Strategic Management

Business Ethics

Topic: Business Ethics

I. INTRODUCTION:
This lesson provides an insight of the importance of business ethics in Strategic Management. In
this topic, you will also be able to know the definition of business ethics, what is code of ethics, and specific
law provision of law that regulates unethical business practices in the Philippines.
II. OBJECTIVES:
At the end of this module, you should be able to:
1. define business ethics;
2. discuss the code of ethics;
3. discuss some common unethical behavior in business.
III. PRELIMINARY ACTIVITIES:

Business Ethics
Every good business does have a good business ethics. Simply because strategy formulation,
implementation, and evaluation are all and should be anchored in a good business ethics. In a business
organization, managers and CEO are the persons who are most responsibility in making sure that high
ethical principles are being observed and practiced in the organization.
 Good strategic management always comes whenever a good business ethics is being implemented all
throughout the process.
 On the other hand, bad ethics can disrupt and bring a negative color to a well-planned strategic plan.
 According to David (2011) “business ethics can be defined as principles of conduct within
organizations that guide decision making and behavior”. Below are some of the most common
unethical behavior inside a business:
1. Misleading advertising or labeling
2. Leakage of sensitive information
3. Discrimination or not providing equal opportunities for women and minorities

Code of Business Ethics

Given that every form of business face different kinds of business ethics issues, one thing a
strategist can do to face this correctly is to develop a clear code of business ethics.
 According to David (2011), “a code of business ethics is a document that provides behavioral
guidelines that cover daily activities and decisions within an organization”.

(example)

Below are quoted text from Colgate-Palmolive Company’s code of business ethics document title “Code of Conduct Living
Our Values”.

WE STRIVE TO HAVE SUCCESSFUL WORKING RELATIONSHIPS. At Colgate, we take pride in the strong personal
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Business Ethics
commitment of our people and the excellent achievements that result from that commitment. But this level of commitment can
only be achieved in an environment of trust, open and honest communication, and respect. All of your dealings with your
peers, your direct reports and your supervisors should be conducted as a partnership, in which each individual’s behavior is
governed by an overriding commitment to maintaining the highest ethical standards. Each individual must fulfill his or her
responsibilities and feel assured that others will do the same. This means providing the necessary support to others to get the
job done. Your relationship with those with whom you work should promote ethical behavior by setting an example of
decency, fairness and integrity. As leaders, we are all responsible for maintaining high standards of performance and creating
an environment that promotes teamwork, respect and ethical behavior

WE PROMOTE OPEN AND HONEST COMMUNICATIONS. We encourage creative and innovative thinking. If you are a
supervisor, treat subordinates as individuals by valuing their unique contributions and providing them the freedom necessary
to do their jobs. Provide guidance and feedback to facilitate performance improvement. Your relationship with your supervisor
should be one of mutual trust and respect. You and your supervisor are a team with the shared purpose of achieving the
goals set for your business unit by the Company in a manner consistent with the Company’s high ethical standards and
integrity.

Colgate-Palmolive Company prohibits discrimination against any employee or applicant for employment based on:
Race or Ethnicity Citizenship
Color Age
Religion Pregnancy
Gender or Gender Identity Sexual Orientation
Disability Veteran Status
Marital or Familial Status Status as a Victim of Domestic Violence
Any other characteristics protected by law
This includes, but is not limited to, recruitment, hiring, promotion, transfer, compensation, training, demotion or layoff.

OTHER CONSIDERATIONS. We strive to maintain a positive work environment that reflects our Company’s values and
promotes strong working relationships. While conflicts of interest can arise from our dealings with external parties, conflicts or
the appearance of a conflict may also result from interactions inside the Company. Those of us who manage others must
remain attentive to ensure that situations are not created that could appear to others as favoritism or a potential conflict of
interest.

WE PROTECT THE COMPANY’S PROPRIETARY INFORMATION. Colgate’s proprietary information is valuable asset.
Proprietary information is information used in connection with Colgate’s business that is not generally known or easily
discovered and is competitively sensitive. Protection of proprietary information plays a vital role in our continued growth and
ability to compete.

What are some examples of proprietary information? Business objectives or strategies, Employee, customer or vendor lists
Patent applications, Non-public financial information, Product formulas, Manufacturing processes, Any type of unreleased
marketing or sales materials, Internal information that has not been made public

WE MAINTAIN ACCURATE BOOKS AND RECORDS. The financial position of our Company and the results of its operations
must be recorded in accordance with the requirements of law and generally accepted accounting principles (GAAP). Colgate
is required to maintain books, records and accounts that accurately and fairly reflect the Company’s transactions and assets
as
well as maintain an adequate system of internal accounting controls. Everyone involved in creating, processing and recording
such information is held responsible for its integrity and as a result:
 Must ensure that all transactions, expenditures and costs are properly recorded on the Company’s books and
records, including the amount of the expenditure, the recipient or beneficiary of the expenditure and the business
purpose for the expenditure.
 Must provide complete and accurate information and proper documentation in connection with all Company
transactions and dispositions of assets.
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 Must ensure that every transaction, accounting or financial entry reflects exactly what is described by the
supporting documentation. There must be no concealment of information from, or by, management, or from the
Company’s internal or independent auditors.
 Must not create any false or misleading entries in any books or financial records of the Company for any reason.
 No payment on behalf of the Company will be approved or made if any part of the payment is to be used for any
purpose other than that described by the documents supporting the payment.
 Company funds or assets cannot be used for any unlawful or improper purpose.
 Revenue and expenses must be properly recognized on a timely basis.

