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MORALLY DEFENSIBLE POSITION

ON ETHICAL ISSUES IN
BUSINESS
for Business Ethics and Social Responsibility
Senior High School (ABM)
Quarter 2 / Week 2

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 FOREWORD
This self-learning kit will serve as a guide in formulating a
morally defensible position on ethical issues in entrepreneurship
like basic fairness, personnel and customer relations, distribution
dilemmas, fraud, unfair competition, unfair communication, no
respect of agreements, environmental degradation etc. It
focuses on the different ethical issues in business and what to do
about them. It will be your aid as you learn new ideas and enrich
your existing knowledge about business ethics and social
responsibility concepts.

In this learning kit the students will be gained knowledge in a

morally defensible position in addressing ethical issues in business.

What happened?
This section contains pre-activities like review of the prior
knowledge, a flashback of the previous discussion and pre-test.

What You Need To Know? (Discussion)

This section includes the illustration of the different ethical
issues in entrepreneurship and what to do about them. Each one
is properly illustrated and well-labelled as it gives example that
clearly emphasizes the applicability of the proactive approach in
addressing ethical issues to business concept.

What have I Learned? (Evaluation/Post Test)

The exercises contained in this section are designed to build
business ethics, comprehension, skills, competence and social
responsibility. These serve as a tool to identify the learners’ areas of
strengths and difficulties.

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 OBJECTIVES:
K: Identify the different ethical issues in business;
S: Make a business policies and practices against
ethical issue in an enterprise; and
A: Apply business policies and practices against
ethical issues as an entrepreneur in the future.

I. WHAT HAPPENED

PRE-TEST
Directions. Supply the missing letter(s) to complete the word base on the
definition/statement given. Write your answer in your activity notebook.

1. _ r a _ _ - consists of dishonest and illegal activities perpetrated by

individuals or companies in order to provide an advantageous
financial outcome to those persons or establishments.
2. F _ _ r n _ s s - just and reasonable treatment in accordance with
accepted rules or principles
3. u _ _ _ i r _om__ti____ - a situation in which competitors
compete on unequal terms because favorable or disadvantageous
conditions are applied to some competitors but not to others.
4. T r _ d _ _ i _ e _ – is the spreading of false information about the
quality or characteristics of competitor’s products.
5. _ t h _ c _ l _ s s _ _ s - are behavior in the workplace that has a
serious consequence if unaddressed.
6. T_ _de I_fri_g_m_nt -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.
7. Tr_ _e li_e_ - is the spreading of false information about the quality or
characteristics of competitor’s products.
8. C_ _t_m_r r_l_t_ _ns -is the company-wide process of nurturing positive
relationships with your customers
9. P_ _ _ _ _g -refers to the way in which prices are set for consumers
considering the cost of inputs, distribution, and overhead
10. B_s_n_ss e_ _i_s -refers to the standards for morally right and wrong
conduct in business.

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 II. WHAT YOU NEED TO KNOW

DISCUSSION

Major Ethical Issues in Entrepreneurship

(as cited in Jerusalem, Palencia, & Palencia, 2017).

1. 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.

Example:
a. Partners – Suppose you are a partner in a business and see a
great deal of profitability on the horizon. 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.
What to Do? : The better course of action may be to simply
buyout his interest in the business.
b. Gross Negligence – Suppose you are on the board of directors
for a publicly traded corporation. You and your fellow board
members, in hopes of heading off early for the holidays, rush
through the investigatory process involved in a much-
anticipated merger. As a board member, you have a duty to
exercise the utmost care respecting decisions that affect the
corporation and its shareholders. 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.

2. Personnel and Customer Relations

a. Mistreating Employees – Every year, lawsuits are filed against
employers who are accused of sexual harassment or
discrimination against their employees. Sexual harassment is a
form of unlawful sex discrimination, which includes unwanted
verbal or physical behavior of a sexual nature that occurs in the
workplace under certain conditions. Sexual harassment is always
an unsolicited and unreciprocated behavior. Some employers

