7- COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS Flashcards
The most common of these unethical
practices of business establishments ______ and _____.
misrepresentation and over-persuasion.
Misrepresentation may be classified into two types:
- direct misrepresentation and
- indirect misrepresentation.
_____ is characterized by actively misrepresenting about the product or customers.
Direct Misrepresentation
All unethical practices under Direct Misrepresentation
______ 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.
Deceptive Packaging
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
_____ 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.
Misbranding or Mislabeling
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.
False or Misleading Advertising.
T or F?
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 nonexistent virtues.
True
If advertising does not provide a useful service anymore to the customers, it can become the ____ of misrepresentation.
agent
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.
_____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.
Adulteration
T or F?
Adulteration 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
True
In ______, 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.
Weight understatement or Short weighing
Short weighing is practiced in?
selling products where prices depend on the weight such as sugar, meat, fish, vegetables, fruits. nails. etc.
In _______, 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.
Measurement understatement or Short measurement
Measurement understatement 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.
T or F?
Measurement understatement is found in the price of the product depends on its length
True
In this unethical practice, the seller gives the customer less than the number asked for or paid for.
Quantity understatement or Short numbering.
______ is often practiced in selling situations where the produci 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.
Short numbering
______is characterized by omitting adverse or unfavorable information about the product or service.
Indirect Misrepresentation
Among the most common practices involving indirect misrepresentations are?
- caveat emptor
- deliberate withholding of information and
- business ignorance.
______ is a practice very common among salesmen. Translated, caveat emptor means “let the buyer beware”
Caveat emptor
T or F?
Under the concept of Caveat emptor
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.
True
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.
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.
Deliberate Withholding of Information.
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:
Passive deception.
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.
Over-Persuasion
The common instances of over-persuasion include the following examples:
- Urging customer to satisfy a low priority need for merchandise.
- Playing upon intense emotional agitation to convince a person to buy
- 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:
1.
2.
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.
- practices of the Board of Directors and
- practices of executive officers.
Some Unethical Practices of the Board of Directors
- Plain Graft
- Interlocking Directorship
- Negligence of Duty
- Insider Trading
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 eamings 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.
Plain Graft
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.
Interlocking directorship
____ 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.
Disloyal selling
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.
Negligence of Duty
_____ 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
Insider trading
____ 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.
Material
When does legal insider happens?
The SEC has rules to protect investments from the effects of insider trading. It does not matter how the material non-public information was received or if the person is employed by the company. For example, suppose someone learns about non-public material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted,
Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally.
T or F?
The SEC has rules to protect investments from the effects of insider trading. It does not matter how the material non-public information was received or if the person is employed by the company. For example, suppose someone learns about non-public material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted,
T
Some Unethical Practices of Executive Officers and Lower Level Managers
Unethical practices that are more common to _____ and _____
executive officers and lower level managers
Some Unethical Practices of Executive Officers and Lower Level Managers
—
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.
Claiming a vacation trip to be a business trip.
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.
Having employees do work unrelated to the business.
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 indirectl 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.
Loose or ineffective controls.
The labor code lists the following as unfair labor practices committed by an employer on employees or a group of
employees who have organized themsclves into a union.
a. To interfère 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 employce 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.
Unfair labor practices
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.
Making employees sign documents showing that they are receiving fully what they are ented to under the law when in face they are only receiving a fraction of what they are supposed to gel.
Sexual Harassment
Work, education or training-related
harassment is committed by an
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
- Conflicts of Interest
- Dishonesty
A ____ 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
conflict of interest
Some common examples of conflicts of
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,
c. The employee uses for his own benefit a business opportunity in which his employer has or might be expected to have an interest.
____?
Business ethics is not just limited to business transactions with outside parties. It also covers employce-employer relationship, especially with respect to an employee’s honesty as he carries out his assigned duties in the office.
Dishonesty
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
