Business Ethics Midterms Reviewer

• A business is an activity that is part and b) It is a simple business operation

parcel of human society: it is an entity in c) It has a limited pool of resources
which economic resources or inputs, such d) Its growth is limited
as materials and labor, are put together and e) the owner has unlimited liability
processed to provide goods or services or
Advantages of a sole proprietorship:
outputs to customers.
• Profit is the difference between the amount • total undivided authority
earned, and the amount spent in buying, • low organizational cost and license fees
operating, or producing something. • tax savings
• Businesses make the goods and services • no restrictions on type of business(as
you use each day. That includes the long as it is legal).
products and services used by other
businesses, as well as those needed by Disadvantages:
individual consumers. • unlimited liability
• There are generally three types of business • limited capital, which leads to limited
organizations operated for profit: growth in the industry
• Service
o Non-professional service ventures PARTNERSHIP- Owned by two or more persons.
include laundry shops, car repair The owners are usually called partners.
shops, beauty parlors, non-banking Characteristics of Partnership:
institutions.
o Professional service ventures • Association of individuals. The association
include law offices, medical clinics, of individuals maybe based on simple act of
and auditing and consultancy handshake, however, it is preferable to
services. state the agreement in writing. A
• Merchandising- does not alter the partnership is a legal entity for certain
appearance of the product purchased from purposes. It is an accounting entity for
the seller. Ex: Grocery stores, hardware financial reporting purposes. Net income of
stores, and dry goods stores are examples a partnership is not taxed as a separate
of merchandising ventures. entity.
• Manufacturing businesses- a producer of • Mutual agency. It means that an act of any
goods or products. It is engaged in buying partner is binding on all other partners, so
raw materials and supplies to be processed long as the act appears to be appropriate
into finished products. Ex: furniture shops, for the partnership. This is true even when
bakeshops, rattan factories, flour partners act beyond the scope of their
producers, and beverage companies. authority.
• Forms of Business Organization: Sole • Limited life. Partnerships have a limited life.
Proprietorship, Partnership, Corporation Partnership dissolution occurs whenever a
partner withdraws or a new partner is
SOLE PROPRIETORSHIP admitted.
The characteristics of sole proprietorship are • Unlimited liability. Each partner is
as follows: personally and individually liable for all
partnership liabilities. Creditor claims attach
a) It is easy to form first to partnership assets and then to the
Business Ethics Midterms Reviewer

personal resources of any partner, 7. An artificial/juridical "person" endowed

irrespective of that partner's capital equity with ability for self-management, the
in the company. management structure is at the
discretion of the board of directors.
CORPORATION is an entrepreneurial venture
formed by at least five but not more than • The role of a business is to produce and
fifteen persons. A corporation can either be distribute goods and services to satisfy
stock or non-stock, profit or non-profit, and a public need or demand.
domestic or foreign. The persons originally • Trustworthy companies are better at
forming the corporation are called attracting and keeping customers,
incorporators. talented employees, and capital.
• to be ethical: to know right from wrong
• A corporation is classified as a stock and to know when you’re practicing one
corporation when it is authorized to issue instead of the other.
shares of stock to stockholders. A non-stock • business ethics is the application of
corporation, on the other hand, is not ethical behavior in a business context.
authorized to issue shares of stock to the • Acting ethically in business means more
members. The owners of a stock than simply obeying applicable laws and
corporation are called stockholders or regulations: It also means being honest,
shareholders; while the owners of a non- doing no harm to others, competing
stock corporation are called members. The fairly, and declining to put your own
interests above those of your company,
certificate of stock is an evidence of
its owners, and its workers.
ownership of a corporation. A domestic
• ethical reasoning is vital to the practice
corporation is organized under the laws of of business and finance.
the Philippines. On the other hand, a • Ethics are moral principles that guide
foreign corporation is organized under the the conduct of individuals.
laws of the foreign country but has the • Poverty is about not having enough
authority to operate in the Philippines. money to meet basic needs including
food, clothing and shelter. However,
The characteristics that distinguish a
poverty is more, much more than just
corporation from proprietorship and
not having enough money.
partnerships are:
• Poverty is experienced and understood
differently by different people in
1. The corporation has separate legal
different regions and at different times.
existence from its owners.
Broadly, "Poverty" is conceptualized as
2. The stockholders have limited liability.
a deficiency or shortage of some sort,
3. Transferable ownership rights
typically in comparison either to the
(ownership is in shares of stock).
living standards of others within the
4. Ability to obtain capital (relative ease).
same society or culture (called "relative
5. The corporation is subject to numerous
poverty") or to a universal measure of
government regulations.
adequate provision (called "absolute
6. The corporation must pay an income
poverty").
tax on its earnings, and the
stockholders are required to pay taxes
on the dividends they receive: the result
is double taxation of distributed
earnings. The Role of Business in Poverty Alleviation
Business Ethics Midterms Reviewer

