Module 2

Topic: The Ethical and Social Responsibilities of the Entrepreneur

I. INTRODUCTION

Every now and then, newspaper file reports on corruption, deception, and
illegality omitted by various personalities including entrepreneurs. A very common
topic of conversation is the involvement of contractors and suppliers in
anomalous transactions with government personnel. There are indications that
the practice has a tendency to become more intense and destructive. This should
not be tolerated for it will run the society that provides everyone with a sense of
security in an environment of peaceful coexistence. Yet, the said practice is only
one of the many that are committed in the quest for improving one’s lot,
financially or otherwise.
The concern for society’s survival brought into the fore the need to adapt
ethical standards and socially responsible actions. The role of the entrepreneur in
propagating ethics and social responsibility in business cannot be
overemphasized.

II. LEARNING OBJECTIVES

At the end of the module the students should be able to;

1. To determine to the business ethics.

2. To have knowledge on different factors influencing ethical behavior and
how ethical behavior encouraged.
3. To know the code of ethics in entrepreneurship

III. LEARNING CONTENT

A. What is business ethics?

Ethics is the study of moral obligation involving the distinction between

right and wrong. As a consequence, the study of ethics paved the way for the
adaption of the general rules of conduct in society.
The rules about how entrepreneurs ought to behave are referred to as
business ethics. The ethical behavior required of entrepreneurs is determined by
the following:
1. the public
2. interest groups like Society of Prevention of Cruelty to Animals;
3. business organizations; and
4. the individual’s personal morals and values.
Adherence to ethical standards contributes to the smooth flow of business
exchanges. It establishes trust between buyers and sellers and between lenders
and borrowers. Figures 5 on the next page illustrates on the effect of adherence
to ethical standards.

B. Factors Influencing Ethical Behavior

Ethical behavior, whether by a person or a business entity, is influenced by

any or a combination of the following:
 1. situation
2. reward system
3. individual difference; and
4. other factors.
Circumstances vary, and the reactions of firms or individual also vary. For
instance, a firm that behaves ethically during prosperous times may act
unethically in times of financial hardships.

Adherence to Adherence to
Ethical Standards Ethical Standards

by Entrepreneurships - between buyers and

sellers
- between lenders and borrowers

Example: selling is faster

Figure 5. The Effect of Adherence to Ethical Standards

Smooth Flow of
The expectation of high rewards for committing Business
unethical behavior
motivates a person to do it. However, when he knows thatExchanges
there is a possibility
that he would be censured, the motivation is diminished. For instance, a person
who is considering adulterating his products to increase profits will be more
inclined to do it especially if the community does not strongly condemn such acts.
Another example is photocopying original works of others.
People are different from one another and that includes differences in
reacting specific situations. For instance, a trader may think selling food products
which has already expired is not bad. Another person would think differently and
would not want to engage in such activity.
When a person is in competition with others, and he wants to sure of winning
he is more inclined to adapt unethical behavior. An example is the trader who
spreads rumors to discredit competitors.

C. How Ethical Behavior is Encourage

If the entrepreneur believes that business success requires good ethical

behavior his next concern would be to encourage his people to adapt good
ethical behavior.
There are certain ways of encouraging ethical behavior among employees.
These are the following:

1. adaption of a code of ethics;

2. institution of rewards and punishments concerning ethical
behavior;
3. adaption of internal programs for resolving conflicts;
 4. creation of ethics review committee;
5. provision of training in ethics for employees; and
6. top management support.

D. Code of Ethics

The Code of ethics is a formal document indicating the entrepreneurships

adapt-ted principles of appropriate behavior. A code of ethics is very useful firm
espousing ethical behavior. It serves as a basic reference for employees who
make big or small decisions. For example, an employee is confronted with a job
offer from a rival company and he thinks he is not yet ready to respond correctly
to this type of situation. Although this does not happen often, few persons are
equipped with sufficient skills to deal with it. If, on the other hand, the company
has a code of ethics, the affected employee will have some basis for his action.

A code of ethics can be made effective if the following requirements are met:

1. it should refer to specific unethical practices like receiving gifts,

avoiding warranty claims, bid-rigging, making fictitious claims, among
others; and
2. it must be supported by top management. Support comes in various
forms such as providing sufficient funds for its implementation and
assigning specific employees to handle ethical infractions of other
employees, and the like.
Ethical behavior of personnel occurs only when the entrepreneur develops a
code of ethics and successfully implements it.

E. Rewards and Punishments Concerning Ethical Behavior

A code of ethics is sufficient for some people if ethical behavior is required.

For many people, however, this may be enough to motivate them to act ethically.
If the entrepreneurship wants to have some measure of control over the behavior
of its personnel, a system of reward and punishment must be instituted.
Punishments could take the form of dismissal, demotion, suspension, or
reprimand. Rewards may be given in the form of cash gifts, promotion, or citation.

F. Internal Programs for Resolving Conflicts

Conflicts arise, even when ethical conduct of personnel is concerned. For

example, a subordinate may think his superior is acting unethically regarding
promotions. The subordinate may harbor ill feelings toward his superior if the
subordinate is not provided with means to ventilate his grievance.
It is important for entrepreneur to adapt a program of resolving conflicts. For
instance, a subordinate may appeal a superior’s decision without exposing him to
the concerned superior. Later. A meeting between management and the
subordinate is arranged.

G. Ethics Review Committee

To encourage ethical behavior, the entrepreneurship may create an ethics

review committee. This committee is usually composed of company employees
as well as some who are not employed by the company. These persons have
undergone special training in ethics. The committee provides advice to the
entrepreneur and his staff concerning sensitive ethical issues. Ethics review
committees are not yet popular in concerning sensitive ethical issues. Ethics
review committees are not yet popular in Philippine entrepreneurship, but it is
slowly adapted by government corporations like state colleges and universities.
This is not a bad option if the entrepreneur wants ethical conduct from his
employee.

