CHAPTER 5

Introduction to Ethics

Ethics can be defined broadly as a set of moral principles or values that govern the actions and decisions
of an individual or group. While personal ethics vary from individual to individual at any point in time,
most people within a society are able to agree about what is considered ethical and unethical behavior. In
fact, a society passes laws that define what its citizens consider to be the more extreme forms of unethical
behavior.
Each of us has such a set of values, although we may or may not have considered them explicitly.
Philosophers, religious organizations, and other groups have defined in various ways ideal sets of moral
principles or values. Examples of prescribed sets of moral principles or values at the implementation level
include laws and regulations, church doctrine, code of business ethics for professional groups such as CPAs,
and codes of conduct within individual organizations.
Ethics is a topic that is receiving a great deal of attention throughout our society today. This attention is an
indication of both the importance of ethical behavior to maintaining a civil society, and a significant
number of notable instances of unethical behavior. Much of what is considered unethical in a particular
society is not specifically prohibited. So how do we know whether we are acting ethically? Who decides
what standards of conduct are appropriate? Is any type of behavior "ethical" as long as it does not violate
a law or a rule of one's profession?
It is common for people to differ in their moral principles or values. Even if two people agree on the ethical
principles that determine ethical behavior, it is unlikely that they will agree on the relative importance of
each principle. These differences result from all of our life experiences. Parents, teachers, friends and
employers are known to influence our values, but so do television, team sports, life successes and failures,
and thousands of other experiences.

CHARACTERISTICS AND VALUES ASSOCIATED WITH ETHICAL BEHAVIOR

The following list of ethical principles incorporates the characteristics and values that most people
associate with ethical behavior.

Integrity: Be principled, honorable, upright, courageous and act on convictions; do not be twofaced or
unscrupulous, or adopt an end-justifies-the means philosophy that ignores principle.

Honesty: Be truthful, sincere, forthright, straightforward, frank, candid; do not cheat, steal, lie, deceive or
act deviously.

Trustworthiness and Promise Keeping: Be worthy of trust, keep promises, full commitments, abide by the
spirit as well as the letter of an agreement; do not interpret agreements in an unreasonably technical or
legalistic manner in order to rationalize noncompliance or create excuses and justification for breaking
commitments.

Loyalty (Fidelity) and Confidentiality: Be faithful and loyal to family, friends, employers, client and
country; do not use or disclose information learned in confidence; in a professional context, safeguard the
influences and conflicts of interest.
Fairness and Openness: Be fair and open-minded, be willing to admit error and, where appropriate,
change positions and beliefs, demonstrate a commitment to justice, the equal treatment of individuals,
and tolerance for acceptance of diversity; do not overreach or take advantage of another's mistakes or
diversities.

Caring for Others: The following list of ethical principles incorporates the characteristics and values that
most people associate with ethical behavior.

Respect for Others: Demonstrate respect for human dignity, privacy, and the right to self-determination
of all people; be courteous, prompt, and decent; provide others with the information they need to make
informed decisions about their own lives; do not patronize, embarrass, or demean.

Responsible Citizenship: Obey just laws; if all law unjust, openly protest it; exercise all democratic rights
and privileged responsibly by participation (voting and expressing informed views), social consciousness,
and public service; when in a position of leadership or authority, openly respect and honor democratic
processes of decision making, avoid unnecessary secrecy or concealment of information, and assure that
others have all the information they need to make intelligent choices and exercise their rights.

Pursuit of Excellence: Pursue excellence in all matters; in meeting your personal and professional
responsibilities, be diligent, reliable, industrious and committed; perform all tasks to the best of your
ability, develop and maintain a high degree of competence, be well informed and well prepared; do not
be content with mediocrity; do not "win at any cost".

Accountability: Be accountable, accept responsibility for decisions, for the foreseeable consequences of
actions and inactions, and for setting an example of others. Parents, teachers, employers, many
professionals and public officials have a special obligation to lead by example, to safeguard and advance
the integrity and reputation of their families, companies, professions and the government itself; an
ethically sensitive individual avoids even the appearance of impropriety, and takes whatever actions are
necessary to correct or prevent inappropriate conduct of others.

WHY IS ETHICAL BEHAVIOR NECESSARY?

Ethical behavior is necessary for a society to function in an orderly manner. It can be argued that ethics is
the glue that holds a society together. What would happen if for example we could not depend on the
people we deal with to be honest. If parents, teachers, employees, siblings, co-workers and friends all
consistently lied, it would be almost impossible for effective communication to occur.

The need for ethics in society is sufficiently important that many commonly held ethical values are
incorporated into laws. For example, laws dealing with driving while intoxicated and selling drugs concern
responsible citizenship and respect for other. Similarly, if a company sells a defective product, it can be
held accountable if harmed parties choose to sue throughout the legal system.

A considerable portion of the ethical values of a society cannot be incorporated into laws because of the
judgmental nature of certain values. Looking at the honesty principle, it is practical to have laws that deal
with cheating, stealing, lying, or deceiving others. It is far more difficult to establish meaningful laws that
deal with many aspects of principles such as integrity, loyalty and pursuit of excellence. That does not
imply that these principles are less important for an orderly society.

Business decisions influence employees, customers, suppliers and competitors, while company operations
affect communities, governments and the environment.

WHY DO PEOPLE ACT UNETHICALLY?

Most people define unethical behavior as conduct that differs from the way they believe would have been
appropriate given the circumstances. Each of us decides for ourselves what we consider unethical
behavior, both for ourselves and other. It is important to understand what causes people to act in a manner
that we decide is unethical.

There are two primary reasons why people act unethically:

1. the person's ethical standards are different from those of society as a whole, or
2. the person chooses to act selfishly.

In many instances, both reasons exist.

1. Person's Ethical Standards differ from General Society
Extreme examples of people whose behavior violates almost everyone's ethical standards
are drug dealers, bank robbers, and larcenists. Most people who commit such acts feel no
remorse when they are apprehended, because their ethical standards differ from those of
society as a whole.
There are also many far fewer extreme examples when violate our ethical values. When
people cheat on their tax returns, treat other people with hostility, lie on employment
applications, or perform below their competence level as employees, most of us regard
that as unethical behavior. If the other person has decided that this behavior is ethical and
acceptable, there is a conflict of ethical values that is unlikely to be resolved.

2. The Person Chooses to Act Selfishly

A considerable portion of unethical behavior results from selfish behavior. The Pork Barrel
Scam and the other political scandals resulted from the desire for political power and
wealth; cheating on tax returns and expense reports is motivated by financial greed,
performing below one's competence and cheating on tests are typically due to laziness.
In each case, the person knows that the behavior is inappropriate, but chooses to do it
anyway because of the personal sacrifice needed to act ethically.

CATEGORIES OF ETHICAL PRINCIPLES

Principles of Personal Ethics include among others

• Basic justice, fairness
• Respect for the right of others
• Concern for the right of others
• Concern for the well-being on welfare of others
• Benevolence, trustworthiness, honesty
• Compliance with the law

Professional Ethics include among others:

• Integrity, impartiality, objectivity
• Professional competence
• Confidentiality
• Professional behavior
• Avoidance of potential or apparent conflict of interest

Business Ethics include among others:

• Fair competition
• Global as well as domestic justice
• Social responsibility
• Concern for environment

The focus of this book is on Business Ethics.

The Need for Professional Ethics

To understand the importance of a Code of Ethics to professionals, one must understand the nature of a
profession as opposed to other vacation.

