St.

Nicolas College of BS IN BUSINESS ADMINISTRATION

Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

Chapter 3: The Social Responsibility of Business to its Stakeholders

Business Ethics
“The City…is a partnership for living well.” – Aristotle The Politics, 384-322 BCE

ETHICS AND BUSINESS

The Nature of Business
 Definition: Business refers to lawful activities engaged in by human beings which involves production and
exchanging of goods and services as a means of livelihood or a source of profit.
 Reasons why people go into business.

What Business is:

 Business is as old as human civilization.
Hunting → Specialization → Manufacturing → Selling → Marketing
 Business caters to people’s and customers’ needs and wants.
 Business is a complex activity. Yet it is in these activities that a lot of unethical practices are made.
Supplying → Manufacturing → Advertising → Marketing → Selling → Accounting

“Business is not just all about making profit, it also involves social responsibility.”

BUSINESS:
 P. Drucker: “The primary responsibility of business is to look fo customers and to satisfy their needs and wants.”
 M. Friedman: “The only responsibility of business is profit maximization.”

The Importance of Ethics in Business

- Without ethics, business will be a chaotic human activity. People will make their own norms and moral standards.
This will result into Ethical Subjectivism and Ethical Relativism. Therefore, what is good for one may not be good
for another. (vice-versa)

- Ethics will help businessmen and managers solve moral issues and problems from the philosophical perspective
even in the absence of laws.

“The study of ethics will help managers and business leaders manage the human dimension of the organization more
effectively.”

Businessmen’s Myths about Business Ethics

1. Myth #1: Ethics is a personal affair and not a public debatable matter.
2. Myth #2: Ethics and business do not mix.
3. Myth #3: Ethics in business is relative.
4. Myth #4: Good business means good ethics.
5. Myth #5: Business is a war.

The Relationship of Ethics and Business

 Business is an integral part of human society. (its activities must also be examined from the moral perspective.)
 In business, as in any other human endeavor, “what is legal may not necessarily be moral.” People tend to
confuse legality with morality.
 Laws are insufficient. (Ethics is the unwritten law written in the hearts of men.)
 In today’s technocrat-oriented business education, the trend is to train managers to maximize profits and to
quantify the operations of business.
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

 Peter Drucker argues that “the enterprise is an organ of society and its actions have a decisive impact on the
social scene.”
Moral Reasoning in Business
 Ethical issues and problems affecting the organization must be solved by the manager.
 He needs a fundamental moral framework to come up with an acceptable moral judgment.

Ethical Issues and Problems→ Violated Moral Norms, Standards, Policies, Laws and Ethical Principles → Moral
judgment of what is right and wrong in human conduct

Characteristics of a Good Moral Standard

 It must look at the issue as something that is serious.
 A good standard must be objective and not subjective.
 A good standard must be grounded on a good moral argument.
 A good standard must be grounded on a good moral argument.

Characteristics of a Good Moral Judgment

 It must be logical.
 It must be based on facts and solid evidence.
 It must be based on sound and defensible moral principles.

The Morality of Profit-Motive

Assumptions of Profit-Motive
1. Profit-motive in business is an ethical issue.
2. Profit-motive as an ethical issue operates within the framework of freedom and structure of the business itself.

The Good and Bad Sides of Profit-Motive

The GOOD SIDE of Profit-motive
1. Profit-motive motivates people to do something meaningful.
2. Profit-motive promotes ingenuity and cleverness in running a business.
3. Profit-motive makes people productive.
4. Profit-motive generates potential capital for the business.

The BAD SIDE of Profit-motive

1. Profit-motive promotes rivalry among competitors.
2. Profit makes people focus only on making money, that is, to sell as many goods as possible without considering
whether these products satisfy the needs and wants of the costumers and end users.
3. Profit-motive turns the businessman from being a reflective and a questioning person because he now focuses his
attention to the practical activity of making money.
4. Profit-motive promotes self-interest rather than the common good.

Ethical Considerations of Profit-motive in Business

1. Earning profit is a good and valid activity in business. Commercial activity will be absurd without the profit-motive.
However, an ethical discernment is required for the businessman.
2. Making excessive profit is totally wrong.
3. Profit is not the “be-all” and “end-all” of doing business.
4. The teachings of the Catholic Church do not totally condemn profit as part of business activity. (Pope Pius XI, QA,
1931)

Business Ethics Defined

1. Business Ethics is the study of what is right and wrong human behavior and conduct in business.
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

2. Business Ethics is a study of the perceptions of people about morality, moral norms, moral rules and ethical
principles as they apply to people and institutions in business.
3. Business Ethics is the study, evaluation, analysis and questioning of ethical standards, policies, moral norms and
ethical theories that managers and decision makers use in resolving issues and ethical dilemmas affecting
business.

