ETHICS VERSUS MORALITY

▪ The distinctions between ethics and morals are as follows:

ETHICS MORALS
Ethics refers to the rules that a SOCIAL system Morals are OUR OWN principles; personal
provides us with. philosophies that define right and wrong.

Right versus right Right versus worng

(The theory abount right and wrong) (How we live our lives)

It is the moral principles that govern a person's These are concerned with the principles of
behavior or the conducting of an activity. right and wrong behavior and the goodness
or badness of human character.

LAWS
▪ The system of rules that a particular country or community recognizes as regulating the actions
of its members and may enforce by the imposition of penalties.

LEGAL LAWS MORAL LAWS

Constitution Code of conduct Nature
Treaty Regulation Culture
Convention Policy Religion
Proclamation Directive Custom

ETHICS VERSUS MORAL VERSUS LAWS

▪ If you are ethical you can abide the law.
▪ If you are Moral you can be ethical.
▪ Also, if you are moral you can abide the law.
▪ But you can never be all of three together.

ETHICS VERSUS LAWS

▪ Business ethics can be said to begin when the law ends.
▪ Business ethics is primarily concerned with those issued not covered by the law, or where there
is no definite consensus on whether something is right or wrong.
THE RELATIONSHIP BETWEEN MORALITY, ETHICS, AND ETHICAL THEORY
▪ Ethics rationalizes morality to produce ethical theory that can be applied to any situations.
▪ Potential solutions to ethical problems.

BUSINESS ETHICS
▪ Business ethics refers to the 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.

▪ Key words from the definition:

a) Principles - Specific boundaries for behavior that often become the basis for rules (human
rights, freedom of speech).
b) Values - Enduring (continuing or long lasting) beliefs and ideals that are socially enforced
(trust and integrity); individual beliefs that motivate people to act one way or another; serve
as a guide for human behavior.
c) Norms - Rules or expectations that are socially enforced; may be prescriptive (encouraging
positive behavior; for example, “be honest”) or proscriptive (discouraging negative behavior;
for example, “do not cheat”)
d) Individuals - from individual members of the Board of directors or governing body, including
top management of the organization.
e) Organization statements - may refer to vision - mission statement of the organization that
must be achieved in the long-run.
f) Legal systems - a procedure or process for interpreting and enforcing the law.

MORAL DILEMMA
▪ Two or more morals in conflict with one another.
▪ Where you have to decide what is right and what is wrong.
▪ The answer is often not clean and different people will have different opinions.

▪ Examples:
a) The classic “lifeboat dilemma”, where there are only 10 spaces in the lifeboat, but there are
11 passengers on the sinking ship. A decision must be made as to who will stay behind. A
train with broken brakes is speeding towards a fork in the tracks.
b) Doctor-assisted suicide

VALUE DILEMMA
▪ Two or more beliefs/ideals in conflict with one another.

ETHICAL CULTURE
▪ Organizational principles, values, and norms that are adhered to by the company and its
personnel.
▪ It is the acceptable behavior as defined by the company and industry.
▪ Its goal 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.
▪ It describes the component of corporate culture that captures the values and norms than an
organization defines as appropriate conduct.
- Creates shared vaues

CORPORATE SOCIAL RESPONSIBILITY

▪
Actions associated by firms with various stakeholder (other than investors) interests as a priority.
▪ Sustainability - relates specifically to the environment (air, land and water).
IMPORTANCE OF BUSINESS ETHICS
▪ Firm survival
▪ Profitability, revenues, sales
▪
Stakeholders: customers, employees, channel members (manufacturers, wholesalers, retailers)
▪ Contribute to societal goals: community, country, world

WHY STUDY BUSINESS ETHICS?

▪ To help weigh the potential consequences of business decisions
▪ To make moral distinctions and avoid common fallacies that people often fall into when making
decisions.
▪ Accounting Scandals:
a) WorldCom (2002)
b) Enron (2001)
c) Freddie Mac (2003)
d) Waste Management Company (1998)
e) Tyco (2002)
f) HealthSouth (2003)
g) American Insurance Group (2005)
h) Lehman Brothers (2008)
i) Bernie Madoff (2008)
j) Satyam (2009)

▪ The case of WorldCom

THE PROCESS OF LEGAL TO UNETHICAL TO ILLEGAL BUSINESS PRACTICE
▪ Steps in the process:
1) A major event occurs that negatively sensitizes the public to a business practice.
2) The public uses social media to increase awareness.
3)
Legislators (local, state, and federal) become sensitized to the negative business practices.
4) Bills, laws, and local, state or federal agencies are introduced to make specific items illegal
or regulated.

