GRADE 12 – BUSINESS ETHICS AND SOCIAL RESPONSIBILITY  The fundamental reason for examining the activities of business from

amental reason for examining the activities of business from a moral perspective is
MODULE NO. 1 that business organizations, in principle, should help in the promotion of the common
Q1 - WK 1 – WK 2 good and in the protection of persons' rights and interests.

UNIT 1: THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC DEVELOPMENT Thus, businesses make the goods and services you use each day That the products and
Topics: The Nature and Forms of Business Organization services used by other businesses as well as those needed by individual consumers.
Core Principles of Fairness, Accountability and Transparency
There are generally three types of business organizations operated for profit: service,
Time Allotment: 480 minutes merchandising, and manufacturing businesses, Service businesses provide services rather than
products to customers. Merchandising businesses sell products they purchase from other
Learning Outcome(s): At the end of the lesson, you should be able to:
businesses to customers. Manufacturing businesses change basic inputs into products that are
1. Differentiate the forms of business organization in terms of their purpose and role in socio – sold to customers.
economic development
Various Forms of Business Organization
2. Illustrates how fairness, accountability, transparency and stewardship is observed in
business and non – profit organization A business organization may take the form of a proprietorship, partnership, or corporation.

The three types of businesses we discussed earlier—service, merchandising, and

A. Introduction manufacturing—may be organized as proprietorships, partnerships, or corporations. Given the large
Businesses have a multiplicative effect, since they are part of the complex web of interaction size and huge amount of resources required to operate a manufacturing business most
among institutions and people. As such, business activities must be viewed and examined from the manufacturing businesses, such as San Miguel Corporation, are corporations. Most large retailers
perspective of ethics and social responsibility. Thus, continued business success would be a like SM Supermalls, Robinsons, and Ayala Malls are also corporations.
function of whether you, the reader, and I will commit ourselves to learning more about business
1. Sole Proprietorship - a business owned by one person.
organizations, our role in them, the importance of virtuousness on the part of individuals and
 Advantages of a sole proprietorship: (a) total undivided authority; (b) low
institutions, and the ways in which we all can help in social development.
organizational cost and license fees; (c) tax savings; and (d) no restrictions on type
In this module, we begin by first learning about business organizations. of business (as long as it is legal).