There is no universally accepted definition of what constitutes a profession; yet, for generations, certain
types of activities have been recognized as professions while others have not.

Medicine, law, engineering, architecture and theology are examples of disciplines long accorded
professional status. Public accounting is relatively new as far as the ranking of the professions is concerned
but it has achieved widespread recognition in recent decades.

All the recognized professions have several common characteristics. The most important of these
characteristics are:
(1) a responsibility to serve the public
(2) a complex body of knowledge
(3) standards of admission to the profession
(4) a need for public confidence

Careless work or lack of integrity of a professional may lead the public to a negative view toward the entire
profession. All professionals must have public confidence of the public to be successful. Consequently, the
members of the different professions act in unison by deriving their respective code of conduct.
Code of Good Governance for the Profession in the Philippines (E.O. No. 220, June 23, 2003)
This Code is adopted by the Professional Regulation Commission (PRC) and the 42 Professional
Regulatory Boards to cover an environment of good governance in which all Filipino professionals shall
perform their tasks. While each profession may adopt and enforce its own code of good governance and
code of ethics, it is generally recognized that there is a general commonality among the various codes.
This Code which covers the common principles underlying the codes of various professions could be used
by all professionals who face critical ethical questions in their work.

General Principle of Professional Conduct

Professionals are required not only to have an ethical commitment, a personal resolve to act ethically, but
also have both ethical awareness and ethical competency. Ethical awareness refers to the ability to discern
between right and wrong, while ethical competency pertains to the ability to engage in sound moral
reasoning and consider carefully the implications of alternative actions.

Specific Principle of Professional Conduct

1. Service to Others
Professionals are committed to a life of service to others. They protect life, property, and public welfare.
To serve others, they shall be prepared for heroic sacrifice and genuine selflessness in carrying out their
professional duties even at the expense of personal gain.

2. Integrity and Objectivity

To maintain and broaden public confidence, professionals shall perform their responsibilities with the
highest sense of integrity and imbued with nationalism and spiritual values. In the performance of any
professional service, they shall at all times, main objectivity, be free of conflicts of interest, and refrain
from engaging in any activity that would prejudice their abilities to carry out their duties ethically. They
shall avoid making any representation that would likely cause a reasonable person to misunderstand or to
be deceived.

3. Professional Competence
In providing professional services, a certain level of competence is necessary, i.e., knowledge, technical
skills, attitudes, and experience. Professionals shall, therefore, undertake only those professional services
that they can reasonably deliver with professional competence. Corollary to this, it is their express
obligation to keep up with new knowledge and techniques in their field, continually improve their skills
and upgrade their level of competence and take part in a lifelong continuing education program.

4. Solidarity and Teamwork

Each profession shall nurture and support one organization for all its members. Though a deep spirit of
solidarity, each member should put the broader interest of the profession above one's personal ambition
and preference. Through teamwork within a cohesive professional organization, each member shall
effectively observe ethical practices and pursue continuing professional development as well as deepen
one's social and
civic responsibility.

5. Social and Civic Responsibility

Professionals shall always carry out their professional duties with due consideration of the broader interest
of the public. They shall, therefore, serve their clients/employers and the publics with professional concern
and in a manner consistent with their responsibilities to society. As responsible Filipino citizens, they shall
actively contribute to the attainment of the country's national objectives.

6. Global Competitiveness
Every professional shall remain open to challenges of a more dynamic interconnected world. He or she
shall rise up to global standards and maintain levels of professional practices fully aligned with global best
practices.

7. Equality of All Professions

All professionals shall treat their colleagues with respect and shall strive to be fair in their dealings with
one another. No one group of professionals is superior or above others. All professionals perform an
equally important, yet distinct, service to society. In the eyes of the PRC, all professions are equal and,
therefore, every one shall treat one other professionals with respect and fairness.

Questions and Answers:

1. Define "Ethics".
Ethics is a set of moral principles that guide individual and group behavior, defining what is right
and wrong in society.

2. What is the basic purpose of a code of ethics for a profession?

It sets guidelines for professional conduct, ensuring integrity, responsibility, and public trust
while protecting clients, organizations, and society.

3. Name and explain the characteristics and values associated with ethical behavior.
o Integrity – Acting honorably and ethically.
o Honesty – Being truthful and sincere.
o Trustworthiness – Keeping commitments.
o Loyalty & Confidentiality – Protecting relationships and information.
o Fairness & Openness – Treating people justly.
o Caring for Others – Being compassionate.
o Respect for Others – Valuing dignity and rights.
o Responsible Citizenship – Following just laws and civic duties.
o Pursuit of Excellence – Striving for high standards.
o Accountability – Taking responsibility for actions.

4. Why is ethical behavior necessary?

It ensures trust, order, and cooperation in society, influences business decisions, and prevents
harmful consequences in professional and personal interactions.

5. Why do people act unethically?

o Different ethical standards – Some individuals have values that differ from society.
o Selfishness – Greed, power, or laziness led to unethical actions.
6. Describe some the principles and or values that are related to:
a. Personal Ethics – Fairness, honesty, respect, and compliance with laws.
b. Professional Ethics – Integrity, objectivity, competence, and confidentiality.
c. Business Ethics – Fair competition, social responsibility, and environmental concern.

7. Why is ethical behavior necessary in a profession?

It builds public trust, ensures fairness, maintains professional credibility, and promotes
responsible decision-making.

CHAPTER 6
BUSINESS ETHICS

BASIC CONCEPT OF BUSINESS ETHICS

Business ethics refers to standards of moral conduct, behavior and judgment in business. It involves
making the moral and right decisions while engaging in such business activities as manufacturing and
selling a product and providing a service to customers. Business ethics is an area of corporate responsibility
where businesses are legally bound and socially obligated to conduct business in an ethical manner.
Business ethics is based on the personal values and standards of each person engaged in business.

PURPOSES OF BUSINESS ETHICS

Main Purpose
The main purpose of business ethics is to help business and would-be business to determine what business
practices are right and what are wrong. Hopefully, they are going to use this knowledge to guide them in
making the right business decisions.

Special Purpose
There are other purposes which are corollary to the main purpose. These purposes include the following:
1. To make businessmen realize that they cannot employ double standards to the actions of other
people and to their own actions.
2. To show businessmen that common practices which they have thought to be right because they
see other businessmen doing it, are really wrong.
3. To serve as a standard or ideal upon which business conduct should be based.

Except for some country's organizations, professionals which have formulated and implemented their
Code of Ethics, the business world today does not have one universal standard code of ethics. Each man
has to evaluate a situation according to his own belief. Often, because there is no code of ethics to guide
them, businessmen take actions that may be wrong. Therefore, one of the specific purposes of business
ethics is to assist the business world in formulating codes of conduct personal, company and professional
which can be used as a guide in formulating business plans and strategies and in making business
decisions.
SCOPE AND IMPACT OF BUSINESS ETHICS
Business ethics covers all conduct, behavior and judgment in business. This includes the slightest deviation
from what is right to illegal and dishonest acts that are punishable by law. It involves making the right
choices while engaging in such business activities as manufacturing and selling a product or selling and
rendering a service.

Generally, actions that are not forbidden by law are ethical. In some cases, however, what is legal (not
forbidden by law) may be unethical. Business ethics therefore covers even acts that may be legal but which
are wrong because they violate ethical principles.

