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UNIVERSITY OF ASIA AND THE PACIFIC

SCHOOL OF MANAGEMENT AND SCHOOL OF ECONOMICS

Bachelor of Arts in Business Administration Program

Module 8 Page 1 of 31 ETHICS IN PHILIPPINE ENTERPRISE: Theory and Cases

ETHICS IN PHILIPPINE ENTERPRISE: THEORY AND CASES

EDITED BY

ALEJO JOSE G. SISON, PH.D.

CONTRIBUTING AUTHORS:

ALEJO JOSE G. SISON, ERNEST K. CUYEGKENG, JAIME C. LAYA, MERCEDITA S. NOLLEDO, NORBERTO C.

NAZARENO, RICARDO G. LAZATIN, MADELEINE L. DALUSUNG, ANTONIO A. ALBERT, JR.

Preface

Considering the rough-and-tumble, compromise-ridden and cutthroat nature of competition in the business arena, adhering to high ethical standards is a constant challenge to financial executives. Since its inception, the Financial Executives Institute of the Philippines (FINEX) has anchored itself upon a profound respect and affinity to ethics.

This book on Ethics in Philippine Enterprise: Theory and Cases affirms FINEX' bone-deep belief in the primacy and importance of ethical behavior. FINEX and its members believe that transparency and integrity are the foundations of true professionalism. The true professional constantly ensures that conflict-of-interest situations are resolved in accordance with high ethical norms. The true professional also follows all relevant laws and regulations conscientiously, honors all contractual and moral obligations, and observes fairness in dealings with all fellow human beings. Indeed, FINEX and its members believe that ethics consist of simply living within defined good business practice.

Through this publication, FINEX aims to inspire and motivate its members to be ever cognizant of the importance of ethics and ethical behavior so that today's youth will be primed and prepared to become tomorrow's values and principle-centered financial executives.

We wish to thank the members of 9fe 1996 Ethics Board for their perseverance in initiating, managing and completing this book project. ROMAN A. AZANZA, JR FINEX President VITALIANO N. NANAGAS FINEX Director & Ethics Board Liaison Director

Foreword At the start of 1986, FINEX adopted the

theme “Rebuilding values: Foundation for Recovery.” This turned out to be an auspicious augury. The theme became even more relevant and meaningful after the EDSA Revolution. FINEX members were steadfast in their belief that economic recovery and national reconstruction needed to be anchored upon a solid foundation of values. A Code of Ethics was formulated and an Ethics Board was established in 1987.

Since then, FINEX members have endeavored to achieve a heightened ethical consciousness. Members contributed articles in the FINEX newsletters and resource speakers were invited to speak on ethics during general membership meetings. In 1993, seminars and workshops on ethics were initiated by the Ethics Board.

This book is a compilation of the highlights of the ethics workshop conducted by the Ethics Board in 1995 and 1996. The Ethics Board hopes that this publication will provide all members with a handy reference material for propagating norms of professional conduct in their respective spheres of responsibility. Beyond FINEX, this book also seeks to reach and influence entrepreneurs, business executives, students and other professionals.

I wish to thank all those who contributed their talent, treasure, time and effort in making this publication a reality: the authors of the cases and the essays; the sponsor of this book and the workshops' sponsors; the FINEX leaders and members who manifested their interest, support and encouragement; the editorial board; and most of all, my colleagues in the FINEX Ethics Board who nurtured the concept of publishing this book and determinedly labored until it saw the light of day. ROSALINO A. ALQUIZA Chairman, FINEX Ethics Board, November 1996





The FINEX Pledge

I AM AN EXECUTIVE

ENTRUSTED WITH STEWARDSHIP

OF MY ORGANIZATION'S RESOURCES.

IN FULFILLING MY RESPONSIBILITY:

I WILL ACT

ALWAYS WITH INTEGRITY AND TRUTH.

I WILL BE FAIR

IN ALL MY DEALINGS WITH MY

FELLOWMEN.

I WILL OBSERVE

THE HIGHEST PROFESSIONAL, MORAL AND ETHICAL STANDARDS.

ABOVE ALL,

I WILL BE TRUE

TO MY FAITH, TO MY FAMILY AND TO MY

COUNTRY.

New Code of Ethics for the Financial Executive1

As a Financial Executive, I shall live by the following ethical principles:

To act always with integrity in accordance with the

highest moral principles.

To uphold the truth in everything I do.

To manage faithfully and responsibly the resources entrusted to my stewardship.

To maintain independence of judgment and action by consciously disclosing and avoiding any possible

conflict of interest.

To treat all persons with fairness and respect.

To continuously improve myself in order to serve others better.

To contribute my share in building a more just

and humane society.

1 Abridged and updated from the 1986 FINEX Code of

Ethics





CODE OF ETHICS FOR THE FINANCIAL EXECUTIVE2 GUIDING PRINCIPLE The Financial Executive holds a position of trust and confidence. This fiduciary role should be of paramount consideration in his dealings, both internal and external. He must act with utmost fairness and according to the highest moral principles, consciously and consistently pursued. RULES OF CONDUCT

1. Loyalty to the Organization. He should be loyal to the Organization he serves and work towards the attainment of its legitimate goals and objectives. Should he believe strongly that any goal, policy or directive of his Organization is immoral or otherwise illegal; he has an obligation to seek clarification and guidance. If his belief were to remain unshaken, within reason, he should seek to have such a guideline rectified or removed. In an extreme situation, the Financial Executive should prefer to dissociate himself from the Organization, rather than be a party, whether actively or tacitly, to a grave injustice or fraud.

2. Keeping of Books and Records. He should fully, promptly and accurately document and reflect, in the proper books and records, all business transactions of the Organization, in accordance with generally accepted accounting principles and in consonance with the Organization's relevant guidelines and policies.

3. Resource Management. He should prudently manage and conscientiously safeguard the Organization's funds and assets, accurately reflecting them in the record and allowing access and withdrawals only in accordance with established Organization policies and procedures.

4. Conflict of Interest. He should act in the best interests of the Organization at all times, keeping himself away from situations which would tend to weaken his independence of judgment and action. He should not only avoid the fact, but also the appearance of conflict of interest.

5. Relationship with Employees. He should treat employees under his supervision and control with fairness, objectivity and consideration. He should create an atmosphere conducive to the proper performance of their duties, to their compliance with the Organization's rules and policies and to their continuous professional development. He should observe due process, with a fine regard for employees' human, legal and contractual rights.

6. Compliance with Laws. He should comply with all government laws and regulations, abstaining from any action or activity which may be violative of the same.

7. Contractual Obligations. He should observe strictly the terms and conditions of existing contracts and agreements entered into by the Organization he serves with particular attention to the compliance with the financial terms and conditions of such contracts.

8. Relationship with Third Parties. He should promote honesty and fairness in the Organization's relationships with its creditors, customers, suppliers, competitors and with the public at large. He should support clean, healthy competition and the free play of market forces.

9. Professional Development, Social and Civic Involvement. He should consciously undertake efforts to upgrade his skills as a financial executive, so that he may consistently render a high level of service to the Organization he serves. He should, likewise, widen his own perspectives by participating in building up the partnership between his Organization and the community in which it operates, and in balancing their respective interests.

10. Moral Uprightness. While recognizing his own right to privacy, he should nevertheless conduct his private and personal life with due consideration to his position in the management hierarchy, avoiding acts which would tend to reflect adversely on the Organization or to set an improper example for employees.

2 Adopted by FINEX in 1986





ETHICS IN BUSINESS: A NATIVE OR AN INTRUDER? By Alejo Jose G. Sison

Leafing through many of today's newspapers and magazines, one would almost certainly come across articles dealing with the following issues: Tort or personal damage cases arising from the use of either harmful or defective products, reports on the ravaged state of the environment and our collective responsibility to restore the delicate ecological balance, exposes on widespread graft and corruption among politicians and government administrators... All of these news items establish the urgent need for ethics in the economy and business. Business schools have been quick to respond to this demand, incorporating ethics or "corporate social responsibility" subjects in their curricula. Yet many still question the credentials with which ethics - a "Johnny-come-lately" presents itself in the arena of commerce and industry. Are we here before a "returning native", or rather, an "unwelcome intruder" into the turf of economics, business, production, marketing, finance and management?

Let us examine now, in the manner of border patrols, the validity and legitimacy of ethics' claims, upon being granted entry into the realm of business. Let us look into the reasons why ethics should therein remain, be it on account of its purported usefulness for business, in terms of productivity, profitability or any other value that it could supposedly contribute.

Organizational models of the firm

One way of accounting for ethics' presence in business is through a review of ethics' influence in the development of organizational theories. Recent literature outlines at least three different stages in the development of organizational models, each of which reflects an increasing degree of ethical concern in business practice.

The first one is the mechanicist model as contained in the works of Frederick Taylor, The Principles if Scientific Management, and of Henry Fayol, Administration Generale et Industrielle. Both authors adopt the paradigm of modern science and industrial technology and apply it to a business organization. In consequence, human beings are inadvertently reduced to the status of a nut, screw or bolt in a machine, unimportant in itself and substitutable by any other piece like it within the firm. The firm itself is, in turn, conceived as nothing more than a "giant production machine." Any individual or personal value represented by either the managers or the line workers is sacrificed to effectiveness, which is the sole objective rightfully pursued by the firm.

