obligation

• Morality – a doctrine or system of the principles of right, wrong, and fair behavior

Key Branches of Ethics

• Descriptive ethics – 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 is Business Ethics?

• Comprises organizational principles, values, and norms that may originate from
individuals, organizational statements, or from the le- gal 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 philoso phies about what is right or wrong
• Principles – specific and pervasive boundaries for behavior that should not be
violated, e.g. human rights, freedom of speech, and the fundamentals of justice
• Values – enduring beliefs and ideals that are socially enforced, e.g. teamwork, trust,
and integrity

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

Three Models of Management 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- Ethics Subject Teacher:

• 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

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

 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.

 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

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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- Ethics Subject Teacher:

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.

 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

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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- Ethics Subject Teacher:

 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.

 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

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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- Ethics Subject Teacher:

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.

 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.

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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- Ethics Subject Teacher:

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.

References:

1. Ariely, D. (2009). Predictably Irrational: The Hidden Forces that Shape our Decisions.
Re- vised and expanded edition. New York: HarperCollins Publishers.

2. Ferrell, O., Fraedrich, J., and Ferrell, L. (2017). Business Ethics: Ethical Decision Making
and Cases. 11th ed. Boston: Cengage Learning

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