Chapter 59- Business Ethics

Question 1

Ethics

Answer 1

Consideration of moral ‘right and wrongs’ of a decision often at a strategic level, must comply with laws and then above and beyond. All businesses have to make have ethical decisions – some are affected by the law -for example, it is illegal or businesses to dump waste by the roadside.

Every business should have a stated code of conduct within which employees operate in respect of ethical business decisions, although at a senior level and on a personal level some employees might have differences of opinion.

Question 2

Animal rights

Answer 2

Some companies, such as pharmaceutical companies or cosmetic manufacturers, might use animals to test products. Animal right groups argue this is unethical. Wildlife conservation groups argue against farming activities that destroy forests.

Question 3

Workers in developing countries

Answer 3

A number of companies have been criticised for exploiting workers in developing countries. Companies manufacture in countries with emerging economies because production costs are much lower.

Question 4

Corruption

Answer 4

In some industries bribes might be used to persuade customers to sign contracts. It has been suggested that this takes place in certain emerging economies.

Where civil servants or government ministers want money from big business deals, for instance arms deals.

The ethical question is whether it is right to use bribes even if a business knows that its competitors do, and whether such involvement in arms with unstable political areas is ethical.

Question 5

Ethical codes and practice

Answer 5

A statement of how employees should act in particular situations. Contain statements about:
- Environmental responsibility
- Dealing with customers and suppliers In a fair and honest
manner
- Competing fairly and not engaging in practices such as
collusion of destroyer pricing

Question 6

Corporate social responsibility

Answer 6

• The business assessing and taking responsibility for its effects
  on the environment and social welfare.
• Some large businesses have responded to concerns about Corporate Social Responsibility, their responsibility not just to their shareholders, but to all stakeholders by auditing relevant activities. These audits may then be made available to the public.
• Auditing involves inspecting evidence against established standards
• Auditors can then say that the evidence presented by the businesses is true and fair
• At present companies are free to choose what standards they should be measured against and who the auditors will be.

Question 7

Social and environmental audits might include:

Answer 7

• Employment indicators (how well does the business treat its staff)
• Human rights indicators (does it encourage trade unions, do its suppliers use child labour)
• The communities in which the business operates (impact on locals)
• The environment (energy usage, pesticides, greenhouse gas emissions)

Question 8

Pay and rewards

Answer 8

An important issue in the area of business ethics relates to pay and rewards. Remuneration is the reward from work, in the form of pay, wages or salary. Businesses use pay and rewards for different purposes.

-To attract employees with the right skills, experience and knowledge. Where jobs are less skilled the available number of workers is very high, which means pay can be relatively low.

Question 9

Trade-offs between profit and ethics

Answer 9

• As with social responsibility, there can exist a conflict between ethical objectives and profitability. A trade-off exists when the selection of one choice results in the loss of another.
• Similarly, for business, trade-offs exist with any decision. Investing in a new production facility may mean that a new fleet of vans cannot be purchased.

Question 10

Negatives of ethics in work

Answer 10

-For businesses, acting ethically when not required to do so by the law can have a negative impact on profit in a number of ways. The result can be a trade-off:

• It can raise costs: For example, paying higher wages than it is necessary to overseas workers increases costs. Having to find another way than animal experiments to test new drugs might add to costs. Adopting an ethical code of practice can raise costs – staff have to be made aware of the code to implement it.
• It can reduce revenues: A business might lose a contract if It refuses to give a bribe. Selling medicines to emerging economies at low prices might increase sales, but total revenue is likely to be lower. Refusing to develop GM crops might mean a competitor getting into the market first and becoming a market leader. Acting ethically might even mean the destruction of the company

Question 11

However, adopting an ethical stance can produce benefits:

Answer 11

• Some companies have used their ethical stance for marketing purpose.
• It can also act as an insurance policy – businesses don’t want to be seen behaving unethically and face serious penalties for breaking the law.

Question 12

Living wage

Answer 12

An hourly rate of pay based on basic cost of living, updated annually

Question 13

National minimum wage

Answer 13

Minimum hourly pay all workers are entitled to.

Question 14

Remuneration

Answer 14

A reward for work in the form of pay, can include fringe benefits

Question 15

Sanctions

Answer 15

Restrictions on trade etc.