The second model is the psycho-sociological one, and its prime exponent is Chester Barnard, with his work The Functions if the Executive. On the outset, this model recognizes other organizational interests aside from that of effectiveness or productivity. It even considers inevitable the posing of certain questions within an organization, such as "What is man?", "What are his actions worth?", "What does being a 'person' mean?". But it limits itself to answers within the realm of empirical psychology. The purpose of this kind of model lies in exploring the functional or operative base from which managers could control the behavior of their subordinates in the firm.

The third one is the humanist model. While the mechanicist model excludes any transcendent consideration of the human being, and the psycho-sociological model concentrates on the control mechanisms of the individual's behavior, the humanist model seeks to recover the full notion of "person" and transform it into the very guide of organizational and business practice. The humanist model is the business and organizational paradigm that is truly open to ethics. When properly understood, it could guarantee that necessary space for the flourishing of human beings within the context of business environments and of society as a whole.

Let us now summarize and compare, from the three most significant parameters, the main characteristics of these three organizational models of the firm (see Chart).

In the mechanicist model, the degree of ethical awareness within the organization is nil. This is the organizational model of those who think that ethics isn't necessary, or that it doesn't make sense to talk about ethics in business. "The sole mission of business - so they say - is to make profits."

In the psycho-sociological model, an interest in ethics could somehow already be perceived, at least in what refers to the motivation of individuals and groups in the firm. Yet for those who subscribe to a psycho-sociological model, "business ethics" is an altogether different ethics from the one that regulates everyday social





life. Its most common version consists in naively believing that no positive action should be taken by anyone in the firm with regard to ethics, for the market itself shall take care of punishing those who violate ethical standards and of rewarding those who uphold them. The fate of ethics is therefore entrusted wholly to the market as some form of a collective entity or psyche.

Before proceeding with an evaluation of the humanist model, some further explanations are in order. Movement from the top downwards in the chart shows an increase in the degree of ethical awareness, and probably, an improvement in the mode of economic reasoning as well. Secondly, the change of paradigms does not mean a complete abandonment of the previous one, but rather, the assimilation of the former into the latter, according to an expanded table of values. In other words, the criterion for action in the psycho-sociological paradigm does not ignore outright "efficacy", which is the lone objective of the mechanicist model. Instead, "efficacy" is subordinated to "efficiency", in the same way that "efficiency" is subjected to "consistency" in the humanist model further down. The humanist model seeks to be corrective of the 'weaknesses of the previous models and accumulative of their strengths, while recognizing as inviolable the rights of the human person.

ORGANIZATIONAL MODEL

CRITERION FOR ACTION

FUNCTION OF THE EXECUTIVE

SPECIALIZATION

I. Mechanicist efficacy Strategist Operations

Production

II. Psycho- Sociological

efficiency Manager Human Resources/ Personnel

III. Humanist consistency Leader Business Policy / Institution Building

Organizational models: mechanicist; psycho-sociological; humanist. Criteria for action

efficacy - the ability to come up with the desired results (profits, productivity, competitiveness, market share, etc.) regardless of the means;

efficiency - the optimum or most "economic" utilization of means and resources;

consistency - the adequate fit between the ends pursued and the means available subordinated to an unconditional regard for the human person.

Functions of the Executive: Strategist (Engineer); Manager (Psychologist); Leader (Statesman). Specializations: Production / Operations; Human resources / Personnel; Business policy/Institution-building.

The right ethical motive Ethics could result from demands "internal" to a firm. This occurs when ethics is called upon, above all, to justify the behavior of individual constituents (employees, administrators, stockholders, etc.) whose particular interests somehow enter into conflict with those of the organization itself. We may consider, for example, incidences of whistle-blowing, sexual harassment in the work-place, discriminatory practices in hiring and promotion, etc. An appeal to inalienable "personal values" such as "freedom", "conscience", or "integrity" is made, and in consequence, the individual is made to prevail over the organization. But then ethics is transformed into a mere arbitration procedure between conflicting interests.

Ethics could also enter an organization due to "external pressure" exerted by growing public demands and media campaigns, coupled with inadequate legislation. Ethics is the banner behind which we demand that a firm preserve or rehabilitate the environment, that it respect consumer rights and promote safety, that it prevent insider trading or that it condemn all forms of extortion and bribery, etc. Yet in such cases, ethics would run the risk of simply becoming a reflex reaction to some dominant social fashion.





If ethics is to be accepted within the realm of business, it should not only be due to "internal" or "external" pressures. Ethics should be sought by business organizations and their constituents for the good that ethics itself promises, and not for any other motive or objective, such as economic profitability or organizational efficiency. The human good - which ethics pursues - could only be achieved if the agent seeks and desires it as the final end of his conduct. In other words, ethics demands, first and foremost, an upright intention on the part of the agent. Ethics for ethics' sake

Does ethics make good business? Does the inclusion of ethical criteria in business practice guarantee success? The answer is no. And no amount of statistics would here be of any help in swaying the answer contrariwise. Not even with the introduction of limiting qualifiers such as "most of the time" or "in genera1." Not even then could ethics scientifically claim to guarantee success.. But neither could it be said that ethics is the cause or occasion for the failure of certain business enterprises... The only thing that we could validly assert is ethics' independence or neutrality with respect to economic results.

Let us imagine for a moment that someone were to conduct a study that would relate the degree of "ethical awareness" of a firm with its economic success. He would be faced with practically insurmountable difficulties in the measurement of both "ethical awareness" and "economic success." Even if he were to devise his own scale, it would be subject to endless controversies and discussions. Besides, however the results turn out to be, the relation established would always be "incidental," or at most, "tendencial," but never "normative" or "causa1." The study could be very rigorous as the historic description of a particular case; but it would never give rise to the formulation of a new law, either in the economic or in the ethical sense. Only when we abandon such an "instrumental" view of ethics; as a probable means for success, could we then appreciate its real significance in business.

Once the link of necessity between business and economic success, on one hand, and good ethical practice on the other, has been severed, are there any valid reasons left for ethics to remain in the field of business? In line with the ethical tradition begun by Socrates, Plato and Aristotle, and brought to an unsurpassed flourish by Aquinas, the answer would be yes. And at the core of this response is the notion of ethics as the science of human flourishing or happiness.

Human flourishing, a fulfilled life or happiness depends on external and internal goods. The external goods such as food, clothing, shelter and even education, are provided for by the economy; whereas the internal goods, represented by the virtues, are taken care of by ethics. Taken separately, the external and the internal goods are necessary although insufficient conditions for man to achieve happiness. In the realm of the external goods, of business and the economy, a lot depends on luck or good fortune. To a large extent, therefore, economic success is beyond our control. But not so with ethics and the virtues. With the proper cultivation of ethics, then, we simply put our best foot forward, we make our soundest investment or bet for a flourishing human life, while we await for fortune to take for us a favorable turn.





ETHICAL MATTERS... OR WHAT ETHICS IS ALL ABOUT? By Alejo Jose G. Sison

Looking up the word "ethics" in a dictionary would show that it refers to a body of knowledge that judges the "rightness" or "wrongness" of an action. The pair composed of "rightness" and "wrongness" could very well be substituted by similar terms, such as "good" and "evil," "legality" and "illegality," "justice" and "injustice," etc. This definition however would have to be expanded so as to cover, apart from action, the whole gamut of a human life, from inclinations or tendencies through passions or emotions to habits and character. The original suggestion comes from Aristotle himself, who in his Nicomachean Ethics 1103 (the first ever treatise or manual on this subject, still unsurpassed both in depth and in scope) writes:

moral character comes about as a result of habit, whence also its name (ethike) is one that is formed by a slight variation from the word ‘habit’ (ethos)...

Of all the things that come to us by nature we first acquire the potentiality and later exhibit the activity

(…) but the virtue [i.e., the good habit] we get by first exercising them [i.e., the actions or activities], (...) For the things we have to learn before we can do them, we learn by doing them...

By "ethics" we therefore mean, more specifically, knowledge about a person's moral character, which in turn is closely related to the habits that he cultivates and the actions or activities that he performs. Ethical knowledge is a judgment on the moral worth of such character, habits and actions. Actions, habits and character So far we have identified at least three different levels wherein ethical knowledge is operative - those of actions, habits and character. We now have to explain how these different levels are inter-related in the human person; since he represents, after all, the ultimate and definitive ethical subject. We shall accomplish this by tracing the acquisition and development of a skill, such as "guitar-playing”.

The mere fact that a human person is endowed with arms, hands and fingers, together with a mental capacity to read musical notes, does not automatically transform him into a master or virtuoso guitarist. At best, it simply indicates that playing the guitar is not something impossible for him. Aside from these necessary physical attributes however, he would also have to want to play the guitar, after taking stock of his capacities. His choosing and deciding to play the guitar becomes effective once he performs certain actions, such as picking up the guitar and strumming a few chords. It is to be expected that the first time he actually does so, he would be producing sounds with certain difficulty, and that those produced would hardly seem pleasant to the ear. Most likely, neither would the person himself find the exercise very enjoyable. Yet he would have already made the move from a man who just had the physical conditions to play the guitar, to one who, as a matter of fact, already plays it.

