Chapter 7

Common Unethical Practices of

Business Establishments
Fidel, Folla Jidden P.
Gonzales, Mary Grace O.
Logmao, Bea Azenith N.
Sulabo, Marian Grace O.
Villarazo, Shaina Rosewell M.
 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.

1. 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 this packaging is
slack-fill packaging where containers like cartons, tin
cans and certain plastics are filled only up to 85%-90%
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 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 “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 (in the form of a superior product) and terms
of payment than the competitor.
 Weight understatement of Short weighing
In short weighing, the mechanism of the weighing scale is
tampered with or something is unobtrusively attached to it so
that the weighing 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. Short weighing is practice 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 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 price by the stack.
Quantity understatement
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 make counting the product difficult or inconvenient.
For example, a customer who is not a vigilant may receive
the less quantity than what he is entitles to when buying
toilet paper, bond paper, carbon paper, paper clips, thumb
tacks, matches and toothpicks which are sold by the box or
package.
2. Indirect Misrepresentation
Is characterized by omitting adverse or
unfavorable information about the product or
service.
COMMON PRACTICES INVOLVING
INDIRECT MISREPRESENTATION:
• Caveat Emptor
• Deliberate Withholding of Information
• Business Ignorance
 CAVEAT EMPTOR
 Is a practice very common among salesman.
Caveat Emptor means "let the buyer beware". Under
this concept, the seller is not obligated to reveal any
defect in the productor service he is selling. It is
responsibility of the customer to determine for himself
the defects of the product.
DELIBERATE WITHHOLDING OF INFORMATION
 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 a obvious, it nonetheless contributes to the
businessman are liars and are out to make a fast buck.
BUSINESS IGNORANCE
 is a 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 need. Persuasion is
legitimate and necessary in the selling of goods if it
is done in the interest of a buyer such a persuading
him to get a hospitalization insurance policy.
However, persuasion used for the sole benefit if
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 financial magnitude and
implications of a particular corporate management
practice.
Some Unethical Practices of the Board
of Directors.
1.Plain Graft
Some of the BODs 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 earning
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
It 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
It 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
1.Claiming a vacation trip to be a business trip.
The President or Vice President reports his personal
vacation as a business trip so he can get reimbursement
for his expenses including those of his family.
2. Having employees do work unrelated to the
business.
Executives officers and lower managers ask
company employees to do personal things for them on
company times.
3. Loose or ineffective control.
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.
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 on 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 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 Coode;
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.
5. Making false claims about losses to free
themselves from paying the compensation and
benefits provided 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 function of what they are supposed to
get.
7. Sexual Harassment
Some Unethical Practices of
Employees
1. Conflicts of Interest
A conflict of interest arises when an
employee who is bound due 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 gain he can personally
from it rather than what his employer can gain
from it.
Some examples of conflicts of interest are:
A. An employee who holds a significant interest or
shares of stock of a competitor, supplies, 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.
C. The employee uses or discloses confidential company
information for his or someone else’s personal gain.
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.
E. The employee uses for his own benefit a business
opportunity in which his employer has or might be
expected to have an interest.
Examples of dishonest acts of employees are:

1. Taking office supplies home for personal use.

2. Padding an expense supplies through the use
of fake receipts when claiming
reimbursements.
3. Taking credit for another employee's idea.
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
honesty which carries out his assigned duties
in the office.