Unit 3 – Ethical and Social Problems in Business and the Corporate World

Lesson1. Moral Choices Facing Employees

Business ethics is the application of the general ethical rules to business behavior.
If society deems dishonesty to be unethical and immoral, then anyone in business who is
dishonest with employees, customers, creditors, stockholders, or competition is acting
unethically and immorally.
Acting ethically in business means more than simply obeying applicable laws and
regulations:
 being honest
 doing no harm to others
 competing fairly
 declining to put your own interests above those of your company, its owners, and
its workers
If you’re in business you obviously need a strong sense of what’s right and wrong. You
need the personal conviction to do what’s right, even if it means doing something that’s difficult
or personally disadvantageous.
Ethical Issues and Ethical Dilemmas
Ethical issues are the difficult social questions that involve some level of controversy
over what is the right thing to do. A problem or situation that requires a person or organization to
choose between alternatives that must be evaluated as right (ethical) or wrong (unethical).
Examples of ethical issues in business are:
 Conflicts of Interest
 Technology and Privacy Practices
 Sexual Harassment
 Ethics in Accounting Practices
 Whistleblowing or Social Media Rants
Ethical dilemmas are situations in which it is difficult for an individual to make decisions
either because the right course of action is unclear or carries some potentially negative
consequences for the person or people involved.
When you enter the business world, you’ll find yourself in situations in which you’ll have
to choose the appropriate behavior.
How, for example, would you answer questions like the following?
Is it OK to accept a pair of sports tickets from a supplier?
Can I buy office supplies from my brother-in-law?
If I find out that a friend is about to be fired, can I warn her?
Moral Choices Facing Employees
 In an organization, a conflict of interest arises when employees at any level have private
interests that are substantial enough to interfere with their job duties.
Conflicts of interest are a moral bother not only when an employee acts to the
disadvantage of the organization but also when the employee’s private interests are significant
enough that they could easily tempt other employees to do so.
Financial Investment
Conflicts of interest may exist when employees have financial investments in suppliers,
customers, or distributors with whom their organizations do business.
It is impossible to say how much financial investment is necessary for a serious conflict
of interest to exist.
Ordinarily, it is acceptable to hold a small percentage of stock in a publicly held supplier
that is listed on the stock exchange. Some organizations state what percentage of outstanding
stock their members may own—usually up to 10 percent.
Use of Official Position
Insider trading refers to the use of significant facts that have not yet been made public
and will likely affect stock prices. (Dumlao, 2005)
Increasingly in the world of big business, the pervasive desire to make quick money takes
the form of illegally profiting from inside information. The business has been brisk for the
Securities and Exchange Commission (SEC), which is charged with policing the stock market for
insider-trading violations.
Insider traders ordinarily defend their actions by claiming they did not injure anyone. It is
true that trading by insiders on the basis of nonpublic information seldom directly injures
anyone, but moral concerns arise from indirect injury, as well as from direct.
To be sure, insider dealings raise moral questions not easily resolved. When can
employees buy and sell securities in their own companies? How much information must they
disclose to stockholders about the firm’s plans, outlooks, and prospects? When must this
information be disclosed? Also, if people in business are to operate from a cultivated sense of
moral accountability, it is important for them to understand who is considered an insider. In
general, an insider could be anyone with access to inside information. In practice, determining
precisely who this is. Is not always easy.
Bribery
A bribe is a remuneration for the performance of an act that’s inconsistent with the work
contract or the nature of the work one has been hired to perform. The remuneration can be
money, gifts, entertainment, or preferential treatment. (Dumlao, 2005)
Bribery sometimes takes the form of kickbacks, a practice that involves a percentage
payment to a person able to influence or control a source of income. Thus, when an account
executive offers a percentage of a handsome commission to a person representing a company she
is selling a product to so the latter will buy the product, the money they received for the preferred
consideration is a kickback.
Gifts and Entertainment
Business gifts and entertainment of clients and business associates are a familiar part of
the business world. Still, both practices can raise conflict-of-interest problems, and knowing
where to draw the line is not always easy.
For people in the business world, the rules are not so cut-and-dried, but a number of
considerations can help one determine the morality of giving and receiving gifts in a business
situation.
What is the value of the gift?
What is the purpose of the gift?
What are the circumstances under which the gift was given or received?
What is the accepted business practice in the industry?
What is the company’s policy?