By dint of determination, practice and repetition, whatever initial talent or inclination towards guitar-playing is honed, and a skill or habit is developed. If the protagonist in our example perseveres in his effort, with a minimum of guidance and time, he shall be able to play simple tunes with relative ease and enjoyment, both for himself and his audience. Depending on the seriousness with which he takes this activity, he could reach a remarkable level of expertise, and even of virtuosismo. He could then play very complicated and challenging pieces, improvising perhaps, with scarcely any preparation, yet to the full delight of all who listen. To the extent that the habit, skill or virtue of guitar-playing takes root in him, he ceases to be simply a man who plays the guitar to be-come a full-fledged guitarist. Guitar-playing no longer means for him an activity in which he engages during his spare time, not even a hobby or skill anymore among many others; rather, it begins to define him and constitute a dominant part of what he is - it specifies his character.





Furthermore, what is distinctively human is not only the build-up of habits from repeated actions, and a

particular mode of character from the host of habits acquired; it lies also in the "feedback" mechanism that exists among these different levels. Having acquired the habit of guitar-playing facilitates the performance of the concrete actions associated with guitar-playing; in the same way that having reached the stature proper to a concert guitarist would render it easier for one to engage in the habits or routines of playing this instrument. The "ethical" aspect

After having distinguished initially at least three different levels in the ethical life, we shall now examine the aspect or dimension from which these different levels are judged or considered. To this we refer when we talk about the "ethical" aspect of these levels or "objects."

Much in the same way that an apple could be subject to scientific scrutiny from the viewpoint of its color, size, variety, taste, provenance, etc., human actions could likewise be studied as a physico-mechanical, biochemical, psychological or sociological, etc. phenomenon. Every manner of examining either the apple or human action could correspond to the focus of a different science or body of knowledge altogether. What is peculiar to ethics is to evaluate human actions, habits and characters from the standards of "good" and "evil;" that is, in their conformity or disconformity with man's final end, the perfection of his nature or the purpose of his life. Ethics pronounces itself on man's actions, habits and character insofar as these are absolutely "good" or "evil," and not on their strength, effectiveness, productivity, lucrativeness, pleasantness, etc.

Of course, we could always describe a certain person to be a good guitar-player and a bad driver, or a good swimmer and a bad cook; but these remarks do not define his ethical worth. They are just partial judgments of a person's guitar-playing, driving, swimming and cooking abilities; whereas the ethical usage of the qualifiers "good" and "bad" encompasses not just any limited capacity but the actions, habits or character of the agent as a person whole and entire. Unlike the judgments emitted by the other sciences over a person which, no matter how accurate, could only be at best partial, ethical judgments are absolute: they qualify the person himself and completely, insofar as he is a human person.

GOOD

ACTION

S

VIRTUES

UPRIGHT

CHARACTER

MORAL

(GOOD HABITS)





CASE 1: A DAY IN THE LIFE OF JOSE SANTOS ByErnestK.Cuyegkeng

Mr. Jose Santos had just finished reading all the memos sent to his in-box during the day. It was a difficult day because he wasn't sure how to approach the myriad problems he had faced during the day. He was new in the company, a mere 3 months, and he wasn't sure what the company's rules were. It was a publicly-held company and this made him more conscious of the code of conduct he was to follow.

Just last week he had received several anonymous letters from the company's employees complaining that the former CFO, now reassigned to a new post, secured most of the company's furniture for himself. The company had just recently moved and the excess pieces of furniture were offered to all the employees via bidding. The former finance officer, Ben Torres, was in charge of the bidding. Jose decided to investigate by asking a member of his staff to gather information, i.e. the total number of pieces of furniture sold, at what price, and to whom. As a result, word got around that Ben Torres was being investigated. Early this morning, Jose was approached by a member of the management committee. He was informed that Ben is one of their most trusted employees and should not be investigated. Jose informed the management committee member that his findings indicated that 80% of the furniture was not auctioned but purchased by Ben at book value. No payment however had been made yet. The reply was the same, "We trust him completely." Jose was confused as to what he should do. Later that day, he got a memo from the general manager of one of the company's smaller subsidiaries. A business activity managed by its finance manager was regularly losing money. The finance manager concluded that the company could not make money on this activity; yet he offered to retire and to purchase that particular business activity. Jose was not sure how to advise the general manager, as he thought the answer should have been straightforwardly negative. Jose thought that the finance manager should have known better than making such a proposal, considering that he was running that particular business concern. Besides, as finance manager, his main job was to be objective in evaluating the state of the business. How could be objective when he was running the business at a loss, and at the same time offering to buy that particular business? The fact that the general manager was requesting for advice and/or decision troubled him.

Around lunch time, a member of his staff, who was also fairly new in the organization, brought up to Jose the case of a long time manager/employee of the company who handled corporate taxes. He has been with the company for 30 years and has about 10 more years to go before normal retirement. This particular manager's attendance has been very poor and this has affected the work of the department. Many of the other managers resented the problems these frequent absences have caused as well as the additional burden this imposed on them. Jose was aware that the money the company was paying the manager could be diverted towards a more motivated and younger employee. On the other hand, this particular manager has had a reputation for being effective in the past and had saved a substantial amount of money from taxes for the company. All of Jose's superiors thought well of this manager.

Later that afternoon, Jose was invited to join the management meeting of one of their key subsidiaries. This particular subsidiary was facing fierce competition and had to find ways to come to terms with it. One of the items on the agenda was how to reduce costs on its production runs. One of the items used in production was purchased from a long time supplier who had set up his factory to provide raw materials. The subsidiary purchased all its needs from this supplier to the extent that its purchases amounted to 40% of the suppliers' sales. Under consideration was the entry of imports which could reduce the price by 20%. The subsidiary's President refused to consider this alternative as this local supplier had always bent backwards to help the company with supply and





delivery problems in the past. Also, cutting off the suppliers' sales will jeopardize the suppliers' viability even if the cut were only partial. But Jose also knew that the subsidiary has an obligation also to its shareholders to get the best price; as the subsidiary is under pressure to produce profits. What advice can he give the management of the subsidiary?

And late that evening, a member of his staff came to him with some reservations regarding some numbers presented in a study. This study was used for a major decision to purchase 50% of an existing company. The decision has been made by the Board and the signing was to be effected in two weeks' time. However, Jose's staff member uncovered several over-valuations of assets which, when corrected, would mean an over-valued purchase price. Jose wasn't sure what to do since he didn't want to embarrass the director who had recommended the purchase to the Board. Besides, what if his staff member was wrong? Valuation is always debatable. Still he couldn't get out of his mind the fact that the company was likely to pay in excess for the acquisition.

Jose thought through all the ethical dilemmas he had faced today and needed guidance in making any of the recommendations or decisions. He wasn't sure what corporate code of conduct to follow. His values were instilled from his past employer yet he felt he should not impose these ethical values to his new company. Nevertheless, he did need guidance as to what appropriate values to follow. On the other hand, neither did he want to impose his personal values on the corporation. Points for discussion:

1. How would you prioritize Jose Santos' agenda for the day in terms of both urgency and importance? 2. Would having a formal code of conduct in the company solve Jose Santos' problems? What if this was to

differ from his own set of ethical principles?





TOWARDS A THEORY OF ACTION By Alejo Jose G. Sison

Ethics covers the field not only of actions, but also of the dispositions from which actions spring, the habits which these actions generate, the character which a particular mix of habits develops, and the lifestyle which one's chosen character determines. Ethics considers them from the viewpoint of their absolute good or evil, and not on the basis of their pleasurableness or usefulness for other ends. By their "good" or "evil," we refer to their capacity to lead the human person towards his happiness or "final end."

Actions constitute the building block of the ethical life. In a very real sense, we may say that our whole life transpires in the realization of one action after another: sleeping and waking-up, eating and drinking; driving a car, playing the piano, painting a stilllife picture; evaluating a company's assets before recommending the purchase of its stocks, attending a strategic planning seminar, participating in a board meeting, deciding on the hiring of an em-ployee and the termination of another, ete. Where then does the ethical significance of all of these actions lie? What makes an action "human"?

First of all, we must distinguish between the "acts of man" and the "human" or "voluntary actions." The former refers to whatever is done by the agent by force of human nature, and its accompanying physical, chemical, biological and psychological effects for example, registering 160 lbs. on the weighing scale, presenting allergic reactions to penicillin, feeling tired and wanting to sleep after a full day's work, looking flushed or turning pale de-pending on one's constitution in the face of danger, etc. More than actually perforuling these actions, they happen to us; we cannot help but do them, due to a specific design of our nature.

"Human" or "voluntary actions," on the other hand, are what we find to be reasonable objects of either praise or blame. And this is so because unlike the "acts of man," they proceed from a principle internal to the agent, such as his own appetite, desire or will. Furthermore, human actions are accompanied by a knowledge of the purpose or end; they are realized deliberately and intentionally. The descriptor "voluntary" is, as a matter of fact, appended not only to the action itself, but to choice, the decision to perform an action, and the external effects issuing from it as well: For this reason, for example, not only the physical movements of the hands involved in lighting a match are voluntary, but so are the decision to do it and whatever one does later on with the lighted match stick. For all of these, we rightfully hold the agent responsible. The ethical importance of "human" or "voluntary actions" lies in their ability to commit the entire agent; he is compromised in an over-arching value judgment on his character and person.

* Voluntary" -choice; action; extrinsic effect Degrees of voluntariness Although all human acts have that peculiar capacity of implicating their agent in an inclusive evaluation of his char-acter and person, certain actions are more revealing than others of an individual's moral worth. This depends on the degree of voluntariness which each particular human action exhibits, resulting conjointly from the advertence and the consent accompanying it. Choosing a person to be one's lifetime partner in marriage, deciding on a college course or on a professional career - these are usually matters that require a full awareness or consciousness of what is being done, as well as a solid determination of the will to pursue it. These are called peifectly voluntary actions. However, not every activity in which we engage demands such an intense concentration of mental energies. We may be writing a short note while attending to a phone call, or we may visit the dentist very hesitantly, for we can still remember the

ACTS 0 F MAN VS.

