BUSINESS ETHICS & SOCIAL RESPONSIBILITY

HAND OUT # 6

ETHICAL ISSUE - is a problem or situation that requires a person or organization to choose between alternatives that
must be evaluated as right (ethical) or wrong (unethical)

CONFLICT OF INTEREST
- Is defined as an intentional and deliberate action or decision that results in getting personal gain, while adversely
affecting the company.
Conflict of Interest can be prevented by establishing formal ethical standards and policies on unethical behavior.
Violations should be dealt with accordingly.

PAYMENT OF TAXES

Taxation – is an orderly and compulsory manner of raising money to finance government projects for better delivery of
services to the people.
- Most popular among the various taxes is income tax, which is imposed by the government on the income of
businesses and individuals.
- Sole Proprietorship and partnerships are not taxed separately as a business – the income derived from the business is
included in the owner’s and partners’ individual income.
- Corporations are business entities separate and distinct from their owners – therefore, they are taxed as a business.

Two ways to face the responsibility of paying taxes:

1. Tax evasion – is the deliberate failure to pay taxes due to a business. This is intentional and is therefore illegal
because this deprives the general public of the projects which could have been realized if payment were made.
2. Tax avoidance – is a tactic of deliberately finding a way to avoid payment of taxes or pay lower taxes by using
methods such as transferring to a city where taxes are lower.

Taxable income can be legally reduced through claims in meals, travel and entertainment expenses that are deemed
necessary in the conduct of the business. Companies can also provide benefits to employees which can be deducted from
the company’s taxable income.

Integrity and trust – a basic understanding of integrity includes the idea of conducting your business affairs with honesty
and a commitment to treating every customer fairly.

MAJOR ETHICAL ISSUES IN ENTREPRENEURSHIP

A. BASIC FAIRNESS
Ethical decision-making processes should center on protecting employee and customer rights, making sure all business
operations are fair and just, protecting the common good and making sure individual values and beliefs of workers
are protected.
1. Partners – suppose you are partner in a business and see a great deal of profitability. You don’t believe that your
partner deserves to profit from the business’ future success, because you don’t like his personality. You may
wonder if you could simply take his name off the bank accounts, change the locks, and continue without him. If
you proceed with this course of action, you would likely be in violation of your ethical and legal obligation to act
in good faith concerning your partner. The netter course of action may be simply buy out his interest in the
business.
2. Gross Negligence – failing to properly investigate a matter that affects their interests could be viewed as gross
negligence supporting a breach of your ethical and legal duty of care. (case story: Toyota – year 2010)
B. PERSONNEL AND CUSTOMER RELATIONS
1. Mistreating employees – sexual harassment, threatening or firing whistle blowers, below minimum wage for
undocumented workers
2. Discrimination and harassment in the workplace – if supervisor discriminated against an employee based on
gender, religion or ethnicity when making recommendations for a promotion, legal action can be sought.
3. Family-run business – when personal family issues interfere with business decisions, this is a conflict-of-interest
and an ethical concern
4. Employee behavior – the ethical and legal challenges surrounding the use of social media (FB, IG, twitter, etc)
and its consequences in the workplace affects the business industry as a whole.
5. Employee working conditions – employer must aware of the safety of their work environment and some
unethical working conditions such as requiring an employee to work without pay
6. Side deals and sub-standard works – accepting deals aside from employment contract
C. DISTRIBUTIONS DILEMMAS
1. Pricing strategy ethics – price collusion can be a major source of ethical pressure and artificial price-fixing is
illegal. Example, setting different price points for different consumers for the same goods
2. Product placement ethics – example of these are the point-of-sale displays, and demo kiosk which is positioning
techniques which can be arguably unethical way (emotional manipulation – making display of goods that is
attractive to children to gain more sales)
3. Ethics and promotions – the “bait and switch” tactic is unethical. Wherein the company advertises a significant
discount on a valuable product but stocks only a small number of that item in stores. Customers are lured in by a
great deal, only to discover that a completely different and often inferior product is being promoted instead.
D. FRAUD – it is a business takes up so many forms and sizes. It can be in the form of financial misconduct or
misrepresentation