Business ethics is based on the personal values and standards of each person engaged in business. Since
individual values differ, what is ethical or unethical in making profit also varies from person to person. And
here lies the problem. There are still no uniform standards of right and wrong from which all business may
base their actions.

The businessman who provides fair business competition is the most likely to observe the business ethical
rules of conduct, behavior and judgment. Fair business competition means achieving success solely by
offering better products, services and terms than the competitor. It is a form of business competition
where success is gained by the merits of one's goods or services.

Economic Impact
A business has an economic impact on society through the wages it pays to its employees, the materials
that it buys from their suppliers and the prices it charges its customers. It would have a positive social
impact on its employees if they are paid fair living wages and benefits. It will have a positive effect on its
suppliers that they paid fairly and on time for their supplies. The effect on its customers is positive if the
business gives them good value for the price they pay for the products and services.

Social Impact
The social impact of corporate governance contributes to the ethical climate of society. If businesses offer
bribes to secure work or other benefits, engage in accounting fraud or breach regulatory and legal
limitations on their operations, the ethics of society suffer. In addition to a deteriorating ethical
environment, such as corruption may unfairly raise the price of goods for consumers or the quality of the
product or service compromised.

Environmental Impact
Environmental protection is a key area of business influence on society. Businesses that implement good
environmental policies to use energy more efficiently, reduce waste and in general lighten their
environmental footprint can reduce their internal costs and promote a positive image of their company.
The environmental initiatives of a business leader often force competitors to take similar action for an
increased beneficial effect on the environment.
Impact on Business Managers
The concepts and principles for the ethical conduct in business are relegated to the managers of the
business enterprise. Thus, although the manager is expected to act in the best interest of the business, he
cannot be expected to act in a manner that is contrary to the law or to his conscience.
In particular, a manager should:
• acknowledge that his role is to serve the business enterprise and the community;
• avoid all abuse of executive power for personal gain, advantage or prestige;
• reveal the fact to his superior whenever his personal business of financial interests’ conflict with
those of the company;
• be actively concerned with the difficulties and problems of subordinates, treat them fairly and by
example, lead them effectively, assuring to all the right of reasonable access and appeal to
superiors;
• recognize that his subordinates have a right to information on matter affecting them, and make
provision for its prompt communication unless such communication is likely to undermine the
security and efficiency of the business;
• fully evaluate the likely effects on employees and the community of the business plans for the
future before taking a final decision and
• cooperate with his colleagues and not attempt to secure personal advantage at their expense.

ETHICAL CHALLENGES IN TODAY'S WORLD

In an article, "Ethical Challenges in Today's World" written by Ms. Mercedes B. Suleik published in the
Business Mirror on February 13, 2018 the author expressed her insights on "Business Ethics" where an
inherent conflict between ethics and the pursuit of profit is more pronounced.
Cited in this article is the message of Pope Francis in his Ecumenical, Evangeli Gaudium
"Humanity is experiencing a turning point in its history as can be seen from the advances occurring
in the sciences and technology. We are in age of knowledge and information and that this has led
to new and often anonymous kinds of power. We have today an economy of exclusion and
inequality".
"In a system that idolizes increased profit, everything that stands in its way is pushed aside. Behind
this attitude lurks a rejection of ethics. Ethics has come to be viewed with derision as being
counterproductive. Ethics is felt to be a threat because it condemns the manipulation and
debasement of the person and that ethics leads to a call for a committed response, which is outside
of the categories of the marketplace."
"Humanity has a mission and the means to transform the world in justice and love in human
relations, even in the social and economic field. Market economics must be underpinned by
commitments to particular moral goods and a certain version of the human person if it is to serve
rather than undermine humanity's common good. The economy needs ethics in order to function
correctly not an ethics which is people-oriented."

REVIEW QUESTIONS
Questions and Answers
1. What does business ethics mean?
Business ethics refers to the moral principles that guide business practices, ensuring fairness,
honesty, and responsibility in decision-making.
2. What is the main objective of observing ethical behavior in business?
To build trust, maintain reputation, ensure legal compliance, and create a fair and sustainable
business environment.

3. Name the other purpose of business ethics.

• Promote corporate social responsibility.
• Prevent fraud and corruption.
• Enhance employee and customer relationships.
• Encourage long-term business success.

4. What is the scope of business ethics?

• Fair trade and competition.
• Corporate governance and accountability.
• Environmental responsibility.
• Employee rights and fair labor practices.
• Consumer protection.

5. Explain the economic impact of observing business ethics.

Ethical businesses attract more customers, investors, and employees, leading to long-term
profitability, stability, and sustainable growth.

6. What is the impact of business ethics to society in general?

It fosters trust, reduces corruption, promotes fair business practices, and improves the overall
quality of life.

7. Explain how business managers could act ethically.

• Lead with integrity and fairness.
• Follow laws and industry regulations.
• Treat employees, customers, and stakeholders with respect.
• Promote transparency and accountability.

8. Describe the inherent conflict between ethics and pursuit of profit.

Businesses may face pressure to cut corners, exploit workers, or engage in dishonest practices to
maximize profits, creating a dilemma between ethical integrity and financial gain.

CHAPTER 7
COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS
COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS
Unethical problems in business ethics occur in many forms and types. The most common of these
unethical practices of business establishments are misrepresentation and over-persuasion.
Misrepresentation may be classified into two types: direct misrepresentation and indirect
misrepresentation.
Direct Misrepresentation is characterized by actively misrepresenting about the product or customers.
This includes:

Deceptive Packaging. Deceptive packaging takes many forms and is of many types. One type is
the practice of placing the product in containers of exaggerated sizes and misleading shapes to
give a false impression of its actual contents. An example of this type of deceptive packaging is
slack-fill packaging where containers like cartons, tin cans and certain plastics are filled only up to
eighty-five to ninety-five percent of their capacity.

Misbranding or mislabeling. Misbranding is the practice of making false statements on the label
of a product or making its container similar to a well-known product for the purpose of deceiving
the customer as to the quality and/or quantity of a product being sold.

False or Misleading Advertising. Advertising serves a useful purpose if it conveys the right
information. It is the principal means by which people are informed about the availability, nature
and uses of old and new products. However, advertising does not always tell the "whole truth and
nothing but the truth" if it greatly exaggerates the virtues of a product and tells only half of the
truth or else sings praises to its non-existent virtues. If advertising does not provide a useful
service anymore to the customers, it can become the agent of misrepresentation.

Examples are:
• Advertisements with pictures or statements that convey exaggerated impression of the
product's reliability or quality.
• Advertisement that claims that the product is the "fastest selling brand" or the "product
of the year".
• Advertisements using fictitious or obsolete testimonials.

Adulteration. Adulteration is the unethical practice of debasing a pure or genuine commodity by

imitating or counterfeiting it, by adding something to increase its bulk or volume, or by
substituting an inferior product for a superior one for the purpose of profit or gain. It is unethical
because an inferior product is passed off as a superior one. This does not meet the standard for
fair service, that is achieving success by offering better service (in the form of a superior product
and terms of payment) than the competitor.

Weight understatement or Short weighing. In short weighing, the mechanism of the weighing
scale is tampered with or something is unobtrusively attached to it so that the scale registers more
than the actual weight. An example is a foot pedal with a concealed string tied to the weighing
scale. The modus operandi of sellers is to use two sets of scales one which gives the correct weight
and has been sealed by the authorities and another which looks identical but registers more
weight than the product. Short weighing is practiced in selling products where prices depend on
the weight such as sugar, meat, fish, vegetables, fruits, nails, etc.
Measurement understatement or Short measurement. In short measurement, the measuring
stick or standard is shorter than the real length or smaller in volume than the standard. This
unethical practice is found in selling situations where the price of the product depends on its
length such as selling cloth or textiles, electric cords or wires or on its volume such as selling rice
by the sack.