HUMAN /VOLUNTARY* ACTS





discomfort experienced in our last appointment. Despite the defects in advertence because of distraction, or in consent due to fear of pain, these are nonetheless voluntary actions, albeit imperfectly voluntary ones.

Voluntariness could also refer to an action considered in itself, or to that same action only insofar as it is the cause of another. Take for granted the throwing overboard of one's possessions to the sea, in face of an impending shipwreck. No one in his right mind would ever throw his possessions to the sea just like that - such an action would never qualify as one voluntaryin itself; but for the sake of saving one's life - the chances of which would be greatly improved if the weight the ship was bearing were lessened, one would agree or even take the initiative of getting rid of such baggage. That action would then be an example of one that is voluntary not in itself, but only insofar as it is the necessary cause of another. Criteria for the judgment of voluntary acts

The roots or sources of the morality of actions are threefold - the object of the action itself, the end or intention of the agent, and the circumstances surrounding the performance of the action. Besides, there is a precise order in which these three criteria are to be considered, before finally arriving at a judgment on the moral quality of an action.

The first criterion to be met refers to the object of the action itself By this we mean what the agent does as a humanly meaningful whole, and not the mere series of physical movements he may go through. In other words, a moral agent does not simply insert the ignition key, puts the gear shift initially on neutral, steps simultaneously on the clutch and brake pedals, starts and drives away with the car, but he commits theft, if the car does not happen to be his and he does all of the above without the car owner's permission. The object is the principal ethical determinant, insofar as by virtue of the object, certain actions without any exception whatsoever are prohibited: lying, theft, murder, torture, rape, etc. The prohibitions on these specific classes of actions are what are called "absolute" - to the extent that they admit no exceptions - moral norms. Only if the object of the action does not transgress or violate any of the absolute moral norms conveniently summarized in the Decalogue, can we proceed to examine its moral quality by looking at the end or intention of the agent.

When examining the end with which an action is performed or the intention of its agent, the crucial question to be posed is whether such an end could be oriented towards the proper final end of the agent. For there may be times in which an action which is worthy by virtue of its object, such as engaging in social service at a slum area or in a clinic, becomes ethically flawed because of the intention or end with which it is performed: take for granted, if a political candidate were to get involved in a social service project exclusively for the media mileage and publicity it would provide him, rather than out of a sincere desire to help and alleviate the sufferings of the less fortunate. In other words, aside from being worthy on account of its object, an action likewise has to be performed with a noble end or intention in mind. Once this second criterion is satisfied, we could then continue to study the circumstances within which an action is to be carried out.

Although favorable circumstances would never be enough to change the moral quality of an action rendered objectionable either by its object or its end, the opposite could very well occur. A heretofore ethically acceptable action could become evil when circumstances are adverse: there wouldn't be anything wrong with, for example, giving alms to the poor, and doing so for the loftiest of reasons, unless one were poor himself and had nothing to keep body and soul together. Then, perhaps, he should consider buying himself some food first, before giving away in alms whatever meager amount of money he has. The moral goodness of a human action requires the integrity of the object, the end or intention and the circumstances in which an action is carried out. A defect or flaw from anyone of these sources is sufficient to render a voluntary act evil.

Criteria for Judgment of Voluntary Acts 1) object 2) end 3) circumstances





CASE 2: THE ANNUAL MIRACLE By Jaime c. Lara

Jose Mari Dimaculangan, true to his name, took pride in his figures. It has been through hard work, most recently tracking down the last centavo to make sure his general and subsidiary ledgers balanced, that he got to where he was Senior Accountant of Manifold Apparatus Corporation of the Philippines ("MacPhil"), a kitchen equipment manufacturer and distributor.

Born and bred in the rough and tumble Sampaloc district of Manila, Joe Mari (as he liked to be called) grew up street wise but was just the same bright and hard working enough to complete the accounting course at the Polytechnic University of the Philippines ("PUP") in 1985.

Jobs were difficult to come by those days he accepted the first job he found, delivery boy at MacPhil. He persevered and became first a detail man, then a salesman, later a bookkeeper (after he passed the CPA exam in 1990) and now the Senior Accountant, the number two man in MacPhil's finance department, reporting directly to Jesus de la Cruz, Vice President for Finance. Along the way, he got married to his high school girl friend Thelma ("Miss Balic Balic of 1980") and promptly had twin boys nicknamed "Debit" and "Credit," who will turn 4 years old come April 15. The family moved out of Thelma's parents' house in 1994, into a brand new Camella home in the Antipolo foothills, courtesy of Pag-IBIG home financing.

MacPhil is now one of the largest companies in the industry and is among the Philippines' top 1,000 companies in terms of sales. The company was founded in 1975 by Tita Cortes (formerly an executive of a large computer firm). Tita and her college barkada Carlos Vera (now an RTC judge) put up the capital (5050). It was agreed that Charlie would be the Chairman but Tita would be the President and run the company. A true entrepre-neur, Tita made the company grow. Each year, Tita would report to a satisfied Charlie, a succession of diminishing figures: "in-house profit of Pxxxx, audited profits of Pxxx, tax saving of Pxx, and tax paid of Px." Often, tax savings would be higher than tax paid.

Without fail, Tita's (as well as Jess' and since 1994, when he was promoted to his present post, Joe Mari's) blood pressure went up beginning about April 1 and until a week or so after April 15. Tita refuses to accept that growing profits means increasing taxes. Single-minded about most things (and she's still single), Tita expects annual miracles from Jesus and Joe Mari. "Change your names if you can't," she screams to conclude each annual session.

The miracles have included fictitious expenses one year, unreported sales the next, inventory write-offs the third, and eventually all three. To solve the problem once and for all, on Jess' advice, Tita organized a company in Hong Kong. Jesus had attended a seminar on transfer-pricing, and while the FINEX-Development Center for Finance (the seminar organizer) had something nobler in mind, it opened Jess' eyes to the possibility that transfer-pricing could be the Mother of Tax Miracles.

Jess put Joe Mari to work and after consultations with FINEX and PUP friends, as well as a couple of trips to Hong Kong, they put the finishing touches on their recommended scheme. Tita loved it. She did mention the matter to Charlie, but the judge, happy enough with his profits, either did not hear or did not fully understand and Courtesy MacPhil Ltd. (the Hong Kong firm) came into being in 1994, 100% owned by Tita.

And so it was that on April 13, 1996, a very hot and irritated (and more intimidating than usual) Tita ends the annual session with Jess and Joe Mari (who have explained several times that ten million has already been remitted to. Courtesy acPhil). "So what if your miserable Trial Balance says tax due is still three million. One million no more. That's 15 % over last year's. Chato [the Internal Revenue Commissioner] should be grateful. No more arguments. Get out, do it. I have other things to do. Change your names if you can't." Chastened, the two slink back to Jess' office to produce the additional two million in tax savings, to work on the documentation and to finalize the financial statements for the external auditors' signature on time for April 15 tax payment deadline. Later, all worn out and sitting in the Ortigas Avenue traffic on the way home to Antipolo, the events of the day flashed back in Joe Mari's mind.





True, his job was good. Apart from having to produce miracles on call, he enjoyed his job. The pay and bonuses were good enough to cover his household expenses, home amortizations, and to set something aside for the future, as well as little luxuries like birthday toys for Debit and Credit.

But then, he argued with himself, how could he swallow all the c-p from Tita, knowing what she was doing to the Judge - not to mention the BIR? Not only that, since he signs all the company's financial statements, he could get into trouble one day. Jess was no help, either.

But then, he said to himself, he had Thelma, Debit and Credit (plus their dog "TC," named after guess who) to worry about. At age 32, could he afford to start all over again. Besides, Courtesy MacPhil was designed to leave no paper trail. Could he really be caught? Technical Note

One not emotionally (and financially) involved in Joe Mari's situation might structure the issues involved somewhat more systematically. 1. Professional standards and superiors' orders. Accounting officers are bound by professional standards to

observe generally accepted accounting principles that cover, among other things, proper ways of recording revenues and expenditures. They are also obliged to observe the Tax Code in computing income and other tax liabilities.

2. Balancing obedience to superiors and minority stockholders' rights. There are at least two items of dishonesty in the case: (a) not paying the proper taxes and (b) diverting profits away from the minority stockholder. Since the Hong Kong firm is entirely owned by the company President, any hidden profits lodged in the Hong Kong firm due to transfer pricing would accrue entirely to the President. The minority stockholder could end up neither knowing about nor sharing in the said hidden profits. Is it right for company officers to tolerate this situation? Is it right for them to alert the minority stockholder concerned? Are ill-gotten gains available for the taking by whoever can lay their hands on the same?

3. Risk of apprehension and work demands. The instructions given the subordinates carry with them personal risks. Following the instructions would mean that the subordinates: (a) compromise their professional standards and (b) become liable for possible penalties under the Tax Code and for fraud. If their acts were to eventually result in wrong audited financial statements, the Certified Public Accountant who so certifies would also run the risk of being disciplined by the Bureau of Internal Revenue and/or the Professional Regulations Commission which, at worst, could cancel his CPA certificate. Company finance officers can partly or totally absolve themselves of blame, possibly by: (a) getting a tractable CPA who "signs blindly", (b) concealing records or information, (c) providing wrong information, and/ or (d) attesting to false information in a representation letter. Is it right for company management to expose third parties to potentially serious consequences?