The reason on extreme poverty despite mentioned above, all this should move us to
Economic Growth take action. but it is important to precede
such action with study and knowledge.
• Economic growth is rarely uniformly
distributed across a country. Areas of Business that needs Ethical attention
• the failure of government
• A third possible reason for continued • In agriculture-based economies such as the
poverty in the midst of growth is cultural. Philippines, the ultimate solutions are to be
found in: countryside and rural
Major factors behind the slow reduction of infrastructures, quality basic education for
poverty include: the children of the poor and in Muslim
areas, especially the education of
• minimal growth and productivity in women, cash transfers to the poorest of
agriculture the poor, primary health services, primary
• limited manufacturing base to absorb health services, microcredit and
workers moving out of agriculture microenterprise programs, technical skills
• high inequality of income training for secondary school students, and
• natural disasters and conflict social housing.
• Concretely, it has been found that, as far as
Policy formation should be directed towards food security in the Philippines is
the following: concerned, focus should be placed on
addressing constraints on agricultural
• creating more jobs for both skilled and finance in order to boost food productivity.
unskilled workers • Along with this, focus should be put in
• boosting the quality of basic education investing in roads, since the unreliable and
and completion of secondary school inadequate infrastructure in the Philippines
• improving natural disaster risk has been found to be a major impediment
management and protection systems to economic growth. Given the physical and
• improving productivity, especially in environmental constraints on increasing
agriculture land and water use for food production and
other economic activities, agricultural
productivity will have to substantially
The Role of Businesses in Overcoming Poverty improve to meet the increasing demand for
food. For this to happen, substantial
• Some studies show that small ad medium investments must be made by both the
enterprises (SMEs) defined usually as government and the private sector.
businesses with up to 250 employees are • Each role in a business organization involves
believed to be important contributors to unique responsibilities (such as the
obligations of an employee to an employer
economic growth and a tool to reduce
or the fiduciary duties of management to
poverty in developing countries.
the shareholders) that determine what a
• Also, microfinance is believed to be an person should do.
effective tool in the arsenal of the war • Milton Friedman (American economist)
against poverty by many witnesses to its famously stated that the only social
success in many developing regions around responsibility of business is to increase its
the world, including Africa, Southeast Asia, profits. On the other hand, William Sauser,
the Middle East, and the Americas. As in the Journal of Business Ethics article
Business Ethics Midterms Reviewer

"Ethics in Business: Answering the Call," • Article 110 states that "It shall be unlawful
explained that business organizations have for any person to disseminate or to cause
four levels of responsibility: the dissemination of any false, deceptive or
misleading advertisement by Philippine mail
1. Earning a profit; or in commerce by print, radio, television,
2. Legal responsibility; outdoor advertisement or other medium for
3. Ethical responsibility; the purpose of inducing or which is likely to
4. Discretionary responsibility induce directly or indirectly the purchase of
consumer products or services.
• Corporate Social Responsibility or CSR. CSR • The Labor Code of the Philippines (or
- defined by the World Business Council for Presidential decree No. 442)- (a decree
Sustainable Development (WBCSD), is a instituting a labor code thereby revising and
continuing commitment by business to consolidating labor and social laws to afford
behave ethically and contribute to protection to labor, promote employment
economic development while improving the and human resources development, and
quality of life of the workforce and their ensure industrial peace based on social
families, the local community, and society justice) lays down the rights of workers in
at large. More and more companies are relation to wages, rights to self-
embracing CSR because of profitability, and organization, collective bargaining, security
also because more mangers now believe of tenure, and just and humane conditions
that being a better corporate citizen is a of work.
source of competitive advantage. • Republic Act No. 6727 (also known as the
• The leadership of many Philippines "Wage Rationalization Act") mandates the
businesses spearheading the contemporary fixing of the minimum wages applicable to
CSR movement is generally motivated by a different industrial sectors. This law
commitment to social or environmental rationalized wage determination by
goals. establishing the mechanism and proper
• As a concern, CSR was raised to the highest standards through the creation of Regional
corporate levels management and the Tripartite Wages and Productivity Boards
board itself. Thereafter, market forces authorized to determine the daily minimum
generally became the major driver of CSR wage rates in different regions.
behavior in the Philippines. • Book Four of the Labor Code of the
• Deceptive Advertising- those that make Philippines lays down the "Health, Safety,
false statements about or misrepresent the and Social welfare Benefits" accorded to
product, for example, the picture presented workers. Book Five, on the other hand,
in the advertisement is different from the entitled "Labor Relations," lays down the
actual product. Deceptive ads may occur policies of the state with regard to labor.
not only through sentences or propositions • Insider trading in the stock market is
but also through pictures, individual words, characterized as the buying or selling of
or through certain combinations of objects shares of stock on the basis of information
which can deceive the eye and the mind. known only to the trader (an "insider,"
• Article 108 of the Consumer Act of the somebody belonging to the company, as
Philippines (Republic Act No. 7394) declares opposed to the public) or to a few persons.
that "The State shall protect the consumer Insider trading, in finance, is the reverse of
from misleading advertisements and speculation.
fraudulent sales promotion practices." • Werhane (1989) seem simply to believe
that insider trading is inherently immoral.
Business Ethics Midterms Reviewer