Quantity understatement or Short numbering. In this unethical practice, the seller gives the
customer less than the number asked for or paid for. Short numbering is often practiced in selling
situations where the product being sold is in such a shape or is packed in a manner that would
make counting the product difficult or inconvenient. For example, a customer who is not vigilant
may receive less quantity than what he is entitled to when buying toilet paper, bond paper, carbon
paper, paper clips, thumb tacks, matches and toothpicks which are sold by the box or package.

Indirect Misrepresentation is characterized by omitting adverse or unfavorable information about the

product or service. Among the most common practices involving indirect misrepresentations are caveat
emptor, deliberate withholding of information and business ignorance.

Caveat emptor is a practice very common among salesmen. Translated, caveat emptor means "let
the buyer beware". Under this concept, the seller is not obligated to reveal any defect in the
product or service he is selling. It is responsibility of the customer to determine for himself the
defects of the product.
Caveat emptor is indirect misrepresentation and unethical because a seller is a witness for the
goods he is selling. He testifies to its nature, features, uses and qualities. As a witness, it is his
obligation to "tell the truth and nothing but the truth" about his product. What makes caveat
emptor unethical is the willingness of the seller to generate profit by taking advantage of the
buyer's lack of information. This is passive deception which is also lying.

Deliberate Withholding of Information. Following the argument that caveat emptor is unethical,
the deliberate withholding of significant information in a business transaction, is also unethical.
No business transaction is fair where one of the parties does not exactly know what he is giving
away or receiving in return."

Passive deception. Direct misrepresentation gives business a bad name while indirect
misrepresentation or passive deception is not as obvious, it nonetheless contributes to the
impression that businessmen are liars and are out to make a fast buck. Business ignorance is
passive deception because the businessman is unable to provide the customer with the complete
information that the latter needs to make a fair decision.

Over-Persuasion
Persuasion is the process of appealing to the emotions of a prospective customer and urging him to buy
an item of merchandise he needs. Persuasion is legitimate and necessary in the selling of goods if it is done
in the interest of a buyer such as persuading him to get a hospitalization insurance policy. However,
persuasion used for the sole benefit of selling a product without considering the interest of the buyer is
not ethical. The common instances of over-persuasion include the following examples:
1. Urging a customer to satisfy a low priority need for merchandise.
2. Playing upon intense emotional agitation to convince a person to buy.
3. Convincing a person to buy what he does not need just because he has the capacity or money to
do so.

CORPORATE ETHICS

Unethical Practices of Corporate Management

Practices of corporate management that involve ethical considerations may be classified into two:
practices of the Board of Directors and practices of executive officers. In many cases, the practices may
apply to both categories of corporate management and the only dividing line is in the financial magnitude
and implications of a particular corporate management practice.

Some Unethical Practices of the Board of Directors

1. Plain Graft
Some of the Board of Directors help themselves to the earnings that. otherwise would go other
stockholders. This is done by voting for themselves and the executive officers huge per diems, large
salaries, big bonuses that do not commensurate to the value of their services. They can also reduce the
earnings going to the other shareholders by authorizing purchases of goods and services for the company's
use at a price higher than normal, in consideration of a certain percentage of the purchase value or
commission accruing to them.

2. Interlocking Directorship
Interlocking directorship is often practiced by a person who holds directorial positions in two or more
corporation that do business with each other. This practice may involve conflict of interest and can result
to disloyal selling. Disloyal selling happens when this person is compelled to decide which of the two
corporation's interest should be protected or upheld. Thus, whatever decisions the person makes, he
betrays the trust reposed on him by the shareholders of either of the two companies.

3. Insider Trading
Insider trading involves trading in a public company's stock by someone who has non-public material
information about that stock for any reason. Insider trading can be either illegal or legal depending on
when the insider makes the trade. It is illegal when the material information is still non-public, and this
sort of insider trading comes with harsh consequences.

Material non-public information is any information that could substantially impact on investor's decision
to buy or sell the security that has not been made available to the public.

An individual who has access to insider information would have an unfair edge over other investors, who
do not have the same access, and could potentially make larger, unfair profits than their fellow investors.

Illegal insider trading includes tipping others when you have any sort of material non-public information.
4. Negligence of Duty
A more common failure of the members of the Board of Directors than breach of trust is neglect of duties
when they fail to attend board meetings regularly. It is only in regular attendance that they can protect
the rights and interests of the shareholders and their non-attendance of board meetings could result to
betrayal of trust of the parties who elected them to their positions.

Some Unethical Practices of Executive Officers and Lower Level Managers

To a lesser extent, executive officers may also guilty of unethical practices. All the unethical practices of
the members of the Board of Directors discussed are activities they are also capable of engaging in though
perhaps to a lesser degree because of certain limits to their authority. Unethical practices that are more
common to executive officers and lower level managers are:

1. Claiming a vacation trip to be a business trip. The President or a Vice President reports his personal
vacation in Europe or in the United States as a business trip so he can get reimbursement for his
expenses including those of his family's.

2. Having employees do work unrelated to the business. Executive officers and lower managers ask
company employees to do personal things for them on company time such as having the company
janitors water and mow their lawns, having the maintenance men do house or appliance repairs
for them, and having subordinate employees secure a license or type letters pertaining to their
other businesses.

3. Loose or ineffective controls. Managers do not provide adequate controls to remove temptation
and to prevent or discourage employees from engaging in unethical practices. A manager has the
moral obligation to provide the proper control atmosphere so that his subordinates will not be
tempted to commit dishonest acts. A manager indirectly betrays the trust placed on him by higher
executive officers if the administrative and accounting controls in his office are so weak or effective
that employees are given the opportunity to misappropriate funds or engage in petty thievery.

4. Unfair labor practices. The labor code lists the following as unfair labor practices committed by an
employer on employees or a group of employees who have organized themselves into a union.
a. To interfere with, restrain or coerce employees in the exercise of their right to self-
organization;
b. To require as a condition of employment that a person or an employee shall not join a
labor organization or shall withdraw from one to Which he belongs;
c. To contract out services or functions being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their rights to self
organization;
d. To initiate, dominate, assist or otherwise in with the formation or administration of any
labor organization, including the giving of financial or other support to it;
e. To discriminate with regard to wages, hours of work, and other terms or conditions of
employment in order to encourage or discourage membership in any labor organization.
f. To dismiss, discharge, or otherwise prejudice or discriminate, against an employee for
having given or being about to give testimony under the Labor Code;
g. To violate the duty to bargain collectively a prescribed by the Labor Code:
h. To pay negotiation or attorneys fees to the union or its officers or agents as part of the
settlement of any issue in collective bargaining or any other dispute;
i. To violate or refuse to comply with voluntary arbitration awards or decisions relating to
the implementation or interpretation of a collective bar gaining agreement;
j. To violate a collective bargaining agreement.

5. Making false claims about losses to free themselves from paying the compensation and benefits
provided by law. There are employers who claim non-existent losses so they can be exempted
from paying the minimum wage and emergency-cost-of-living allowances required by law.