4. Protecting superiors at the risk of oneself. Chief accountants and/ or finance officers and external auditors are normally the ones who sign both financial statements and tax returns. As such, it is possible for superior officers to disclaim responsibility for any violation. It may be possible for the subordinates to show some written approval from the superior as evidence of the superior's instructions, but a clever superior would not put anything incriminatory in writing. Whether willingly or otherwise, therefore, a subordinate who follows verbal instructions is in effect placing himself at risk in shielding his superIors.

5. Leaving a job and risking job dislocation. A subordinate officer can always leave an unethical situation, but he risks unemployment and the consequent difficulties that it might cause both himself and his family (considering unpaid mortgage, the needs of spouse and children, his status vis-a-vis relatives and neighbors).

6. Using professional learning for good or for bad. Like most tools, learning (e.g., about transfer pricing) is neutral in the sense that it can be used for good or for bad purposes. Should a professional (including teachers, for example) refrain from pointing out the potentially bad uses and let those so inclined to discover them?

7. Balancing obligations to government and to one's company. As a student, it was drummed into one's consciousness that citizens should pay taxes and support government. On the other hand, one's bread and butter comes from one's employer. One can also argue that one does not benefit from government services -





children go to private schools, police provide no protection, civil servants certainly do not serve and are far from civil. Why shouldn't one favor company interests over those of government? Some would justifY "doctored" financial statements on the grounds that tax examiners demand payoffs even when proper taxes are paid in full. Others knowingly reduce tax liability in anticipation of later bargaining. Are these justifiable?

8. Being "bought" with job security, compensations, foreign trips. In joining an organization, one gives up the freedom of action that one would otherwise enjoy. One has to perform one's duties and responsibilities and follow directions from superiors, or else the organization loses effectiveness and efficiency. In war, one shoots when one is ordered to do so. In a company situation, does one have discretion in following or not following orders? To what extent is discretion reduced because one is salaried, has tenure and enjoys fringe benefits like foreign trips, expense accounts, car plans, etc.?

9. Maintaining standards for their own sake or out of fear of consequences. Does one decide what to do because it is right or because one is afraid of the consequences (e.g., jail, cashiering by a professional regulatory body) of doing otherwise? Carrying righteousness to the extreme, would it be justifiable for a subordinate to squeal to the tax authorities and report what is being done by the company president? Would it make any difference if the subordinate were to receive a reward for the information?

10. Career progress and ethical standards. Advancement in corporate life could mean compromising one's ethical standards. Are there situations where one would rather forego a promotion than violate some ethical point, realizing that life might thereafter be intolerable and the person may ultimately have to leave? Are there situations when one can justify staying on the grounds that he may be able to influence the company to move towards a more ethical direction?

Points for discussion:

1. List the different possible levels of conflict for Joe Mari. 2. What would you do in Joe Mari's place?





ACTION, WORK AND EMPLOYMENT By Alejo Jose G. Sison

All human actions, all purposive and free acts which people carry out, have a specific moral quality and are subject to a particular ethical judgment. Productive human actions are normally called "work." "Work" is often associated with realities such as one's "occupation," "employment," "career" or "profession." These do not mean exactly the same thing as "work"; rather, they focus on at least one of its dimensions. Nonetheless, "work" equally serves as their common objective reference. "Occupation," "employment," "career" and "profession" are, therefore, different ways of viewing "work"; and since "work" designates a distinctively human activity, then the former too are relevant objects for ethical consideration.

Every once so often we come across friends or acquaintances who leave an established and generously compensated profession for another, the remuneration and social regard of which, perhaps, hardly comes close to their previous one: a radiologist, who is a full professor and the head of a clinical department, who chooses to become a priest, for example. We would be right in saying that he has exchanged the security of an employment and the prestige of a career for a different profession which he may, in a sense, find more satisfying or fulfilling. That is to say, there could be conflicts among a person's "occupation," "employment," "career" and "profession," and their adequate integration in itself already presents a formidable ethical challenge. Occupation, employment, career and profession

"Occupation" is the physical category with which we refer to work. More concretely, it refers to the activity with which we occupy ourselves in the greater part of our useful time; that is, outside of the hours we have to spend in our biological requirements of sleep or rest and nutrition. For the great majority among us, an occupation is therefore a given, not anything to fret or worry about. It would only be so in the case of people who are either too young, too old or too sick to engage in any specific activity for prolonged periods of time. These people would then have the problem of not having anything with which to fill their time; and perhaps they should, in consequence, enroll themselves in some form of "occupational therapy." In a sense, being enormously rich and wealthy could also beset one with similar problems, for he or she does not have to be tied down by any form of work in order to get along with the business of living. As an "occupation," work is seen as a terminus or an end in itself and it is measured solely in terms of time or the duration one dedicates to it. The subject relates to his work as a place where he simply "stays" or "hangs around" for want of other things to do which may catch his attention. In contrast with an "occupation," work as an "employment" already denotes a formal and economic category. It is one's job, that stable or regular and at the same time "regulated" (by law) activity through which one earns money. For this reason, housewives, students and apprentices strictly speaking, despite having a well-defined occupation, do not however qualify for any specific form of employment. Insofar as an employment or job, work represents one's means of livelihood, not only for himself, ideally, but also for those other people dependent upon him (hence, a "family income"). An employment is valued primarily for its capacity to generate an income, for the remuneration one receives in performing a kind of work. Thanks to one's remuneration, he could earn access to whatever money can buy and which has a price. An employee relates to his work by "having" it, and indirectly, by receiving the income or the money due to it. Unfortunately, at times, instead of "having" employment, people are "had" by their employment and the corresponding financial rewards. These are ones who later on fall prey to bribes and other forms of corruption.

Conceiving one's work as a "career" highlights its psychologically satisfying dimension. As we examine a career, we trace a worker's progress and development through several occupations or jobs in the course of his lifetime. This is what certain awards, such as the Nobel prizes, for example, evaluate: a person's consistency in his work and his life-time achievements. That is why, in a very true and real sense, such prizes should only be awarded posthumously; and any attempt to recognize one's professional achievements, success or merits should meanwhile be deemed premature. A career represents work as an effective means for self-fulfillment, a chance to reach more or higher goals in a shorter period of time. Careers are evaluated by the fame, honor or success that one reaps; and this, in turn, depends on the standards which a given society establishes for its members. Quite remarkable, in this





regard, was what happened with the Dutch Post-Impressionist painter Vincent van Gogh. Misunderstood or unappreciated by the critics of his time, he was unable to sell any single painting throughout his life. Thence we would be legitimized in calling him a failure. But about a hundred years after his death, his paintings began to fetch princely sums in art auctions, and his exhibits drew mammoth crowds. One relates, to his career by "making it;' by "having arrived" or becoming a member of an exclusive club of achievers.

Category Work Evaluation Relation to Subject

Occupation Physical Terminus Duration Placement/Staying

Employment Economic Means of livelihood Remuneration Having

Career Psychological Means of self fulfillment

Fame, honor, success

Making

Profession Socio political Means of service Diligence, faithfulness

being

Finally, "profession" views work in its socio-political dimension. By this we mean that the work we do, our profession, defines at the same time, who we are, our place and function within that web of relationships which is society. A "profession" cannot help but be "communitarian" in orientation, for it is some sort of declaration of public office, or of one's commitments towards his fellows. Paradigms of a profession would be those exercised by public school teachers and family doctors or health officers in small provincial towns. Here work is understood, over and above all, as a means of service, the response to an almost transcendent mission, vocation or calling that one has received. Work as a profession becomes synonymous with the purpose of one's life. It is therefore evaluated according to the diligence or faithfulness with which one keeps his commitments. The worker's profession is his being: a profession is all encompassing.

A proper hierarchy may be proposed among all these different values and meanings associated with work. To have the occupational dimension as the dominant one is not at all worthy of emulation, for it loses out on the specifically human, self-perfecting value of work. Something similar may be said if the sense of work as employment dominates; although in circumstances of need, it is quite understandable that monetary rewards take precedence. Otherwise, such an attitude may be symptomatic of greed, which necessarily brings along with it frustration and deception, for it is of the nature of money to become only a means and never an end in itself. In like measure, a person who considers his career as the most important dimension of his work is to be feared, for he shall not stop, in strict logic, at whatever becomes an obstacle for his affirmation of self. Only in recognizing the profession as the highest value of work, therefore, could we acknowledge the latter's other meanings -"occupation", "employment" and "career" and integrate them harmoniously in a flourishing human life.





CASE 3: ANA GARCIA By Mercedita S. Nolledo

Mrs. Ana Garcia, VP-Comptroller of a medium-sized commercial bank, in her late forties, has just received confirmation that the year-long negotiations for the take-over of the bank by a much bigger institution have just been affirmatively concluded. While she has loyally cooperated in the grueling process, the change is likely to be negative for her career, and comes at a very inopportune time. Mrs. Ana Garcia has spent twenty years with the bank, having risen from the ranks. Had the merger not pushed through, she was expecting a promotion in rank, and possibly a higher position at some time down the road. As it is, she is pessimistic about retaining her present scope of work and authority. She is reluctant to have to prove herself all over again to a new set of superiors, in particular, to the VP-Comptroller of the take-over bank. In their brief acquaintance and notwithstanding various well-meaning attempts at cordiality, he has managed to press various wrong buttons in her system. He has awakened in her resentment for his airs of intellectual superiority, and discomfort for his tiger cub, and barkada style of management.