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 have been sued for threatening or firing whistle-blowers, or
employees who point out illegal practices or safety violations in
the workplace.
b. Discrimination and Harassment in the Workplace – Maintaining
professional workplace relationships between employees is a
continuing challenge for employers regardless of the industry.
This challenge can become more difficult when the image
companies choose to project has a significant sexual charge.
There’s never an excuse or a justifiable reason for harassment of
any kind in any workplace. If a supervisor discriminated against
an employee based on her gender, religion, or ethnicity when
making recommendations for a promotion, legal action could
be sought.
c. Family-Run Businesses – In the area of small business, some major
ethical result from hiring, firing, and dealing with employees. For
example, conflicts of interest may cause ethical issues in small
business, especially if they are family run. When personal family
issues interfere with business decisions, this is a conflict of interest
and an ethical concern.
d. Employee Behavior – From large corporations to small business,
individuals involved in all types of business often face ethical
issues stemming from employee behavior. For example, whether
an employee can spend work time checking personal email
accounts, how a manager deals with claims of harassment and
to what extent manager can “groom” a certain employee for a
promotion are all examples of ethical issues regarding employee
behavior. There are legal consequences for some unethical
employee behavior.
e. Employee Working Conditions – Employers must be aware of the
safety of their work environment and if they have compensated
employees for all the time they have worked. They must also
consider if they have required an employee to work an
unreasonably long period of time or if they have him doing an
unusually difficult task.
f. Side Deals and Sub-Standard Work – When dealing with
customers or clients, business people must ensure that they use
their information correctly, do not falsely advertise a product or
service and do not intentionally do sub-standard work.

3. Distribution Dilemmas
Ethics is a prime concern in marketing, and the areas of price, placement,
and promotion are no exception.

• Pricing refers to the way in which prices are set for consumers
considering the cost of inputs, distribution, and overhead.
• Placement involves the strategic positioning of products
within retail stores.

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 • Promotions involve short-term price discounts or giveaways.
Each of these areas presents its own set of ethical dilemmas,
challenges, and legal guidelines to navigate.

a. Pricing Strategy Ethics – Price collisions can be a major source of

ethical pressure in many industries, and artificial price-fixing is
illegal in a wide range of countries. Price collusion exists when a
number of competitors agree to set prices at a certain level,
bypassing the natural market forces of supply and demand and
creating an unfair advantage over consumers.
b. Product Placement Ethics – End-caps, point-of-sale displays, and
demo kiosks are all examples of positioning techniques that are
inherently harmless, but which can be used inarguably unethical
ways.
c. Ethics and Promotions – Promotions are designed to boost short-
term sales by providing irresistible value propositions to
consumers. Coupons, holiday sales events, mail-in rebates, and
giveaways all fall under the promotions category. The “bail and
switch” tactic is widely considered unethical, yet many
companies still practice this promotions technique.

4. Fraud
Fraud in business takes up so many forms and sizes. It can be in the
form of financial misconduct or misrepresentation.

• Examples of financial misconduct include 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; and “cooking the books” to make
the company look more profitable than it is.
• Corporate misrepresentation can take many forms. It can be as simple
as a salesman who lies about his company’s products, or it can be
false or misleading advertising. Misrepresentation can involve a cover-
up of illegal workplace conditions or transactions; falsified data in a
shareholder report; lying to a union about corporate profits, or hiding or
denying safety problems with a product.
• Business Fraud consists of dishonest and illegal activities perpetrated
by individuals or companies in order to provide an advantageous
financial outcome to those persons or establishments. Also known as
corporate fraud, these schemes often appear under the guise of
legitimate business practices. An array of crimes falls under business
fraud, including the following:
a. Charity Fraud – using deception to get money from individuals
believing they are making donations to legitimate charity
organizations, especially charities representing victims of
natural disasters shortly after the incident occurs.

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 b. Internet Auction fraud – A fraudulent transaction or exchange
that occurs in the context of an online auction site.
c. Non-delivery of merchandise – fraud occurring when
payment is sent but the goods and services ordered are
never received.
d. Non-payments of funds – fraud occurring when goods and
services are shipped or rendered but payment for them is
never received.
e. Overpayment scheme – an individual is sent a payment
significantly higher than an owed amount and is instructed to
deposit the money in their bank account and wire transfer the
excess funds back to the bank of the individual or company
that sent it. The sender’s bank is usually located overseas, in
Eastern Europe for example, and the initial payment is found
to be fraudulent, often after the wire transfer has occurred.
f. Re-shipping scheme – an individual is recruited to receive
merchandise at their place of residence and subsequently
repackage the items for shipment, usually abroad.
Unbeknownst to them, the merchandise was purchased with
fraudulent credit cards, often opened in their name.

