UNIVERSITY OF MAKATI

J. P. Rizal Ext., West Rembo, Makati City

HIGHER SCHOOL NG UMAK
ABM AND LANGUAGES DEPARTMENT
Course Title Title
Module
7
Business Ethics and Social No. Models and Frameworks of Social Responsibility
Responsibility
1. define social responsibility and identify the stakeholders that a business
organization should answer to;
2. explain the different models and frameworks of social responsibility;
Learning Objectives: 3. suggest ways to advocate responsible practices in all aspects of business
At the end of the lesson, the operations;
students should be able to: 4. suggest ways to advocate responsible practices in all aspects of business;
5. cite examples of companies that practice social responsibility; and
6. watch videos and research on companies that have failed to practice social
responsibility.
 Milton Friedman was a noted American economist who was once quoted as saying, “There is one, and only
one social responsibility of business - to use its resources and engage in activities designed to increase its profits
so long as it says within the rules of the game, which is to say engages in open and free competition without
deception of fraud.
As citizens of our country, we are born from, it is our responsibility to obey laws of our country. It is likewise
our responsibility to help our neighbors whenever they need help. As responsible citizens, it is our duty to vote
during election time. We respect human dignity whether the person is white or black whether schooled or
unschooled or whether rich or poor.
When we become entrepreneurs, are we still responsible to our fellowmen, to our community and to
country? In our desire to maximize profits, are we going to cheat our customers, exploit our employees, and
dump our wastes into the air, water and and? All of these things are the opposite of social responsibility. As a
result, we have adulterated products, aside from wrong weights and measurements. Many of our workers are
underpaid. Our environment is being destroyed or polluted.
What is social responsibility? And as a follow-up question, is it practical and profitable for entrepreneurs
to engage in this? In the pursuit of business success and maximum profits, is there room for the consideration
of the social impact of one’s actions?
What exactly is the social responsibility of the entrepreneur or the businessman to his customers, suppliers
and stockholders, fellow businessmen, government, to the community and to his employees?
This module will discuss the responsibilities of the entrepreneur to the business he/she operates and the
different models and frameworks of social responsibility.
INTRODUCTION
 As individuals, we all have roles to play in society. These roles have accompanying responsibilities. For
example, it is the parents’ responsibility to clothe, feed, and educate their children. Children, on the other hand,
carry the responsibility of caring for younger siblings, if they have any, and performing their tasks at home and in
school. A business can be likened to an individual in the sense that is also has responsibilities. In defining what
the responsibilities of a company are, and to whom it is answerable to, we need to understand what social
responsibility is.
Social responsibility is an ethical theory in which individuals are accountable for fulfilling their civic duty,
and the actions of an individual must benefit the whole of society. In this way, there must be a balance between
economic growth and the welfare of society and the environment. If this equilibrium is maintained, then social
responsibility is accomplished.
Social responsibility is an idea that suggests that organizations behave ethically and with consideration to
social, cultural, economic, and environmental issues. Outwardly, this could translate to a business entity
donating to a local charity or creating an outreach program for the company to participate in. However, it can
also take on less obvious forms, such as spending for better quality materials in order to ensure that its product
gives the customers their money’s worth or it might be improving the benefits of one’s employees so that they
in turn will be more productive in work. However, how social responsibility is viewed depends largely on what
theory an entrepreneur adheres to.
Stockholder or Shareholder Theory
The shareholder theory was originally proposed by Milton Friedman and it states that the sole
responsibility of business is to increase profits. It is based on the premise that management are hired as the
agent of the shareholders to run the company for their benefit, and therefore they are legally and morally
obligated to serve their interests. The only qualification on the rule to make as much money as possible is
“conformity to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”
The shareholder theory is now seen as the historic way of doing business with companies realizing that
there are disadvantages to concentrating solely on the interests of shareholders. A focus on short term strategy
and greater risk taking are just two of the inherent dangers involved. The role of shareholder theory can be seen
in the demise of corporations such as Enron and Worldcom where continuous pressure on managers to increase
returns to shareholders led them to manipulate the company accounts.
A shareholder, also referred to as a stockholder, is a person, company, or institution that owns at least one
share of a company’s stock, which is known as equity. Because shareholders are essentially owners in a company,
CONTENT