▪ Sarbanes-Oxley Act of 2001

- It applies only to companies e stock is traded on public exchange.
-
Its purpose is to restore public confidence and trust in the financial statements of companies.

BENEFITS OF BUSINESS ETHICS

1) Identify ethical issues
a) Ethics Contributes to Employee Commitment
b) Willingness to sacrifice for the organization.
c) Increases group creativity and job satisfaction; decreases turnover.
d) Less pressure to compromise ethical standards,
e) Greater absence of misconduct.
f) Strong community involvement increases loyalty and positive self identity.

2) Ethics Contributes to Investor Loyalty

a) Provides a foundation for efficiency, productivity, and profits.
b) Negative publicity, lawsuits, and fines can lower stock prices, diminish customer loyalty, and
threaten a company’s long-term viability.
c) Demand for socially responsible investing is increasing.

3) Ethics Contributes to Customer Satisfaction

a) High levels of perceived corporate misconduct decreases customer trust.
b) Companies viewed as socially responsible increase customer trust and satisfaction.
c) Consumer respondents stated they would pay more for products from companies that give
back to society in a socially responsible and sustainable manner.

4) Ethics Contributes to Profits

a) Better business performance.
b) Part of strategic planning toward obtaining the outcome of higher profitability.
c) Business ethics is becoming more than just a function of compliance; It’s becoming an
integral part of management’s efforts to achieve competitive advantage.

STAKEHOLDERS
▪ They are people who have interest in a company’s organization’s affairs.
▪ They can either affect or be affected by the business.
▪ They broaden the pool of people who care about the well-being of your company, making you
less alone in your entrepreneurial work.
▪ Classification of Stakeholders:
1) Internal and External Stakeholders:
A. Internal stakeholers
- Employees
- Manager
- Owners
B. External stakeholers
- Suppliers
- Society
- Government
- Creditors
- Shareholders
- Customers
 2) Primary, Secondary and Other Stakeholders
A. Primary stakeholders
- Those whose continued association and resources are absolutely necessary for a
firm’s survival.
- Examples: customers, shareholders, employees, suppliers
B. Secondary stakeholders
- Those who are not typically engaged directly in transactions with a company and are
therefore not essential to its survival.
- Examples: government agencies (BIR, SEC), communities (general public)
C. Other stakeholders
- Others who have a “stake” or claim in some aspect of a company’s products,
operations, markets, industry, and outcomes.
- Example: Trade Associations, Mass Media, Special Interest Groups
- Examples of trade associations: Aircargo Forwarders of the Philippines (AFPI),
Association of Filipino Franchisers, Inc. (AFFI), and Cement Manufacturer's
Association of the Philippines .

STAKEHOLDERS RELATIONSHIP
▪ Relationships are associated with both organizational success and misconduct.
▪ Businesses exist because of organizational relationships between employees, customers,
shareholders, and the community.

ORGANIZATIONAL EFFECTIVENESS
▪ The concept of how effective an organization is in achieving the outcomes the organization
intends to produce.

No Stakeholders Effectiveness Criteria

1 Owners Financial return (ROI)
2 Employees Worker satisfaction, pay, supervision
3 Customers Quality of goods and services
4 Creditors Credit worthiness
5 Community Contribution to community affairs
6 Suppliers Satisfactory transactions
7 Government Obedience to laws, regulations

STAKEHOLDER MANAGEMENT
▪ It is the process by which an entity organize, monitor and improve its relationships with its
stakeholders.
▪ It involves systematically identifying stakeholders;
analyzing their needs and expectations; and
planning and implementing various tasks to
engage with them.
▪ A good stakeholder management process will be
the means through which an entity are able to
coordinate its interactions and assess the status
and quality of its relationship with various
stakeholders.