5. Unfair Competition or Distortion of Completion

-Is a situation in which competitors compete on unequal terms because
favorable or disadvantageous conditions are applied to some competitors but not
to others. The concept can also refer to situations in which the actions of some
competitors actively harm the positions of others with respect to their ability to
compete on equal and fair terms.

a. Antitrust Law or Competition Law – 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.
b. Trademark Infringement – 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.
c. Misappropriation of Trade Secrets – when one competitor uses
espionage, bribery, or outright theft to obtain economically
advantageous information in the possession of another.
d. Trade Libel – is the spreading of false information about the
quality or characteristics of competitor’s products.
e. Tortious Interference – when one competitor convinces a party
having a relationship with another competitor to breach a
contract with, or duty to the other competitor.
f. Anti-competitive practices – prevent or reduce competition in a
market.

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 g. Dumping – Foreign countries often use dumping as a
competitive threat, selling products at prices lower than their
normal value. This can lead to problems in domestic markets. It
becomes difficult for these markets to compete with the pricing
set by foreign markets, leading to local producers and the local
economy to suffer a result.
h. Exclusive dealing – A retailer or wholesaler is obliged by contract
to only purchase from the contracted supplier.
i. Price fixing – companies collude to set prices, effectively
dismantling the free market.
j. Refusal to deal – two companies agree not to use a certain
vendor.
k. Dividing territories – an agreement by two (2) companies to stay
out of each other’s way and reduce competition in the agreed-
upon territories.
l. Limit pricing – is set by a monopolist at a level intended to
discourage entry into a market.
m. Tying – products that aren’t naturally related must be purchased
together.
n. Resale price maintenance – resellers are not allowed to set
prices independently.
o. Religious/minority group doctrine – business must apply tribute to
a significant normally religious part of the community in order to
engage in trade with that community.

6. Unfair Communication
Communication used to undermine relationships or encourage social
immorality is unethical communication. The exact definitions of these depend
on the ethics system of your culture, but most people agree that ethical
communication builds positive relationships, while unethical communication
impairs them.
Here are some examples of unfair communication in business practices.

a. One firm had a book of business so large that they were

running about a month behind in deliveries. Unfortunately,
they never let their customers know about these delays, so
many of them just shifted suppliers. In the end, this situation
cost the company almost 20 percent in sales the next year.
They could have avoided losing that business simply by
informing their customers about the delay and offering them
the option to replace their order with alternative products
that were in inventory.
b. Matthias Rath is a vitamin entrepreneur who used to be a
doctor and is considered to be the most powerful of all
“crackpots”. He recommends vitamin pills to cure even
serious ailments. In UK ads, he claimed that 90% of cancer

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 patients die within several months of starting chemo, arguing
that corporations let them die for profit. Yet, he uses his lies to
sell an HIV/AIDS “miracle cure”, saying that HIV doesn’t cause
AIDS and antiretroviral drugs won’t work, leading to the
spread of infections in South Africa.
c. Johnson & Johnson to pay $417m in cancer lawsuit - A Los
Angeles jury ordered Johnson& Johnson to pay a record $417
million to Echevarria, a hospitalized woman who claimed in a
lawsuit that the talc in the company's iconic baby powder
causes ovarian cancer when applied regularly for feminine
hygiene.

7. Non-respect of Agreements
• is a breach of contract. A breach of contract 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.

8. 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 wild life.
• Environmental economics concludes that environmental
degradation results from the failure of markets, whereas the
entrepreneurship literature argues that opportunities are inherent
in market failure.

9. Contractualization or Labor Contractualization

• is the replacing of regular workers with temporary workers who
receive lower wages with no or fewer benefits. These temporary
workers are also known as sometimes called contractures,
trainees, apprentices, helpers, casuals, piece raters, agency-
hired, and project employees among others. They do the work of
regular workers for a specified and limited period of time, usually
less than six months.
• Contractualization is a form of underemployment. The right to
adequate work and full employment is essential to all men and
women of legal age. This basic right springs from our intrinsic
nature to self-preservation and our innate obligation to support
our family, both of which are in accordance with the divine plan.
Although underemployment (contractualization and part-time
jobs) continues to exist in many various ways, there are no
reasons adequate enough to justify it. The key principle is that full
employment is a fundamental right of every citizen, which means
the right to be protected from unemployment and
underemployment is basic. The harsh reality, however, appears

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 to contradict this idealism embodied in our constitution. In most
cases, on the part of the job seekers, who are almost always
breadwinners, it is a choice between joblessness and
underemployment, a quick option between hunger and at-least
–there’s-hope-for-survival.

