Atty.

Micah Danielle Tormon, CPA

CORPORATE GOVERNANCE MIDTERMS

REVIEWER 6. Caring for Others

Chapter 5: INTRODUCTION TO ETHICS  Be caring, kind, and compassionate

 Share, be giving, be of service to others
Moral Principles  Help those in need and avoid harming
- Principles of right and wrong that are others
accepted by an individual or a social
group 7. Respect for Others

Values  Demonstrate respect for human dignity,

- Ideals, customs, institutions etc. of a privacy and the right to self-
society toward which the people of the determination of all people
group have an affective regard  Be courteous, prompt, and decent

Ethics 8. Responsible Citizenship

- Set of moral principles or values that
govern the actions and decisions of an  Obey just laws
individual or group  Exercise all democratic rights and
privileged responsibly by participation,
 Most people within a society are able to social consciousness, and public service
agree about what is considered ethical
and unethical behavior 9. Pursuit of Excellence
 It is common for people to differ in their
moral principles or values  In all matters
 Perform all tasks to the best of your
CHARACTERISTICS AND VALUES ASSOCIATED ability, develop and maintain a high
WITH ETHICAL BEHAVIOR degree of competence, be well
informed and well prepared
1. Integrity
10. Accountability
 Be principled, honorable, upright,
courageous and act on convictions  Be accountable, accept responsibility
 Do not be twofaced or unscrupulous for decisions, for the foreseeable
 Adopt an end-justifies the means consequences of actions and inactions,
philosophy that ignores principles and for setting an example of others

2. Honesty WHY IS ETHICAL BEHAVIOR NECESSARY?

 Be truthful, sincere, forthright, Ethical Behavior

straightforward, frank, candid - Necessary for a society to function in an
 Do not cheat orderly manner
- Ethics is the glue that holds a society
3. Trustworthiness and Promise Keeping together

 Be worthy of trust, keep promises, full  Need for ethics in society is sufficiently
commitments important that many commonly held
 Abide by the spirit as well as the letter ethical values are incorporated into laws
of an agreement  A considerable portion of the ethical
values of a society cannot be
4. Loyalty, Fidelity, and Confidentiality incorporated into laws because of the
judgmental nature of certain values
 Be faithful and loyal to family, friends,
employers, client and country WHY DO PEOPLE ACT UNETHICALLY?
 Do not use or disclose info learned in
confidence Unethical Behavior
- Conduct that differs from the way they
5. Fairness and Openness believe would have been appropriate
given the circumstances
 Be fair and open-minded
 Be willing to admit error and change
positions and beliefs
Atty. Micah Danielle Tormon, CPA

Two primary reasons why people act negative view toward the entire
unethically: profession

1. Person’s Ethical Standards differ from CODE OF GOOD GOVERNANCE FOR THE
General Society PROFESSION IN THE PHILIPPINES

o Extreme examples of people whose General Principle of Professional Conduct

behavior violates almost everyone’s
ethical standards are drug dealers, bank Professionals are required to not only have
robbers, and larcenists ethical commitment but also have both ethical
awareness and ethical competency
2. The Person Chooses to Act Selfishly
Ethical Awareness
o A considerable portion of unethical - The ability to discern between right and
behavior results from selfish behavior wrong
o The person knows that the behavior is
inappropriate, but chooses to do it Ethical Competency
anyway because of the personal - Pertains to the ability to engage in
sacrifice needed to ethically sound moral reasoning and consider
carefully the implications of alternative
CATEGORIES OF ETHICAL PRINCIPLES actions

Principles of Personal Ethics: Specific Principle of Professional Conduct

 Basic justice, fairness 1. Service to Others

 Respect for the right of others 2. Integrity and Objectivity
 Concern for the right of others 3. Professional Competence
 Concern for the well-being on welfare 4. Solidarity and Teamwork
of others 5. Social and Civic Responsibility
 Benevolence, trustworthiness, honesty 6. Global Competitiveness
 Compliance with the law 7. Equality of All Professions

Professional Ethics:

 Integrity, impartiality, objectivity

 Professional competence
 Confidentiality
 Professional behavior
 Avoidance of potential or apparent
conflict of interest

Business Ethics

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

The Need For Professional Ethics

There is no universally accepted definition of

what constitutes a profession

Several Common Characteristics of Professions

(1) Responsibility to serve the public

(2) Complex body of knowledge
(3) Standards of admission to the profession
(4) Need for public confidence