6. Making employees sign documents showing that they are receiving fully what they are entitled to
under the law when in fact they are only receiving a fraction of what they are supposed to get.

7. Sexual Harassment. Work, education or training-related sexual. harassment is committed by an

employer, employee, manager, supervisor, agent of the employer, teacher, instructor, professor,
coach, trainer or any other person who, having authority, influence or moral ascendency over
another in a work or training or education environment, demands, requests or otherwise requires
sexual favor from the other, regardless of whether the demand, request or requirement for
submission is accepted or not by the object.

Some Unethical Practices of Employees

There are some employees who are not mindful of their moral obligations to their employers. They take
advantage of their position and the trust of their employees by committing unethical practices harmful to
their employers', interest these unethical practices may be classified into conflict of interest and
dishonesty.

1. Conflicts of Interest
A conflict of interest arises when an employee who is duty bound to protect and promote the interests of
his employer violates this obligation by getting himself into a situation where his decision or actuation is
influenced by what he can gain personally from it rather than what his employer can gain from it. Some
common examples of conflicts of interest are:
a. An employee who holds a significant interest or shares of stock of a competitor, supplier,
customer or dealer favors this party to the prejudice of his employer.
b. The employee accepts cash, a gift or a lavish entertainment or a loan from a supplier,
customer, competitor or contractor. In this situation, the decision or action of the
employee is influenced by his being indebted for a favor or loan from a party with whom
the company is doing business. He, therefore, cannot act impartially.
c. The employee uses or discloses confidential company information for his or someone
else's personal gain. An example is revealing his employer's formula or menu for a well-
liked food to a competitor.
d. The employee engages in the same type of business as his employer. He may attend to his
business only after office hours because he has somebody to mind it for him but it is still
unethical. An example is an auditor employed full-time in a public accounting firm but
maintains his own auditing office where he works after office hours.
e. The employee uses for his own benefit a business opportunity in which his employer has
or might be expected to have an interest.

2. Dishonesty
Business ethics is not just limited to business transactions with outside parties. It also covers employee-
employer relationship, especially with respect to an employee's honesty as he carries out his assigned
duties in the office. Examples of dishonest acts of employees are:
a. Taking office supplies home for personal use.
b. Padding an expense account through the use of fake receipts when claiming
reimbursements.
c. Taking credit for another employee's idea

Questions and Answers:

1. What are the two most common types of unethical practices of business establishments as far as
the products or customers are concerned?
• Misrepresentation of Products – False advertising, deceptive packaging, and
misleading claims.

• Unfair Treatment of Customers – Overpricing, hidden charges, and poor customer

service.

2. Give and explain briefly at least three ways of directly misrepresenting products.
• False Advertising – Exaggerating product benefits.
• Deceptive Packaging – Making a product appear larger or better than it
is.
• Mislabeling – Providing incorrect or misleading information on the label.

3. How is indirect misrepresentation of a product undertaken?

By withholding negative information, exaggerating benefits subtly, or using vague
language to mislead consumers.

4. What does "caveat emptor" mean?

"Let the buyer beware" – Buyers are responsible for checking product quality before
purchasing.

5. When does over-persuasion become unethical?

When it involves manipulation, pressure, or deception to force a customer into making a
purchase.

6. What is "interlocking directorship" and why could it lead to unethical actions of a member of the
board of directors?
When one person serves on multiple boards of competing companies, leading to conflicts of
interest and unfair business practices.

7. Insider trading is considered an unethical practice. Why?

It involves using confidential company information for personal gain, creating an unfair
advantage and harming investors.

8. What are some of the unethical practices that executive officers may be guilty of?
Embezzlement, manipulating financial reports, favoritism, and engaging in bribery or corruption.

9. Cite some unethical practices of employees to their employers.

Theft, falsifying work hours, disclosing confidential information, and using company resources
for personal gain.

10. Distinguish between direct misrepresentation indirect misrepresentation.

• Direct misrepresentation involves outright false claims (e.g., false advertising).
• Indirect misrepresentation involves misleading by omission or exaggeration (e.g.,
withholding negative details).

Multiple Choice Questions

1. Examples of direct misrepresentation about the product include the following except
a. False advertising
b. Deceptive packaging
C. Mislabeling
d. Caveat emptor

2. Examples of indirect misrepresentation about the product include the following except
a. caveat emptor
b. deliberate withholding adverse information
c. business ignorance
d. false advertising

3. Examples of direct misrepresentation about the product include the following except
a. adulteration
b. short merging
c. short measurement
d. over persuasion

4. Interlocking directorship can be committed by

a. rank and file employees
b. members of the board of directors
c. top executive officers
d. middle-level managers
5. The following constitute unfair labor practices of an employer except
a. to restrain employees to form a union
b. to violate a collective bargain or agreement
c. to discriminate with regard to wages, hours of work
d. to terminate employment of employees found to have violated company policy or employment
contract.

6. The following are examples of unethical practices of employers except

a. acceptance of gifts from a customer in exchange for a favor that is detrimental to its interest of his
employer
b. engagement in the same type of business as his employer
c. disclosure of confidential company information to someone else for personal gain.
d. Application for a loan from his employer to settle personal liabilities.

7. The following are examples of dishonest acts of an employee toward his employer except
a. Working overtime upon instruction of his supervisor.
b. Bringing home office supplies for personal use.
c. Overstating business trip expenses by submitting false receipts.
d. Doing personal errands during office hours.

CHAPTER 8
ETHICAL DILEMMA

INTRODUCTION
An ethical dilemma is a situation a person faces in which a decision must be made about the appropriate
behavior. A simple example of an ethical dilemma is finding a diamond ring, which necessitates deciding
whether to attempt to find the owner or to keep it.

RESOLVING ETHICAL DILEMMAS

In recent years, formal frameworks have been developed to help people resolve ethical dilemmas. The
purpose of such a framework is in identifying the ethical issues and deciding on an appropriate course of
action using the person's own values. The six-step approach that follows is intended to be a relatively
simple approach to resolving ethical dilemmas:
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of the dilemma and how each person or group is affected.
4. Identify the alternatives available to the person who must resolve the dilemma.
5. Identify the likely consequences of each alternative.
6. Decide the appropriate action.
CHAPTER 9
ADVOCACY AGAINST CORRUPTION

WHAT IS CORRUPTION?
Corruption is the abuse of private and public office for personal gain. It includes acts of bribery,
embezzlement, nepotism, kickbacks and state, capture.

This is often associated with and reinforced by other illegal practices such as bid rigging, fraud, or money
laundering, extortion.

Simply defined, corruption is receiving, asking for or giving any gratification to induce a person to do a
favour for private gain. This act covers not only public corruption involving misuse of public power by
elected politician or appointed civil servant but also private corruption between individuals and
businesses.

A broader definition of corruption follows:

"Corruption is the misuse of entrusted power (by heritage, education, marriage, election, appointment)
for private gain. It covers not only the politician and the public servant but also the CEO, CFO and but
other employees of a company."

It involves wrong doing on the part of an authority or powerful party through means that are
illegitimate, immoral or incompatible with ethical standards. Corruption often results from patronage
and is associated with bribery.

A much more difficult, scientific definition for the concept 'corruption' was developed by Professor
(emeritus) Dr. Petrus Van Duyne:
"Corruption is an improbity or decay in the decision-making process in which a decision-maker consents
to deviate or demands deviation from the criterion which should rule his or her decision-making, in
exchange for a reward or for the promise or expectation of a reward, while these motives influencing his
or her decision-making cannot be part of the justification of the decision."