Just before the merger came up on the horizon, her husband has resigned from his middle-management job, to start his own business. Her role (as defined at that time) was to serve as the stabilizer of the family income, while the new business went through its birthing pains.

At present, she envies her husband's ample time with the children, who have become quite close to him. As traffic seems to worsen day by day, she leaves home early and gets home quite late, and is increasingly supplanted by her spouse in her former roles of homework advisor and school items procurement clerk. In fact, the kids' perfunctory greetings and perceptible growing apartness could be painful, if she allowed this to bother her.

On Sundays, instead of recharging and spending time with the family, she goes to visit her father, who, ailing and a widower, lives in a nearby town. Most often, it is a lonely trip, as rarely can she cajole the family to come along.

Her life, she thinks at times, is as full of violins and sweet sad scents as Melrose Place. Except that she has to live it. Points for discussion:

Should Ana stick it out with her job or should she help in her husband's business venture? Should she seriously consider a career as a full-time housewife?





HABITS: TIME AND FREEDOM, CHANGE AND CHOICE By Alejo Jose G. Sison

Ethics deals, above all, with human life; yet human life cannot simply be reduced to a series of actions performed by an actor or agent. Aside from the unity provided by time and by the memory of the person concerned, a human life needs other more efficient integrating factors. Each and every individual human action, apparently isolated and insignificant by itself, as a matter of fact, leaves some form of a precipitate or sediment in the subject who carries it out. This "by-product" of human action, which we have earlier explained in the form of a "sediment" or "precipitate" is what in ethics is called a "habit." A habit is a stable disposition or manner of being, doing, acting or behaving in a subject. Inasmuch as man is a "creature of habit," unlike all the other animals, he is practically devoid of instinct. Man's capacity to develop habits makes up for his natural deficiency or loss of instincts. Any other animal that is born or comes into being lives as if it were the first of its kind, relying solely on its innate natural practices or "instincts" for survival. Human beings, on the other hand, depend on a certain culture or tradition for their behavior in life's different stages. These traditions are transmitted from one individual to another through families and communities. Without such "culture" or "tradition", ultimately composed of "habits" or "customary ways of doing things", existence on earth could hardly, if ever, be called "human". The degree of civilization or level of develop-ment of any specific culture is determined by the technological or instrumental sophistication and progress that, as a society, it has accumulated and achieved.

Certain conditions, therefore, need to be met before habits appear. These consist in the freedom and the temporality of the agent. Freedom means the capacity to choose; the fact of not being determined by anything or anyone either in one's decisions or in one's actions. Temporality, the quality of being affected by time, means being subject to change, to a "before" and an "after," without in the process, losing one's identity. For a human being, this signifies a capacity for change and adaptation, which is an all-important capacity for learning. Now it so happens that this mix of freedom and temporality could only be found among human beings.

The observations of feed-back and self-correcting or self-regulatory ("cybernetic") mechanisms in some latest generation computerized machines somehow gives us a clue as to how habits are generated. A habit is produced when a human being performs a free action in time, and that free action, although already finished, still leaves a modification in the agent which the agent preserves. This modification comes in the form of a more or less stable disposition to act in a specific manner, or towards a concrete direction or orientation. The habit comes upon an individual's human nature or inner principle for action, vesting it with a novel or a reinforced tendency. To this extent, a habit may be considered as "second nature," in as much as it is a principle of actions that strengthens the original one. Habits always need nature for their mooring and reference. Whenever habits are perfective of human nature, that is, whenever they facilitate the attainment of prescribed common goals or ends ("flourishing" o_ eudaimonia), they

instinct ("nature")

acquired, culture tradition, history, civilization ("second nature")

HABITS VICE

VIRTUE





are called "virtues." Contrariwise, that is, when they are destructive of their original principle or alienating with regard to one's ends, habits are called "vices."

Habits also possess some sort of life of "dynamics" of their own. Initially, since habits are not "natural" in

the sense of necessary and spontaneous endowments of human beings, they need to be .acquired. Next comes the stage of the habits' growth and development. This requires a constant and gradually increasing exertion of effort in a class of actions towards a set direction. Only then could the final stage of perfection be reached, when habits have already been firmly rooted or established in the human nature that they strengthen and perfect, practically eliminating what ever chance of failure or error for that specific class of actions. What was, at first, merely a spontaneous inclination or tendency, through practice, experience and repetition of similar actions, is transformed into a "habit" or "skill," be it of a manual or a mental sort. One last feature of the "dynamics" of habits is their interaction among themselves, with either a positive or a negative net effect for the agent, depending on their different stages or levels of development.

THE DYNAMICS OF HABIT a. acquisition b. growth and development c. perfection

Natural

tendency

/ talent

Repeated actions

(practice, experience,

learning)

Skill (manual

or mental + =





CASE 4: CARLOS, THE BANKER By Norberto C. Nazareno

Carlos, a junior executive who worked in a universal bank, was very much aware that senior management would take notice of him and give him the breaks if he could develop new financial products considered efficient by both issuers and savers. His task was to develop a product "that would reduce intermediation costs. He identified these costs as documentary stamps, withholding taxes, and reserves. On the other hand, he was aware the government instituted rules covering stamps, taxes and reserves to increase much needed revenues and to regulate market liquidity. However, if he could create efficient products that would avoid all or at least one of these impositions, he would definitely have a very competitive financial product in a very competitive banking industry. It would make good profits for the bank and his career will advance.

The government has verbalized on various occasions that a sign of maturity of the financial market is the number of innovative products available to serve the needs of both issuers and savers. In practice, however, regulators put on their cap as lawyers and interpret the law very conservatively, in the logic that is better to err on the safe side. There are a number of public speeches by regulators, for example, on the need to develop the capital market. This means that new financial products need to be introduced in the market, but within various restrictive laws. While there is a need to formally simplify legislation, there are matters that need only policy decisions to get going. Nevertheless, it is incumbent on government to protect the public as sources of funds and to collect much needed government revenues.

Carlos identified a possible innovative product that will be efficient. The funding source will not be subjected to reserves and withholding taxes, on one hand. The issuer of the financial paper will not be subjected to documentary stamps on the amount but on the transaction, on the other hand. He thoroughly discussed the new product with their external counsel and auditor and was able to secure legal and tax opinions stating that the product is treading on gray areas. This means that there are grounds to defend the legality of this innovative product. Eureka!

Subsequently, Carlos got management to launch the product and it was accepted by the market almost immediately. The issuers liked the product as they were not required by the bank to pay documentary stamps of 3/16 of 1% on the amount of the transaction. The savers also liked the product since the bank did not have to withhold 20% of earnings and left it to them to declare their income and pay their own taxes directly to the BIR. At the end, the bank was able to pass on additional savings on the cost of intermediation to both issuers and savers.

When BSP did its normal annual audit of the bank, they agreed that it was a very ingenious and innovative financial product. They agreed too that there was nothing in the law that was violated. However, they felt it did not fit into the product lines they were familiar with. Furthermore, they believed all similar bank products must be considered quasi deposits. During the exit conference, BSP suggested subjecting the product to reserves and with-holding taxes. Technical Note

Banking is the most regulated business even in developed countries. The government's objective is to protect the public from unscrupulous fund managers as they exercise their fiduciary responsibilities. However, the problem is that regulators, most of the time, always swing to the opposite side of the pendulum whenever there are violations with some funders getting burned. Sometimes, they want to err on the safe side and become ultra conservative. The law becomes even more restrictive to guard against isolated cases.

In addition, the majority of present regulators still have the attitude that the investing public is not mature enough to make intelligent decisions; that is, they do not know the kind of risks they are taking given the relatively higher returns they receive. For this reason, investors and depositors are over protected to the detriment of the speed of the development of the capital market.

On the other hand, given the very restrictive environment, bankers tend to review new regulations not in the spirit of the law, but rather, to find ways to perhaps continue a certain activity within the letter of the law.





Ours is a very legalistic society. We tend to think that what is illegal is therefore immoral even though law is made by man. Points for discussion:

1. Make a list, exhaustive as possible, of the Bank's options in response to the BSP ruling. Pick your strategy and defend it.

2. On the basis of the innovative product he has presented, is Carlos due for a promotion?





CORPORATE CHARACTER AND CULTURE By Alejo Jose G. Sison

For the past two decades, fabulous fortunes have been made, almost overnight, through mergers and the acquisition of corporations, specially the publicly listed ones. Yet definitely not all takeovers have experienced a sweet and smooth sailing; and oftentimes, after a few years, the take-over company finds itself with the valueless mortal remains of a firm which previously seemed so promising and attractive. Business analysts and management consultants tend to agree that the main reason behind the failure of these apparently "made-in-heaven" partnerships and alliances was the clash of cultures among the firms involved, the incompatibility of their corporate characters.

Before being applied to business organizations, however, "characters" have always been attributed primarily to individuals. "Character" describes a person's moral type or identity, his personality. As a matter of fact, there are at least three different strands that constitute the fabric of character.