they reap the benefits of a business’ success. These rewards come in the form of increased stock valuations, or
as financial profits distributed as dividends. Conversely, when a company loses money, the share price invariably
drops, which can cause shareholders to lose money, or suffer declines in their portfolios’ values.
Two Types of Shareholders
1. Common shareholders are those that own a company’s common stock. They are the more prevalent
type of stockholders and they have the right to vote on matters concerning the company. As they have control
over how the company is managed, they have the right to file a class-action lawsuit against the company for any
wrongdoing that can potentially harm the organization.
2. Preferred shareholders, on the other hand, are rarer. Unlike common shareholders, they own a share
of the company’s preferred stock and have no voting rights or any say in the way the company is managed.
Instead, they are entitled to a fixed amount of annual dividend, which they will receive before the common
shareholders are paid their part.
Though both common stock and preferred stock see their value increase with the positive performance of
the company, it is the former that experiences higher capital gains or losses.
The Stockholder/Shareholder Theory
The Stockholder/Shareholder Theory has been frequently criticized for its supposed self-serving goal of
profit maximization. A singular focus on the creation of profit can lead to disastrous results for some companies
as you will see in the following cases.
Basic Fairness
Fairness in business refers to the value of treating people with a standard of performance that is consistent
and equal based on your commitments. It means giving customers a fair value for their money. It also means
providing a non-discriminatory work environment where employees have equal opportunities to good benefits
and working conditions. Treating community members and business partners with the same level of fairness you
expect from them is also important.
Case 1
Martin Shkreli has single-handedly changed the face of pharmaceutical industry, and not in a positive way.
A former hedge fund manager. Shkreli has become one of the most hated executives in America. His company,
Turing Pharmaceuticals, bought the rights to Daraprim, a drug developed in the 1950s, which is used by patients
with HIV. Upon acquiring the rights to the drugs, he immediately announced that he was raising the price of the
$13.50 to $750.
When interviewed, Shkreli told Forbes magazine, “Shareholders want us to maximize profit, and lowering
the price of our product is a direct contrast to our objective.” Sadly, pharmaceutical companies often raise prices
of the most needed medicines. Martin Shkreli has been hostile to the criticisms thrown at him, saying that he is
being unfairly singled out when the industry practices the same pricing method he uses on needed drugs.
 Read also “What’s the Fair Price for a Drug?” at
http://www.bbc.com/news/health-34322720
“Martin Shkreli Has One Idea, And It’s a Bad One” at
https://blogs.sciencemag.org/pipeline/archives/2015/09/21/martin-shkreli-has-one-idea-and-its-a-
bad-one
Environmental Destruction
Environmental destruction/degradation is the deterioration of the environment through depletion of
resources such as air, water and soil; the destruction of ecosystems; habitat destruction;
the extinction of wildlife; and pollution. It is defined as any change or disturbance to the environment perceived
to be deleterious or undesirable.
Case 2
In a mining forum, Manuel V. Pangilinan, the Chairman of the Philippine Long Distance Telephone Company
harped on the benefits of increasing investment on mining locally. He said that the Philippines was the fifth most
mineralized country in the world, and that it would cost more to import these products, as opposed to producing
in the Philippines.
While the business tycoon’s argument makes economic sense, what is the actual cost of the mining?
Consider the fish kill in Lake Bito, Leyte in 2012, cause by mine wastes from Nicua Mining Corporation. How
many fishermen lost their livelihood due to contaminated water? Later that same year, Philex Mining
Corporation in Benguet discharged 20 million metric tons of tailings, which ran into the Balog and Agno River
systems, provider of water for agricultural irrigation and power-generation in Pangasinan.
While the mining company was levied a record-breaking fine of some Php 1.034 billion, was the amount
enough to rehabilitate the surroundings destroyed by mining?
Deforestation is another inevitable result of large-scale mining. As such, several private mining corporation
included massive tree-planting projects as part of their Corporate Social Responsibility efforts. But again,