She argues that insider trading, both in its funds directly used to help people, the
present illegal form and as a legalized activities and the results achieved, and how
market mechanism, undermines the these organization's budgets are distributed
efficient and proper functioning of a free among different organizational functions.
market. • transparency is an essential element
• Pollution and Resources Depletion - for building trust.
Business organizations should take seriously • Business ethics refers to how ethical
the task of caring for the earth, by regularly principles guide a business's operations.
embarking on projects seeking to diminish • American ethical codes were first
or eradicate pollution, and to renew the called creeds or credos and those in the
natural resources they tend to use up or 1980s were considered legalistic and more
deplete. likely to talk about ethics or the reputation
• Whistle-blowing is the act, for an employee of the company (Benson, 1989)
(or former employee), of disclosing what he • they were defined as written
believes to be unethical or illegal behavior documents which attempt to state the
to higher management (internal whistle- major philosophical principles and articulate
blowing) or to an external authority or the the values embraced by the organization.
public (external whistle-blowing). • Codes articulate ethical parameters of the
• Accountability is when an individual or organization, what is acceptable and what is
department is held responsible for the not.
performance of a specific function. • Ethical codes differ from mission
Essentially, they are liable for the correct statements by articulating the value system
execution of a particular task, even if they and answering the question "Within what
may not be the one performing the task ethical standards and values should the
• Why is accountability important? Sound mission be pursued"
accountability structures are the most • Among the four types of organizational
important aspect of prevention and culture in Sauser's (2008) taxonomy, the
detection of corruption. culture of character is the ideal. This is the
• Accountability is NOT synonymous with organizational culture whose leaders and
responsibility members are truly committed to ethical
• Fairness is the quality of making judgments conduct and make ethical behavior a
that are free from discrimination. fundamental component of their every
• Fairness comes from the old English faeger, action.
meaning "pleasing, attractive." • Ayala adopts as part of its basic operating
• Fairness in the context of a business principles, the primacy of the person,
organization involves balancing the shared values, and the empowerment of
interests involved in all decision-making people. The company and its employees are
including any decisions related to hiring, guided by four core values: Integrity, long-
firing (including the investigatory process), term vision, empowering leadership, and
and the compensation and rewards system. commitment to national development.
• Transparency is identified as an important • language is said to be continuatio naturae a
mechanism for guaranteeing social continuation of nature.
accountability. Appropriate information • man is a symbolic animal, and this is what
disclosure is necessary to inform donors we mean that culture is continuatio
about how their money is used by these naturae.
organizations. The information that should • Culture comes from colere, a word that is
be disclosed, such as the percentage of of agricultural origin: cultivation is not
Business Ethics Midterms Reviewer

merely imitating: it entails concern for, To Pastin's (1986) list, Sims (2005) has added:
taking care of, fostering, nurturing,
growing. • There exists a clear vision and picture of
• Corporate culture refers to the integrity throughout the organization.
assumptions, beliefs, goals, knowledge, and • The vision is owned and embodied by
values that are shared by organizational top management, over time.
members • The reward system is aligned with the
• Barnard is the father of the concept of vision of integrity.
corporate culture. • Policies and practices of the
• Barnard recognized that shared values and organization are aligned with the vision;
meanings, internalized by participants, there are no mixed messages.
could constitute a strong system of control • It is understood that every significant
much more powerful than one based leadership decision has ethical value
exclusively on material rewards or on force dimensions.
• Everyone is expected to work through
Creating an Ethical Corporate Culture conflicting stakeholder value
perspectives.
As mentioned in Codes of Ethics above, Sauser
and Sims (2013) suggest that an organizational Creating Corporate Codes of Ethics
culture grounded in moral character is the ideal
corporate culture. Sauser and Sims (2013) give the following
suggestions for creating Codes of Ethics in
Pastin (1986) describes organizations exhibiting business organizations:
what we call a culture of character as those that
possess the following four stylistic markers: 1. Adopt a ode of ethics