In the first place, there are the biological constituents. These refer basically to the body and the corporeal attributes insofar as they provide an explanation for the behavior of individuals within the context of institutions. For this reason, for example, certain lending institutions specialize in extending non-collateral character loans to working women, rather than to male employees, in the premise that the former are more inclined to honor their debts than the latter. Women are supposed to be more sensitive to peer pressure, more responsible with their finances and less prone to vices than men. Secondly, character is also conditioned by psychological factors, by that host of spontaneous and non-deliberate predispositions or reactions in our conduct. These psychological factors come by different names - "feelings", "affection" and "emotions" - and they all share in that unstable and a-rational quality. Thus a person who is by temperament either phlegmatic or melancholic would do poorly and be quite unhappy in a marketing or a public relations post. In a similar manner, one who is sanguine or choleric would generally not feel comfortable with a job in the accounting or control department of a corporation. The third configuring element of a person's character is his socio cultural background. This includes all influences derived from one's family and upbringing, work, experience, economic class, religious faith and political affinity. Perhaps this is why the offspring of movie-stars and politicians themselves make excellent - or at least, posses a strong ad-vantage towards becoming - movie-stars and politicians. What is important here is to underscore that no matter how the mix among the biological, psychological and socio cultural elements have turned out, within a very precise range, one's character is always subject to a judgment of good and evil. One's character possesses therefore a great moral significance.

When dealing with a human person's character, we have to distinguish between his "pathos" or "natural character" and his 'ethos" or "acquired character". The former is innate, spontaneous, and "premoral", that is, not subject either to praise or to blame. The latter, on the other hand, is the product or result of deliberate and in-tentional actions, and to that same extent, is subject to moral responsibility. The shift from one's original, natural character endowment or "pathos" to his chosen 'ethos" is carried out through an extended process of learning or

CHARACTER

Biological constituents: body

Psychological components:

feelings, affections, emotions

Sociocultural elements: family,

work, economic, political affluences





practice, until the desired habit or custom is achieved. Thus is how our personal characters are deliberately formed, changed or altered.

How is personal character related to corporate culture? Sound anthropological knowledge, when coupled with an "organic" view of the business firm would reveal the following structural parallelisms between the human firm and an organization. Corresponding to an individual's innermost desires, inclinations, ideas and motives are an organization's core competencies or strengths, the basic things that a firm is good at. However, not all desires and ideals of the human person actually materialize, and just a few of them are effectively realized in actions. Simi-larly, from among a corporation's core competencies, at any given time, some are selected to produce a basic good or to perform a service that it, in turn, would offer to the market. In the same way that the repetition of actions and the accumulation of experiences by a human being generates a corresponding habit, the production of goods or the rendering of services by a firm gives rise to new expertise, standard operating procedures or "protocols." Finally, the multiple habits possessed by the agent in varying degrees comprise his character, in an analogous manner to how business firms and organizations each develop their distinctive corporate cultures. Far from being, therefore, a collection of superficial additives in the form of pins, slogans and uniforms, a company's culture digs roots into its core competencies which develop into the basic goods or services that it offers and the protocols or procedures that it follows. Ultimately, a business firm's culture depends on the deliberately acquired and developed characters of its people.

PERSON ORGANIZATION

inclinations, tendencies core competencies

action goods / services

habits s. o. p. 's

character culture





CASE 5: OUTLAWS, DREAMERS, GADFLIES, HERETICS By Ricardo G. Lazatin and Madeleine L. Dalusung

It was an international organization with lofty ideals and idealistic management consultants. It was organized twenty years back to provide consultancy services on the areas of organizational effectiveness, strategic management, total quality and management development. Most of its core staff were internationally recruited and drawn from diverse disciplines. The organization became a haven for people whom Maccoby would classify as "craftsmen": hardworking and dedicated to the quality of their research and the management programs they design for corporations. Many were eccentric, but with a highly respected executive director at the helm, they toed the line and generally conformed.

All except one. She was a young economist, a minority in the organization and newly hired. She was also good in her craft, in fact, too competent that she was often perceived as over-confident and arrogant. She always spoke her mind and loved to argue. She was not too sociable, missing coffee breaks with other management consultants after having earned the ire of some senior staff for speaking her mind over some issues raised. She was not too friendly with the local staff, either, socializing only with her team and ignoring the rest of the staff. However, her opinions were always well-sought in the various business reengineering projects. Despite her lack of social skills, her contributions in designing management development programs, training, research and consulting projects were simply too significant. She was a valued member of the professional staff.

Before she reached her first anniversary in the organization, the executive director fell ill with leukemia and eventually had to resign. Not long after, the organization floundered with the vacuum in the top post taking too long to fill. Almost all potential candidates for executive director fell short of everyone's expectations. One of three senior management consultants were elected as acting executive director in the interim. What previously were dedicated "craftsmen" became "jungle fighters," constantly paranoid and seeking power. Cliques were formed. The need to hire an executive director became imperative. The Board of Directors demanded it.

Candidates were evaluated and those who were shortlisted were invited to make a presentation in the presence of all the professional and support staff However, the selection process was allegedly rigged. The strongest clique in the organization had already selected their own candidate and he was rumored to have been fed with privileged information. When the favored candidate was given the floor, even the nastiest senior management consultants appeared impressed. Comments on the floor were favorable, even supportive. Many of the junior consultants took the cue from their bosses. They agreed that this last candidate appeared to have some grasp of the problems and knew what had to be done.

Almost all except one, the "outlaw." As she listened, things started to fall into place. She realized what was happening, why the candidate was mouthing the very ideas that arose from a recent company seminar. She was a little intimidated by the "giants" who appeared to support the candidate. If she made even a whisper of what was going on, she, too, would be ground into pieces. She could be fired. However, if she left the room without fighting against what was taking place, she would be ashamed of herself the rest of her life. Thus, she rose, took the microphone and said her piece. As she always did. The "giants" were aghast. They could not believe their ears. But the plot was uncovered and the candidate lost his chance.

The "outlaw" or "Gadfly" was not fired. She was too good in her craft. Her immediate superior supported her.

The board of directors had her in high regard. Two years later, she left the organization and moved on to a prestigious banking institution. She never knew it but to this day, she still has the respect and the highest regard of the people in the organization. Even the "giants" whom she stood up against. Points for discussion:

1. Cite examples of the tension between conservatism and progressivism in the case and in your own organization.

2. How does your organization deal with "whistle-blowers"? Does it provide guarantees for a fair and just hearing of the parties involved?





THE ENTREPRENEURIAL LIFESTYLE By Alejo Jose G. Sison

A senior university professor who, aside from his acute observational skills, had also been wizened by decades of work and experience, once remarked: "In a person's lifetime, all success comes but too prematurely." That is to say, all supposedly definitive judgments regarding the happiness and success (or lack of either) of a person while he is still alive is necessarily hasty, subject to change and temporary. For while a person is still alive, we never really know how the wheel of fortune shall turn for him in the future. Yet we all resist the idea of happiness being attributed to some period of time shorter than one's entire life. Ethics therefore should ultimately inquire about the goodness, not only of isolated actions, of a few habits or of a more or less stable character, but also of an individual's entire life, limited by the transcendent moments of his birth and death. The structure parallel to an individual person's life span is the particular history of a corporation.

What then does happiness or the "good life" consist in? It should not come as a surprise that our agreement only goes as far as the name or the term, and not extend to the specific content that we attach to it. Ethicists have laid down at least two formal conditions for happiness. In the first place, that it concern the su-preme good and final end of man; that is, a good that is desirable in itself (and with a view to no other) to such an extent that all the other goods are desirable only insofar as they lead to it. Secondly, it is also required that the person who wishes to achieve happiness be in perfect possession of such a good. This means that he should not run even the slightest risk of losing this good or any part of it in the future. Possession must be complete and un-changing. Only then could optimum fulfillment or satisfaction be attained by the subject.

In the first book of the Nicomachean Ethics, Aristotle considers three main contenders for the position of the supreme good and final end of man. The first one is a life of enjoyment, dedicated to the pursuit of bodily pleasure. He says that this is a "vulgar" choice and cites at least two reasons: the majority of the people in any given society would presumably opt for this kind of life, and secondly, it does not require much intellectual cultivation or sophistication to settle for such an option. Indeed, sensible pleasure is most immediately satisfying, and besides, it possesses a "universal" or "democratic" appeal. Yet Aristotle objects that by placing his stakes on pleasure, man reneges to his higher spiritual faculties and debases himself to the level of animals or exclusively sentient non-rational beings.

The next alternative for happiness comes by way of a political life, one in which honor, or the praise or recognition from others, occupies the highest priority. This is the choice of a more limited segment of the population, of those who tend to be more refined in their tastes and active in social affairs. Truly, a political life appeals to a human being's more sublime capacities than a life of enjoyment; but at the same time, it also has its share of setbacks. Take for granted, "honor" happens to be, strictly speaking, not something that one could call his very own; rather, it is simply attributed to him by other people. In other words, if one were to make of a political life the happiest kind of life for himself, he would stand great chances of ending up frustrated, because he would be too dependent on others, on their appreciation of him, rather than on his own merits and resources. More important therefore than the praise and honor accorded one is the basis for which such praise and honor are given; and this, precisely, is the supreme virtue, the object of a contemplative life.