In general, corruption is a form of dishonesty or criminal activity undertaken by a person an organization

entrusted with a position of authority, often to acquire illicit benefit.

HOW DOES CORRUPTION LOOK LIKE?

Corruption may take place in any of the following forms / ways:
• A company paying a bribe to win the public contract to build the local highway, despite
proposing a sub-standard offer.
• A politician redirecting investments to his hometown rather than to the region most in need.
• Public official embezzling funds for school renovation to build his private villa.
• A private company manager recruiting an ill-suited friend for a high level position.
• Or, local officials demanding bribes from ordinary citizens to get access to a new water pipe.
• A salesman bribing the purchasing manager of a company to give preference to his products.
At the end of the day, those hurt most by corruption are the world's weakest and most vulnerable.

WHY AND HOW DOES A PERSON BECOME CORRUPT

Corruptions spread when there are opportunities, when risk is minimal in comparison to benefits obtained
or when one is confronted with issues like
• Career advancement
• Earning of more income
• Financial problems caused by illness, loss of property, etc.
Those engaged in corruption learn how to be dishonest. The next corrupt actions become easier to do
unless one is firmly rooted on solid principles and has been nurtured in an upright manner.

ILL EFFECTS OF CORRUPTION

Economically,
• Corruptions add up to 10% of the total costs of doing business in any part of the world and up to
25% of the cost of procurement programs in developing countries.
• Corruption leads to waste or the inefficient use of public resources.
• In the Philippines, figures from 1960 to 2016 indicate that an average of P550 billion is lost yearly
to crime, corruption and tax evasion. This amount could clearly have been used more efficiently
and effectively for poverty alleviation or education instead.
• Corruption corrodes public trust, undermines the rule of law, and ultimately delegitimizes the
state.
• Africa's 700 million people under 30 are seeking opportunities with dignity and if mismatch
between aspirations and fulfilment continues, this could lead to apathy, discontent and turn them
to radical extremists and join terrorist groups.
Other significant and serious repercussions of corruption are:
1. If allowed to take root in society, it can lead to a breakdown in social order and lives are affected
when ordinary people are prevented from receiving all the essential service that they are entitled
to.
Corruption may have drastic impacts like most of the public funds are used on the leisure and
lifestyle of influential people instead of allotting them on hospitals, schools and other basic needs
of general public.
2. It creates unfair competition and increases the cost of doing business. Every form of corruption is
bad for economic growth and could result to tarnished reputation of an entire country.
Corruption causes businesses to flee from the country because businessmen find it a constant
threat for their progress.
3. Corruption is cancer that spreads rapidly all over the body. Corruption in Australia, Canada and
few European countries has dropped extensively due to adoption of concrete measures.
Nevertheless, corruption in developing and underdeveloped countries (especially Afghanistan and
Somalia) is still a critical problem.

There is a growing worldwide concern over corruption at the present time. A consensus has now been
reached that corruption is universal. It exists in all countries, both developed and developing, in the public
and private sectors as well as is non-profit and charitable organizations. Allegations and charge of
corruption now play a more central role in politics that at any other time. Governments have failed careers
of world renowned public figures ruined and reputation of well-respected organizations and business firms
badly tarnished on account of it.
Major corruption arises whenever major events involving large sums of money, multiple parties or huge
quantities of products are at stake. Corruption also flourishes in situation involving high technology (e.g..
purchase of a technologically far-advanced aircraft) or in situations that are chaotic and a number of
actions is very large such as natural disasters, civil war and betting in international sports tournaments.
Major corruption thrives on a broad base of small corruption payments or bribes. In the end, all corruption
costs are absorbed by the consumers and the taxpayers.

CHARACTERISTICS OF CORRUPTION
Although there is a widespread perception that corruption is prevalent, it is difficult to establish how wide
and deep corruption has penetrated our economy and social life. This is because both partners in an
exchange of power for privileges keep their transaction secret.

a) Recipients and payers

Corruption is the abuse of entrusted power and elected authority for private profit.
Worldwide complaints are heard about politicians and public officials who accept bribes and enrich
themselves privately at the expense of the common citizen. This may be at the expense of the employee
and the employer; consumer and producer; renter and tenant; the one applying for a permit to do
something, or asking exemption from an obligation to pay or to deliver a product or a service. All those
cases may be considered to be abuse of power and authority for one's own benefit.
Complainants forget that necessarily there should also be payers who benefit from that abuse of power
and authority. The other side of the coin shows payers assuming that their 'gift' to a politician or a public
official, may in return deliver profitable preferential treatment or delivery.
Anyone who wants to fight corruption and safeguard integrity in governance should not only prevent
politicians and public officials from unlawfully accepting gifts, but should also fight the 'high and mighty'
that abuse their power and authority to give privileges such as land rights, permits, diplomas, allowances,
money, against a reward.

b) Extortion
They do not only blame politicians and public officials for willingly accepting bribes. It is also often alleged
that those lhaving authority in our society ask to be bribed or give us the opportunity to bribe. This means
that the question 'who is to blame', shifts from the person who pays to the person who extorts and
receives. Again on the ground of the allegation: "There's no escaping from it, for if you don't pay, you are
bound to fall behind'.
In every society it is known, either publicly or privately, which public official is open to transactions with
gifts being made reciprocally. The gift on the part of the official may then imply considering an application
with priority, or assigning a contract, scholarship or employment. The potential payer will look for his
"prey": he will look for the politician/public official of whom everybody knows that he can be "bought",
that he is prepared to break the rules in exchange for a 'gift". Therefore, the reputation that a public official
or politician enjoys, is of great significance. Some will never be approached with a proposition". as the
potential extortionists or bribers do know that they (those public officials or politicians) are not open to
such practices. Equally, as regards some business enterprises, it is a known fact that they do not keep any
cash for bribes. They run less risk of falling victims to extortion.
c) Lubricant of society
Many think that paying bribes is required to ensure smoother operation of society. They think that without
an occasional gift (for example, around Christmas and New Year), or incidentally (a gift on the occasion of
a marriage or when a child is born) for instance upon entering into a contract for the supply of a product
or a service, such contracts might be lost to them and might be assigned to others.
For entrepreneurs who want to secure sales, those gifts are a cost item which they account for in advance
in their prices. As a consequence, products and services cost unnecessarily more than is needed from a
commercial point of view, for as a matter of fact, these gifts have already been budgeted.
If corruption is judged purely on the basis of business economics, macro-economically it costs money to
society which should be considered as a loss. From the micro-economic point of view, for the bribing
entrepreneur, it is profitable. The payer of a bribe secures a desired transaction which if evaluated on
purely commercial grounds - strictly speaking, should have been assigned to someone else. That will harm
individual entrepreneurs and transactions; it will harm the national economy and the world economy.

d) An ethical dilemma
The mere fact that both the payer and the recipient of bribes want to keep their behavior secret (and often
succeed in doing so as well) shows that such behavior is generally considered to be improper. Many
consider corruption to be an ethical problem, a behavioral problem. And refer to it as being 'sinful', a
'wrongdoing'. It is a problem to be solved by means of personal 'reform'.
Emphasizing the 'sinfulness' of corruption, aims at improving especially individual and personal behavior.
Poor entrepreneurship (in a moral sense) should then be improved on a personal basis. Our focusing on
the conditions and the implications of corrupt behavior aims rather on the entire structure of society and
economy, and on the conditions that exist within that structure to prevent and fight corrupt behavior and
safeguard integrity. Good entrepreneurship is judged with regard to its quality in all three aspects: People,
Planet and Profit. The qualification 'poor' is not a sign of sinfulness, but a quality that signifies an adverse
effect on all three aspects, not only on the economics.