Ethical Issues in Business:

 Sexual Harassment (R.A 7877)
 Advertising Ethics
 Product Misrepresentation
 Gift –giving and Bribery
 Fair Pricing
 Corporate Disclosures
 Just Wages
 Whistle Blowing
 Trades Secrets
 Workplace Romance
 Environmental Ethics
 Labor Strikes
 Unfair Competition
 Insider Trading
 Corporate Social Responsibility

Characteristics of Good Corporate Governance

1. Clear Organizational Strategy
Good corporate governance starts with a clear strategy for the organization. For example, a furniture company’s
management team might research the market to identify a profitable niche, create a product line to meet the needs of that
target market and then advertise its wares with a marketing campaign that reaches those consumers directly. At each
stage, knowing the overall strategy helps the company’s workforce stay focused on the organizational mission: meeting
the needs of the consumers in that target market.

2. Effective Risk Management: Even if your company implements smart policies, competitors might steal your
customers, unexpected disasters might cripple your operations and economy fluctuations might erode the buying
capabilities of your target market. You can’t avoid risk, so it’s vital to implement effective strategic risk management.
For example, a company’s management might decide to diversify operations so the business can count on revenue
from several different markets, rather than depend on just one.

3. Discipline and Commitment: Corporate policies are only as effective as their implementation. A company’s
management can spend years developing a strategy to push into new markets, but if it can’t mobilize its workforce to
implement the strategy, the initiative will fail. Good corporate governance requires having the discipline and
commitment to implement policies, resolutions and strategies.

4. Fairness to Employees and Customers: Fairness must always be a high priority for management. For example,
managers must push their employees to be their best, but they should also recognize that a heavy workload can have
negative long-term effects, such as low morale and high turnover. Companies also must be fair to their customers,
both for ethical and public-relations reasons. Treating customers unfairly, whatever the short-term benefits, always
hurts a company’s long- term prospects.

5. Transparency and Information: Sharing Managers sometimes keep their own counsel, limiting the information that
filters down to employees. But corporate transparency helps unify an organization: When employees understand
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

management’s strategies and are allowed to monitor the company’s financial performance, they understand their roles
within the company. Transparency is also important to the public, who tend not to trust secretive corporations.

6. Corporate Social Responsibility: Social responsibility at the corporate level is increasingly a topic of concern.
Consumers expect companies to be good community members, for example, by initiating recycling efforts and
reducing waste and pollution. Good corporate governance identifies ways to improve company practices and also
promotes social good by reinvesting in the local community.

7. Regular Self-Evaluation: Mistakes will be made, no matter how well you manage your company. The key is to
perform regular self-evaluations to identify and mitigate brewing problems. Employee and customer surveys, for
example, can supply vital feedback about the effectiveness of your current policies. Hiring outside consultants to
analyze your operations also can help identify ways to improve your company’s efficiency and performance.

The Latin phrase “quid pro quo” means this for that.

The universal acceptance of CSR started in 1990. The term CSR originally started in 1953.

Economic Responsibility
“What is Economic Responsibility?”
BUSINESS → PROFITABLE

“HOW TO WIN THEM?”

Sustainability

Business →

Milton Friedman
 American Economist
 July 31, 1912 – November 16, 2006
 1976 Nobel Memorial Prize in Economic Science
 2nd most-popular economist in 20th century
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

 Intellectual Leader
 Advisor to Pres. Ronald Reagan and British PM Margaret Tatcher
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

Friedman’s doctrine (SHAREHOLDER THEORY)

“The only social responsibility a company has is to maximize its profits.” – Milton Friedman

Interpretation on Friedman’s CSR Theory

 Charitable activities
o not a corporate social responsibility.
o not contribute additional profit.
 Shareholders
o the only group that the firm is socially responsible.
 The CEO’s obligation is to increase profit.

Others Critique
 Financially wrong
 Economically wrong
 Legally wrong
 Socially or morally wrong

The LAW According to ST. THOMAS AQUINAS

St. Thomas Aquinas

1225-1274
Italian, Dominican Friar, Catholic priest, Philosopher, Theologian and Doctor of the Church Wrote more than 20 books, the
most famous is Summa Theologiae
Influenced by Aristotle, Socrates, Plato and St. Augustine (Scholasticism)
- Criteria in evaluating our human conduct: Conscience and Law
- Law is defined as the rule of action or a principle of conduct which directs things towards a definite goal. The goal
of the law is the promotion of the common good.