STAKEHOLDER'S THEORY
▪ It is a view of capitalism that stresses the interconnected relationships between a business and
its stakeholders (like customers, suppliers, employees, investors, communities and others who
have a stake in the organization).
▪ The theory argues that a firm should create value for all stakeholders, not just shareholders.
▪ In order to succeed and be sustainable over time, executives must keep the interests of
customers, suppliers, employees, communities and shareholders aligned and going in the same
direction.
▪ The Body Shop is a classic stakeholder theory case study.
- The natural cosmetics manufacturer and retailer became defined by the activism of its
founder.
 -
The company adopted a social activist purpose, establishing recycling measures, refusing to
test its products on animals and sponsoring various social-change programs. When the
company’s commitment to these goals was questioned, the Body Shop's management
provided detailed reports to its shareholders, suppliers, customers and other stakeholders to
assure them that the company's conduct fulfilled the promise of its brand image.

STAKEHOLDER INTERACTION MODEL

▪ It shows reciprocal relationships between the firm and a host of stakeholders.
▪ It recognizes other stakeholders; explicitly acknowledges dialogue exists between a firm’s
internal and external environments.

STAKEHOLDER ANALYSIS
▪ It is a systematic way to analyze stakeholders by their power and interest.
- High power, high interest stakeholders are Key Players.
- Low power and low interest stakeholders are Least Important.
Source: Stakeholder Analysis | Definition and best
method https://www.stakeholdermap.com/stakeholder-analysis.html

▪ The table (quadrant) shows an example of engagement strategy based on the interest/influence
stakeholder map.

▪ Another way of analysis is by listing the stakeholders and mark its interest in the impact on
certain concern within an organiztaion.
STAKEHOLDER FRAMEWORK

▪ Stakeholder framework identifies the internal and external stakeholders who agree, collaborate,
and engage in confrontations on ethical issues.
- Allows organizations to identify, monitor, and respond to the needs and expectations of
stakeholder groups.

- Three attributes:
1) Power
2) Legitimacy
3) Urgency

- Stakeholder Salience is the

Stakeholders' Power to influence
the firm the Legitimacy of the
stakeholders' relationships with
the firm and the urgency of the
stakeholders claim on the firm.
1) the Stakeholders' Power to
influence the firm
2) the Legitimacy of the
stakeholders' relationships
with the firm
3) the urgency of the
stakeholders claim on the
firm.

▪ Classification of stakeholders:
1) Latent stakeholders
- One attribute is present, low salience.
- Two attributes are missing.
- Managers may do nothing about these stakeholders and may not even recognise them
as stakeholders.
- These stakeholders are the following:
a) Dormant Stakeholders
- Possess power to impose their will through coercive, utilitarian or symbolic
means, but have little or no interaction /involvement as they lack legitimacy or
urgency.
b) Discretionary Stakeholders
- Likely to be recipients of corporate philanthropy. No pressure on managers to
engage with this group, but they may choose to do so. Examples are
beneficiaries of charity.
c) Demanding Stakeholders
- Those with urgent claims, but no legitimacy or power. Irritants for management,
but not worth considering. Examples are people with unjustified grudges, serial
complainers or low return customers.

2) Expectant Stakeholders
- Two attributes are present, moderate salience.
- One attribute is missing.
- Active rather passive.
- Seen by managers as 'expecting something'.
- Likely higher level engagement with these stakeholders.
- These stakeholders are the following:
a) Dominant Stakeholders
- The group that many theories position as the only stakeholders of an
organization or project.
- Likely to have a formal mechanism in place acknowledging the relationship with
the organization or project e.g. Boards of directors, HR department, public
relations.
 b) Dangerous stakeholder
- Those with powerful and urgent claims will be coercive and possibly violent.
- For example employee sabotage or coercive/unlawful tactics used by activists.
c) Dependent Stakeholder
- Stakeholders who are dependent on others to carry out their will, because they
lack the power to enforce their stake.
-
For example local residents & animals impacted by the BP oil spill. Advocacy of
their interests by dominant stakeholders can make them definitive stakeholders.

3) Definitive Stakeholder
- All three attributes are present, high salience.
- Managers give immediate priority to these stakeholders.
- An expectant stakeholder who gains the relevant missing attribute. Often dominant
stakeholders with an urgent issue, or dependent groups with powerful legal support.
Finally those classed as dangerous could gain legitimacy e.g. democratic legitimacy
achieved by a nationalist party.

4) Non or potential stakeholders

- All three attributes are missing.

Red boxes indicate the attribute the stakeholder type has.