Happiness =

good life

Life of enjoyment? (pleasure)

Political Life? (honor)

Contemplative life? (virtue)





A contemplative life, a life dedicated to the fostering of the highest virtue, is, according to Aristotle, the best life for man. The primary reason for this is that the contemplative life alone directly relates to man's most noble faculty, his intelligence. In the contemplative life man's reason revolves on the most excellent of objects, the immutable and eternal realities, God himself. The distinctive satisfaction derived and the merit attached to the contemplative activity could only be, therefore, consummate. What about a life of "money-making?" Aristotle in the Nicomachean Ethics has this much to say: "The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else." He hardly even discusses this possibility for it suffers from the fundamental flaw of being "anti-natural." Money, or any form of wealth in general, could only be desired rationally as a means and never as an end. In itself and outside of whatever can be bought with it, no one in his right mind would desire money. As a matter of fact, he should even find it pretty useless. Hardly would the pursuit of money qualify, therefore, as a serious contender for the best life for man.





CASE 6: GENE, SAMMY AND ROSE ANN By Antonio A. Albert, Jr.

Gene Tanseco and Sammy Reyes were close friends since their high school days and kept in touch through college and afterwards. Both decided to go for graduate study and attended the same MBM class at the Asian Institute of Management. There, Sammy met, fell in love and ultimately married a classmate, Rose Ann Gonzales.

They went their separate ways after graduation. Gene went into computer consultancy and the Reyeses organized their own business - SRC, Inc. - whose main business was the direct selling of encyclopedias.

At a chance meeting in December 1988, Gene and Sammy compared notes and Sammy requested Gene to help in the computerization of SRC as a part time consultant. SRC had grown but was still a family concern. Sammy was in charge of Marketing and Sales, while Rose Ann took care of Finance and Administration.

Gene's consultancy turned out to be a continuing one. He began by reengineering management reporting systems and ultimately became involved in marketing as well. Sammy offered Gene full time managerial responsibilities, but Gene preferred to be independent. He organized a management and computer consultancy firm and continued working with SRC as a consultant. The business of SRC grew and the foreign principals of the encyclopedia line offered a new line of children's books to SRC It was agreed that a new corporation would be organized to handle the new line. The corporation was formed in January 1993, headed by Rose Ann. The Reyeses invited Gene anew to join them and a month later, Gene took over training and recruitment. He worked closely with an expatriate Regional Training Director fielded in October 1993 by the foreign principal.

Gene learned fast and by January 1994, two sales groups were organized, one headed by Rose Ann and the other by Gene. Rose Ann's group included veteran sales people, while the new recruits were assigned to Gene. Business grew steadily and in a few months, Gene's group accounted for more than 75% of the company's total business. Pete Hawkins, the President of the foreign principal, complimented Gene for his excellent performance.

Gene attended a regional sales conference in May 1994 and upon his return, he felt that his ideas were not being properly considered. He thought that he was being excluded from major marketing decisions and that Rose Ann was taking over responsibilities that should be his. Gene discussed the matter with Sammy, who said he would prefer to have him and Rose Ann work it out. In spite of the unresolved matter, Gene continued to do his work of recruitment and training. He thought, however, that unless there were changes in the marketing strategy, sales would stagnate and it may not be worth his while to stay with the firm. Thinking that the problem was money, Rose Ann asked Gene to work full time so as to raise his compensation.

Meanwhile, Gene came across a marketing training program scheduled for September 1994 and suggested to Pete Hawkins that the foreign principal sponsor his attendance in same. In the end, Gene decided not to pursue the request for sponsorship. In any case, Rose Ann first learned about Gene's idea from Pete. Later, when Gene told Rose Ann that he planned to attend the program at his own expense, Rose Ann warned him that he might come back to nothing. Somewhat upset, Gene took the matter up with Sammy, who reassured him, saying that they would have a new post for Gene to fill upon his return.

Gene left for the training, but things were not the same upon his return. Rose Ann ignored him and he did not receive any compensation for the month that he was away. A week later the Reyes’s told him that the sales people could not get along with him, but that if he wanted, he could start again with new people. Gene decided to go on a leave of absence.

That Christmas, the marketing and sales managers working with Gene invited him to their party. Gene attended. In February 1995, Gene decided to resign and requested Rose Ann for a statement of his accountabilities. He got no reply. Points for discussion:

1. Enumerate and analyze the reasons for and against Gene's resignation from SRC. Which do you consider decisive? Why?





2. Has Gene been negligent in any of his fiduciary obligations or responsibilities towards SRC? Towards Rose Ann and/or Sammy?

3. How would you rate Gene as an entrepreneur? as a corporate man?

About the Authors

Alejo Jose G. Sison earned his doctorate in Philosophy from the University of

Navarre (Spain) in 1990, with a dissertation in the field of Ancient Greek Ethics. He

has taught in the Faculty of Philosophy and Letters and in the International Graduate

School of Management (IESE) of that same University. His research and publication

interests revolve on the relationship among ethics, economics, business and politics.

He is a founding member of the Philippine Business Ethics Network, affiliated with

the International Society for Business, Ethics and Economics. At present, he is an

Associate Professor of the University of Asia and the Pacific.

Jaime C. Laya is Chairman of Laya Mananghaya Salgado & Co. (in affiliation with

Coopers & Lybrand International), Certified Public Accountants and Managemen_

Consultants, Vice Chairman and President of Philtrust Bank and Chairman of the

National Commission for Culture and the Arts. He obtained his Ph.D. in business fi-

nance from Stanford University, M.S in industrial management from Georgia Institute

of Technology and B.S.B.A. from the University of the Philippines.

Norberto C. Nazareno is the President & Chief Executive Officer of the Philippine

Banking Corporation and a Director of PBC Capital Investment Corporation. He was

with Citibank NA. for 19 years and was the President & CEO of Citicorp Securities

Incorporated, Managing Director of Citicorp International Trading Corporation, and

the Vice President and Lending Officer of the Corporate Banking Group. He was also

with State Investment House as Senior Vice President and Senior Credit Officer for four

years. Mr. Nazareno is also actively involved in professional organizations. He was a

Director and Chairman of the Ethics Board of the Financial Executives Institute of the

Philippines, a Board Trustee of the Philippine Business for Social Progress, a Governor

and Treasurer of the Philippine Stock Exchange, and a Governor of the Makati Stock Exchange. Mr. Nazareno

holds a Masters in Business Management (1969) from the Ateneo de Manila University and a Bachelor of Arts

in Economics (1967) from the same university.

Mercedita S. Nolledo is the Senior Managing Director, Corporate Secretary and

General Counsel for Ayala Corporation. She is also the Senior Vice President,

Treasurer and Corporate Secretary of Ayala Land, Inc. Ms. Nolledo graduated from

the University of the Philippines with BSBA (1960) and LLB (1965) degrees and is also

a Certified Public Accountant.





Ernest K. Cuyegkeng is the Chief Financial Officer of A. Soriano Corporation in charge

of finance, accounting and business development of the Group. He holds a Masters

Degree in Business Administration, Major in Finance from the Columbia Graduate

School of Business in New York City. He graduated from the De La Salle University with

a Bachelors Degree in Business Administration and a Bachelor of Arts majoring in

Economics. Mr. Cuyegkeng has been a Finex Member since 1977 and has been a past

president of the Columbia Business School Club of the Philippines. He has taught finance

and business thesis courses at the De La Salle Graduate School of Business.

Ricardo G. Lazatin is the Senior Vice President of Far East Bank and Trust Company

(FEBTC) in charge of the Bank's Credit Management Services Group. Concurrently, he

is also the Executive Vice President and General Manager of FEB Leasing and Finance

Corporation. He was the President and Director of the Philippine Association of

Finance Companies, Inc. (PAFCI) and the FINEX Vice President (External Affairs) in

1991 and 1992.

Antonio A. Albert, Jr. is the President of AA & A Integrated Systems, Ine. He is also

the Executive Vice President of Center for Leadership and Change, Ine., exclusive

Philippine licensee of COVEY Leadership Center. Mr. Albert holds a Masters in

Business Management (1974) from the Asian Institute of Management. He graduated

from the Ateneo de Manila University (1968) with an A.B. Mathematics degree. He

has been a member of the Financial Institute of the Philippines since 1979 and has

been a member of the Ethics Board since 1995.

Ma. Jessica Dalusung graduated with an A.B. Economics degree from the Ateneo de

Manila University and is presently completing her M.A. in Economics from the same

university. Ms. Dalusung has been involved in research work at the International

Center for Living Aquatic Resources Management and the Business World Publishing

Corporation.

THE FINANCIAL EXECUTIVES INSTITUTE 0 F THE PHILIPPINES and the ETHICS BOARD

gratefully acknowledge the generosity of the

AYALA CORPORATION

which sponsored the publication of this work.





Ethics Board Financial Executives Institute of the Philippines (FINEX) Makati City 1997

Copyright 1997 By Financial Executives Institute of the Philippines (FINEX) Victor Y Lim Jr., President (1995) Roman A. Azanza, Jr., President (1996) Baltazar N. Endriga, President (1997) This book is a project of the Ethics Board Norberto C. Nazareno, Chairman (1995) Rosalino A. Alquiza, Chairman (1996) Rupert K. Suarez, Chairman (1997) Editorial Board Jaime c. Laya, Norberto C. Nazareno and Vitaliano N. Nañagas II Book Sponsor Ayala Corporation Ethics Workshops (1995-96) Sponsors Philippine Banking Corporation, A. Soriano Corporation, Philtrust Bank, Ayala Land, Inc., Urban Bank, Monark Equipment Corporation

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