environment advocates are left to wonder if this is enough to mitigate the damage bought about by this
controversial industry.
Read also “Gov't Slaps P1B Fine on Philex for Mine Waste Spill” at
https://news.abs cbn.com/business/09/26/12/govt-slaps-p1b-fine-philex-mine-waste-spill
“Another Fishkill in Leyte Lake” at
https://newsinfo.inquirer.net/193251/another-fishkill-in-leyte-lake
Employee Welfare
Employee welfare should be understood as such service, facilities and amenities which may be established
in or in the vicinity of undertakings to enable the persons employed in them to perform their work in healthy and
peaceful surroundings and to avail of facilities which improve their health and bring high morale”.
Case 3
In April of 2013, more than a thousand factory workers died when the eight-story Rana Plaza Building in
Dhaka, Bangladesh, collapsed.
Investigation revealed that the building was home to a handful of factories that manufacture foreign
clothing brands. While only a few of the companies have put money towards compensating the victims and their
families, half the brands associated with the collapse, such as Benetton, Carrefour, and JCPenney, have yet to
shell out money to assist those injured or the families who have lost a loved one.
Read also “Bangladesh Factory Collapse Toll Passes 1,000” at
https://www.bbc.com/news/world-asia-22476774
Business Fraud
Business fraud consists of dishonest and illegal activities perpetrated by individuals or companies in order
to provide an advantageous financial outcome to those persons or establishments. Also known as corporate
fraud, these schemes often appear under the guise of legitimate business practices.
Case 4
Enron Corporation was once a giant American Energy, commodities, and services company that employed
over 20,000 people. However, by the end of 2001, it was discovered that it had engaged in accounting fraud,
lying about its profits and concealing debts so that they did not show up in the company’s accounts. The company
become very real and well-known example of corporate fraud and corruption.
Read also Emron Corporation at
https://www.infoplease.com/encyclopedia/social-science/economy/business/enron-corporation
Watch also https://www.youtube.com/watch?v=SMT5v5zT5KQ
Stakeholder Theory
Stakeholder theory, on the other hand, states that a company owes a responsibility to a wider group of
stakeholders, other than just shareholders. A stakeholder is defined as any person/group which can affect/be
affected by the actions of a business. It includes employees, customers, suppliers, creditors and even the wider
community and competitors.
Edward Freeman, the original proposer of the stakeholder theory, recognized it as an important element
of Corporate Social Responsibility (CSR), a concept which recognizes the responsibilities of corporations in the
world today, whether they be economic, legal, ethical or even philanthropic. Nowadays, some of the world’s
largest corporations claim to have CSR at the centre of their corporate strategy. Whilst there are many genuine
cases of companies with a “conscience”, many others exploit CSR as a good means of PR to improve their image
and reputation but ultimately fail to put their words into action.
Recent controversies surrounding the tax affairs of well known companies such as Starbucks, Google and
Facebook in the UK have brought stakeholder theory into the spotlight. Whilst the measures adopted by the
companies are legal, they are widely seen as unethical as they are utilizing loopholes in the British tax system to
pay less corporation tax in the UK. The public reaction to Starbucks tax dealings has led them to pledge £10m in
taxes in each of the next two years in an attempt to win back customers.
In the traditional view of a firm, a company is answerable to the owners and stockholders of the company.
In the Stakeholder Theory, a typical company has many stakeholders. A stakeholder is defined as any person,
group, or organization that has an interest or concern in the enterprise.
Here are Some Stakeholders that a Business Needs to be Answerable
1. Its employees. Does the company give the employees fair wages and benefits?
2. Its suppliers. Does the business pat its suppliers on time?
3. Its regulators. Does the company comply with government regulations, such as licenses, permits, and
tax compliance?
4. Its financiers. Does the company repay its creditors and offer fair and attractive returns to its investors?
5. Its competitors. Does the company employ fair business practices in terms of marketing, without
discrediting its competitors?
6. Its customers. Does the company provide value through its products or services which support human
values?
7. The media. Does the company communicate products and services truthfully?