A Proactive Approach to Addressing Unethical Behavior in the Workplace

While it may not arise to the level of being illegal, unethical behavior in
the workplace can have serious consequences if unaddressed. And it can
create a toxic work environment in which your employees and business
ultimately suffer.

At large business, a human resources department or manager can

provide a way for employees to voice their concerns about unethical
behavior of colleagues and provide policies, procedures and training. At
smaller businesses with few resources and little or no HR support, creating an
avenue for reporting or disclosing unethical behavior is challenging, as is
putting in place the proper guidance for addressing such behavior.

If your business lacks HR support, it’s critical for employees to have an

easy way to report their concerns and for your company to put in place
policies, protocol and training related to unethical behavior.

Entrepreneurs can take the following steps to proactively address

unethical behavior at work:

1. Create a Code of Ethics.

Set the tone for behavior in your workplace by creating a code
of ethics. A code of ethics establishes the values that are important to
a business and creates a common framework for understanding the
boundaries within the organization.

Code of ethics should be written in broad, idealistic terms to

communicate the company’s ethical vision, yet be succinct enough to
be contained in a values statement. If it makes sense, include ethical
expectations in the company’s mission statement and employee
handbooks. Be sure to involve key employees in the process of drafting
and formalizing the code of the ethics. This will ensure that leaders are
on board with and committed to the values.

2. Establish Protocols
Include in your code of ethics instructions about how to report
unethical behavior. For example, set up an anonymous ethics hotline
as well as a clear protocol for reporting, such as requesting a private
meeting with the appropriate manager or supervisor.

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 Additionally, if a concern or violation is reported and the
company lacks internal HR resources, ensure that the person tasked
with responding is the furthest removed from the concern.

Delegating someone as far removed as possible sets a tone that

the concern will be taken seriously and creates trust in your company’s
ability to address the matter fairly. If retaining an appropriate internal
person isn’t an option, consider investigating in an external HR partner
who can bring impartiality to the process.

3. Empower employees.
Grant staff the know-how to appropriately identify and handle ethics
violations. Accomplish this by implementing ethics-training programs for all
new and existing employees to increase the effectiveness of the code.

Ethics courses are available through books and other written materials
as well as through online, private or live instruction trainings. You might even
choose to tie to ethical behavior some compensation incentives, such as an
end-of-the-year bonus or additional paid time off, to further increase the
code’s relevance to employees.

4. Continuously review the code.

Keeping the code updated is an important step in keeping a
company’s ethics top of mind. Each year, share copies of the code of ethics
with every employee or communicate it through a brown bag lunch and
learn or workshop. Ensure that your employees confirm their understanding of
the code by requiring them to sign a form of acknowledgement afterward. In
doing so, you’ll proactively set up an atmosphere, reinforced by both formal
and informal measures, that promotes the values you’ve set forth.

If you disregard the importance of developing an ethical culture,

lawsuits, high turnover, low morale and even the demise of your business
could result. A smart business leader should champion a written code of
ethics from the outset, establish protocol and continuously review and
promote these guidelines. This will show staff that you’re serious about
creating a positive and ethical workplace. At the same time, you’ll also set
clear, specific expectations that everyone can understand. Ultimately, the
outcome will result in better business processes, as well as happier and more
secure employees and therefore a more successful business.

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 III. WHAT HAVE I LEARNED

EVALUATION/POSTTEST

I. Instruction. True or False. In your activity notebook answer the

following statements. Write the word True if the statement is correct
and write the word False if the statement is wrong.

_______1. Code of ethics should be written in broad, idealistic terms to

communicate the company’s ethical vision, yet be succinct enough to be
contained in a values statement.
_____2. Keeping the code updated is an important step in keeping a
company’s ethics top of mind.
_____3. Business Fraud consists of dishonest and illegal activities perpetrated
by individuals or companies in order to provide an advantageous financial
outcome to those persons or establishments.
_____4. Ethics is a prime concern in marketing, and the areas of price,
placement, and promotion are no exception.

_____5. 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.
_____.6 Fairness is just and reasonable treatment in accordance with
accepted rules or principles.

_____7. Unfair competition is a situation in which competitors compete on

unequal terms because favorable or disadvantageous conditions are
applied to some competitors but not to others.
_____8. Unfair communication is the spreading of false information about the
quality or characteristics of competitor’s products.
_____9. A marketing manager can provide a way for employees to voice
their concerns about unethical behavior of colleagues and provide policies,
procedures and training.
_____10. Ethical Issues are behavior in the workplace that has a serious
consequence if unaddressed.

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