B. Lesson Proper  Disadvantages of a sole proprietorship: (a) unlimited liability; (b) limitation on
size (and thus on fund-raising power); and (c) limited by management's ability to be
WHAT IS A BUSINESS?
jack-of-all-trades.
 A business is an activity that is part and parcel of human society: it is an entity in which
economic resources or inputs, such as materials and labor, are put together and processed 2. Partnership - an association of two or more people as partners; it refers to an arrangement
to provide goods or services or outputs to customers. in which the individuals share the profits and liabilities of a business venture. Its chief
characteristics are: (a) association of individuals; (b) mutual agency; (c) limited life; (d)
 Businesses are usually complex enterprises involving major activities like purchasing, unlimited liability; and (e) co-ownership of property.
manufacturing, marketing advertising, selling, and accounting. The objective of most
businesses is to earn a profit (although this is not the only aim as we shall see in the The association of individuals in a partnership may be based on as simple an act
remainder of this subject). as a handshake; however, it is preferable to state the agreement in writing.
 A partnership is a legal entity for certain purposes.
 Profit is the difference between the amount earned and the amount spent in buying.  A partnership is an accounting entity for financial reporting purposes.
operating, or producing something. In this text, we focus on businesses operating to earn a  Net income of a partnership is not taxed as a separate entity.
profit. even though many of the same concepts and principles also apply to not-for-profit
organizations. Mutual agency means that an act of any partner is binding on all other partners, so long as
the act appears to be appropriate for the partnership. This is true even when partners act beyond the
scope of their authority. Partnerships have a limited life. Partnership dissolution occurs whenever a corporations have an advantage when it comes to raising capital for the business—the ability to
partner withdraws or a new partner is admitted. raise funds through the sale of stock. In addition, corporations file taxes separately from their
owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of
Each partner has unlimited liability. Each partner is personally and individually liable for all salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate,
partnership liabilities. Creditors' claims attach first to partnership assets and then to the personal which is usually lower than a personal income tax rate. This is as opposed to single
resources of any partner, irrespective of that partner's capital equity in the company. proprietorships which often pay income tax twice, first on the business earnings and then on
3. Corporation an entity created by law that is separate and distinct from its owners and its personal income when the owner draws a salary or takes distributions from the company.
continued existence is dependent upon the corporate statutes of the state in which it is The Role of Each Form of Business Organization in the Economy
incorporated.
Small businesses owned by sole proprietors are well recognized worldwide as vital and
The characteristics that distinguish a corporation from proprietorships and partnerships are: significant contributors to economic development, job creation, and the general health and welfare of
economies. Microbusinesses (firms that employ fewer than ten people) form a dynamic, integral part
a. The corporation has separate legal existence from its owners.
of the market economy, providing goods and services and a gateway by which millions enter the
b. The stockholders have limited liability.
economic and social mainstream of society. In the Us, for example, about half of all private-sector
c. Transferable ownership rights (ownership is in shares of stock).
workers are employed by microbusiness firms.
d. Ability to obtain capital (relative ease).
e. The corporation can have a continuous life. On the other hand, the Industrial Revolution brought with it new forms of machine
f. The corporation is subject to numerous government regulations. The corporation must pay production that enabled businesses to make massive quantities of goods to ship and sell in national
an income tax on its earnings, and the stockholders are required to pay taxes on the markets. These changes, in turn, required large organizations to manage the enormous armies of
dividends they receive: the result is double taxation of distributed earnings. people that had to be mobilized to process the output of these machines on long assembly lines in
g. An artificial/juridical "person" endowed with ability for self-management, that is, the huge factories. The result was the large corporation that came to dominate our economies. These
management structure is at the discretion of the board of directors. large businesses, in general, offer better jobs than small businesses, in terms of both compensation
and stability. Also, corporations provide such benefits as: links with suppliers, increased consumer
The first step in forming a corporation is to file an application of incorporation with the spending, the transfer of knowledge from one firm to another, and the sharing of pools of workers,
government (in the Philippines, this is done through the Securities and Exchange Commission or However, competitive forces sometimes fail to steer companies in a socially beneficial way and
SEC). After the application of incorporation has been approved, the corporation is granted a charter instead, lead them to act in a socially harmful manner. For example, a company might knowingly
or articles of incorporation. The articles of incorporation formally create the corporation. The pollute a neighborhood with substance that is not yet illegal, in order to save the costs of reducing its
corporate management and board of directors then prepare a set of bylaws, which are the rules and pollution and thereby be more competitive. This wave of large corporations has brought with it a host
procedures for conducting the corporation's affairs. Costs may be incurred in organizing a of new ethical issues, including the possibilities of exploiting the workers who labor at the new
corporation. These costs include legal fees, taxes, state incorporation fees, license fees, and machines, manipulating the new financial markets that finance these large enterprises, and
promotional costs. Such costs are considered Organizational Expenses (Weygandt, Kieso, and producing massive damage to the environment.
Kimmel, 2012).

Comparison and Contrast Among the Various Forms of Business Organization CORE PRINCIPLES OF FAIRNESS, ACCOUNTABILITY AND TRANSPARENCY

The owner of a sole proprietorship has complete control over the company's finances and
operations. Sole proprietors are not required to consult with anyone when it comes to making
business decisions. All partners of a partnership have input regarding how the company's
resources are used and other important business decisions. In a partnership business, all partners
are responsible for making decisions that will impact the business. This may provide multiple
viewpoints, which could potentially lead to better business decisions.