Definition of Law
St. Thomas Aquinas defines LAW as an ordinance of reason, promulgated for the common good by the one who is in
charge of the community or society.
Implications:
- Ordinance of Reason – law is not mere advice, counsel or suggestion. It is an order, a command; a mandate
imposing the lawmaker’s will on the citizens and binding them with moral authority.
- Law therefore, is not an arbitrary whim but intelligent direction composed and planned by right reason.

Implications of the Definition of the Law

 Common Good – the end purpose of the law is for the common good and the welfare of all.
 Authority – human person, a king, a monarch, a legislator or anyone empowered by the community to enact and
promulgate true laws.
 Promulgated – for a law to be known, it must be published and promulgated.

True Law has these qualities

6 Qualities of a True Law:
1. Just
2. Honest
3. Possible
4. Useful
5. Relatively Permanent
6. Promulgated
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

Legal Responsibility Definition of terms Legal: Permitted by Law

 Business: An organization or economic system where goods and services are exchanged for one another or for
money
 Tax: collected money by the government used for funds for public works
 Legal Responsibility: operate within the set boundaries by commissions and agencies at every level of the
government.

■ Businesses are obligated to follow government laws.

■ Does the Government protect businesses?
■ Below are few Laws that is appliedfor Philippines
o Tax Reform Act of 1997 (RepublicAct No. 8424)
o The Local Government Code of the Philippines (Republic Act No. 7160)
o Civil Law of the Philippines (R.A. No. 386)
o Financing Company Act of 1998 (R.A. No. 8556)

Types of Taxes
 Income Tax – taxes for individuals with respect to their income or profit.
 Taxes on Goods and Services – taxes imposed on products or services made.
 Taxes on Property – taxes on the valueof real estate or other personal property.
 Property taxes are usually imposed by local governments and charged on a recurring basis.

Tax Avoidance
 Reducing Tax liabilities in accordance with the governing laws.
 It is Legal and applied to maximize advantage for businesses or individuals by reducing payable taxes.

Benefits of Tax Avoidance

 Defer Tax liability to later date
 Lower total Tax liability
 Legal Practice by Lawyers, Financial Managers, Accountants

Tax Evasion
 Tax Evasion is not paying the taxes when they are actually due which is absolutely illegal.
 Concealing income or information from tax authorities

Reasons for Tax Evasion

 Rampant Corruption in Tax Department
 Tax rates are too high
 Lack of Transparency in Government Expenditure

Tax Evasion Example

 Failing to pay the due Taxes
 Smuggling
 Inaccurate Financial statement
 Storing wealth outside the country Tax Avoidance vs Tax Evasion WORKPLACE RESPONSIBILITY
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

Workplace Responsibility
Use or wear the equipment, protective devices or clothing required by the employer and tell the employer or a supervisor
if something is missing or broken
 Tell employer or supervisor if there is something in the Act that is not being followed (also called a contravention)
or if there is a hazard in the workplace what workers should not do. Workers should not:
 Remove or make ineffective any protective device required by the regulations or by the employer
 Use or operate equipment, machines, devices in a manner that would endanger themselves or others
 Put other workers at risk by taking shortcuts, playing pranks or working unsafely
 Employers and workers share responsibility for health and safety
 Occupational sets out duties for employers, supervisors and workers

1. Employer provides a safe environment, establishes the health and safety program and policy and is responsible
for health and safety within the organization
2. Supervisors communicate, monitor and enforce program and policies
3. Workers comply, participate and bring problems to attention of company

The responsibilities of the supervisor to ensure workers:

 Work in a healthy and safe manner following policies, procedures and the law
 Use or wear the equipment, protective devices or clothing required by the employer

Supervisors are also required to:

 Advise workers of any potential or actual dangers – Provide workers with written instructions on how to
protect the worker
 Take every precaution reasonable for the protection of workers

Employer and Employee Relationship

Employer to ensure that:
 Equipment, materials and protective devices are provided, maintained in good condition and used properly
 Building and structures are safe, meet the requirements of the Building Code and any other requirements, and is
built using good engineering practices
 Maintain a program to implement the policy
 Appoint competent persons as supervisors
 Take every reasonable precaution to protect workers
 Employ only those who are of age to work
 Provide information, instruction and supervision to workers and ensure supervisors, or those in authority over
workers, know the hazards in the work

ETHICAL ISSUE AND PROBLEMS IN BUSINESS AND THE CORPORATE WORLD

Workplace Romance
- Exist when two people in the same organization develop a relationship with mutual attraction.
Advantages
 Energize workplace morale
 Motivate employees
 Encourage creativity and innovation
 Soft work-related personality conflicts
 Improve teamwork, communication, and cooperation
Disadvantages
 Threaten career advancements
 Complicate work relationships
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

 Co-worker confusion
 Work performance decline
 Conflict of interest

Sexual Harassment
- Is an issue in the corporate world that must be looked into because it can create a hostile and unhealthy
workplace for the employees.