Related to gift-giving is the practice of entertaining. Some companies distinguish
entertainment from gifts as follows: If you can eat or drink it on the spot, it’s entertainment. In
general, entertainment should be interpreted more sympathetically than gifts because it usually
occurs within the context of doing business in a social situation. Still, the morality of
entertainment should be evaluated along the same lines as gifts—that is, with respect to values,
purpose, circumstances, positions, and sensitivity to influence of the recipient, accepted business
practice, company policy, and the law.
Sexual Harassment
Sexual harassment includes a range of actions from verbal transgressions to sexual abuse
or assault. Harassment can occur in many different social settings such as the workplace, the
home, school, churches, etc. Harassers or victims may be of any gender. (Axelrod, 2004)
In the workplace, harassment may be considered illegal when it is frequent or severe,
thereby creating a hostile or offensive work environment or when it results in an adverse
employment decision (such as the victim’s demotion, firing or quitting).
Sexual harassment, which has been declared unlawful in the workplace, training and
education environments, will not be tolerated as it violates the dignity and human rights of a
person.
R.A. 7877, an “Act Declaring Sexual Harassment Unlawful in the Employment,
Education or Training Environment, and for other purposes,” was approved on February 14,
1995. It is known as “The Anti-Sexual Harassment Act of 1995”.
Forms of Sexual Harassment
 Physical, such as malicious touching, overt sexual advances, and gestures with lewd
insinuation.
 Verbal, such as but not limited to, requests or demands for sexual favors, and lurid
remarks.
 Use of objects, pictures or graphics, letters or written notes with sexual underpinnings
Office Romance
Romantic relationships between two people employed by the same employer.
For businesses, workplace romances carry with them the potential to complicate the work
environment and cause difficulties of various types—lost productivity due to distraction;
accusations of favoritism; jealousy among co-workers; the potential for an antagonistic mood
should the relationship end poorly; and, in a worst-case scenario, allegations of sexual
harassment in the event that one of the parties asserts that he or she was coerced. Because of
these potential pitfalls, many firms have policies that were established to try and discourage or
even prohibit such liaisons from forming.
One concern with a newly forming romance in the workplace is that it will be
accompanied by inappropriate displays of affection in the office. This, in turn, can cause an
uncomfortable environment for others and certainly presents a less professional image. A
company may address this concern by establishing an on-the-job code of conduct that
specifically addresses a professional work environment and prohibits “public displays of
affection.”
Wages
From the employee’s point of view, wages are the principal means for satisfying the basic
economic needs of the worker and the worker’s family.
From the employer’s point of view, wages are a cost of production that must be kept
down unless the product be priced out of the market.
Although there is no way of determining fair salaries with mathematical exactitude, we
can at least identify a number of factors that should be taken into account in determining wages
and salaries. (Dumlao, 2007)
 The existing wage in the industry and the area.
 The firm’s capabilities.
 The nature of the job.
 Minimum wage laws.
 Relations with other salaries.
 The fairness of wage negotiations
Unions and the Right to Organize
Workers have the right to freely associate with each other to establish and run unions for
the achievement of their morally legitimate common ends. The same rights of free association
that justify the formation and existence of corporations also underlie the worker organization we
call “unions.”
The worker’s right to organize into a union also derives from the right of the worker to be
treated as a free and equal person. Corporate employers, especially during periods of high
unemployment or in regions where only one or a very few firms are located, can exert an unequal
pressure on an employee by forcing the employee to accept their conditions or go without an
adequate job.
 Unions have traditionally been justified as a legitimate “countervailing” means for
balancing the power of the large corporation so that the worker, in solidarity with other workers,
can achieve an equal negotiating power against the corporation.
Unions thus achieve the equality between worker and employer that the isolated worker
could not secure, and they thereby secure the worker’s right to be treated as a free and equal
person in job negotiations with powerful employers.
Not only do workers have a right to form unions, but their unions also have a right to
strike. The right of unions to call a strike derives from the right of each worker to quit his or her
job at will so long as doing so violates no prior agreements or the rights of others. Union strikes
are therefore morally justified so long as the strike does not violate a prior legitimately
negotiated agreement not to strike, which the company might have negotiated agreement not to
strike (which the company might have negotiated with the union) and so long as the strike does
not violate the legitimate moral rights of others (such as citizens whose right to protection and
security might be violated by strikes of public workers such as firefighters or police).