 Careless work or lack of integrity of a

professional may lead the public to a
Atty. Micah Danielle Tormon, CPA

CHAPTER 6: BUSINESS ETHICS  Contributes to the ethical climate of

society
Business Ethics  If businesses offer bribes to secure work
- Standards of moral conduct, behavior or other benefits, engage in the
and judgment in business accounting fraud or breach regulatory
- Making the moral and right decisions and legal limitations on their
while engaging in such business operations, the ethics of society suffer
activities
- Area of corporate responsibility where Environmental Impact
businesses are legally bound and
socially obligated to conduct business in  Businesses that implement good
an ethical manner environmental policies to use energy
more efficiently, reduce waste and in
Personal values and standards of each person general lighten their environmental
engaged in business footprint can reduce their internal costs
and promote a positive image of their
MAIN PURPOSE: Help business and would-be company
business to determine what business practices
are right and what are wrong Impact on Managers
o Acknowledge that his role is to serve
Special Purposes: the business enterprise and the
community
1. Make businessmen realize that they cannot o Avoid all abuse of executive power for
employ double standards personal gain, advantage or prestige
o Reveal the fact to his superior
2. Show businessmen that common practices whenever his personal business of
which they have thought to be right because financial interests conflict with those of
they see other businessmen doing it, are really the company
wrong o Be actively concerned with the
difficulties and problems of
3. Serve as a standard or ideal upon which subordinates
business conduct should be based o Recognize that his subordinates have a
right to information on matter affecting
Assist the business world in formulating codes them
of conduct – personal, company and o Fully evaluate the likely effects on
professional employees and the community of the
business plans for the future before
SCOPE AND IMPACT OF BUSINESS ETHICS taking a final decision
o Cooperate with his colleagues and not
 Covers all conduct, behavior and attempt to secure personal advantage
judgment in business at their expense
 Actions that are not forbidden by law
are ethical ETHICAL CHARACTERISTICS IN TODAY’S WORLD
 There is still no uniform standards of
right and wrong from which all business Ethical Challenges in Today’s World -> Ms.
may base their actions Mercedes B. Suleik

Fair business competition In a system that idolizes increased profit,

- Achieving success solely by offering everything that stands in its way is pushed aside
better products, services and terms
than the competitor Pope Benedict XVI’s

Economic Impact Humanity has a mission and the means to

transform the world in justice and love in
 Positive social impact on its employees human relations, even in the social and
if they are paid living wages and economic field
benefits
 Positive effect on its suppliers that they
paid fairly and on time for their supplies

Social Impact
Atty. Micah Danielle Tormon, CPA

CHAPTER 7: COMMON UNETHICAL PRACTICES - Omitting adverse or unfavorable

OF BUSINESS ESTABLISHMENTS information about the product or
service
MISREPRESENTATION
Caveat emptor
A. Direct Misrepresentation
- Actively misrepresenting about the  “let the buyer beware”
product or customers  The seller is not obligated to reveal any
defect in the product or service he is
Deceptive Packaging selling
 Responsibility of the customer
 Placing the product in containers of
exaggerated sizes and misleading Deliberate Withholding of Information
shapes to give a false impression of its
actual contents  No business transaction is fair where
one of the parties does not exactly
Misbranding or Mislabeling know what he is giving away or
receiving in return
 The practice of making false statements
on the label of a product or making its Passive deception
container similar to a well-known
product  Business ignorance is passive deception
because the businessman is unable to
False or Misleading Advertising provide the customer with the
complete information that the latter
 Does not always tell the “whole truth needs to make a fair decision
and nothing but the truth” if it greatly
exaggerates the virtues of a product Over-Persuasion

Adulteration Persuasion – process of appealing to the

emotions of a prospective customer and urging
 Debasing a pure or genuine commodity him to buy an item of merchandise he needs
by imitating or counterfeiting it, by - Used for the sole benefit of selling a
adding something to increase its bulk or product without considering the
volume, or by substituting an inferior interest of the buyer is not ethical
product for a superior one
CORPORATE ETHICS
Weight understatement or Short weighing
Unethical Practices of Corporate Management
 Weighing scale is tampered with or
something unobtrusively attached to it TWO CLASSIFICATIONS:
so that the scale registers more than
the actual weight 1. Practices of the Board of Directors

