Ethical and Social Responsibilities of the Entrepreneur

Ethics is the study of moral obligation involving the distinction between right and wrong. The study of ethics has paved the way for adapting general rules of conduct in society. The rules about how entrepreneurs should behave are referred to as business ethics.

Public: how the entrepreneur deals with and interacts with people.
Interest groups: examples include organizations like the Society for the Prevention of Cruelty to Animals (SPCA).
Business organizations and individual personal morals and values.

Establishment of trust between buyers and sellers, and between lenders and borrowers.
Smooth flow of business exchanges (e.g., selling is made faster).

Influencing factors can include a combination of:
- The situation or context.
- The reward system (incentives or punishments).
- Individual differences (personal morals, values, and reactions).
Circumstances vary; reactions of firms or individuals vary as well, and cannot be fully controlled.
Example: a firm that behaves ethically in prosperous times may act unethically in financial hardship.
Reward expectations: high rewards for unethical behavior may motivate such behavior; fear of censure or disapproval can dampen motivation.
Examples:
- Adulterating products (lower quality) to increase profit when community does not strongly condemn such acts.
- Piracy/copyright infringement: photocopying original works and selling at a lower price, attracting buyers due to affordability.
- Individual differences: some traders may view selling expired food as acceptable, while others would not.

A code of ethics should meet specific requirements to be effective:
- Knowledge should refer to specific unethical practices (e.g., receiving gifts in exchange for favorable treatment, avoiding warranty claims, bid rigging, making fictitious claims).
- It must be supported by top management (e.g., providing funds for implementation, assigning responsible staff to handle ethical infractions).
A code of ethics may be sufficient for some people, but for many it is not enough to motivate ethical action.
If the goal is some control over behavior, a system of rewards and punishments is often necessary (cash gifts, promotions, citations as rewards; dismissal, demotion, suspension, reprimand as punishments).
An ethics review committee can help:
- Usually composed of company employees and external members.
- Members undergo special ethics training.
- Provides advice on sensitive ethical issues to the entrepreneur and staff.
In practice, ethics review committees are not yet widespread in the Philippines, but are being adopted by government corporations like state colleges and universities.

Relationships that frequently raise ethical questions:
- Company and customers.
- Company and personnel/employees (a company’s success depends on its people).
- Company and business associates/partners.
- Company and investors/financial community.

When ethical abuses occur, customers are the most probable victims due to the frequency of customer-facing transactions.
Types of abuses vary; examples include:
- Unsolicited messages to customers via mobile phones (spam-like practices).
Societal expectation: entrepreneurs should treat customers fairly and avoid harms.
Entrepreneurs should support consumer rights (see below).

Right to be safe: products and services should not cause harm; premises should be safe; drugs must meet regulatory standards (e.g., FDA requirements).
Right to be informed: consumers should be adequately informed to make purchasing decisions; information is provided via advertising and product labels; dates of manufacture and expiry on labels are required by legislation.
Right to choose: protect consumers’ freedom to choose products and services; unethical practices (e.g., cornering year supply of a brand to force profits) violate this right.
Right to be heard: customers can communicate concerns, provide feedback, and report defects.

Ethical firms recognize responsibilities toward employees due to the many daily decisions related to hiring, promotion, transfer, compensation, and dismissal.
Common ethical concerns and duties toward employees include:
- Workplace safety: maintain a safe working environment; prevent accidents; ensure adequate ventilation; provide fire exits; ensure only properly trained personnel handle machines and chemicals.
- Quality of life issues: help employees balance work and family responsibilities (e.g., daycare facilities, housing near work sites, flexible work arrangements such as staggered shifts to ensure someone is at home).
- Avoiding discrimination: do not discriminate based on age, sex, religion, political beliefs, or similar characteristics in employment decisions.
- Preventing sexual harassment: maintain a workplace free from unwelcome sexual advances and harassment; ensure fair treatment for all.

Business relationships with suppliers, agents, and middlemen can raise ethical questions in transactions.
Common unethical practices include:
- Bribery of purchasing officers by suppliers who need contracts.
- Favoritism by sales managers (e.g., giving priority to certain traders in exchange for personal favors).
Such practices undermine fair competition and ethical conduct in business.

The financial system’s health partly depends on trust in firms’ ethical conduct.
Investors and the financial community must feel that investments are well protected; trust supports higher levels of investment.
Strong ethics and transparent practices help maintain investment levels and market stability.

Quote: "Do things at your own pace because life is not a race. Don’t be pressured by the people around you, and just focus on yourself; comparison is the thief of all evil."

Relates to stakeholder theory: businesses have obligations to customers, employees, suppliers, investors, and the broader community.
Ties to social contract and corporate governance: ethical norms shape legitimacy and long-term viability.
Consumer protection and rights-based frameworks anchor business ethics in law and public policy.
Practical implications: ethics influence brand reputation, employee morale, customer loyalty, regulatory compliance, and financial performance.

Business ethics define how entrepreneurs should behave in relation to various stakeholders.
Ethical behavior is shaped by circumstances, incentives, and individual differences.
Codes of ethics, rewards/punishments, conflict-resolution programs, ethics review committees, training, and top management support help promote ethical behavior.
Consumer rights (safety, information, choice, being heard) guide expectations for ethical product and service delivery.
Workplace safety, work-life balance, non-discrimination, and prevention of harassment are fundamental ethical duties to employees.
Unethical practices by any party in the supply chain can undermine trust and harm the broader economy.
Trust in the financial system hinges on perceived ethical conduct of firms.