e) Poverty alleviation
The explanation that refers to individual poverty reduction is especially given by those who have a keen
eye for corruption among lower operational staff in government service, notably lower office clerks, police
officers, customs officers, the military, teachers, admission staff in hospitals, bus ticket collectors, car-park
attendants, garbage collectors, etc., who on an operational level often have good opportunities to extract
extra income or privileges from decisions they might take of importance to entrepreneurs and citizens.
Consequently, these have a certain value.
Investigations into the effect of the level of income enjoyed by a person, however, provide sufficient proof
that this explanation is not correct. Low pay does surely not automatically imply that, consequently, the
person concerned is corrupt. What is of much greater importance for the prevention of, or fight against,
corruption at a lower level in all kinds of hierarchies, is the clearness and transparency of the rules and of
the decision-making process, and the control exercised on the application of the rules? Timely payment of
salaries is an important pre-condition to prevent corrupt behavior.
f) Culture
Gifts are inherent to human relations and therefore present in all cultures. You give and receive gifts on
the occasion of birthdays, Santa Claus or Christmas; on the occasion of memorable events; an appointment
or a departure; marriage or a retirement.
When you receive a gift from them, it will also be open and visible to everyone. Corrupt payments are
made in hiding, are not made known. A gift made in public will also impose a certain obligation upon the
recipient. On a next occasion you will show your gratitude by reciprocating the gift and you share the gift
received with your family and friends. In fact, in our everyday life it is not much different. You give and
receive on birthdays, on the occasion of marriages and births, and on other festive occasions. Look at the
reciprocal state visits of Heads of government and Heads of state, exchanging gifts.

g) 'Kindness among friends'

It is essential, whether you just want to be 'thoughtful', or whether your gift is presented with a certain
intention. Is it a sign of thoughtfulness or is it hiding a particular purpose, an expected 'return' in the
future? Whether 'attention' or 'intention', the difference is of great importance for the relationship. Is it a
'friendly turn' or is it an 'investment'?
To have friends belongs to culture. However, can you 'buy' a friend? Is real friendship not to be based on
honesty and transparency? To give presents reciprocally is a sign of friendship. It should not get lost in a
misuse of power for private gains.

THE PHILIPPINES CORRUPTION REPORT

The Former Secretary of Finance reported in 2016 that the Philippines loses P200 billion from smuggling
and P400 billion from tax evasion perpetuated through collusion with some personalities in the
government agencies. P2.6 trillion is lost annually in corruption globally.

Judicial System
Corruption risks are high in the judicial system. Bribes and irregular payments in return for favorable
judicial decisions are common. The judiciary is formally independent, but the rich and powerful have
frequently influenced proceedings in civil and criminal cases. Procedural fairness and transparency are
severely undermined by nepotism, favoritism, and impunity. Companies do not have sufficient faith in the
independence of the judiciary and they rate the efficiency of the legal framework in settling disputes and
challenging regulations as poor. Investment disputes can take several years to resolve due to a lack of
resources, understaffing, and corruption in the court system. Low salaries for judicial officials are said to
perpetuate the problem of bribery.
The judiciary is underfunded by the state and often depends on local sponsors for resources and salaries,
resulting in non-transparent and biased court decisions. Foreign investors have noted that the inefficiency
and uncertainty in the judicial system are disincentives for investment; investors regularly decline to file
disputes due to the perception of corruption among personnel and the complex and slow litigation
processes. Enforcing a contract takes much longer than the regional average, but the costs involved are
significantly lower.
In one recent case, a businessman filed an administrative complaint in the country's Supreme Court against
Makati City judge for allegedly asking for a PHP 15 million bribe in exchange for a favorable ruling in an
insurance claim. At the time of review, no further updates on the case were available.
Police
There is a high-risk of corruption when dealing with the police. The national police force is widely regarded
as one of the most corrupt institutions in the country. Reports of the police and military engaging in
corruption, extortion, and being involved in local rackets are widespread. Companies report that they
cannot rely on the police services. More than half of firms pay for private security. Businesses rate the
National Police's commitment to fighting corruption as "poor'. President Duterte has accused several
police generals of being involved in the trafficking of illegal drugs.
In one corruption case, Police Commissioner Mr. Sombero, is under investigation for allegedly facilitating
a PHP 50 million bribe from gambling tycoon Jack Lam, who tried to bribe immigration authorities in order
to release approximately 1,300 Chinese nationals who were working in his resorts illegally.

Public Services
Companies contend with a high corruption risk when dealing with the public services. Approximately half
of business executives reported being asked for a bribe by someone in the government in 2017. Nearly
three out of five business reported expecting to give gifts in order 'to get things done', but only one in ten
reported expecting to give gifts to get an operating license.
Irregular payments and bribes in the public services sector sometimes occur. Philippine officials involved
in processing documents related to civil and property registration and building permits are more likely to
solicit bribes compared to officials dealing with other types of services. Inefficient government
bureaucracy is ranked as the most problematic factor for doing business in the Philippines.
Civil servants often do not have the resources or abilities to fulfill their tasks free from corruption and red
tape. Furthermore, civil servants are generally not recruited in a competitive manner; appointments are
based on a practice of patronage.
The total number of procedures required to set-up operations, including registering the company with
local government and getting a construction permit, are significantly higher than regional averages.
Getting electricity takes significantly less time than elsewhere in the region.

Land Administration
Corruption risks in the land administration are high. Two out of five companies report expecting to give
gifts when obtaining a construction permit. Property rights are formally recognized and protected in the
Philippines, but in practice. the law is not always upheld. Businesses have insufficient confidence in the
protection of property rights.
Corruption and arbitrariness in the application of the law are common. Multiple agencies are responsible
for land administration, which has led to overlapping procedures for land valuation and title registration:
this has made the process costly.
The court system is slow to resolve land disputes. Land records are not properly managed due to a lack of
trained personnel and funds. Foreigners are not allowed to directly own land, but they may lease land for
up to 50 years with a possible one-time extension of 25 years.
Expropriation is possible under Philippine law; the law calls for fair market value compensation, but coming
to a mutually acceptable price can be a lengthy process in the court system. Registering property takes
nine procedures in the Philippines, which is double the regional average. However, the total time required
is less than half of the regional average.
Tax Administration
There is a high risk of corruption when dealing with the tax administration. Around one in seven companies
indicate they expect to give gifts in meetings with tax officials. Tax regulations are among the most
problematic factors for conducting business in the Philippines. Companies indicate that they perceive that
only a fifth of businesses in their line of business pay their taxes honestly. Officials at the Bureau of Internal
Revenue (BIR) are believed to be prone to corruption and known for embezzlement and extortion. A typical
example of this can be found in a recent case in the city of Bacolod; an officer with the BIR was caught
extorting PHP 125,000 from a local company. Businesses rate the BIR's commitment to fighting corruption
as poor. On a more positive note, there are signs that the BIR is pursuing more cases of tax evasion.
Companies make twenty-eight tax payments a year, which is higher than the regional average.