The sole proprietor can maintain complete control over all aspects of the business. There
are no shareholders to pacify and no board of directors to appease. If you feel you need to purchase
a piece of equipment, you do not have to justify your actions to others. On the other hand,
 Business leadership affects the moral capability and performance of organizations. conducted in compliance with agreed rules and standards or to report fairly and accurately on
Business leaders influence the scope and character of formal ethics programs and the integration of performance results vis-å-vis mandated roles and/or plans.
ethics into everyday organizational life. However, most practicing business leaders in most countries
most of the time are not held accountable for dysfunctional moral, social, and environmental Fairness
performance. Many are seldom held accountable for adverse impacts of their decision-making, for It is the quality of making judgments that are free from discrimination. Judges, umpires and
example, deepening poverty, social disintegration, and environmental degradation. There is a need teachers should all strive to practice fairness.
to convince managements that they should develop their "integrity capacity" which is the individual
and/or collective capability for repeated process alignment of moral awareness, deliberation,  Fairness comes from the old English fæger, meaning "pleasing, attractive." This makes
character, and conduct that demonstrates balanced judgment, enhances sustained moral sense given that the word is also used to describe physical beauty.
development, and promotes supportive systems for moral decision-making. The concept of  Fairness can refer to someone's good looks, or if someone is very pale and blond, you
"accountability" is discussed further below. might notice the fairness of her complexion. When someone shows fairness in making a
decision, he is pleasing all parties involved and offering a solution that is attractive to
everyone.
Accountability  Fairness—in the context of a business organization—involves balancing the interests
involved in all decision-making including any decisions related to hiring, firing (including the
Why is accountability important? Sound accountability structures are the most important investigatory process), and the compensation and rewards system. Recent research has
aspect of prevention and detection of corruption. A civil society organization without proper expanded the meaning of equity or fairness. Historically, equity theory focused on
accountability systems is fragile and open to rumors about mismanagement and abuse of power. distributive justice, the employee's perceived fairness of the amount of rewards and who
Worst of all, it will prevent it from enjoying respect and full legitimacy in the eyes of its stakeholders received them. However, organizational justice draws a bigger picture. Employees perceive
including those duty bearers whom it intends to engage with advocacy. their organizations as just when they believe rewards and the way they are distributed are
fair. In other words, fairness or equity can be subjective; what one person sees as unfair
Accountability — what it is:
may be perfectly appropriate for another. In general, people see allocations or procedures
 To be accountable is to be liable to explain or justify one's actions and decisions. favoring themselves as fair.
 Accountability is the process of explanation and justification
Overall, fairness has to do with justice, which is to give to another that which is due him or
 Holding to account is the process of requiring explanation and justification, but it is also
her. More concretely, justice: (1) looks at the balance of benefits and burdens distributed among
about testing, forming a judgment, and if necessary, taking action.
members of a group; and/or (2) can result from the application. Of rules, policies, or laws that apply
 Accountability implies responsibility: it is reasonable only to hold people to account for those
to a society or a group. In general' the Just results of actions override utilitarian results.
things for which they are responsible.
Transparency
Accountability - what it is not:
Transparency has become an increasingly popular word in recent times; it is used and
 It is not synonymous with responsibility.
sometimes misused by both scholars and practitioners. In this context, the associated academic
 It does not imply a management relationship.
literature has recently analyzed several issues associated with corporate transparency such as the
 It is not a "one off" annual event.
ethical justifications for information disclosure, the ethical nature of corporate information
 It is not the same as appraisal.
transparency, or the use of transparency in management-employee relationships.
 It is not about confrontation, "putting someone in his place" or "giving him a hard time."
At the individual level, transparency acquires intrinsic or ethical salience as an important
Accountability Structures feature of a person's relational dimension. It is described as a personal quality necessary to develop
Accountability is the ability to account for your actions and performance to your unity and communion between individuals. Indeed, a transparent approach allows an individual to
stakeholders. Accountability includes the fact that persons (your stakeholders) are willing and able to be more authentic and genuine in his/her relationships to express his/her points of view and to
hold you accountable. With the willing and able aspects of the definition, we have an operational actively work to find shared meanings and objectives.
understanding of accountability which can guide us in asking questions to accountability structures Transparency is essential in building families, and through families, in strengthening civil