Example of financial misconduct:

- Price-fixing or an illegal agreement between industry competitors to “fix” the price of a product at an artificially
inflated level (physicians who refuse to treat non-insured patients or perform unnecessary procedures to make more
money
- Tax evasion
- Tax fraud
- “cooking the books” to make the company look more profitable that it is
- Paying unjustifiable salaries and bonuses to top officials
- Chasing short-term profit by placing investor’s money in questionable investments

Example of misrepresentation:
- Salesman who lies about the company’s products or false/misleading advertising
- Cover-up of illegal workplace conditions or transactions
- Falsified data in a shareholder report
- Lying to a union about corporate profits
- Hiding or denying safety problems with a product
- Conflict of interest (doctors push the most expensive drugs rather than the most effective ones; brokers who
recommend stocks that they own in an effort to drive up the price
E. UNFAIR COMPETITION
1. Antitrust Law or Competition Law – antitrust violations constituting unfair competition occur when one
competitor attempts to force others out of the market or prevent others from entering the market, through
tactics such as predatory pricing or obtaining exclusive purchase rights to raw materials needed to make a
competing product
2. Trademark infringement – trademark infringement and passing off occurs when the maker of a product uses a
name, logo, or other identifying characteristics to deceive consumers into thinking that they are buying the
product of a competitor
3. Misappropriation of trade secrets – occurs when one competitor uses espionage, bribery, or outright theft to
obtain economically advantageous information in the possession of another
4. Trade libel – it is the spreading of false information about the quality or characteristics of a competitor’s
products.
5. Tortious interference – it occurs when one competitor convinces a party having a relationship with another
competitor to breach a contract with, or duty to the other competitor.
6. Anti-competitive practices – it prevent or reduce competition in a market
7. Dumping – a company sells a product in a competitive market at a loss because the company hopes to force other
competitors out of the market after which the company would be free to raise prices for a greater profit
8. Exclusive dealing – a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier
9. Price fixing – companies collude to set prices, effectively dismantling the free market
10. Refusal to deal – two companies agree not to use a certain vendor
11. Dividing territories – an agreement by two companies to stay out each other’s way and reduce competition in the
agreed-upon territories
12. Limit pricing – the price is set by a monopolist at a level intended to discourage entry into a market
13. Tying – products that aren’t naturally related must be purchased together
14. Resale price maintenance – resellers are not allowed to set prices independently
15. Religious/minority group doctrine – businesses must apply tribute to a significant – normally religious – part of
the community in order to engage in trade with that community. A business that does not comply will be 50%
worse off than the competitor if they do not comply with the tribute demanded by just 20% of the community
16. Absorption of a competitor or competing technology – the powerful firm effectively co-opts or swallows its
competitor rather than see it either compete directly or be absorbed by another firm
17. Subsidies from government – allow a firm to function without being profitable, giving them an advantage over
competition or effectively barring competition
 18. Regulations – place costly restrictions on firms that less wealthy firms cannot afford to implement
19. Protectionism, tariffs, and quotas – which give firms insulation from competitive forces.
20. Patent misuse and copyright misuse – such as fraudulently obtaining a patent, copyright, or other forms of
intellectual property; or using such legal devices to gain an advantage in an unrelated market
21. Digital rights management – prevents owners from selling used media, a would normally be allowed by the first
sale doctrine
22. Enhancing the addictiveness – chemically enhancing the addictiveness of cigarettes, becoming the leading edge
of the tobacco scandals of the 1990s.
F. NON-RESPECT OF AGREEMENTS – is a breach of contracts. It is a legal cause of action in which a binding agreement
or bargained for exchange is not honored by one or more of the parties to the contract by non-performance or
interference with the other party’s performance.
G. ENVIRONMENTAL DEGRADATION – is the deterioration of the environment through depletion of resources such as
air, water, and soil; the destruction of ecosystems and the extinction of wildlife. It is defined as any change or
disturbance to the environment perceived to be deleterious or undesirable.