Anti-Sexual Harassment Act of 1995. or REPUBLIC ACT NO. 7877

AN ACT DECLARING SEXUAL HARASSMENT UNLAWFUL IN THE EMPLOYMENT, EDUCATION OR TRAINING
ENVIRONMENT, AND FOR OTHER PURPOSES.

Declaration of Policy
The State shall value the dignity of every individual, enhance the development of its human resources, guarantee full
respect for human rights, and uphold the dignity of workers, employees, applicants for employment, students or those
undergoing training, instruction, or education. Towards this end, all forms of sexual harassment in the employment,
education or training environment are hereby declared unlawful.

REPUBLIC ACT NO. 7877 is committed by:

Employer, employee, manager, supervisor, agent of the employer, teacher, instructor, professor, coach, trainor, or any
other person who, having authority, influence or moral ascendancy over another in a work or training or education
environment demands, requests or otherwise requires any sexual favor from the other, regardless of whether the demand,
request or requirement for submission is accepted by the object of said Act.

LEGAL PENANTIES OF R.A. 7877

 Imprisonment of not less than one (1) month but not more than six (6) months.
 Fine of not less than Ten Thousand Pesos (P10,000.00) but not more than Twenty Thousand Pesos (P20,000.00)

Why Does Sexual Harassment Occur?

 Sexual harassment occurs due to the power struggle between men and women as a response to a real or
imagined loss of power or as an expression of retaliation or a flexing of the new power.
 Some organizations and managers allow it to happen.

Two Types of Sexual Harassment

 Quid Pro Quo Harassment – “This for that” (something for something) is defined as requiring a sexual favor or
interaction as a condition of employment or in exchange for an employment benefit (such as promotion, transfer,
pay raise and the like.)
 Harassment that creates a Hostile Environment – abuses include verbal, physical and visual conduct that
creates an intimidating, offensive or hostile environment in the workplace that interferes with work performance.
Type of harassment maybe based on race, religion, national origin, sex, age, mental status, veteran status, sexual
orientation, or disability.

Some examples of Hostile Environment are as follows:

 Unwanted touching, patting, pinching or brushing up against a person.
 Comments about your body, leering, wolf- whistling, catcalls, insults of sexual nature, persistently pestering for a
date.
 Displaying or circulation of pornographic pictures with the intention of harassing someone/posting of explicitly
sexual materials.
 Green Jokes.
 Obscene letters.
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

 Sexual propositions
 Suggestive looks
The Profiles of the Victim and the Harasser
 The victim as well as the harasser maybe a man or a woman. The victim does not have to be of the opposite sex.
 The harasser can be the victim’s supervisor, an agent of the employer, a supervisor in another area, a co-worker
of non-employee.
 The victim does not have to be a person harassed but could be anyone affected by the offensive conduct.
 The harasser’s conduct must be unwelcomed.
 In the study made by Redbook magazine in 1981, 14,000 men and women were interviewed pertaining to sexual
harassment. The result revealed 80% of the persons interviewed believed they have been sexually harassed. The
study also showed that use of words, jokes and gestures were the type of harassment which created a hostile
environment.
How does sexual harassment affect the workplace?
 It affected the individuals harassed and the person accused, who may be innocent.
 Such causes can generate costly lawsuits, unfavorable publicity or the invasion of privacy.
 It can also affect the bottom line of the employer, managers, and co-workers, and affect the entire life of the
organization and its members.
How to Prevent Sexual Harassment in the Workplace?
 A significant step an organization can take in preventing sexual harassment in the workplace is through creating a
safe, secure and positive work environment by putting into practice a strong sexual harassment policy.
Some examples for Policy development are the following:
 A broad anti-harassment/positive environment policy that includes a statement that specifically addresses sexual
harassment.
 A separate sexual harassment policy that covers all organizational members.
 Separate sexual harassment policy, one that addresses non-management employees and one that addresses
management.

