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 cartos, 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:

a. Advertisements with pictures or statements that convey exaggerated impression of the

product’s reliability or quality.
b. Advertisement that claims that the product is the “fastest selling brand” or the “product of
the year”.
c. 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 scaled 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 making 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 a legitimate and necessary in the
selling of goods if it is dome 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 occurs when a broker or another person with access to confidential
information uses that information to trade in shares and securities of a corporation, thus
giving him an unfair advantage over the other purchasers of these securities.

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 attorney’s 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 bargaining 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 obligation 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 the 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.

(source: Corporate governance, business ethics, risk management and internal control 2019-2020 edition by Elenita Cabrera
and Gilbert Cabrera)