in the organization. Accountability, then, is the obligation to demonstrate that work has been society as a whole: "The human family does not submerge the identities of individuals, peoples, and
cultures, but makes them more transparent to each other and links them more closely in their For example, some of those studies found that individuals in the latter years of their career
legitimate diversity" displayed higher ethical judgment. The major argument is that, as one gains further experience and
education, higher levels of moral reasoning, in turn leads to more ethical behavior.
On the organizational level, transparency is identified as an important mechanism for
guaranteeing social accountability. APPLICATION ( Use separate sheet of papers for your answer)
EXAMPLE: CHECK YOUR UNDERSTANDING
The discussion is focused on the role that transparency plays in international and
ACTIVITY 1: Explain briefly the following questions.
nongovernment organizations (NGOs) working in humanitarian projects. This understanding of
transparency as a means for organizational accountability is consistent with previous Catholic Social 1. What is the importance of business organization to the world economy?
Thought (CST) documents. Appropriate information disclosure is necessary to inform donors about 2. Explain the role of each form of business organization in the economy.
how their money is used by these organizations. Benedict XVI makes precise indications about the 3. How can you be a good steward of your home, your school, your workplace and the
kinds of information that should be disclosed, such as the percentage of funds directly used to help environment?
people, the activities and the results achieved, and how these organizations' budgets are distributed 4. Why most large businesses are organized as corporations
among different organizational functions. 5. How can trade and commerce be fair?
6. In your own words, discuss how responsibility, accountability, fairness, and transparency
Transparency allows stakeholders to understand whether the activities of social institutions
such as international organizations and NGOs provide a genuine service to civil society and whether help to create ethical corporate governance systems.
money is used appropriately. Activity 2: Case Study
The Relationship of Accountability/Stewardship/Responsibility with Ethical Businesses Abakada Company
Scholars have recently considered ethical leadership from a new angle by examining Abakada Company began as a small enterprise buying and selling various food products.
servant leadership. Servant leaders go beyond their own self-interest and focus on opportunities After a few years of successful operations, it added apparel and footwear to its wares. During
to help followers grow and develop. They do not use power to achieve ends; they emphasize this initial stage, Abakada managed to work on the basis of its proprietor's capital, borrowing
persuasion. Characteristic behaviors include listening, empathizing, persuading, accepting from its bank from time to time when needed.
stewardship, and actively developing followers' potential. Because servant leadership focuses on
serving the needs of others, research has focused on its outcomes for the well-being of followers. After more years of operation, Abakada found that it needed to draw larger amounts of
funds through bank borrowing, as well as to hire more personnel for the growing marketing
What are the effects of servant leadership? needs and services, apart from administrative functions like accounting, among others. The
One study of 123 supervisors found it resulted in: proprietor carefully weighed his options: "Shall I incorporate my business so that I can have
greater and easier access to funds, especially larger loans from banks? If I hire more people as
 Higher levels of commitment to the supervisor, self-efficacy, and perceptions of justice, my company goes bigger, will I be able to manage and control well the personnel working for
which all were related to organizational citizenship behavior (OCB). This relationship me? If I begin offering ownership shares to other people outside my family, will serious
between servant leadership and follower appears to be stronger when followers are disagreements arise among us in terms of products and services to offer in the future as well as
focused on being dutiful and responsible. managerial style?"
 Servant leadership increases team potency (a belief that one's team has above-average
These and other questions occurred to the proprietor of Abakada Company. He has
skills and abilities), which in turn leads to higher levels of group performance. approached you for advice.
 A study with a nationally representative sample of 250 workers found higher levels of
citizenship associated with a focus on growth and advancement, which in turn was Guide Questions: Based on the situation above, give the owner of Abakada Company
associated with higher levels of creative performance (Robbins and Judge, 2013). appropriate advice regarding whether or not to incorporate his business. You might wish to
 Responsibility for one's education and work experience has also been found to be related categorize the pros and cons into the following:
to ethical behavior in organizations. Some studies reported positive influences between
1. business size issues
education or employment or work experience and ethical behavior.
2. issues related to mission and objectives
3. procedures for incorporation
4. personnel issues
5. control issues
6. funding sources issues
7. legal and taxation issues

TCHR. MELODY F. DOLOR, LPT

Subject Teacher
(09369078764)