8. The society. Does the company show concern for worthwhile causes, such as the environment and its
community member?
Many companies now espouse Corporate Social Responsibility (CSR), which recognizes the economic, legal,
ethical, and even philanthropic responsibilities of corporations in the world today.
While there are companies who declare their CSR and use this as a means of creating positive public
relations, there are handful of companies that go beyond what is government-mandated in order to serve their
community genuinely as you will see in the following cases.
Supplier Relations
It refers to affiliations with the companies that supply your business with goods and services. Finding good
suppliers and maintaining solid relations with them can be an invaluable tool in the quest for business success
and expansion. In fact, a business can only be as good as are the suppliers with whom it works. Suppliers provide
the materials a company uses to produce its own goods and/or services.
Case 1
Jollibee, through the Jollibee Group Foundation, Inc., has launched a Farmer Entrepreneurship Program
(FEP). In this program, small farmers are given a chance to directly supply their produce to big fast-food
restaurants, supermarkets, and food processors. Farmers are given the training they need in order to increase
productivity, as well as gain skills in managing an agri-business. They are taught the value of meeting deadlines
and maintaining the good quality of their products. They are also linked to partner financial institutions in order
to help farmers get access to credit.
This set-up in turn helps Jollibee cut the distributor and have better access and control of its needed food
suppliers.
To date, over 1,000 farmers have been helped by the FEP by linking their crops directly to institutional
markets.
Read also “The Farmer Entrepreneurship Program – How Jollibee Group Foundation Empowers
Small Scale Farmers In The Philippines” at
https://www.inclusivebusiness.net/ib-voices/farmer-entrepreneurship-program-how-jollibee-group-
foundation-empowers-small-scale
Customer Relations
Customer relations is the process a business uses to develop positive relationships with its customers.
This includes activities such as marketing, PR communications, sales and customer service. It describes the ways
that a company will engage with its customers to improve the customer experience. The aim is to ensure that
customers are highly engaged and satisfied with the business.
Case 2
In 1982, seven people died after swallowing cyanide-laced capsules of Extra-Strength Tylenol. At the time
Tylenol was Johnson & Johnson’s best-selling product. Sales dropped dramatically after the incident, but two
months after, sales were up, and Tylenol’s packaging was improved.
How was Johnson & Johnson’s (J & J) able to recover from this crisis so quickly? It recalled 31 million bottles
of Tylenol capsules from store shelves and offered to replace the product. Instead of looking for anyone to blame,
it placed the consumer first by doing the recall. It was very costly for the company to do this and J & J reportedly
spent more than $100 million for the recall and relaunch of their product. But as a result of putting its clients’
safety first, its stocks, which initially went down, recovered in only few months. J & J came out as a stronger
company after its ordeal.
Read also “Tylenol Made a Hero of Johnson & Johnson : The Recall That Started Them All” at
 https://www.nytimes.com/2002/03/23/your-money/IHT-tylenol-made-a-hero-of-johnson-johnson-
the-recall-that-started.html
Employer-Employee Relations
Employer-Employee Relation refer to the relationship shared among the employees in an organization. It is an
art which effectively monitors and manages the relation between individuals either of the same team or from
different teams.
Case 3
In 2015, Jobstreet revealed the Top 10 List of Most Aspired Companies. Four thousand two-hundred
individuals participated in the survey which revealed that while salary remained the main reason why these
companies were sought after by employees, it also showed that benefits and incentives were factors in the
selection of companies. Employees were looking for companies that could provide performance-based bonuses,
health insurance, retirement pay, and housing loans.
For fresh graduates, the opportunity to learn and be trained is their primary consideration. Benefits and
salaries only come in as second and third reasons for selecting a company.
Others say that belonging to a stellar company, with brand recall and working with good quality people are
motivation enough for them to stay with the organization.
Read also “Top 16 Best Companies to Work for in the Philippines in 2021” at
https://philpad.com/best-companies-work-philippines/

