3.4.4 Business Ethics

Question 1

Ethics

Answer 1

moral guidelines that govern acceptable behaviour

Question 2

Common areas where ethics are tested:

Answer 2

• advertising
• suppliers
• personal selling
• pay and rewards
• contracts
• pricing

Question 3

What are pay and rewards?

Answer 3

• the ways that employees and managers are rewarded differently can create significant ethical issues
• the strong ‘bonus culture’ in financial services is a good example of this

Question 4

For rewarding CEO’s with large salaries and bonuses

Answer 4

• high responsibility - stress
• key decisions made that can affect future of the business
• most skilled at their job
• good track record of performance

Question 5

Against rewarding CEO’s with large salaries and bonuses

Answer 5

• expectation of higher salaries
• high cost
• staff resistance

Question 6

What are peer reviews?

Answer 6

• CEO’s looking at how much CEO’s of competitors are being paid in order to work out how much they should be paid
• tend to look at much larger businesses where CEO’s get paid more

Question 7

What factors influence the extent to which a business is ethical?

Answer 7

• size of business - small businesses might not be able to think about ethics
• market - is ethics a priority for customers in the market, what are competitors doing?
• Transparency - is it easy to find out about ethics of a business, how likely is it that they will be caught out?
• culture and leadership

Question 8

What is corporate social responsibility?

Answer 8

when a business pays attention to the needs and preferences all stakeholders, not just shareholders
-need to accept responsibility first then put it into practice by using ethical strategies

Question 9

Arguments in favour of CSR

Answer 9

• Altruism -being a good person
• staff recruitment and retention - helps recruit, motivate and retain employees
• customer related motivation - attracts customers, brand positioning
• reduction in production costs/reduce waste (packaging or energy use)
• risk management - address potential legal or regulatory action
• Improve access to capital - ethical investment funds

Question 10

Arguments against CSR

Answer 10

• the only social responsibility of business is to create shareholder value, and CSR policies increase costs
• It is the role of the governments and not businesses to decide what it best for society
• any extra costs that are incurred in CSR will be based on to consumers, so will make products less price competitive
• may not be possible when external environment is challenging