Measurement understatement or Short a. Plain Graft

measurement  Voting for themselves and the executive
officers huge per diems, large salaries,
 The measuring stick or standard is big bonuses that do not commensurate
shorter than the real length or smaller to the value of their services
in volume than the standard
b. Interlocking Directorship
Quality understatement or Short numbering  Practiced by a person who holds
directorial positions in two or more
 The seller gives the customer less than corporation that do business with each
the number asked for or paid for other
 Practiced in selling situations where the  Conflict of interest and result to disloyal
product being sold is in such a shape or selling
is packed in a manner that would make
counting the product difficult or Disloyal selling – this person is compelled to
inconvenient decide which of the two corporation’s interest
should be protected or upheld
B. Indirect Misrepresentation
Atty. Micah Danielle Tormon, CPA

c. Negligence of Duty  Uses for his or her own benefit

 Fail to attend board meetings regularly a business opportunity
 Could result to a betrayal of trust of the
parties who elected them into such
positions b. Dishonesty

d. Insider Trading  Covers employer-employee

 Involves trading in a public company’s relationship, with respect to an
stock by someone who has non-public employee’s honesty as he carries out
material information about that stock his assigned duties in the office
for any reason
 Either legal or illegal

Material non-public information – any info that

could substantially impact on investor’s decision
to buy or sell the security that has not been CHAPTER 8: ETHICAL DILEMMA
made available to the public
Ethical Dilemma
Legal insider trading – directors of the - Situation a person faces in which a
company purchase or sell shares, but they decision must be made about the
disclose their transactions legally appropriate behavior

2. Practices of Executive Officers and Lower RESOLVING ETHICAL DILEMMAS

Level Managers
1. Obtain relevant facts
a. Claiming a vacation trip to be a business 2. Identify the ethical issues from the facts
trip 3. Determine who is affected by the
b. Having employees do work unrelated to outcome of the dilemma and how each
the business person or group is affected
c. Loose or ineffective control 4. Identify the alternatives available to the
d. Unfair labor practices person who must resolve the dilemma
e. Making false claims about losses to free 5. Identify the likely consequences of each
themselves from paying the alternative
compensation and benefits provided by 6. Decide appropriate action
law
f. 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
g. Sexual harassment

3. Practices of Employees

a. Conflicts of Interest

 Employee’s decision or actuation is

influenced by what he can gain
personally from it rather than what his
employer can gain from it

 Holds significant interest or

shares of stock of a competitor
 Accepts cash, gift or loan from
supplier, customer, competitor
or contractor
 Uses or discloses confidential
information for his or
someone’s personal gain
 Engage in same type of business
as his employer
Atty. Micah Danielle Tormon, CPA

CHAPTER 9: ADVOCACY AGAINST CORRUPTION money, multiple parties or huge

quantities of products are at stake
Corruption
- Abuse of private and public office for CHARACTERISTICS OF CORRUPTION
personal gain
- Acts of bribery, embezzlement, a. recipients and payers
nepotism, kickbacks and state capture b. extortion
- Receiving, asking for or giving any c. lubricant of society
gratification to induce a person to do a d. an ethical dilemma
favor for private gain e. poverty alleviation
- Misuse of entrusted power for private f. culture
gain g. kindness among friends
- Improbity or decay in the decision-
making process in which a decision THE PHILIPPINES CORRUPTION REPORT
maker consents to deviate or demands
deviation from the criterion which o PH loses P200B from smuggling and
should rule his or her decision making P400B from tax evasion
- Form of dishonesty or criminal activity
Judicial System
WHY AND HOW DOES A PERSON BECOME
CORRUPT?  Bribes and irregular payments in return
for favorable judicial decisions
Corruption spread when there are  Rich and powerful have influenced
opportunities, when risk is minimal in proceedings in civil and criminal cases
comparison to benefits obtained or when one is  Underfunded -> non-transparent and
confronted with issues like biased court decisions

