Business ethics 3.4.4 Flashcards
What are business ethics?
The moral principles that guide the way a business behaves.
What is a trade-off?
Is when one decision results in the loss of an alternative outcome, for each decision made there may be multiple trade-offs.
How do a business’s ethical standards play a crucial role in the decision-making?
- Used by individuals to make choices about how to behave
- They define acceptable conduct in business
- Should underpin decision making
- An ethical decision is one that is both legal and meets the shared ethical standards of the relevant business community
- Note: different countries and cultures have different attitudes to what constitutes acceptable ethical behaviour.
Ethics in strategic decisions include:
1) Location decisions
- Ability to exploit workers
- Impact on the environment
2) Mergers, takeovers and retrenchment (reducing costs of the business e.g. staffing)
- Impact on workers
- Ability to exploit customers or control suppliers
- Transparency of deals
3) Corruption
- Dealing with authorities
- Power over suppliers or customers
4) Working with suppliers
- Ethical sourcing e.g. Fairtrade
- Fair payment terms
What are examples of the ethical decision and how it leads to a potential trade-off?
Fair treatment of suppliers: Paying more for materials so increase the costs of business.
Pay taxes in the UK: Make less profit for the company.
Don’t exploit workers: Cost will go up within the business e.g pay.
Product placement in stores to reduce pester power: People buy less from the business.
Pay above the minimum wage: More money on staff could mean not being able to finance a large number of employees.
Ethically sourced ingredients: Increased production costs.
What are the benefits and drawbacks of ethical strategic decisions?
- Benefits of ethical strategic decisions may include higher revenues due to positive consumer support, improved brand and business awareness and recognition, better employee motivation and recruitment, and new sources of finance e.g. ethical investors.
- Drawbacks include higher costs and higher overheads, such as training, as well as the danger of building up false expectations.
What is remuneration?
The reward for employment in the form of pay, salary, or wage, including allowances, fringe benefits, bonuses, cash incentives etc.
Ethics can be reflected in the way the business recruits, motivates and rewards staff.
- Is it ethical to pay just the living wage?
- Should London businesses pay above the living wage?
- Should senior managers be paid higher remuneration than others in the business?
- Is it ethical for CEOs to be paid hundreds of more times better than the average employee in the business?
How can recruitment be fair?
The recruitment process needs to be fair and free from bias and should at least follow the law. A company needs to spend money regularly on staff training and development. The trade-off is that these strategies require a significant amount of ongoing financial investment which reduces the business’s profits, at least in the short term.
How can staff be praised for their work?
Rewards for staff, such as basic pay and bonuses, need to be equal across the business in order to be considered ethical, which incurs greater costs in the short term but in the longer term has a positive impact on staff motivation and higher revenues.
What is the role of ethical pay?
Ethical pay also covers the differences between senior managers and staff. Employees do not expect the approach taken by Dan Price, chief executive of American company Gravity Payments, who cut his own pay so that all staff would receive a minimum wage of $70,000, but ethical decisions would require employees to understand any large issue with the company not being equal.
What is corporate social responsibility?
- A business’s initiatives regarding the community and environment and willingness to take responsibility for the effects the company’s actions have on environmental and social issues and the impact on a range of stakeholders.
- CSR is based on the concept that society needs businesses to employ staff, make investments and raise taxes from profits and the business needs society to create demand, to use public infrastructure, such as roads and power, and for legal protection.
What are pressure groups?
A group that tries to influence company policy in the interest of a particular cause.
What is the shareholder concept?
Not all business organisations operate in a socially responsible manner. Some argue that it is not the job of businesses to be concerned about social issues and problems.
The shareholder concept is closely associated with the writing of US economist Milton Friedman who argued that:
“…the only responsibility of business towards the society is the maximization of profits to the shareholders, within the legal framework and the ethical custom of the country”.
The key arguments for businesses focusing on meeting the needs of shareholders rather than wider societal needs include:
- The only social responsibility / corporate objective of business is to create shareholder wealth.
- The efficient use of resources will be reduced if businesses are restricted in how they act.
- Businesses cannot decide what is in society’s interest.
- Extra costs will be incurred which must be passed onto the consumers such as costs in looking after employees, using ethical suppliers, and enforcing environmentally friendly practices throughout the business’ operation.
- CSR stifles innovation and growth.
- The opportunity cost of spending lots of time on CSR, policies, reports and monitoring.