• They are at ease interacting with diverse 2. Provide ethics training

internal and external stakeholder groups.
The ground rules of these firms make the 3. Hire and promote ethical people
good of these stakeholders groups part of
the organization's own good. 4. Correct unethical behavior
• They are obsessed with fairness. Their
ground rules emphasize that the other 5. Take a proactive strategy
persons's interests count as much as their
own. 6. Conduct a social audit
• Responsibility is individual rather than
collective, with individuals assuming 7. Protect whistle-blowers
personal responsibility for actions of the
organization. These organizations ground 8. Empower the guardians of integrity
rules mandate that individuals are
responsible to themselves. 9. Assure commitment from the top
• They see their activities in terms of purpose.
Those purpose is a way of operating that 10.Communicate the standards of
members of the organization highly value. conduct widely throughout the organization
Purpose ties the organization to the and the industry
environment.
Business Ethics Midterms Reviewer

11.Designate an ethics officer with clear 2. cosmology which inspects the

responsibility for enforcing ethical standards origin and organization of the
universe.
12.Establish a process for reporting
violations of ethical standards and actively • Epistemology answers the question: "What
investigate all reported violations is the nature of knowledge?" Epistemology
raises questions about the nature of
13.Assure due diligence by the knowledge. Logic is a key dimension to
organizations' board of directors epistemology. Often referred to as
the theory of knowledge. It delves into the
14.Above all, lead by example definition, scope, and parameters of
knowledge and knowledge formation. It
• Ethics, also called moral philosophy, the seeks to explain how we acquire
discipline concerned with what is morally knowledge, how knowledge relates to
good and bad and morally right and wrong. notions like justification, truth, and belief,
The principles of conduct governing an and how and where it falls in the spectrum
individual or a group of certainty and error.
• The terms ethics and morality are closely
related. It is now common to refer to ethical We can distinguish between:
judgments or to ethical principles where it 1. deductive logic (moving from general to
once would have been more accurate to specific)
speak of moral judgments or moral 2. inductive logic (from specific facts to
principles. generalization).
• Philosophy, on the other hand, comes
etymologically from two Greek words philia, • Axiology answers the question "What is the
which means love, and sophia, which means nature of values?" It explores the nature of
wisdom. It is the "study of the fundamental values. This can be subdivided into:
nature of knowledge, reality, and existence"
1. ethics - studies human conduct and
We can speak in general of three branches of examines moral values. Ethics, also
philosophy: known as moral philosophy , is
often referred to as the study of
1. Metaphysics morality. What is the good life?
2. Epistemology How should we act? What do we
3. Axiology mean by virtue? What does “right”
even mean?
• Metaphysics answers the question: "What 2. aesthetics - studies values, beauty,
is the nature of reality?" is the philosophical nature, and aesthetic experience
branch that studies reality, existence, the often associated with music, art,
nature of being, the physical world, and the literature, dance, theater, and other
universe. It is the philosophy of being. fine arts.

Metaphysics can be subdivided into two Strands of Philosophy:

categories:
1. Idealism - This is considered the oldest
1. ontology which deals with the philosophy of Western culture. It refers to the
nature of existence;
Business Ethics Midterms Reviewer

world of mind and ideas, where reason is 3. Edmund Husserl;

primary. Leading proponents of idealism are: 4. Martin Heidegger;
5. Jean-Paul Sartre.
a. Socrates (Greek philosopher)
b. Plato (Greek philosopher, "father of c. Analytic Philosophy - it sought out to
idealism") clarify and define philosophies. This began in
c. Augustine (Theologian of the 4th and 5th post World War I era (the Vienna Circle) and
centuries) studied the alienation between philosophy and
d. Rene Descartes science. It established the concept of logical
e. Immanuel Kant positivism there are logical and empirical types
f. Georg Wilhelm Friedrich Hegel of scientific expression. Analytic philosophy has
recently focused on political philosophy, ethics,
2. Realism - This can be considered the and philosophy of the human sciences.
antithesis of idealism, whereby "the Universe
exists whether mind perceives it or not."
Leading proponents of Realism are:

a. Aristotle (Greek philosopher, "Father of

Realism")
b. Francis Bacon
c. John Locke
d. Comenius, Rousseau, and Pestalozzi

3. Neo-theism. This would date to the time of

Thomas Aquinas (1225 - 1274), and is also
known as theistic realism, whereby "God exists
and can be known through faith and reason."

4. Contemporary Philosophies:

a. Pragmatism - also known as

experimentalism (experience of things that
work). Leading proponents were:

1. Auguste Compte;
2. Charles Darwin;
3. Charles Peirce;
4. William James;
5. John Dewey

b. Existentialism - appeared as a revolt

against the mathematical, scientific
philosophies that preceded it. Leading
proponents were:

1. Soren Kierkegaard;
2. Martin Buber;