Assets and liabilities should be properly recorded and appropriately valued. In addition, those who are responsible for or
involved in the preparation of Colgate’s filings with the Securities and Exchange Commission and other filings required by
applicable law, or other communications with the business or financial community, should ensure that the disclosures in those
filings and communications are full, fair, accurate, timely and understandable when made.

If you become aware of a possible omission, falsification or inaccuracy in any transaction, accounting or financial entries or in
Colgate’s Securities and Exchange Commission reports or other communications, or any breakdown in internal controls, you
must promptly report such information to your manager or the Global Legal Organization. You may also contact Global Ethics
and Compliance.

Source: https://www.colgatepalmolive.com/content/dam/cp-sites/corporate/corporate/en_us/corp/locale-assets/pdf/code-of-
conduct/2019/code-of-conduct-english-version.pdf

 Having a business code of ethic does not initially mean that everyone will observe ethical behavior in
business. Some people might see the code of ethics as just a “public relations gimmick” as for the
business to have a good public image.
 To make sure that business code of ethics are being observe, one thing a business can do is to
execute a workshop entirely dedicated for code of ethics. By means of this, employees will be refresh
as to what they should do and what they should not do or stop doing. Managers will also be refresh on
their responsibilities beyond their clerical work, which is to make sure that they manage company’s
asset accompanied with an ethical behavior.

Business Ethics Issues

1. Misleading Advertising or Labeling – Every business because of wanting to have a competitive
advantage emphasize certain value of their business within their advertising and labeling.
 Ethically, this way of promoting the special characteristic of your business in your advertising and
labeling are simply fine.
 However, there are times some business because of too much desire for their product or service
to sell and to have a big gap with their competitor they tend to exaggerate and at times
misleading the customer with their advertising and labeling, which are considered as unethical
behavior. Doing such can affect the aftermath of the strategic strategy. An organization might
have a good strategy for the coming year, but if getting unethical in terms of doing a misleading
advertising and labeling for the business product and service these might affect the business
negatively.
 In the Philippines, doing such kind of activity in prohibited by the law. Below is the Article 50 of
Regulation of Sales Acts and Practices in the Philippines
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Regulation of Sales Acts and Practices

ARTICLE 50. Prohibition Against Deceptive Sales Acts or Practices. — A deceptive act or practice by a seller or supplier in
connection with a consumer transaction violates this Act whether it occurs before, during or after the transaction. An act or
practice shall be deemed deceptive whenever the producer, manufacturer, supplier or seller, through concealment, false
representation or fraudulent manipulation, induces a consumer to enter into a sales or lease transaction of any consumer
product or service. (cdtai)

Without limiting the scope of the above paragraph, the act or practice of a seller or supplier is deceptive when it represents
that:

a) a consumer product or service has the sponsorship, approval, performance, characteristics, ingredients,
accessories, uses, or benefits it does not have;
b) a consumer product or service is of a particular standard, quality, grade, style, or model when in fact it is not;
c) a consumer product is new, original or unused, when in fact, it is in a deteriorated, altered, reconditioned, reclaimed
or second-hand state;
d) a consumer product or service is available to the consumer for a reason that is different from the fact;
e) a consumer product or service has been supplied in accordance with the previous representation when in fact it is
not;
f) a consumer product or service can be supplied in a quantity greater than the supplier intends;
g) a service, or repair of a consumer product is needed when in fact it is not;
h) a specific price advantage of a consumer product exists when in fact it does not;
i) the sales act or practice involves or does not involve a warranty, a disclaimer of warranties, particular warranty
terms or other rights, remedies or obligations if the indication is false; and
j) the seller or supplier has a sponsorship, approval, or affiliation he does not have.

Source: https://www.officialgazette.gov.ph/1992/04/13/republic-act-no-7394-s-1992/

 Every business should only put within their advertisement and labeling what truly their product or
service can do. Promising to consumers things that are not exactly as the true is considered as
unethical. Below is an example real life story of where a business faces a legal consequence
because of false advertising. Take note that, the example below happened in United States.

(example story)

New Balance said its shoe could help wearers burn calories.

New Balance was accused of false advertising in 2011 over a sneaker range that it claimed could help wearers burn calories,
according to Reuters. Studies found that there were no health benefits from wearing the shoe. The toning sneakers claimed
to use hidden board technology and were advertised as calorie burners that activated the glutes, quads, hamstrings, and
calves. Plaintiffs in the lawsuit claimed to have been harmed and misled by the sneaker company. On August 20, 2012, New
Balance agreed to pay a settlement of $2.3 million, according to The Huffington Post.