Did you know that….

some of Marlboro Men have died of smoking-related diseases?

Robert Norris, the first Marlboro Man to appear on television, died at age 90.
He served as the popular icon for Marlboro cigarettes for more than a decade, though
he was never a smoker. He abandoned the campaign after feeling that he was setting
a bad example for his own children.
Marlboro Man David Millar, the Rugged Marlboro Man succumbed to
ephysema in 1987 at age 81, had smoked for about 40 to 45 years before quitting.
Wayne McLaren died of lung cancer in 1992 at age 51 after 25 years of
smoking. After developing lung cancer in 1990, McLaren became an anti-smoking
crusader citing his smoking habit as the cause of his cancer.
David McLean, died of lung cancer at 73. Part of his compensation was a free
supply of cigarettes. His widow sued Phillip Morris, alleging that the company
forced McLean to smoke “up to five packs per take” while filming Marloboro TV spots.
The lawsuit was dismissed.
Eric Lawson, 72, a smoker since age 14, appeared in Marlboro print ads from
1978 to 1981 died of chronic obstructive pulmonary disease. After the Marlboro Man
character debuted in ads and commercials in the mid-1950s, sales of Marlboro
cigarettes soared 3,241 percent in a single year.
 Write T if the answer is True and F if the answer is False.
_____1. The employees must be comfortable with each other for a healthy environment at work. It is the prime
duty of the superiors and team leaders to discourage conflicts in the team and encourage a healthy relationship
among employees.
_____2. Edward Friedman suggests that a company’s stakeholders are "those groups without whose support the
organization would cease to exist." These groups would include customers, employees, suppliers, political action
groups, environmental groups, local communities, the media, financial institutions, governmental groups, and
more.
_____3. Stakeholder theory suggests that the purpose of a business is to create as much value as possible for
stakeholders. In order to succeed and be sustainable over time, executives must keep the interests of customers,
suppliers, employees, communities and shareholders aligned and going in the same direction.
_____4. Fraud describes circumstances in which a company obscures the truth from public knowledge. Fraud
ASSESSMENT

exists when (1) a material false statement is made intentionally and with the intent to deceive, (2) the victim
relies upon that false statement to their detriment, and (3) the victim suffers damages.
_____5. Social responsibility is the duty of business to do no harm to society. In other words, in their daily
operations, businesses should be concerned about the welfare of society and mindful of how its actions could
affect society as a whole.
_____6. Employee welfare includes the schemes that benefit the employees working in the company. Although
it is a costly procedure for the companies yet it is needed as it helps in the overall development of the employees.
_____7. Dr. Freeman’s view is that companies are compelled to make a profit, to satisfy their shareholders, and
to continue positive growth.
_____8. Mead Johnson and Company is one of the most successfully companies in the world, and Tylenol is one
of its most popular brands of medicine. In late September 1982, the company recalled all of its Tylenol products
after seven people in Chicago died after taking Extra-Strength Tylenol capsules.
_____9. Common shareholders own a share of the company’s preferred stock and have no voting rights or any
say in the way the company is managed.
____10. Some employees were not looking for companies that could provide performance-based bonuses, health
insurance, retirement pay, and housing loans.
ASSIGNMENT

1. After reading the articles written about the Jollibee Foundation, what is your perception of Jollibee now? Has
it made it more likely for you to be a Jollibee client? Why?
2. Have you ever heard of companies in the Philippines that recalled their products because of the product
defects? Cite the companies.
3. Which companies made it to the Top 16 Best Companies to work for in the Philippines in Year 2021? What
are your Top 3 choices and if given the chance, why you want to work there?
 Choa, Valerie N. and Parma, Angela C. Essentials in Business Ethics.

Siquete, Cherille V. Business Ethics and Social Responsibility.

https://www.bbc.com/news/health-34322720

https://blogs.sciencemag.org/pipeline/archives/2015/09/21/martin-shkreli-has-one-idea-and-its-a-bad-
one

https://news.abs cbn.com/business/09/26/12/govt-slaps-p1b-fine-philex-mine-waste-spill
REFERENCES

https://newsinfo.inquirer.net/193251/another-fishkill-in-leyte-lake

https://www.bbc.com/news/world-asia-22476774

https://www.infoplease.com/encyclopedia/social-science/economy/business/enron-corporation

https://www.youtube.com/watch?v=SMT5v5zT5KQ

https://www.inclusivebusiness.net/ib-voices/farmer-entrepreneurship-program-how-jollibee-group-
foundation-empowers-small-scale

https://www.nytimes.com/2002/03/23/your-money/IHT-tylenol-made-a-hero-of-johnson-johnson-

the-recall-that-started.html

https://philpad.com/best-companies-work-philippines/