“The truth of the matter is that you always know the right thing to do. The hard part is doing it.”

Lesson 2. Moral Issues and Obligations to Third Parties

Moral Issues and Obligations to Third Parties
Whistle Blowing
It refers to an employee’s act of informing the public about the illegal or immoral
behavior of an employer or organization.
‘Whistleblowing’ is reserved conceptually only for activities that are harmful to third
parties, violations of human rights, or contrary to the public purpose and legitimate goals of the
organization. Also, this definition limits whistleblowing in informing the public. It does not
encompass taking retaliatory action against the employer or firm, as sabotaging operations.
Whistleblowing overrides loyalty to colleagues and to the organization in order to serve
the public interest. But whistleblowing presents dangers. The whistle can be blown in error or
malice, privacy invaded, and trust undermined.
The Question of Self-Interest
The concern with self-interest in cases that put loyalty to the firm against obligations to
third parties is altogether understandable and even warranted.
Even when an employee successfully blows the whistle, he or she can be blacklisted in an
industry.
Given the potential harm to self and family that employees risk in honoring third-party
obligations, it is perfectly legitimate to inquire about the weight considerations of self-interest
should be given in resolving cases of conflicting obligations.
Product Safety
A dominant concern of consumers. No one wants to be injured by the products he or she
uses.
Product Quality
Most people would agree that business bears a general responsibility to ensure that the
quality of a product measures up to the claims made about it and to reasonable consumer
expectations.
One way that business assumes responsibilities to consumers for product quality and
reliability is through warranties, which are obligations to purchasers that sellers assume.
Product
Have you ever wondered why a product sells at three for P100.00 or is priced at P99.95
rather than simply P100.00? Or why a product that retails for P38.00 on Monday is selling for
P41.00 on Friday?
The answer may have little to do with the conventional determinants of product prices,
such as overhead, operating expenses, and the costs of materials and labor. More and more
frequently, purely psychological factors enter into the price-setting equation.
For many consumers, higher prices mean better products, so manufacturers arbitrarily
raise the price of a product to give the impression of superior quality or exclusivity.
But as often as not, the price is higher than the product’s extra quality.
Price Fixing
Firms in an oligopoly can quietly agree to remain uncompetitive with one another,
thereby avoiding losses that might result from price-cutting competition.
Labeling and Packaging
Business’ general responsibility to provide clear, accurate and adequate information
undoubtedly applies to product labeling and packaging.
The reason is that, despite the amount of money spent annually on advertising, a
product’s label and package remain the consumer’s primary source of product information. Yet
labels are often difficult to understand or even misleading, and what they omit may be more
important than what they say.
In addition to misleading labels, package shape that exploits certain optical illusions can
trick consumers.

Lesson 3. Deception and Unfairness in Advertising

Deception and Unfairness in Advertising
The goal of advertising is to persuade us to buy the products that are being peddled.
Deceptive Techniques. Because advertisers are trying to persuade people to buy their products
and because straight product information is not necessarily the best way to do this, there is a
natural temptation to conceal, misrepresent, or even lie. In an attempt to persuade, advertisers are
prone to exploit ambiguity, conceal facts, exaggerate, and use psychological appeals.
 Ambiguity - When ads are ambiguous, they can be deceiving. In all aspects of
advertising, much potential moral danger lies in the interpretation.
 Concealed Facts - When advertisers conceal facts, they suppress information that is
unflattering to their products. That is, they neglect to mention or distract consumers’
attention away from information, knowledge of which would probably make their
products less desirable.
 Exaggeration - Advertisers can mislead through exaggeration—that is, by making claims
that a pain reliever provides “extra pain relief” or is “50 percent stronger than aspirin,”
that it “upsets the stomach less frequently” or is “superior to any other nonprescription
painkiller on the market” contradict evidence that all analgesics are effective to the same
degree. Manufacturers of vitamins and other dietary supplements are notorious for
exaggerating the possible benefits of their products.
 Psychological Appeals - A psychological appeal is one that aims to persuade by
appealing primarily to human emotional needs and not to reason. This is potentially the
area of greatest moral concern in advertising. An automobile ad that presents the product
surrounded by people who look wealthy and successful appeals to our need and desire for
status.

“A man who stops advertising from saving money is like a man who stops the clock from saving
time.“ – Henry Ford