 Career advancement Police

 Earning of more income
 Financial problems caused by illness,  Regarded as one of the most corrupt
loss of property institutions
 PH 50M bribe from gambling tycoon
ILL EFFECTS OF CORRUPTION Jack Lam in order to release 1,300
Chinese nationals who were working in
 10% of the total costs of doing business his resorts illegally
and 25% of the cost of procurement
programs in developing countries Public Service
 Waste or the inefficient use of public
resources  Official sometimes get involved in
o P550B lost yearly to crime, processing documents related to civil
corruption and tax evasion and property registration and building
 Corrodes public trust, undermines the permits
rule of law, and ultimately delegitimizes
the state Land Administration
 Africa’s 700M people under 30 seeking
opportunities with dignity  2/5 companies report expecting to give
gifts when obtaining a construction
Other Repercussions of corruption: permit
 Multiple agencies are responsible for
1. Breakdown in social order and lives are administration, which has led to
effected when ordinary people are prevented overlapping procedures for land
from receiving all the essential service that they valuation and title registration -> costly
are entitled to
Tax Administration
2. Creates unfair competition and increase the
cost of doing business  Around 1/7 companies indicate they
expect to give gifts in meetings with tax
3. Corruption is cancer that spreads rapidly all officials
over the body

 Major corruption arises whenever

major events involving large sums of Customs Administration
Atty. Micah Danielle Tormon, CPA

 About a quarter of companies indicate Anti-Red Tape Act

they expect to give gifts when obtaining - Forbids office holders from accepting
an import license any gifts or material benefits in
 BOC receiving a rating of very bad when exchange for any government permit or
it came to its commitment to fighting license
corruption - Indirect bribery – Revised Penal Code

Public Procurement Anti-Money Laundering Act

- Criminalizing money laundering and
 Rampant corruption, irregularities, and organized crime
inconsistent implementation of
legislation Act Establishing a Code of Conduct and Ethical
 Diversion of public funds, favoritism in Standards for Public Officials and Employees
the decisions of public officials - Formulates standards for the personal
integrity and accountability of civil
Natural Resources servants

 Poor value realization and revenue UN Convention against Corruption

management have caused the country’s - Legal anti-corruption framework in the
overall resource governance to be PH is complicated and poorly enforced,
judged as weak lack of cooperation between law
enforcement agencies and officials
PREVENTION OF CORRUPTION
VIGILANCE OF CIVIL SOCIETY
1. Clear business processes
o Philippine civil society is active and is
 Having defined workflows, clear represented by a wide variety of
directives on financial approving different orgs
authorities, and standard procurement o Not included in formal decision-making
instructions can help flag irregularities in but they play a large role in initiating
a business or organization legislation and steering debate in
Congress
2. Policy on Gifts and Entertainment

 Offered in legitimate course of business

to promote good relations

3. Declaration of Conflict of Interest

 Personal interest or relationships is

placed before the business interest, and
can lead to corrupt activities

4. Convenient Corruption Reporting System

Corruption Reporting System

- 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 and retaliated against

EFFORTS TO CURB CORRUPTION THROUGH

LEGISLATION

Anti-Graft and Corrupt Practices Act

- Criminalizes active and passive bribery,
embezzlement, extortion, abuse of
office and conflict of interest in the
public sector
Atty. Micah Danielle Tormon, CPA

CHAPTER 10: INITIATIVES TO IMPROVE 4. Owners and other Providers of Capital

BUSINESS ETHICS AND REDUCE CORRUPTION 5. Local and National Govt
6. Society in General
Improvement of business ethics
- Common concern of everybody SURVEY OF LAWS ADVOCATING BUSINESS
- Imperative that all parties involved ETHICS
must participate in improving business  RA 7394 (Consumer Act of the
ethics Philippines)
 RA 3720 (Food, Drug and Cosmetics)
THE INTEGRITY INITIATIVE CAMPAIGN  RA 8293 (Intellectual Property Code of
the Philippines)
Integrity Initiative
- Multisectoral campaign that seeks to
institutionalize integrity standards
among various sectors of society
- Aims to help in diminishing, if not fully
eradicating, the vicious cycle of
corruption in the PH

Corporate Values

 Organization’s values and code of

conduct address the legal and other
obligations owed to important
shareholders

Need for a Code of Conduct

Code of Conduct – formal expression of the

organization’s values and ethics

 Guide directors and senior executives

 Promote responsibility and
accountability
 Ensure compliance with legal and other
obligations

Unified Code of Conduct for Business

1. harmonizes existing ethical standards among

business operating in the Ph

2. communicates the signatories’ commitment

to upholding high standards of ethics

UNIFIED CODE OF CONDUCT FOR BUSINESS

(Integrity Initiative)

 Top Management
 Human Resources
 Sales and Marketing
 Finance and Accounting
 Procurement
 Logistics
 Implementation and Monitoring

SOME PRINCIPLES FOR THE CONDUCT OF

BUSINESS

1. Employees
2. Customers
3. Suppliers