BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

MODULE
Module No. 2: Week 2: Fourth Quarter
MORALLY DEFENSIBLE POSITION ON ETHICAL ISSUES IN
BUSINESS

Learning Competencies
Formulate a morally defensible position on ethical issues in entrepreneurship like basic fairness,
personnel and customer relations distribution dilemmas, fraud, unfair competition, unfair
communication, non-respect of agreements, environmental degradation, etc.
Codes: ABM_ESR12-IVi-l-3.2; ABM_ESR12-IVi-l-3.3

Objectives
After studying this module, you are expected to:
1. Identify the different ethical issues in business.
2. Make a business policies and practices against ethical issue in an enterprise.
3. Apply business policies and practices against ethical issues as an entrepreneur in the future.

Let’s Understand
DISCUSSION

Major Ethical Issues in Entrepreneurship

(as cited in Jerusalem, Palencia, & Palencia, 2017).
1. Basic Fairness
Ethical decision-making processes should center on protecting employee and customer rights,
making sure all business operations are fair and just, protecting the common good and making
sure individual values and beliefs of workers are protected.
2. Personnel and Customer Relations
a. Mistreating Employees – Every year, lawsuits are filed against employers who are accused
of sexual harassment or discrimination against their employees. Sexual harassment is a form of
unlawful sex discrimination, which includes unwanted verbal or physical behavior of a sexual
nature that occurs in the workplace under certain conditions. Sexual harassment is always an
unsolicited and unreciprocated behavior. Some employers have been sued for threatening or
firing whistle-blowers, or employees who point out illegal practices or safety violations in the
workplace.
b. Discrimination and Harassment in the Workplace – Maintaining professional workplace
relationships between employees is a continuing challenge for employers regardless of the
industry. This challenge can become more difficult when the image companies choose to
project has a significant sexual charge. There’s never an excuse or a justifiable reason for
harassment of any kind in any workplace. If a supervisor discriminated against an employee
based on her gender, religion, or ethnicity when making recommendations for a promotion,
legal action could be sought.
c. Family-Run Businesses – In the area of small business, some major ethical result from
hiring, firing, and dealing with employees. For example, conflicts of interest may cause ethical

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 issues in small business, especially if they are family run. When personal family issues interfere
with business decisions, this is a conflict of interest and an ethical concern.
d. Employee Behavior – From large corporations to small business, individuals involved in all
types of business often face ethical issues stemming from employee behavior. For example,
whether an employee can spend work time checking personal email accounts, how a manager
deals with claims of harassment and to what extent manager can “groom” a certain employee
for a promotion are all examples of ethical issues regarding employee behavior. There are legal
consequences for some unethical employee behavior.
e. Employee Working Conditions – Employers must be aware of the safety of their work
environment and if they have compensated employees for all the time they have worked. They
must also consider if they have required an employee to work an unreasonably long period of
time or if they have him doing an unusually difficult task.
f. Side Deals and Sub-Standard Work – When dealing with customers or clients, business
people must ensure that they use their information correctly, do not falsely advertise a product
or service and do not intentionally do sub-standard work.
3. Distribution Dilemmas Ethics is a prime concern in marketing, and the areas of price, placement,
and promotion are no exception.
• Pricing refers to the way in which prices are set for consumers considering the cost of inputs,
distribution, and overhead.
• Placement involves the strategic positioning of products within retail stores.
• Promotions involve short-term price discounts or giveaways.
Each of these areas presents its own set of ethical dilemmas, challenges, and legal guidelines to
navigate.
a. Pricing Strategy Ethics – Price collisions can be a major source of ethical pressure in many
industries, and artificial price-fixing is illegal in a wide range of countries. Price collusion exists when
a number of competitors agree to set prices at a certain level, bypassing the natural market forces of
supply and demand and creating an unfair advantage over consumers.
b. Product Placement Ethics – End-caps, point-of-sale displays, and demo kiosks are all
examples of positioning techniques that are inherently harmless, but which can be used inarguably
unethical ways.
c. Ethics and Promotions – Promotions are designed to boost short-term sales by providing
irresistible value propositions to consumers. Coupons, holiday sales events, mail-in rebates, and
giveaways all fall under the promotions category. The “bail and switch” tactic is widely considered
unethical, yet many companies still practice this promotions technique.
4. Fraud
Fraud in business takes up so many forms and sizes. It can be in the form of financial misconduct
or misrepresentation.
• Examples of financial misconduct include price-fixing, or an illegal agreement between industry
competitors to “fix” the price of a product at an artificially inflated level; physicians who refuse to treat
non-insured patients, or perform unnecessary procedures to make more money; tax evasion; tax fraud;
and “cooking the books” to make the company look more profitable than it is.
• Corporate misrepresentation can take many forms. It can be as simple as a salesman who lies about
his company’s products, or it can be false or misleading advertising. Misrepresentation can involve a
cover-up of illegal workplace conditions or transactions; falsified data in a shareholder report; lying to
a union about corporate profits, or hiding or denying safety problems with a product.
• Business Fraud consists of dishonest and illegal activities perpetrated by individuals or companies
in order to provide an advantageous financial outcome to those persons or establishments. Also known
as corporate fraud, these schemes often appear under the guise of legitimate business practices. An array
of crimes falls under business fraud, including the following:

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 a. Charity Fraud – using deception to get money from individuals believing they are making
donations to legitimate charity organizations, especially charities representing victims of natural
disasters shortly after the incident occurs.
b. Internet Auction fraud – A fraudulent transaction or exchange that occurs in the context of
an online auction site.
c. Non-delivery of merchandise – fraud occurring when payment is sent but the goods and
services ordered are never received.
d. Non-payments of funds – fraud occurring when goods and services are shipped or rendered
but payment for them is never received.
e. Overpayment scheme – an individual is sent a payment significantly higher than an owed
amount and is instructed to deposit the money in their bank account and wire transfer the excess funds
back to the bank of the individual or company that sent it. The sender’s bank is usually located overseas,
in Eastern Europe for example, and the initial payment is found to be fraudulent, often after the wire
transfer has occurred.
f. Re-shipping scheme – an individual is recruited to receive merchandise at their place of
residence and subsequently repackage the items for shipment, usually abroad. Unbeknownst to them,
the merchandise was purchased with fraudulent credit cards, often opened in their name.
5. Unfair Competition or Distortion of Completion
-Is a situation in which competitors compete on unequal terms because favorable or
disadvantageous conditions are applied to some competitors but not to others. The concept can also
refer to situations in which the actions of some competitors actively harm the positions of others with
respect to their ability to compete on equal and fair terms.
a. Antitrust Law or Competition Law – when one competitor attempts to force others out of the
market or prevent others from entering the market, through tactics such as predatory pricing or
obtaining exclusive purchase rights to raw materials needed to make a competing product.
b. Trademark Infringement – when the maker of a product uses a name, logo, or other
identifying characteristics to deceive consumers into thinking that they are buying the product
of a competitor.
c. Misappropriation of Trade Secrets – when one competitor uses espionage, bribery, or
outright theft to obtain economically advantageous information in the possession of another.
d. Trade Libel – is the spreading of false information about the quality or characteristics of
competitor’s products.
e. Tortious Interference – when one competitor convinces a party having a relationship with
another competitor to breach a contract with, or duty to the other competitor.
f. Anti-competitive practices – prevent or reduce competition in a market.
g. Dumping – Foreign countries often use dumping as a competitive threat, selling products at
prices lower than their normal value. This can lead to problems in domestic markets. It becomes
difficult for these markets to compete with the pricing set by foreign markets, leading to local
producers and the local economy to suffer a result.
h. Exclusive dealing – A retailer or wholesaler is obliged by contract to only purchase from the
contracted supplier.
i. Price fixing – companies collude to set prices, effectively dismantling the free market.
j. Refusal to deal – two companies agree not to use a certain vendor.
k. Dividing territories – an agreement by two (2) companies to stay out of each other’s way and
reduce competition in the agreed-upon territories.
l. Limit pricing– is set by a monopolist at a level intended to discourage entry into a market.
m. Tying – products that aren’t naturally related must be purchased together.
n. Resale price maintenance – resellers are not allowed to set prices independently.
o. Religious/minority group doctrine – business must apply tribute to a significant normally
religious part of the community in order to engage in trade with that community.
6. Unfair Communication