FAIR/JUST WAGES
Wage – Definition
 Money paid to the workers is considered as wages
o The essential difference between a salary and wages is that a salaried person is paid a fixed amount per
pay period and a wage earner is paid by the hour.
 The wage is the payment made to the workers for placing their skill and energy at the disposal of the employer.
 The method of use of that skill and energy being at the employer’s discretion and amount to the payment being in
accordance with terms stipulated in an contract of service.
Theories of Wages
1. Wages Fund Theory
2. Subsistence Theory
3. The Surplus Value Theory of Wages
4. Residual Claimant Theory
5. Marginal Productivity Theory
6. The Bargaining Theory of Wages
7. Behavioral Theories of Wages

1. Wages Fund Theory - the demand for labour and rate of wages depends on the size of the wages fund or the
company’s fund

2. Subsistence Theory - if workers are paid wages more than subsistence or minimum level, workers’ number will
increase and, thus as a result wage will come down to the subsistence level.
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

3. The Surplus Value Theory- The value of the product produced by labor is greater than the actual price of labor
as paid out in wages. The difference between the two (surplus value) is confiscated by the owner of the company.

4. Residual Claimant Theory - there are four factors of production or business activity: land, labour, capital, and
entrepreneurship. Once all other three factors are rewarded what remains left is paid as wages to workers. Thus,
according to this theory, worker is the residual claimant.

5. Marginal Productivity Theory - wages is determined based on the production contributed by the last worker, i.e.
marginal worker.

6. The Bargaining Theory - the fixation of wages depends on the bargaining power of workers/trade unions and of
employers.

7. Behavioral Theories -based on elements like employee’s acceptance to a wage level, the prevalent internal wage
structure, employee’s consideration on money or’ wages and salaries as motivators.

Concepts of Wages
 Minimum Wage – it must provide not only for the bare sustenance of life but for the preservation of the efficiency
of the workers by providing some measures of education, medical care, etc.
 Living Wage – it is not only for the bare essentials for the worker and his family but also for comfort protection
against ill and insurance for old-age.
 Fair Wage – it is between minimum wages and living wages
o It is an adjustable step that moves up according to the capacity of the industry to pay, and the prevailing
rates of wages in the area of industry

Fair Wage concept

 Fair wage concept is a wage that is some way above the minimum wage but below the Living wage.
 The lower limit for fair wage is the Minimum wage & the upper limit is set by the ability of the industry to provide.

Factors determining Fair Wages

1. Demand for and Supply of Labor
2. Prevailing wage rates
3. Ability to pay
4. Productivity
5. Cost of living
6. State regulation
7. Job requirements
8. Trade unions

Factor # 1. Demand and Supply:

 If the supply of labor is abundant, workers will be ready to work for lower wages. But if the supply of labour is
scarce, workers will demand higher wages.
Factor # 2. Prevailing Wage Rates:
 Wages paid by one firm generally depend upon the wages paid by other competing firms or by other firms in the
same locality or by the industry as a whole for the same type of work.
Factor # 3. Ability to Pay:
 The wage level of the organization largely depends upon the ability of the firm to pay to its workers.
Factor # 4. Productivity:
 St. Nicolas College of BS IN BUSINESS ADMINISTRATION
Business and
Technology
GGSRS: GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY

 It is argued that wages should be commensurate with the productivity of the workers. Therefore, the higher the
productivity, the higher will be the wage level to be paid to the workers.
Factor # 5. Cost of Living:
 Wages should depend upon the cost of living. Changes in cost of living therefore lead to changes in the wage-
rates. It is therefore desirable to increase wage-levels whenever the cost of living rises.
Factor # 6. State Regulation:
 The State, by enacting necessary legislation, guarantees minimum or fair wages to workers so as to enable them
to lead a decent standard of living.
Factor # 7. Job Requirements:
 Jobs differ in their responsibility and authority. Generally jobs requiring higher authority and responsibility are paid
higher wages. Similarly, jobs which require highly skilled workers are also highly paid.
Factor # 8. Trade Unions:
 Workers who are well organized into trade unions are able to get higher wage-rates whereas those who have not
formed such unions are not able to get higher wage- rates.

Wages tend to be unfair in the following circumstances:

1. Where the supply of labor in relation to demand is abundant and it is immobile.
2. Where the workers are ignorant of the rates prevailing in other trades or areas or where they are not so well organized.
3. Where the employers in a particular locality have entered into an agreement to the effect that they should not compete
among themselves for labor.

Therefore, if fair wages are to be established… the removal of these causes is essential!!!

Common Issues on Wages

 The minimum wage mandated by the government is not a guarantee of a just and fair wage.
 Organizations and businesses usually conclude that they are legally and morally right when they fulfill their
'mutual agreement' with the employees.
 Geographic differences hinder the formulation of a perfectly common definition of fair wage.
 Wage indexation to cost of living, where wage is automatically adjusted with the increases of cost of living, is not
usually met by majority of the employers.
 Companies have different interpretations of the justifiable pay for certain job positions, skills and tasks.
 The Law of Supply and Demand on labor.
 Inflation Rate.