Customs Administration
There is a high risk of encountering corruption when dealing with the customs administration. Companies
indicate that irregular bribes and payments in import and export procedures are very common.
About a quarter of companies indicate they expect to give gifts when obtaining an import license. A
business survey indicates that the Bureau of Customs (BOC) was the only agency receiving a rating of 'very
bad' when it came to its commitment to fighting corruption. Companies cite burdensome import
procedures and corruption at the border as being among the most problematic factors for importing. The
efficiency and time predictability of procedures are rated as poor. Border compliance costs in the
Philippines are significantly higher than the regional average, whereas the time required is in line with the
regional average.
The Bureau of Customs (BOC) has indicated that smuggling of goods, among which cigarettes, vehicles,
and oil, into the Philippines has led to the evasion of taxes worth at least USD 1 billion yearly. Consistent
fraud in the form of under-invoicing when importing and exporting costs the state USD billions in revenues
each year. In 2016, the BOC alleged one of its employees accepted as much as USD 4 million in bribes
monthly.

Public Procurement
There is a very high risk of corruption in the public procurement sector, which is subject to rampant
corruption, irregularities, and inconsistent implementation of legislation. Likewise, more than a fifth of
businesses report they expect to give gifts in order to win a government contract. Two in five companies
indicate that most companies in their sector give bribes in order to win contracts. Diversion of public funds,
as well as favoritism in the decisions of public officials, is very common. The public sector is obliged to
procure goods and services from companies with at least 60% Philippine ownership. Local-level public
procurement lacks transparency, fostering a culture of corruption through the misuse of the pork barrel
system; which are funds for discretionary use by representatives for projects in their respective districts.
Philippine law allocates responsibility for monitoring, investigating and sanctioning irregularities in public
procurement to a number of different state institutions, leaving potential misconduct, inefficiency and
impunity unchecked.

Natural Resources
Companies operating in the natural resources sector face a high risk of corruption. The Philippines has
shown marked improvements in its natural resource governance in the past few years; the country has a
good enabling environment and its regulatory quality and control of corruption are judged as adequate.
However, poor value realization and revenue management have caused the country's overall resource
governance to be judged as 'weak'. The Philippines has been working to achieve compliance with the
Extractive Industries Transparency Initiative (EITI) since joining in 2013. Some mining contracts are publicly
disclosed via the EITI portal. While transparency in the sector has improved, poor regulation and
overlapping policy responsibilities between local and central governments have meant that small-scale
mining is still a contentious issue.
Government corruption has allowed mining companies to evade government regulations, which has
resulted in large-scale deforestation, flattened mountaintops and water pollution. The government
responded by cracking down on illegal mining operations; and as of 2017 Secretary of the Environment
Gina Lopez shut down 28 of the country's 41 mining companies for polluting the environment. However,
Lopez was removed from her job by Congress in May 2017 after mounting complaints from the pro-mining
lobby.

PREVENTION OF CORRUPTION
Corruption in Singapore is under control. However, a clean system is not a natural state of affairs.
Corruption comes from weakness of human nature greed, temptation, the desire to amass wealth or to
obtain business through unfair means. Even with harsh penalties, corruption cannot be eradicated
completely.
Below are some measures businesses and organizations can adopt to help prevent corruption in the work-
place.

Clear Business Processes

Having defined workflows, clear directives on financial approving authorities, and standard procurement
instructions can help flag irregularities in a business or organization. These processes should be reviewed
on regular basis to ensure they are updated to the shifting business environment. Diligent record-keeping
and regular audits are also good practices to deter corrupt activities.

Policy on Gifts and Entertainment

Gifts and entertainment are often offered in the legitimate course of business to promote good relations.
However, if it is too frequent or lavish, or done with the deliberate intention to gain an unfair business
advantage, such gifts and entertainment can be tantamount to corruption, regardless of whether the
recipient is able to fulfill the request of the giver. The risk of corruption can be reduced by setting a policy
on when gifts and entertainment may be given and accepted and what records need to be kept. Your
business partners should be aware of your organization's gift and entertainment policy too.

Declaration of Conflict of Interest

Conflict of interest occur when a personal interest or relationships is placed before the business interest,
and can lead to corrupt activities such as giving or accepting bribes. In order to safeguard the business
interest, a declaration system that is applicable to all levels of employees may be instituted. The company
may provide a declaration form for conflict of interest for employees, and then use the information to take
the most appropriate course of action. This could include excluding the employee from engaging in the
work or transferring the employee to another department or post.
Convenient Corruption Reporting System
The corruption reporting system is a key function to control corruption and bribery risks, and can comprise
a whistle-blowing policy or feedback channel where staff can conveniently raise concerns and feel
protected from being identified or retaliated against. One way to do this would be by allowing reports to
be filed anonymously through a publicized email address or phone number.

EFFORTS TO CURB CORRUPTION THROUGH LEGISLATION

The Anti-Graft and Corrupt Practices Act criminalizes active and passive bribery, embezzlement, extortion,
abuse of office and conflict of interest in the public sector.
Bribery of public officials and trading in influence are also criminalized in the Anti-Red Tape Act. The Act
forbids office-holders from accepting any gifts or material benefits in exchange for any government permit
or license.

Under the Revised Penal Code, gifts are classified as. indirect bribery. An exception is made for gifts of
insignificant value given as a token of friendship in line with local customs. Facilitation payments are not
addressed in the law. Private sector bribery is not criminalized. Under the Code, public officials are
required to regularly file a statement of their assets and liabilities. In case of any discrepancy between the
official's asset declaration and the amount of property or financial assets actually possessed, the official is
subject to immediate dismissal. Punishments for corrupt acts include imprisonment of up to ten years, a
fine, removal from office, and/or confiscation of property.
The Anti-Money Laundering Act criminalizes money laundering and organized crime.
The Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees formulates
standards for the personal integrity and accountability of civil servants.
The Government Procurement Reform Act requires competitive and transparent bidding. Philippine
legislation does not contain any provisions on protecting whistleblowers who report on corruption.
The Philippines has ratified the United Nations Convention against Corruption. Companies should note
that the legal anti-corruption framework in the Philippines is complicated and poorly enforced; there is a
lack of cooperation between law enforcement agencies, and officials are rarely prosecuted and convicted
for corruption crimes.

VIGILANCE OF CIVIL SOCIETY

Philippine civil society is active and is represented by a wide variety of different organizations. Public
participation is high and civil society organizations (CSOs) enjoy a high level of social capital. CSOs are
normally not included in formal decision-making, but they play a large role in initiating legislation and
steering debate in Congress. There are a multitude of watchdog organizations monitoring implementation
of policy.
The Constitution guarantees freedoms of speech and of expression, but in practice these freedoms are
not consistently upheld. The media environment is largely privately owned and diverse, and the state
generally exercises very little censorship. The views represented in the mainstream media are heavily
influenced by the oligarchical owners of many of the outlets.
The Philippines is the second most dangerous country in the world for journalists to operate in, as
measured by the number of journalist deaths. The state is not directly responsible for the violence, which
can mostly be blamed on local strongmen and criminals and the weakness of the authorities.
The existence of libel and defamation laws remains a problem and are frequently used by officials and
powerful individuals to try to silence journalist. The media does frequently report on high-level corruption
cases. Independent observers report that bribes and other incentives are often used by high-level officials
to motivate journalists to create one-sided reports for the official's benefit. Internet access is widely
available, but there are concerns about the government trying to install some degree of censorship. The
Philippine press is classified as 'partly free'.