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 Communication used to undermine relationships or encourage social immorality is unethical
communication. The exact definitions of these depend on the ethics system of your culture, but most
people agree that ethical communication builds positive relationships, while unethical
communication impairs them.
Here is one example of unfair communication in business practices.
a. One firm had a book of business so large that they were running about a month behind in
deliveries. Unfortunately, they never let their customers know about these delays, so many of them
just shifted suppliers. In the end, this situation cost the company almost 20 percent in sales the next
year. They could have avoided losing that business simply by informing their customers about the
delay and offering them the option to replace their order with alternative products that were in
inventory.
7. Non-respect of Agreements
• is a breach of contract. A breach of contract is a legal cause of action in which a binding agreement
or bargained for exchange is not honored by one or more of the parties to the contract by non-
performance or interference with the other party’s performance.
8. Environmental Degradation
• is the deterioration of the environment through depletion of resources such as air, water, and soil;
the destruction of ecosystems and the extinction of wild life. Environmental economics concludes
that environmental degradation results from the failure of markets, whereas the entrepreneurship
literature argues that opportunities are inherent in market failure.
9. Contractualization or Labor Contractualization
• is the replacing of regular workers with temporary workers who receive lower wages
with no or fewer benefits. These temporary workers are also known as sometimes called
contractures, trainees, apprentices, helpers, casuals, piece raters, agency-hired, and project
employees among others. They do the work of regular workers for a specified and limited period
of time, usually less than six months.
• Contractualization is a form of underemployment. The right to adequate work and full
employment is essential to all men and women of legal age. This basic right springs from our
intrinsic nature to self-preservation and our innate obligation to support our family, both of
which are in accordance with the divine plan. Although underemployment (contractualization
and part-time jobs) continues to exist in many various ways, there are no reasons adequate
enough to justify it. The key principle is that full employment is a fundamental right of every
citizen, which means the right to be protected from unemployment and underemployment is
basic. The harsh reality, however, appears 8 to contradict this idealism embodied in our
constitution. In most cases, on the part of the jobseekers, who are almost always breadwinners,
it is a choice between joblessness and underemployment, a quick option between hunger and
at-least –there’s-hope-for-survival.
A Proactive Approach to Addressing Unethical Behavior in the Workplace
While it may not arise to the level of being illegal, unethical behavior in the workplace
can have serious consequences if unaddressed. And it can create a toxic work environment in
which your employees and business ultimately suffer.
At large business, a human resources department or manager can provide a way for
employees to voice their concerns about unethical behavior of colleagues and provide policies,
procedures and training. At smaller businesses with few resources and little or no HR support,
creating an avenue for reporting or disclosing unethical behavior is challenging, as is putting in
place the proper guidance for addressing such behavior.
If your business lacks robuts HR support, it’s critical for employees to have an easy way
to report their concerns and for your company to put in place policies, protocol and training
related to unethical behavior.
Entrepreneurs can take the following steps to proactively address unethical behavior
at work:

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 1. Create a Code of Ethics.
Set the tone for behavior in your workplace by creating a code of ethics. A
code of ethics establishes the values that are important to a business and creates a
common framework for understanding the boundaries within the organization.
Code of ethics should be written in broad, idealistic terms to communicate the
company’s ethical vision, yet be succinct enough to be contained in a values
statement. If it makes sense, include ethical expectations in the company’s mission
statement and employee handbooks. Be sure to involve key employees in the process
of drafting and formalizing the code of the ethics. This will ensure that leaders are on
board with and committed to the values.
2. Establish Protocols
Include in your code of ethics instructions about how to report unethical
behavior. For example, set up an anonymous ethics hotline as well as a clear protocol
for reporting, such as requesting a private meeting with the appropriate manager or
supervisor.
Additionally, if a concern or violation is reported and the company lacks
internal HR resources, ensure that the person tasked with responding is the furthest
removed from the concern.
3. Empower employees.
Grant staff the know-how to appropriately identify and handle ethics
violations. Accomplish this by implementing ethics-training programs for all new and
existing employees to increase the effectiveness of the code.
Ethics courses are available through books and other written materials as well
as through online, private or live instruction trainings. You might even choose to tie
to ethical behavior some compensation incentives, such as an end-of-the-year bonus
or additional paid time off, to further increase the code’s relevance to employees.
4. Continuously review the code.
Keeping the code updated is an important step in keeping a company’s ethics
top of mind. Each year, share copies of the code of ethics with every employee or
communicate it through a brown bag lunch and learn or workshop. Ensure that your
employees confirm their understanding of the code by requiring them to sign a form
of acknowledgement afterward. In doing so, you’ll proactively set up an atmosphere,
reinforced by both formal and informal measures, that promotes the values you’ve set
forth.

REFERENCES
Lorey Bondoc, “Social Responsibility of Entrepreneurs (Major Ethical Issues in
Entrepreneurship (as cited in Jerusalem, Palencia, & Palencia, 2017)” Last Access November 10,
2020. (PDF)
https://www.academia.edu/36905141/Social_Responsibility_of_Entrepr eneurs

Let’s Try
Essay. In your activity notebook discuss the given situation below.

Criteria:
Content - 5 points
Organization - 5 points
Total - 10 points

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Ten years from now you already have your own business and in that span of time you’ve encountered
different ethical issues that can hinder the progress of your company. So as an entrepreneur, mention
two different unethical issues you have encountered and what are the detailed business policies and
practices you made to address it?