Grey boxes indicate an attribute the stakeholder lacks. The text in the grey
boxes describes what the stakeholder would need to gain to be considered a
Definitive Stakeholder.

ETHICAL AWARENESS
▪ Recognizing and ethical issue.
▪ The ability to perceive whether a situation or decision has an ethical dimension.
▪ It is the eagerness and ability to
1) designate moral situations and dilemmas;
2) critically analyze, evaluate, and additionally change one's own moral esteems; and
3) look up the effects of one's own attitude for the lives of others.
▪ A person is ethically aware if he/she realizes that a problem he/she experiences incorporates an
ethical problem

FOUNDATION VALUES FOR IDENTIFYNG ETHICAL ISSUES

▪ These are integrity, honesty, and fairness.
▪ Integrity:
- Element of virtue, an unimpaired condition.
- It relates to product quality, open communication, transparency, and relationships.
- Uncompromising adherence to a set or group of values.
▪ Honesty:
- Truthfulness or trustworthiness.
- To tell the truth to the best of your knowledge without hiding anything.
 ▪ Fairness:
- Just, equitable, and impartial.
- Three fundamental elements that motivate people to be fair:
1) Equality - The distribution of benefits and resources.
2) Reciprocity - An interchange of giving and receiving in social relationships.
3) Optimization - Trade-off between equity (equality) and efficiency (maximum
productivity).

ETHICAL ISSUES IN BUSINESS

▪ These ethical issues in business include the following:
1) Misuse of Company Time and Resources
2) Abusive or Intimidating Behavior
3) Lying
4) Conflicts of Interest
5) Bribery
6) Corporate Intelligence
7) Discrimination
8) Sexual Harassment
9) Fraud
10) Insider Trading
11) Intellectual Property Rights

▪ These ethical issues can be:

1) Overt
- open, can be seen
- Examples include bribery, theft, sabotage, collusion
2) Covert
- hidden, cannot be seen
- Examples include corporate acquisition, marketing policies,, HRM policies, capital
investments, market espionage.

▪ Misuse of company time and resources

1) Doing non-related activities during working hours.
2) Working late but fully paid.
3) Using the company’s supplies for personal use.
4) Having coffee break for more than 15-minutes of allowed time.

▪ Abusive or intimidating behavior

1) Actions such as physical threats, false accusations, and yelling.
2) Bullying - Creates hostile environment.
- Workplace bullying is strongly associated with sleep disturbances, as well as depression,
fatigue, increased sick days, and stomach problems.

▪ Lying
1) Joking without malice.
2) Commission lying - Creating a perception or belief by words that intentionally deceive the
receiver of the message.
3) Omission lying - Intentionally not informing others of any differences, problems, safety
warnings, or negative issues relating to the product or company that significantly affect

▪ Conflict of Interest
- Individual chooses either to advance his or her own interests, those of the organization, or
those of some other group.
- Examples include the following:
a) Nepotism - giving favors to relatives and close friends.
b) Self-dealing - When someone acts in their own interest rather than the interest of the
organization.
c) Private businesses - If a company has proof that a board member profited from their role
on the board, the board member can be taken to court.
▪ Bribery
- Offering something (often money) in order to gain an illicit advantage from someone in
authority.
- This includes the following types:
1) Active bribery: The person who promises or gives the bribe commits the offense.
- Not an offense if the advantage was permitted or required by the written law or
regulation of the foreign public official’s country, including case law.
2) Passive bribery: Offense committed by an official who receives the bribe.
- Not an offense if the advantage was permitted or required by the written law or
regulation of the foreign public official’s country, including case law.
3) Small facilitation payments: Payments made to obtain or retain business or other
improper advantages—do not constitute bribery payments for U.S. companies in some
- Often made to induce public officials to perform their functions.
- Illegal in the United Kingdom.

▪ Corporate Intelligence
- The collection and analysis of information on markets, technologies, customers, and
competitors, as well as on socioeconomic and external political trends.
- It involves in-depth discovery of information from corporate and court documents, regulatory
filings, and press releases.

- Tools for Corporate Intelligence (CI)

1) Hacking
What Is Hacking? Types of Hacking & More | Fortinet
- the act of compromising digital devices and networks through unauthorized access
to an account or computer system.
- not always a malicious act, but it is most commonly associated with illegal activity
and data theft by cyber criminals.