Quoted directly from: https://www.businessinsider.com/false-advertising-scandals-2017-2#new-balance-said-its-shoe-could-

help-wearers-burn-calories-7

 To avoid being misleading in advertising and labeling, one thing a business can do is to make
sure that marketing campaigns and even product presentation to market are closely checked
and monitored based on ethical and legal standard. This can be done by conducting a series
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of meeting with a collaboration from different expert of the organization.
 A professional marketer can help in guiding the product strategy presentation that is
advantageous for the business. But there are times that marketer may go beyond on what
really the product is all about which can be considered as exaggeration. That is where other
experts balance the marketer. A legal counselor present on the series of meeting can help in
giving legal opinions about the organization strategy. On another hand, a Medical Doctor,
Chemist, or Pharmacist, however, can guide these series of meeting in the medical aspect
and product formula if there is. Having any of them within the meeting keeps the medical and
legal aspect on marketing strategy always in check.

2. Leakage of Sensitive Information – In the Philippines it is required for non-stock and stock
corporations to submit an updated General Information Sheet and audited Financial Statement yearly
at the office of Securities and Exchange Commission or SEC. On this note, some information about
the organization becomes public. Wherein, any person can access the information input therein
anytime.
 However, there are still some information in the organization that still needs to be kept private
and only available within the organization such as marketing strategy, product formula,
business process, etc. On top of these, business is also keeping client/customer’s personal
information and employees’ personal information that are also considered confidential.
 Even though it is a must for every form of business and its employees to keep private
information within the bound of their organization but there are some instances where
employee who has an access over company’s private information might take advantage of
their position and sells this information to the competitor. In addition, there are also some
businesses nowadays that are present online that collects customer’s e-mail address for
transaction purpose, but they eventually sell it to other businesses for additional income.
 In the Philippines, there is act that govern about data and privacy information which is also
applicable in business in handling customer’s information. Below is an example of specific
section in the law that talks about criteria for lawful processing or handling of personal
information.

Republic Act 10173 – Data Privacy Act of 2012

SEC. 12. Criteria for Lawful Processing of Personal Information. – The processing of personal information shall be permitted
only if not otherwise prohibited by law, and when at least one of the following conditions exists:

(a) The data subject has given his or her consent;

(b) The processing of personal information is necessary and is related to the fulfillment of a contract with the data
subject or in order to take steps at the request of the data subject prior to entering into a contract;

(c) The processing is necessary for compliance with a legal obligation to which the personal information controller is
subject;

(d) The processing is necessary to protect vitally important interests of the data subject, including life and health;

(e) The processing is necessary in order to respond to national emergency, to comply with the requirements of public
order and safety, or to fulfill functions of public authority which necessarily includes the processing of personal data
for the fulfillment of its mandate; or
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(f) The processing is necessary for the purposes of the legitimate interests pursued by the personal information
controller or by a third party or parties to whom the data is disclosed, except where such interests are overridden by
fundamental rights and freedoms of the data subject which require protection under the Philippine Constitution.

Source: https://www.privacy.gov.ph/data-privacy-act/#12

 The department that serves as a catch basin for the organization’s customer’s information is
the Management and Information System department. They are assigned in recording,
collecting, storing, and managing all the data of the organization to produce data that are vital
for strategy. Leakage of information is mostly likely happening in this department as they are
the one who has an access over wide ranges of data in the organization. Though other
departments might also have an access at some extent.
 To avoid for an organization to have a leakage of customer’s information, one thing they can
do is for the management to train the managers to have a sensitivity over the information they
receive and release. Because managers can closely monitor this within their own staffs. By
means of this, leakage of information is lessened.
 Another thing a business can do is to conduct a seminar for the employees about Data
Privacy. Through this, employees will know what they should do and should not do within the
data that they have within their organization.

3. Discrimination or not providing equal opportunities for women and minorities – According to
Amnesty International discrimination “occurs when a person is unable to enjoy his or her human rights
or other legal rights on an equal basis with others because of an unjustified distinction made in policy,
law or treatment”.
 Discrimination can happen in an individual from their recruitment, while at work, and for
promotion. For instance, a certain applicant might get hired because of his overall physical
appearance even though other applicant are much more qualified compared to him in terms of
credentials. An employee might be neglected for promotion because of his black skin color
even though he is the most suited for the job. These examples are the most thing that occurs
inside the organization
 Aside from the fact that discrimination is unethical, this can also directly affect the strategy
formulation and implementation of the business. For example, the female recruitment officer
considers a certain person for their vacant position because he is the only male applicant even
though in terms of credentials and experience there are other female applicants are more
suited for the job. This can affect the business implementation of strategy in a way that
management still needs to give some time for this employee to learn and be adopted to the
whole business process which can cause some delay on the organization’s performance. On
the other hand, this thing can be avoided or at least lessen the time spent for the new hire if
the recruitment officer hires an applicant who is most suited for the job even though she is a
woman.
 Below is a part of Republic Act 9710 “Magna Carta for Women”
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