3.4.4 Business Ethics Flashcards
Ethics
Moral guidelines which govern acceptable behaviour.
Business Ethics
The morals and principles that underpin business behaviour.
Common areas where ethics are tested
- Advertising.
- Suppliers.
- Pay and rewards.
- Workers.
- Personal selling.
- Location.
- Contracts.
- Pricing.
- Corruption and bribery - firms bribe other people or use corrupt behaviour to get business activity approved.
Approaches to ethics
Ethical: Ethical practice is at the core of the business.
Responsive: Accepts that being ethical can pay off.
Legalistic: Will obey the law but nothing more than that.
Amoral: Seeks to win at all costs, anything acceptable.
Ethics and pay
• Gender pay gap
• Minimum wages
• Executive bonuses
The ways that employees and management are rewarded differently can create significant ethical issues.
The strong “Bonus culture” in financial services is a good example of this.
Ethical trading policy
A code of practice for a business.
This will include:
- Commitment in terms of adequate budget.
- Checks to ensure all parts of the supply chain are adhering to the policy.
- Corrective action to make sure that when problems are identified that action is taken.
- Communication to make sure every member of staff is on board with the ethical trading policy.
Ethics and the supply chain
A business cannot claim to be ethical firm if it ignores unethical practices by its suppliers e.g.
- Use of child labour and forced labour.
- Production in sweatshops.
- Violation of the basic rights of workers.
- Ignoring health, safety and environmental standards.
An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain i.e.
- Suppliers.
- Contractors.
- Distributors.
Benefits and drawbacks of behaving ethically
+ Higher revenue - demand from positive consumer support.
+ Improved brand image and reputation.
+ Better employee motivation and recruitment.
+ New sources of finance e.g. ethical investors.
+ Marketing advantages - can develop ethical behaviour into a USP.
- Higher costs.
- Higher overheads e.g. training and communication of ethical policy.
- A danger of building up false expectations.
- Rejection of CSR as a tool for public relations.
Reasons for and against rewarding CEO’s with huge bonuses?
+ CEO’s are the ones taking the biggest risks.
+ CEO’s are the ones leading the business/employees and making the decisions.
+ CEO’s have worked there for the longest amount of time and invested the most money.
+ CEO’S are the ones who will likely be blamed in everything goes wrong.
- Team effort.
- Employees will become demotivated.
- Productivity will decrease.
- Higher levels of absenteeism and staff turnover.
- Poor company reputation.
- CEO’s already earn huge amounts so they don’t need it as much as employees.
Corporate social responsibility
The extent to which a business addresses the concerns and obligations to its wider stakeholders.
Examples of corporate social responsibility
• Reducing negative impact on the environment.
• Supporting charities and community projects.
• Treating workforce ethically.
• Responsible marketing.
• Responsible customer service.
Difference between ethics and corporate social responsibility
Ethics concerns actions which can be assessed as right or wrong by reference to moral principles.
CSR is about the organisations obligations to all stakeholders and not just shareholders.
Arguments for Corporate social responsibility
• Improves a businesses image and reputation.
• Increases employee motivation, retention and recruitment.
• Attractive to some investors - ethical investment funds, improves access to capital.
• Reduction in production costs (packaging, energy use).
• Risk management - more likely to avoid future regulatory or legal problems.
• May help to solve social problems.
• Marketing advantage - can develop ethical behaviour into a USP.
Case against Corporate Social Responsibility
• Extra costs will be incurred which must be passed on to consumers.
• Efficient use of resources will be reduced if businesses are restricted in how they may act.
• The only social responsibility of businesses is to create shareholder wealth - some shareholders may be reluctant in spending the company’s profits on CSR. Could lead shareholders to reduce investments/invest in other companies.
• Rejection of CSR as a tool for public relations.
