Lesson 3

• Corporation in a capitalistic economy


  • Its role is very important that the study of business ethics would not be adequate without a look at the moral problems that plague corporate management.
  • Many people can invest in it by buying shares
  • Owners (stockholders) elect a Board of Directors to represent them in managing the corporation
  • Board of Directors appoint executive officers to execute policies and manage the business
• Board of Directors


  Trustees of the corporation, elected by the owners (stockholders) to manage the business on their behalf
• Executive officers


  Salaried, full-time employees who engage in administrative activities, as differentiated from the policy-making and general supervisory work of the Board of Directors
• Unethical practices of Board of Directors


  • Paying themselves and executive officers excessive compensation
  • Manipulating earnings to benefit their own shareholdings
  • Engaging in disloyal selling (conflict of interest)
  • Insider trading
  • Routing purchases through their own companies at inflated prices
  • Neglecting their duty to attend board meetings
• Unethical practices of executive officers


  • Claiming personal vacation trips as business trips
  • Having employees do personal work unrelated to the business
  • Providing loose or ineffective controls to prevent employee misconduct
  • Engaging in unfair labor practices •Making false claims about losses to free themselves from paying the compensation and benefits provided by law. • Making employees sign documents showing that they are receiving fully but they are only receiving a fraction of what they are supposed to get.
• Unethical practices by employees


  • Conflicts of interest
  • Dishonesty
• Conflict of interest


  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 personally gain from it rather than what his employer can gain from it
• Conflicts of interest


  • 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
  • The employee accepts cash, a gift or a lavish entertainment or a loan from a supplier, customer, competitor or contractor
  • The employee uses or discloses confidential company information for his or someone else's personal gain
  • The employee engages in the same type of business as his employer
  • The employee uses for his own benefit a business opportunity in which his employer has or might be expected to have an interest
• Dishonesty


  Petty thievery and dishonesty in the office, such as using the company postage meter to mail personal letters, taking office supplies home, padding expense accounts, punching another employee's time card, and taking credit for another employee's idea
• The Congress of the Philippines passed Republic Act No. 7877, "AN ACT DECLARING SEXUAL HARASSMENT UNLAWFUL IN THE EMPLOYMENT, EDUCATION OR TRAINING ENVIRONMENT, AND FOR OTHER PURPOSES," on February 14, 1995
• 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 any sexual favor from the other, regardless of whether the demand, request or requirement for submission is accepted by the object of said Act
• Corporation


  An organization formed to conduct business
• Practices of Board of Directors

  1. Pain Graft
  2. Disloyal Selling
  3. Insider Trading
  4. Routing Purchases Through Director's Pockets
  5. Negligence of Duty
• Pain Graft


  Members of the Board of Directors help themselves to the earnings that otherwise would go to other stockholders
• Disloyal selling


  A corporate practice that involves conflict of interest
• Disloyal selling


  • Practiced by a person who holds directorial positions in two or more corporations that do business with each other
  • Person is compelled to decide which of the two corporations' interests he is under obligation to protect
• Insider trading


  When a broker or another person with access to confidential information uses that information to trade in stocks and securities, thus giving him an unfair advantage over the general public which has not had access to that information
• Insider Trading - A director or manager of a mining corporation comes across information which will tremendously increase the value of the shares of stock


  He can profit from such information by buying additional shares of stock before the other stockholders learn of the gold ore discovery
• The SEC has imposed several penalties and fines, eventually leading to the revocation of the license of the broker
• Routing Purchases Through Director's Pockets


  1. Board of Directors of company A create a separate corporation (Company B)

  2. Board of Directors are the controlling stockholders of Company B

  3. Company B sells the supplies and materials that Company A needs

  4. Board of Directors approve the purchase of supplies from Company B

  5. Prices are above normal market prices
• Negligence of Duty


  A failure of the members of the Board of Directors more common than breach of trust is neglect of duties they have been elected for, that is to attend board meetings regularly. It is only in regular attendance that they can protect the rights and interests of the stockholders. If they do not attend meetings,they betray the trust that the stockholders placed on them.