2) Social engineering
What is Social Engineering | Attack Techniques & Prevention Methods | Imperva
- The term used for a broad range of malicious activities accomplished through human
interactions. information.
- It uses psychological manipulation to trick users into making security mistakes or
giving away sensitive
- The tricking of individuals into revealing their passwords or other valuable corporate
information.

3) Dumspter diving
What is dumpster diving? (techtarget.com)
- looking for treasure in someone else's trash.
- In the world of information technology (IT), dumpster diving is a technique used to
retrieve information that could be used to carry out an attack or gain access to a
computer network from disposed items.

4) Whacking
- A wireless hacking.
- To eavesdrop on wireless networks, all a CI agent needs is the right kind of radio
and to be within range of a wireless transmission. Once tapped into a wireless
network, an intruder can easily access anything on both the wired and wireless
networks because the data sent over networks is usually unencrypted.
- If a company is not using wireless networking, an attacker can pose as a janitor and
insert a rogue wireless access node into a supposedly secure hard-wired network.

5) Phone Eavesdropping
- A person with a digital recording device can monitor and record a fax line.
-
By playing the recording back an intruder can reproduce an exact copy of a message
without anyone’s knowledge. Even without monitoring a fax line, a fax sent to a
“communal” fax machine can be read or copied. By picking up an extension or by
tapping a telephone, it is possible to record the tones that represent someone’s
account number and password using a tape recorder. The tape recording can then
be replayed over the telephone to gain access to someone else’s account.
 By playing the recording back an intruder can reproduce an exact copy of a message
without anyone’s knowledge. Even without monitoring a fax line, a fax sent to a
“communal” fax machine can be read or copied. By picking up an extension or by
tapping a telephone, it is possible to record the tones that represent someone’s
account number and password using a tape recorder. The tape recording can then
be replayed over the telephone to gain access to someone else’s account.

▪ Discrimination
- The unfair treatment of different groups of people and things depending on the basis of
race, color, religion, sex, marital status, sexual orientation, public assistance status,
disability, age, national origin, or veteran status.

▪ Sexual Harassment
- Any repeated, unwanted behavior of a sexual nature perpetrated upon one individual by
another.
- May be verbal, visual, written, or physical.
- Can occur between people of different genders or those of the same gender.
- Section of of RA 7877 "Anti-Sexual Harassment At of 1995" - An Act Declaring sexual
harassment unlawful in the employment, education or training environment, and for other
purposes.

▪ Fraud
- Any purposeful communication that deceives, manipulates, or conceals facts in order to
harm others.
- Can be a crime; convictions may result in fines, imprisonment, or both.
a) Accounting fraud: Usually involves a corporations’ financial reports.
b) Fraud triangle: Pressure, opportunity, and rationalization.

c)
Marketing fraud: Dishonestly creating, distributing, promoting, and pricing products.
d) Puffery: Exaggerated advertising, blustering, and boasting upon which no
reasonable buyer would rely upon and is not actionable under the Lanham Act.
e) Implied falsity: The message has a tendency to mislead, confuse, or deceive the
public.
- Literally true but imply a false message.
f) Literally false
- Tests prove (establishment claims): Advertisement cites a study or test that
establishes the claim.
- Bald assertions (non-establishment claims): Advertisement makes a claim that
cannot be substantiated.
g) Labeling Issues
- Kroger agreed to remove “raised in a humane environment” from its packages of
chicken.
h) Consumer Fraud: When consumers attempt to deceive businesses for their own
gain.
- Shoplifting
- Collusion: An employee assists the consumer in fraud.
 - Duplicity: Consumer stages an accident in a store and then seeks damages
against the store for its lack of attention to safety.
- Guile: A person who is crafty or understands right/wrong behavior but uses tricks
to obtain an unfair advantage.

▪ Insider Trading
- An insider is any officer, director, or owner of 10 percent or more of a class of a
company’s securities.
a) Illegal insider trading: The buying or selling of stocks by insiders who possess
information that is not yet public.
b) Legal insider trading: Legally buying and selling stock in an insider’s own company,
but not all the time. Insiders are required to report their insider transactions within
two business days of the date the transaction occurred.

▪ Intellectual Property Rights

- Legal protection of intellectual property—music, books, and movies.
a) Copyright Act of 1976
b) Digital Millennium Copyright Act of 1998
c) Digital Theft Deterrence and Copyright Damages Improvement Act of 1999