H. Provision of Training in Ethics for Employees

Company personnel who are exposed to activities that are ethically charged
must be provided with sufficient training in ethics. Such training should make
them sufficiently prepared to deal with various ethical issues they encounter in
their respective workplace.

Ethics training is more appropriate for persons occupying sensitive position in

purchasing, waste disposal, personnel, research and development, sales and
manufacturing.

I. Ethical Issues facing Entrepreneurships

Entrepreneurships face ethical questions on a daily basis. These spring

from the following relationships:
1. between the company and the customers;
2. between the company and its personnel and employees;
3. between the company and its business associates; and
4. between the company and the investors and the financial community.

J. Relations with Customers

When ethical abuses are committed, the most probable victims are
customers. This is expected because of the high frequency of transactions
between the company and the customers.
The types of abuses vary and they come in form as varied as the
transactions. An example is the practice of sending unsolicited message to the
costumers through the cellphone.
Entrepreneurs are expected by society to treat their customers fairly and
not to act in ways that will be harmful to them. Entrepreneurs should provide
support for consumer rights which are as follows:

1. the right to be safe;

2. the right to be informed;
3. the right to choose; and
4. the right to be heard.

The Right to Be Safe. Consumers expect that the product and services
that they buy will do them no harm. They also expect to be free from bodily harm
when they are inside the entrepreneur’s business premises. This concern brought
the passage of laws intended to protect the consumer. For example,
manufactured drugs intended for sale to the general public must first pass the
standard requirements of the Food and Drug Administration. The purpose is to
provide some guarantees to the public that the drugs are safe to use.
The right to Be Informed. Consumers make purchasing decisions often.
The quality of their decisions, however, will depend on whether or not they are
properly informed. Advertisements and information printed on labels are some of
the ways of providing information to consumers about products and services. The
requirement for indicating dates of manufacture and expiry on labels is a result of
legislation intended to inform the consumer.
The Right to Choose. Firms that intend to adhere to business ethics
should strive to protect consumer’s right to choose, what products and services
they need and intend to purchase. However, some traders would violate this right
to make huge profit.
An example is the trader who cornered the year’s supply of a certain brand
of cigarettes. Nobody could buy that brand except from him and he was able to
make huge profits by selling at the high price.
Another “hot issue” in the Philippines is the question on the right of
consumers to choose branded and generic drugs.
The Right to Be Heard. Customers have the right to communicate their
concerns to entrepreneurships they patronize. This right may be used to express
appreciation about what the company is doing, or to provide information about
defects in the products the costumer bought.
To support the customer’s right to be heard, some companies install a system
of receiving and processing complaints. An example is the information printed on
the product’s label indicating contact numbers where complaints may be delayed.

K. Relations with Personnel and Employees

There is always a possibility that business firms, including

entrepreneurships, will commit unethical acts toward their employees. Since,
entrepreneurs and their staff make decisions on various business activities like
hiring, promotion, transfer, compensation and dismissal, it is not uncommon for
ethical lapses to happen every now and then. An example is the ethical question
faced by a manager in deciding whether or not to give hiring preference to a
relative of his superior.
Good ethical conduct requires entrepreneurs to be aware of their
responsibilities to employees. These are the following:
1. workplace safety;
2. quality of life issues;
3. avoiding discrimination; and
4. preventing sexual harassment.
Workplace Safety. The ethical entrepreneur is one who makes sure that
the workplace is safe for employees. He sees to it that adequate measures are
adapted to prevent accidents from happening in the factory and in the office.
Sufficient ventilation must be maintained. Fire exits must be provided. Machines
and chemicals must be handled by properly trained personnel.
Quality of Life Issues. Many employees are burdened by problems about
maintaining a good balance between work and family. Caring for children and the
elderly are two of the most common responsibilities that make difficult for any
employee.
Entrepreneurships can go further in helping its workers improve their
quality of life by offering flexible work arrangement. For example, the husband
may be given an option to work at hours different from his wife so there will be an
adult in their house at any given time. The company may also redesign jobs,
whenever applicable, so employee may be allowed to work at home, or work
part-time, or work with shortened work weeks.
Avoiding Discrimination. Everyone has the right to work in a place
where discrimination is not practiced. Factors like age, sex, race, religion,
political beliefs, and the like must not be allowed to affect any person’s chance of
getting employed or promoted.
Preventing Sexual Harassment. Sexual harassment refers to unwelcome
sexual advances, request for sexual favors, and other verbal or physical contact
of a sexual nature. Entrepreneurs needs to do the following:
1. issue a specific policy statement prohibiting sexual harassment;
2. develop a complaint procedure for employees to follow;
3. create a work environment that encourages sexually harassed
employees to report their experiences; and
4. establish a committee to investigate sexual harassment claims.
IV. LEARNING ACTIVITY/ASSESSMENT

I. Provide insights/reflection to the following situation indicated below. Write your

answer in long bond paper and observed proper margin. (Top 1, Left 1.5, Right 1
and Bottom 1). Note: Avoid erasure!

1. What is business ethics? Why is it important?

2. Who determines ethical behavior required of entrepreneurs?
3. What is the purpose of code of ethics?
4. What is meant by “the consumer’s right to be safe”?
5. What responsibilities to employees must entrepreneurs be aware
of?

VI. REFERENCES

Roberto G. Medina, Entrepreneurship and Small Business Management 3 rd

Edition (2014) Rex Bookstore, Manila Philippines.